How to Avoid Going Broke in 5 Steps
Getting rich takes focus, discipline and hard work. It’s tough to become wealthy.
Going broke, on the other hand — that’s really easy. Super easy! In fact, most of us are probably just one misfortune away from it.
But here’s the good news. By being proactive, you can set yourself up to avoid these pitfalls.
Here are the quickest ways to go broke — and what you can do to avoid them.
1. Living Beyond Your Means
Too many of us are guilty of this one, because we live in a consumer society and an Instagram culture: Look at me, look at me, look at how successful I am.
Here are examples of living beyond your means:
- Being “house poor,” with a dream home and a huge mortgage you can barely afford
- Moving to your dream city without the income to live there
- Buying an expensive car to impress people
- Overspending on travel
Get in the habit of spending less than you make.
2. Not Having an Emergency Fund
Living frugally also allows you to build up an emergency fund. If you don’t have an emergency fund, an unforeseen emergency can force you to max out your credit cards and/or borrow money. Then you’re spending money paying back expensive interest.
An emergency fund is a stash of easily accessible money that equals three to six months’ worth of salary, in case you unexpectedly lose your job. And millions of us have unexpectedly lost our jobs over the past year.
When you sign up for a debit card called Aspiration, you could get up to 5% back when you swipe at certain stores — plus they give you up to 50 times the normal national interest rate on your savings balance.
It’s perfect for earning extra cash for things that are already on your shopping list. You were going to buy these things anyway — why not get this extra money in the process?
This card used to have a huge waiting list, but now you can sign up for free.
Just enter your email address here and link your bank account to see how much extra cash you can get with your free Aspiration account. And don’t worry. Your money is FDIC insured and under a military-grade encryption. That’s nerd talk for “this is totally safe.”
The Aspiration Spend & Save Accounts are cash management accounts offered through Aspiration Financial, LLC, a registered broker-dealer, Member FINRA/SIPC, and a subsidiary of Aspiration Partners, Inc. (“Aspiration”). Aspiration is not a bank.
3. Making Bad Investments
Investing is a key strategy for growing your money. But there are so many bad investments you can make!
For example, watch out for multi-level marketing schemes. Direct sales companies can be an opportunity to strike out on your own with the support of an established brand. But the MLM model lends itself easily to scams, so do your research before signing up and handing over startup money.
A more straightforward way to invest is through an app like Robinhood. Whether you’ve got $5, $100 or $800 to spare, you can start there.
Yeah, you’ve probably heard of Robinhood. Both investing beginners and pros love it because it doesn’t charge commission fees, and you can buy and sell stocks for free — no limits. Plus, it’s super easy to use.
What’s best? When you download the app and fund your account (it takes no more than a few minutes), Robinhood drops a share of free stock into your account. It’s random, though, so that stock could be worth anywhere from $2.50 to $200 — a nice boost to help you build your investments.
4. Not Having a Budget
Don’t want to go broke? Don’t want to budget? Try the budget for people who hate budgets.
The 50/30/20 method for budgeting is one of the simplest ways to get your spending in check. No 100-line spreadsheets or major lifestyle changes required.
Here’s how it works: Take your total after-tax income each month, and divide it in half. That’s your essentials budget (50%). Take the rest, and divide it into personal spending (30%) and financial goals (20%).
Let’s break it down: That’s 50% for things like utilities, groceries, medications, minimum debt payments and other essential spending. Then there’s 30% for fun: Thai takeout, your Netflix subscription, dressing up a skeleton on your lawn for Halloween.
That leaves 20% for your financial goals, like additional debt-reduction payments (anything above the minimum monthly payment) along with retirement savings and investments.
This is a smart way to avoid going broke.
5. Burning Money on Credit Card Interest
More and more Americans are financially strapped, due to the high unemployment rate, and they’re maxing out their credit cards. The interest rates those cards charge you can quickly rise above 20% and will persistently gobble up so much of your income that you’ll never get ahead.
But a website called Fiona could help you pay off that bill as soon as tomorrow and say goodbye to those insane credit card interest payments.
Here’s how it works: Fiona can match you with a low-interest loan you can use to pay off every credit card balance you have. The benefit? You’re left with just one bill to pay every month, and because the interest rate is so much lower, you can get out of debt so much faster. Plus, no credit card payment this month.
If your credit score is at least 620, Fiona can help you borrow up to $250,000 (no collateral needed) with fixed rates starting at 2.49% and terms from 6 to 144 months.
Fiona won’t make you stand in line or call a bank. And if you’re worried you won’t qualify, it’s free to check online. It takes just two minutes, and it could save you thousands of dollars. Totally worth it.
All that credit card debt — and the anxiety that comes with it — could be gone by tomorrow.
Mike Brassfield (mike@thepennyhoarder.com) is a senior writer at The Penny Hoarder. He’s not wealthy, but he’s not broke either.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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