3 Easy Steps You Can Take to Stop Going Broke
How do I stop going broke?
If you’re searching for the answer to that question then you’re in the right place. I’m gonna answer that question for you in this post, so please keep reading.
If you’re struggling to pay your bills or if you feel like you’re always broke, you’re not alone. You’re not in a unique situation. Many people face the same circumstances as you.
And I’m telling you right now…don’t worry about it too much, because by the end of this post, you’ll learn 3 Easy Steps to start taking control of your financial problems, and to stop going broke.
I used to be the guy that was broke all the time. It seemed like my paycheck was gone as soon as I was paid. Maybe you feel the same way. Luckily, I came to my senses and became just a little bit smarter with my money and it’s possible for you to do the same.
However, this common sense of being money savvy didn’t just enter my huge head overnight. I had to actively study dozens of books and I’m going to share with you what I’ve learned. I broke it down into 3 easy actionable steps that you can apply to your life immediately.
Step #1: Know Where You’re Spending Your Money
You don’t really know where you’re spending your money…
If you can’t tell me what you bought last Friday from the time you woke up until the time you went to sleep, that means you’re not keeping track of your expenses.
(And that’s the number one cardinal sin of the personal finance)
When you’re out shopping and you can’t recall what you recently bought within the last few days, then you’re mindlessly spending. You’re shopping in autopilot and aren’t fully conscious of where you’re putting your dollars.
The first step to stop going broke is knowing where you’re spending your hard earned money. That means you need to start writing down every time you spend your money.
Keep notes on what you buy and the amount you paid for it. I recommend doing this for 30 days. Keep a notepad, or use a smartphone app such as Mint to keep track of your spending. I personally use an accounting software on my laptop to keep track of everything.
I’ve been writing down everything I spend for the last 6 years. I can tell you exactly what I bought and how much I spent every year.
You can ask any self-made millionaire and I guarantee you they have a similar system of knowing what they spend their money on. Rich people know how to manage their cash flow. They know precisely how much income they receive monthly, and they know how it flows out.
John D. Rockefeller was well know for keeping track of his expenses. He famously said these words to a group of students:
“Now let me leave this little word of counsel for you. Keep a little ledger, as I did. Write down in it what you receive, and do not be ashamed to write down what you pay away. See that you pay it away in such a manner that your father or mother may look over your book and see just what you did with your money. It will help you to save money, and that you ought to do.”
– I borrowed this from MindYourDecisions.com
Do you have what it takes to be like Mr. Rockefeller? Of course you do…all you have to do is emulate him by keeping notes about everything you buy and the price you paid for it!
Step #2: Know Where to Cut Spending Costs
Do you know where you can cut costs?
Once you start writing down and keeping track of your expenses, you’ll be able to determine exactly where you can cut costs on the things that don’t bring joy into your life, so you can use your money to buy more of the things that make you happy!
Within 30 days of writing down everything I spent money on, I started to notice all types of patterns about my daily behavior…Patterns I normally wouldn’t recognize. I looked over the information I’ve written down about my expenses and analyzed my daily spending habits.
Through this analysis, I learned about myself in a profound way because I noticed that I spent a lot of money eating at restaurants. For example, from May 6th, 2014 to July 6th 2014, I spent $766.07 eating at restaurants! And that’s not including the money I spent on groceries during the same time period!
I decided that I needed to cut back my spending at restaurants, because I still bought groceries to eat at home. And it didn’t make sense for me to spend so much money eating at restaurants because I didn’t always enjoy what I ordered. I actually enjoy eating at home because I feel like it’s healthier than what I’m served at the majority of restaurants.
For you to start cutting your spending costs, you have to first see exactly where your dollar amounts are going. Once you start seeing your natural spending patterns, you’ll be able to consciously decide how you’re going to be spending your money in the future.
This process will allow you to reduce spending money on things that you feel are wasteful. You’ll start to feel like you have more money to spend on things that make you happy. Remember, it’s easy to go broke if you’re spending money on everything. Cut back spending on those things that don’t make you happy.
Step #3: Start Paying More For Quality, So You Can Spend Less Frequently
I’m not a cheap guy. I don’t like buying cheap stuff. I like using my money to pay for quality and comfort. If an item is expensive but it’s quality made and it brings me comfort, then I don’t mind paying top dollar for it. However, that doesn’t mean I splurge and squander on things I don’t need. I’m still frugal about my spending, which means I’ll always try to get a better deal on something if it’s possible.
For example, I like buying clothes made from 100% natural fabrics. Cotton polo shirts and pants, wool sweaters and blazers, leather belts and shoes. These are quality items that last for many years. As a matter of fact, my wardrobe is pretty simple…and everything matches. I’d also like to mention that I’ve been complimented many times that I dress really well. I might buy a new piece of clothing once a year to add to my wardrobe…and of course, I shop around for the best price I can possibly find before I buy.
Essentially, by paying a little bit more money upfront for quality, I get to keep these items for many years rather than consistently having to replace it every few months. Lower quality items have to be replaced more often. Just because you can spend less on something doesn’t mean it’s the better option if it lacks quality. However, if you’re able to find a quality item for a lower price, then it makes perfect sense to buy it!
As humans, it’s absolutely normal for us to want to spend less money for an item. It’s all proven by microeconomics, which is the study of how human beings deal with scarcity of resources. We subconsciously want to spend the smallest amount possible to acquire something in order to preserve our resources.
But to truly preserve your resources and prevent from going broke, you must spend less frequently…and that means paying more upfront for high quality goods, so you don’t have to replace them as often!
Now it’s time for you to take ACTION!
If you haven’t already begun, I want you to start tracking your expenses. You can literally just start writing down everything you bought during the day and adding it up at night to see how much you spent. The purpose is to make you become aware of where your money is going.
Does it sound crazy that I can tell you exactly what I bought each day since January of 2013? Most people will say “yes”, it’s absolutely insane that I still have those records of each purchase I’ve made, but guess what…?
It’s the first step to I took to stop going broke, and it began my journey of building wealth.
Do you want to take the same journey?
Let me know in the comments below. I read every single comment.