The Top Reason You’re Broke

by | BiggerPockets.com

Want to know the number one reason that you’re broke?

You can work as hard as you want. You can hustle around the clock seven days a week, but not change the dynamics of your finances and time—not unless you get to the root of the problem.

By no means am I a financial guru. However, I can tell you that I have personally seen a significant change in my income and real net worth by rewiring my thinking about money—and grasping and practicing this one key fact. 

The top reason most people are broke and stay broke is that they’re consumers, not investors.

Some might make a good six figure income and have a nice job title, car lease, and big house. Still, most of those people are still broke. Most have zero—or more likely a negative—net worth, virtually no free time, and little truly disposable income.

If you want to have more control over your time, have more financial security and freedom, or just put an end to being broke month after month, be an investor, not a consumer.

Related: 12 Reasons You’re Poor

Now, that doesn’t mean you can’t spend money. It doesn’t mean you can’t enjoy nice things. It does mean that you invest first. Then you let your investments pay for all of these other things.

Anything I earn, I invest in myself or in real estate deals. I put my money into things that increase my worth and passive income, instead of buying things that go down in value over time.

Here are some examples of that.

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Education

The most important investment you can make is in yourself. Ask any billionaire, and they’ll tell you it is the best investment you can make. Invest in your knowledge, skills and performance, which will ultimately help you earn more, because you can bring more value to the marketplace. Obtaining skills along with knowledge are things that people can’t take from you.

However, if you’re considering investing in a college education, think twice before accumulating that bad debt. Those are years you won’t get back. Often spent on irrelevant information, and those loans will keep taking money out of your pocket for years.

Instead, consider books, seminars, events, and training with a mentor. This information tends to be more transferable to the real world. Do what you can afford, and as it pays off and increases your income, keep dedicating a part of everything you make to more learning.

Cars

Cars are easily one of the top two or three things that keep Americans broke. For most, it is inconceivable not to be driving the most expensive car they can possibly get a loan or lease for. That means they are always tapped out on their income. A big portion of their income every month goes into an depreciating asset. Buy a new car, and you are instantly throwing away half of the money on the price tag.

Now, once you have already invested, and if that money will be coming from passive income from investments and cash you don’t have anything better to do with, then absolutely treat yourself to a sweet ride.

Houses

The same goes for houses you live in. For most, this will be the biggest expense of their lifetimes. Buying a home can be a somewhat smart financial move. Still, few get how much they really pay for a home when they factor in interest and taxes and other fees and maintenance. Like cars, most max themselves out to the limit. They chain themselves to those big piles of bricks that can hold them back from many other things they’d prefer to be doing—like free time or the ability to pick up and move elsewhere.

Related: 4 Steps to Buy the Car You Want Within the Budget You Can Afford

Invest and let your investments in income-producing real estate pay for your own home. Don’t sacrifice your ability to invest for a home that is a burden as soon as you get those keys.

home-value-factors

Summary

The number one reason people in America are broke is simply because they are spenders first. Those who aren’t broke are those who invest first. This article shows some classic examples where you can change the odds in your favor and get control of your money. If you ever get stuck in deciding how to use a dollar, just remember to ask yourself whether that purchase or investment will take you closer to your goals. If not, it’s taking you further from them.

What’s your opinion—is consumerism the top reason Americans are broke?

Comment below!

About Author

Sterling White

Sterling White is an investor and business owner on a mission to make the world a better place through principled and efficient real estate investment.

Even before co-founding Holdfolio, Sterling and his partner Jacob Blackett had been involved with the purchasing and selling of over 100 SFRs. Today, Holdfolio is a prominent platform for investing in income producing multifamily apartments. The firm has been featured in national publications such as US News and was ranked as one of the best real estate crowdfunding sites in 2018 by Fit Small Business.

The success of Holdfolio’s technology gave birth to SyndicationPro, a fast growing all in one software solution empowering investors to efficiently and easily raise capital online.

17 Comments

  1. Joshua Diaz

    Simple yet so true! Looking at articles like this, it seeems almost ridiculous how many people fall into this trap but I believe there is always an emotional aspect or upbringing aspect involved.

    I will freely admit I screwed up on the education and the cars part. However I am now working to correct that. (The car is paid off, I am working on the student loans and I got into the game by purchasing my first investment property which I am fixing up and renting out)

    I wish I had articles or even the knowledge of things like this much earlier in life.

  2. Erik Whiting

    Amen. We’re the brokest rich country on Earth! More disposable income as a percentage of what we earn than at any time in history, and we do exactly that with it….dispose of it.

    We have family members who worry or complain about lacking finances. We’ve tried to get them to follow us on basic financial planning processes like Dave Ramsey’s Financial Peace University. “Oh no, that costs $100 to attend and I don’t have $100 to spare.” Same folks own $50,000 time shares and shell out thousands per year in maintenance fees. We learned to stop talking about it. Just smile politely and move on. If they’re ever interested, we’ll show them what we did.

    Not financially independent just yet, but very close. Our house is paid off and our rentals are cash flowing nicely. 5 years, I think and we could say bye bye forever to the day job, Good Lord willing and the creek don’t rise! Then again, I kind of like my day job and get to work from home, so it’s a good gig!

  3. Angel Santiago

    Agree with your statements.

    let’s be honest, most people spend and live WAY beyond their means. I see it every single day. larger homes , cars, lifestyle they cannot afford based on the assets or income levels.
    I know people who lease and pay for very expensive cars, but don’t have a single cent to invest or save.

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