You’re asking, “Why am I broke?”
While I don’t know the details of your situation, I’m confident I can help.
Whether you’re the victim of unfortunate circumstances, or your wounds are self-inflicted, following the five steps I’m going to lay out can help you find financial security. Once you find that, you’re positioned to go after financial prosperity. And that’s what I want for everyone.
When I was in my 20s, it was clear why I was broke. I wasn’t paying attention to my finances. There’s a financial first principle I urge you to adopt; what gets measured, gets managed. Meaning, you’ve got to pay attention to your money.
Fortunately for me, I started paying attention. I broke free from the paycheck-to-paycheck cycle that almost two-thirds of Americans are stuck in. Getting out of credit card debt became a priority for me and was able to make it happen. It took me some time, but I was able to save up an emergency fund.
It’s important for me to share my struggles, because I want you to know I’ve been there.
And over the course of my 20+ years as a financial advisor, I’ve helped countless others quit being broke. I’m honored to be named to Investopedia’s list of the top 100 financial advisors many years running.
Those are the reasons I’m confident I can be of service to you today.
Here’s what we’ll cover:
- Know your facts
- Understanding your patterns
- Look past the horizon
- Execute your plan
- Overcoming resistance
Let’s get started.
Know your facts
There are certain things you must start doing. These things are simple, but they’re not easy. They are your financial facts and you need to know them.
When I was in my 20s, I did not know how much money I was spending. This was before online banking, so the only way I’d know if I had any money was when I’d go to an ATM and check my balance. How often are you monitoring your spending?
Monitoring your cash flow simply means knowing how much money you have coming in and how much is going out. When I started paying attention, I found hundreds of dollars’ worth of recurring monthly expenses I was able to get rid of. You may have a similar experience.
If it’s been a year since you’ve reviewed your spending, log into your financial accounts and look at the last 12 month’s worth of transactions. Look for things you can temporarily cut out or get rid of all together.
Once you’ve done that, make a habit of logging in and reviewing your transactions at least once a month.
The “b” word. I hated budgeting for years. Today, I still don’t love it, and my wife keeps our household budget. But here’s the thing, you don’t have to love it.
A budget is a plan for money that lets you know if you’re on track, or behind on your priorities. I’ve grown to view budgeting as empowering because it tells me I am doing the things required to have the financial life I want.
It also tells me if I can afford to do something, or if I can’t. Can we afford to go on vacation this year? Can I afford to invest in Bitcoin? When you have a budget, you can answer those questions. If you don’t, you’re just guessing.
We all have beliefs about money. If you’ve got positive ones, you’re good. If you’ve got negative ones, you’ve got some work to do.
It took me a long time to recognize that my limiting beliefs about money were keeping me from realizing my financial potential. Because of childhood experiences, I was living in financial scarcity. Once I recognized my limiting beliefs, I got to work changing them.
To help you understand your money beliefs, fill in the blanks. Don’t overthink, just write down the first thing that comes to mind:
- People with money are __________
- Money makes people __________
- I’d have more money if __________
- My parents thought money would __________
- In my family, money caused __________
- Money equals __________
- If I had money, I’d __________
- If I could afford it, I’d __________
- Money is __________
- Money causes __________
- Having money is not __________
- In order to have more money, I’d need to __________
- When I have money, I usually __________
- I think money __________
- People think money __________
If you think you’ve got limiting beliefs, start looking for negative financial behaviors. When you notice yourself doing something that’s not beneficial, trace it back as far as you can. More often than not, our beliefs come from when we were kids.
Understanding your patterns
Like beliefs, we’ve all got patterns and habits we follow. Some of them are positive, and some are negative. If you’re broke, you’ve got some negative financial habits that you need to identify, break, and replace with new ones.
Take some time to think through and answer these questions:
- How have you tried to improve your finances in the past?
- How did you go about it (be as specific as possible)?
- How long have you been feeling like you need to make a change?
- Have you tried anything that worked?
- How has being broke affected you (monetarily, psychologically, physiologically)?
- How frustrated are you right now?
We need to identify and call out our problems. Again, what gets measured, gets managed.
Look past the horizon
Making change for the sake of making change isn’t a sustainable plan. You need to think about the future you most desire, and set goals for making it happen.
It’s highly possible some sacrifices will be required for you to get where you want to go. The more we can link tough decisions to a better future, the more likely we are to do what needs to be done.
For example, losing 10 lbs for the sake of losing 10 lbs probably won’t be enough to put away the ice cream and get on the treadmill. But losing 10 lbs so you can look great at your upcoming reunion could do the trick.
It took me until I was 35 to finally write down my goals. Looking back, I can tell you that doing it (and continuing to do it) has made a massive difference in my life.
In service of helping you do the same, you can access our Goals course for free.
Execute your plan
You’ve thought about how you want your life to be, and you’ve set your goals. Now it’s time to get to work.
I’m a huge fan of personal responsibility and self-discipline. But I know both of those take time to develop and strengthen, just like a muscle. As you’re getting started, it’s wise to put structure and processes in place to increase your likelihood of success.
The more we can automate our finances, the better. Here are some ways to start doing it immediately:
- Set up automatic bill pay
- Set up direct deposit
- Enroll in your company’s 401(k) and set up automatic contributions
- Open a savings account and set up automatic transfers at the beginning of every month
- Schedule monthly recurring calendar meetings to review your cash flow, budget, and goals
Those are just a few to get you started.
Whenever we make changes, we encounter resistance. You’ll run into it internally, as well as externally.
Old habits die hard, and your body will try to pull you back to your old way of doing things. Resist and review your goals when you find this happening. Remind yourself of the better future you’re working towards.
When you get resistance from other people, take it with a grain of salt. Whenever we notice someone has changed, it impacts us as well. Don’t take it personally, and keep doing what you know you need to do.
You and I have enough time to do most everything we want. But we don’t have enough time to waste.
The time for you to take action is today. Get to work. You got this.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
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