It is likely many of us can identify with this situation. We have a decent job, and relatively speaking, earn a reasonable salary. Yes, more money would always be welcome, but in comparison to others, we are doing well. However, similar to Aisha, who we mentioned in the article, Shattering the stereotype: women can manage money, at the end of the month, we might be just about able to cover our expenses, and there is very little left to put towards savings, or to cover minor expenses we might have before the next payday.

The concept of being ‘broke’ is something that we may need to explore more fully at a later date, as it tends to mean different things to different people, based on the degree of discomfort they are prepared to live with. On the one hand, people might consider themselves broke if no avenues are open to them to get more money. For example, if their bank accounts are overdrawn, their credit cards are maxed out, and family and friends are not prepared to help them. However, others might define themselves as broke when, based on how much they are earning, their bank accounts dwindle considerably after settling all outstanding bills, and they cannot save the amounts they would like to on consistent basis.

Nevertheless, and at its most basic, whether or not one might be broke can be determined via a mathematical function: income less expenses. In other words, individuals might be broke if they do not have sufficient money available to them to cover their expenses. However, and while the mathematics of it might be clear, the underlying reasons why people are ‘broke’ might be more nuanced, and ultimately may also need to be addressed – in addition to ensuring that total expenses are less than total income. Below we outline six reasons why people might be broke although they make a relatively decent living.

 

1.  We Are Spending More Than We Earn

Although as suggested above, there might be a whole host of underlying reasons why someone is broke, we cannot get away from the fact that one is spending more than he/she is earning. In some instances, people are blissfully unaware of how they are spending their money, such as, the typical amounts of the bills they have to cover, and how much they are spending on non-essentials.

 

2.  All Of Your Expenses Are Not Our Own

This point seeks to address the fact that many of us have responsibilities that are beyond just ourselves and our immediate households.  As a result, the expenses we bear may not be entirely our own, but might include family commitments, such as to take care of relatives, or to cover the tuition and expenses for siblings who are still in school.

Further, and depending on how financial successful we are, the greater can be the expectation of how much money will be shared with family members. It is thus easy to find ourselves slipping into the red from time to time, depending on the demands that are being made by those we are also supporting.

 

3.  We Are Not Focussing On Our Take-Home Salary

Typically and for individuals who are in paid employment, as opposed to those working as independent contractors or consultants, there is a difference between your ‘headline salary’ and your ‘take-home salary’. Depending on the country, employers are required to deduct from employees’ headline salaries income tax (Pay As You Earn), along with a number of statutory and other deductions, such as for national insurance, medical insurance, pensions, to name just a few.

So for example, although your headline salary might be $2,500 per month, after taxes and statutory and other deductions, your take home salary might in fact be $1,750. There is a big difference between $2,500 and $1,750. More importantly, if you build your budget around $2,500, you may be continually challenged in being able to comfortably cover your expenses, regardless of how diligent you try to be.

 

4.  You Are Spending For The Life You Want, Not The Life You Have

This a trap that many of us fall into. We like lovely and expensive things, such as designer clothes, shoes and handbags, or based on our job, there may be an image that we believe we ought to project, such as in terms of the clothes we wear, the vehicle we own, where we live and the places we frequent. Further, and on social media, particularly Instagram, there can be a pressure to project a certain wealth and lifestyle. However, when all is said and done, we may not be truly able to afford all of the trappings of the life and lifestyle we are projecting or would like to have.

Although there might be some truth in ‘faking it till you make it’, there are risks involved. Moreover, many of us are focussing on the outer trappings, which can be expensive to maintain, instead of true investments that may actually help us to achieve the life we want in the long term.

 

5.  We Love Living On The Edge

For the adrenaline junkies among us, living close to the edge budget-wise, is not only a source of excitement, they also relish the opportunity to juggle their expenses. To those on the outside, their lives might seem stressful and complicated, but for them, it is par for the course. This approach allows them to enjoy their lives as they see fit, and to deal with the consequences… eventually.

Unfortunately, and over time, the juggling gets increasingly difficult. Eventually, the house of cards that has been built comes crashing down, usually with a mountain of debt that first needs to be addressed.

 

6.  We Believe We Should Be Broke

Finally, this point is likely to underpin most of the other reasons that have already been discussed, and speaks to the messages – subliminal and otherwise – that we are telling ourselves about money, and whether we deserve financial abundance. Although many of us might object and want to rebut this point, the truth is that in addition to our history with money, we ought to examine and determine our attitude towards money. For example:

• Do we get nervous when we have (a lot) money available to us?
• Do we only know the struggle to make ends meet, and don’t know how to manage when there is abundance?
• Are we of the view, ‘live for today, and tomorrow will take care of itself’?

In that self-examination, it is vital that we extend the exercise to our families, as it is usually in the home that we learned about handling money. Additionally, the experiences of our families, and correspondingly their attitude towards money, is likely to still be shaping our current view, along with the decisions we have been making.

 

In summary, and although the mathematics of budgeting might be relatively straightforward, it is crucial that we first understand what is driving us and our money decisions. Unless we adjust our mindset, we may become resentful of the behaviour we need to adopt to put us more firmly on the path to wealth creation and wealth management.

 

 

Image: Freepik