“Why am I broke — again?” If you’re asking this question month after month, you’re not the only one. In fact, 59% of Americans say they’re living paycheck to paycheck, according to a recent Charles Schwab survey.
If you’re sick of feeling broke, you can take steps to improve your money management and build financial security. But where do you start?
To help you out, we’ve listed 10 common money problems that keep people broke. Review these possible reasons why you’re broke — and pick some actions you can take to fix the issue.
Why am I broke? 10 reasons to consider
1. You’re living beyond your means
The biggest reason you might end up broke is simply math: You’re spending all that you’re earning — or more.
Plenty of less-than-ideal money moves could put you in this position. Maybe you’re buying unnecessary things or overspending to keep up with friends over fear of missing out. Or perhaps you often make impulsive purchases, rather than planning out and saving for them.
The fix: Step back to get a big-picture view of your cash flow — the money that’s coming in and going out every month. Figure the exact amount you net with each paycheck after taxes. Review expenses to see if you’re overspending, and figure out where you can cut back.
2. Your fixed expenses are too high
Recurring expenses can be a pain point for any budget. If you pay too much on these repeating costs, it’s a mistake that will haunt you month after month.
This includes basic living expenses like rent, car payments, or even your phone bill. Other fixed expenses are more optional, such as entertainment subscriptions or gym memberships.
The fix: Review your account statements to identify recurring expenses and consider how you can trim each bill. There may be membership or subscription services you don’t use or wouldn’t miss and could cancel. Call your phone or cable company and ask for discounts. Shop around for lower car insurance rates.
3. Your money is a mess
Disorganized finances are another common problem, and it can come with a steep price. If you lose track of your bank account balances, you can easily end up incurring overdraft or bounced check fees. Mixing up due dates for bills can lead to late fees or missed payments. You could even wind up paying monthly fees for checking accounts you forgot about or don’t need to use.
The fix: Get your financial house in order. Work your way through all your accounts and bills to make them easier to track and manage. Download your bank’s mobile app and get it set up to manage your money on the go, or consider using a budget app like Mint.
For bills and debts, for example, you can set up autopay so you no longer have to track due dates. Set up low-balance alerts on your checking account so you’ll know when your balance is getting low.
4. You need to earn more
The reason why you’re broke might not be your spending, but your income. While lowering costs is important, you can only cut so much. Also, living costs can sometimes rise faster than your pay.
It’s hard to save money and get ahead financially if you’re underpaid, and without raising your income you could get stuck in a cycle of living paycheck to paycheck.
The fix: Brainstorm ways to increase your income. Hourly employees may ask about working overtime or covering extra shifts. You can also look for side hustles or second jobs to generate some extra money outside of your regular employer.
Another option is to work toward a pay raise. Let your manager know you want a raise or promotion, and ask what it would take to achieve that. Applying for a new job that pays more is another effective method to substantially increase your income quickly.
5. You’re not earning passive income
There are limits to how far you can cut back on expenses, but there’s also a limit on how much you can actually work — and earn through that work.
That’s where passive income can come in, since it’s money you earn without having to actively work for. It’s almost the opposite of a recurring expense: You build extra money month after month, rather than spend it.
Another option is to monetize your possessions, such as selling ad space on your vehicle or renting out an extra room.
You can also sell a product such as ebooks or online courses. Digital products are something you make once and people can buy with no further work from you.
6. You have no emergency savings
From replacing a flat tire to covering a visit to urgent care, life is full of unexpected costs. But without an emergency fund, you could be forced to drain your bank account to pay for unavoidable expenses. If you’re hit with an emergency, you might even need to borrow money to pay for it — which often includes the added cost of interest and loan fees.
The fix: Have an emergency fund saved up to cover these costs without stressing out or borrowing money. Even a small buffer can help you bounce back faster from these small setbacks and keep you from being broke.
Say, for example, you avoid spending more money once your bank account balance is $200 or lower. You could raise that floor to $500 instead to give yourself more wiggle room. Or set up small, automatic savings transfers to slowly build up a buffer in your savings account. Keep going until you have fully funded emergency savings that could cover even major setbacks, such as a job loss.
7. You miss out on easy deals
If you don’t look for deals or take advantage of sales and promotions from retailers, you’re probably paying too much. Even if you shop during sales or clip coupons, you still might be missing out on the best deals, automatic savings offers, or cashback offers.
Luckily, there is an app for that.
The fix: Download money-saving mobile apps. There are plenty of digital tools that can help you manage your money more effectively and with less time and effort on your part, including:
- Ibotta, Rakuten, and similar shopping apps can help you find coupon codes and deals that discount your purchases, while offering cashback rewards.
- Apps like Digit and Acorns find “extra” money in your budget and save or invest it, without you ever noticing it’s gone.
8. You don’t earn money for everyday purchases
If you love a good deal, you’ll also love getting free money from cashback credit cards. These cards reward spending by giving cardholders a percentage of cash back on purchases.
The highest cashback rewards offer up to 5% or 6% back on some purchases, which acts as an automatic discount on purchases big or small.
But make sure you pay off the card’s balance each month in full, or you could be stuck with interest charges that would negate any rewards you earn.
The fix: Apply for and use a cashback credit card responsibly. Many rewards cards offer more on everyday expenses, so research to find one that’s a good fit for your spending habits. Here are a few examples:
- American Express’s Blue Cash Preferred card provides 6% cash back at U.S. supermarkets (for first $6,000 per year) and U.S. streaming services, 3% at U.S. gas stations and on eligible transit, and 1% on other purchases.
- The Capital One® Savor® Cash Rewards card offers 8% cash back on tickets purchased through Vivid Seats (through May 2020), 4% unlimited cash back on dining and entertainment, 2% at grocery stores, and 1% cash back on all other purchases.
- The Capital One® QuicksilverOne® card is better suited to applicants with average credit, and offers unlimited 1.5% cash back on every purchase.
9. You run up credit card balances
It’s all too easy to charge up a balance on credit cards that’s higher than you can repay. If you start carrying a balance from month to month, however, this can cost you.
Credit cards are costly due to steep interest rates, which are often higher than those charged on other loans or credit products.
The fix: Lower your credit card balances and interest rates. Getting credit card balances down will also lower your interest costs, getting you ahead of this debt. Consider the debt avalanche method to save the most: Pay the minimums on all your cards, and send extra payments to the account with the highest APR.
If your credit card balances are so high that it’d take you more than a few months to pay off, it may be wise to look at ways to lower your APRs and pay less interest. Some credit card companies will temporarily lower the rates upon request. If not, consider consolidating this debt with a lower-interest personal loan or a balance transfer to a new card with a 0% introductory rate.
10. You have poor credit
The main downside to having poor credit is you’re less likely to get approved for new credit. And if you do, lenders will likely charge more to borrow from them. With higher interest rates, your debt will cost more and you’ll have higher monthly payments.
But the side effects of poor credit don’t stop there. You’re also more likely to be charged security deposits for utility services, and a negative credit history can affect your chances of getting a job offer, as many employers include credit checks in their hiring process.
The fix: Focus on building your credit. Most importantly, make on-time payments every month, since your payment history is the largest determining factor for your credit score.
After that, keep balances low on revolving accounts such as credit cards or credit lines to maintain a good credit utilization ratio. It’s helpful to have a decent credit mix and to keep older accounts open for a longer credit history.
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