The Reason You Are Broke And How To Fix It
Why does it seem like no matter how hard you work, your bank account never reflects your effort? Why are you stuck in a perpetual cycle of paycheck-to-paycheck living? The answer isn’t just in how much you earn—it’s in how you think.
In 2002, Nobel Prize-winning psychologist Daniel Kahneman introduced the world to the concept of “behavioural economics.” This field explores how psychological factors influence economic decision-making. Kahneman’s research, along with studies from other behavioural scientists, has shown that your financial status isn’t just a product of your income or expenses; it’s deeply rooted in your habits, beliefs, and mindset about money.
The Real Reason You’re Broke
Most people believe they’re broke because they don’t earn enough. And while that can be part of the problem, it’s usually not the whole story. Many high earners are just as broke as those earning minimum wage because they spend as much—or more—than they make.
The real culprit? Your mindset.
In his book *“Rich Dad Poor Dad,” Robert Kiyosaki highlights the stark difference between a “scarcity mindset” and an “abundance mindset.” Those with a scarcity mindset believe that resources—like money—are finite, and they focus on cutting back and saving at every opportunity. While saving is essential, it often leads to a fear-based approach to money, which can result in missed opportunities and a lack of financial growth.
On the other hand, an abundance mindset encourages you to see money as a tool for growth. People with this mindset don’t just focus on cutting costs—they focus on creating value and generating more income. They see opportunities where others see obstacles.
Why Most People Stay Broke
There are three key behaviours that keep most people in a perpetual state of financial struggle:
1. Impulse Spending: A 2018 study published in Psychological Science found that the brain’s reward system is activated when people make impulsive purchases. This release of dopamine—a feel-good hormone—can make shopping addictive, leading to unplanned and unnecessary expenses.
2. Lack of Financial Literacy: According to a study by the National Financial Educators Council, the average American loses $1,279 annually due to a lack of financial knowledge. If you don’t understand how interest rates, credit scores, or investments work, it’s easy to make costly mistakes.
3. Procrastination: In his research, Dr. Piers Steel, a psychologist at the University of Calgary, discovered that procrastination is often linked to a lack of self-control and a fear of failure. Financially, this manifests as putting off paying bills, avoiding investments, or delaying financial planning—actions that can lead to penalties, missed opportunities, and compounded debt.
How To Fix It
1. Shift Your Mindset:
Start by identifying and challenging your limiting beliefs about money. Practice gratitude for what you have and focus on opportunities to grow your income, rather than just cutting costs. Consider reading books on financial success, such as “Think and Grow Rich” by Napoleon Hill or “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko, to help reshape your financial mindset.
2. Educate Yourself:
Financial literacy is the foundation of wealth. Take the time to learn about budgeting, saving, investing, and managing debt. There are countless resources available, from online courses to books like “Your Money or Your Life” by Vicki Robin and Joe Dominguez. The more you know, the more empowered you’ll be to make smart financial decisions.
3. Create a Budget and Stick to It:
A budget is not a restriction; it’s a plan for freedom. When you know exactly where your money is going, you can make intentional choices about how to allocate it. Use tools like Mint or YNAB (You Need A Budget) to help you track your spending and stay on top of your finances.
4. Build an Emergency Fund:
An emergency fund acts as a financial safety net, preventing you from falling into debt when unexpected expenses arise. Aim to save at least three to six months’ worth of living expenses. Start small, and gradually build up your fund over time.
5. Invest in Yourself:
The most successful people don’t just work harder—they work smarter. Invest in skills and education that can increase your earning potential. Whether it’s learning a new trade, earning a certification, or even starting a side hustle, the more you invest in yourself, the greater your potential return.
Final Thoughts
Breaking the cycle of being broke isn’t just about earning more money—it’s about changing the way you think about and manage your finances. By shifting your mindset, educating yourself, and taking intentional steps to manage your money, you can build a strong financial foundation and create the life you’ve always wanted.
Remember, wealth isn’t just about having money; it’s about making your money work for you. It’s time to take control, make a change, and start building a future where you’re no longer worried about being broke.
You have the power to transform your financial situation—starting today.
Congratulations! You made it to the end!
