How To Recover From Being Broke

by guest on April 29, 2011

in Personal Finance

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This is a guest post from Eric at Narrow Bridge Finance as part of the Yakezie blog swap. This week, we have a blog swap chain. You can read my post at Money Talks and read Barabara Friedberg’s post on Eric’s blog. Be sure to check out everyone’s great posts! This week, our topic is “You’re homeless/poor, how would you change your situation?”

The best sports cars in the world can go from zero to sixty miles per hour in under five seconds. Going from poor to rich takes a lot longer. To get back on your feet, you need a well formulated plan that you can execute.

Pre-Action – Evaluate

What did you do to end up poor? Did you lose your job? Did you get into serious debt? Do you have a gambling or addiction problem? You have to evaluate your situation and take a serious, objective look at your situation.

Take Responsibility For Being Poor

I know a lot of people who seem to be perpetually broke. They blame outside factors for their money problems. The credit card company charged them a late fee. They are not paid enough. Their boss cut back their hours. Their rent is too high.

Now let’s look at what really happened. They missed a payment, they did not pursue the right education or did not negotiate the right salary to meet their desires, they did not work hard enough, they signed a lease for a home they cannot afford.

It is incredibly rare that something happens that is so far beyond your control that you have absolutely no responsibility. Take control of your future and your destiny. Take responsibility and concrete steps to move forward.

Phase One – Income

If you are poor, it means you do not have the income or savings to live. Step one is to find a reliable income source that meets your needs. If you are smart enough to read this site, or any other finance blog, you are smart enough to get a job that can pay the bills.

Retail and food service jobs are a dime a dozen. Most are easy to come by and do not pay very well, but they pay. If you think a service job is below you, think again. You are broke. As a Bill Gates, the second richest person in the world, once said, “Flipping burgers is not beneath your dignity. Your Grandparents had a different word for burger flipping — they called it opportunity.”

Phase Two – Expenses

Assess your monthly expenses. Generally, the highest expenses are rent and food. After that, you have transportation, utilities, and miscellaneous living expenses. Add up your monthly expenses using a budgeting tool. Do those equal more than 100% of your income?

Are you ready for the hard truth? Many people, including you if you are broke, live beyond their means. They don’t understand the difference between a want and a need. Cable television – want. Smart phone – want. Late model car – want. Going to see movies – want. Junk food – want. Starbucks, and all coffee – want.

You get the idea? Cut back everywhere you can. Live a minimalist lifestyle. Unless you make more than you spend, you have to raise your income or cut your expenses. Period.

Phase Three – Saving

Let’s assume you follow this advice for a few months. You should be getting back on your feet. If not, return to the evaluate step above and repeat the plan as necessary. If you are broke, it is your fault. It is no one else’s fault. Fix it.

As you are on the road to recovery, it is time to make sure you don’t end up broke again. Start putting money into savings. You should be able to put about 10% of your monthly gross income into savings and investments. Save up at least three months worth of living expenses in a liquid (cash available) savings account. Once you hit that point, keep saving in longer term investment vehicles.

Before you know it, you are far from broke. Work hard and you can become self reliant and stable in no time.

Have you been broke?

Have you been in a tough financial situation in the past? I don’t mean month to month, paycheck to paycheck living to pay your credit card bills. I mean in default, worried about losing your apartment or house broke. If so, please share your experiences in the comments below. If not, share your plan to get back on your feet.

photo by sagriffin305

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{ 6 comments… read them below or add one }

1 Jacob @ My Personal Finance Journey

I know a lot of people that have money problems, and they ALL consistently blame other people/external factors for their situation. My favorite excuse is that paying taxes is keeping them poor, when the truth is that everyone has to pay taxes…

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2 Little House

Years ago, I was broke. And it was completely my fault. Through trial and error I realized that I needed to set a budget for myself, get out of debt, and live within my means. Life is so much less stressful now. ;)

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3 Joe Edward

I like your point about evaluating how I ended up like that. Self-reflection would be key for planning and setting the right plan in motion.

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4 LaTisha @FSYAonline

I’ve been so broke to the point where my only choice was to move back home with my parents and I thank God that they let me come back. But you’re right. Once I started taking responsibility for my actions and put myself in the driver’s seat of my finances, things started to change.

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5 The Saved Quarter

“It is incredibly rare that something happens that is so far beyond your control that you have absolutely no responsibility.”

I disagree with this statement. Many people live beyond their means, to be sure, but many, many more struggle with poverty for reasons that aren’t so much in their control. In the past few years, hard working people have been laid off in record numbers, unable to find new jobs. In an economy where people apply for jobs for years and not get them because they’re OVERqualified, it’s not simply a matter of getting a job, especially for people who have children and have to pay for childcare. It isn’t easy to find a job in some areas that both covers childcare and provide a living wage. A serious illness can bankrupt people in this country and keep them from getting a job to get back on their feet.

It’s not just paying for wants that puts people into poverty, and there are certainly those who have cut their expenses to needs only and still can’t meet those. There are a lot of ways that people become poor that aren’t about them making poor choices. Saying, “If you are broke, it is your fault. It is no one else’s fault,” is not only incorrect in many cases, but it lacks compassion.

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6 Mary

I completely agree with “The Saved Quarter” as most of what was stated there has happened to me. I found myself house poor when my husband suddenly passed away. I put the house on the market 7 months after he passed, sooner than is recommended but I was drowning in bills as the only job I could find was part-time. Unfortunately, the bottom dropped out of the housing market about the time I listed it and was then laid off from the job (lack of business) before the house sold. I don’t know how many thousands of resumes I sent out over a two year period, applying for just any type of job available. When the house did sell, I no longer qualified for a mortgage for a smaller house because I wasn’t working, even though I did have some savings. I moved after living for 5 months in the only place I could find at the time but in a very inconvenient location, hoping the move would put me in a better location for finding work….but the next blow was even greater. Six days after I moved into the new apartment, I came home from a long meeting and discovered most everything I owned had been lost to a fire in my place. But I did persevere in sending out resumes and FINALLY got a job right before Christmas. I am back in the place that burned, which is now brand new and have a job that is a good fit but still doesn’t pay all the bills but I’m thankful every day for the things I do have…..but I think I’m a very good example of being broke NOT being my fault. I’m really sorry you feel that way about others and lump everyone into one mold. Thank you, “Saved Quarter” for speaking up for the ones of us that find ourselves victims of circumstances but still not willing to settle for “the usual way out.”

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