Personal Finance – 3 Reasons Why People Go Broke

Why do people who make a decent earning go broke? Why do people work so hard and yet come down to nothing just a few days after the months pay? Here are a few reasons and how to reverse this trend for yourself starting today.

1. Inability to Differentiate between Needs & Wants

Yes, you've got to live a good life but the ability to differentiate per time what is need and want will keep you from carrying an empty pocket and ending in desperation and debt. Needs are those things you can not do without. For instance because the nature of my work, I can not do without power and have to spend money on generating power when there is an outage. That is a need.

Wants are those things you'd love to have but do not make any significant difference in your life. For instance if you have 2 pairs of shoes, getting an extra pair because you have a weekend ball is a want.

Surprisingly, a lot of people focus on their wants and look for means to satisfy the desire for these wants and end up over spending every single month. The result is a dry pocket. Differentiate between your needs and your wants and work hard not to satisfy your needs unless you genuinely have extra left to cater for it.

2. Lack of Investment

One of the reasons why we invest is to prevent a dry pocket. The problem however is trying to invest with the overview of a quick turnover. Work at investing a certain percentage of your income every month on a long term asset or a long term investment programme that can work for your over time. For instance, investing in real estate every month, little by little is one great investment idea I love personally.

3. Ignoring Savings

It is very difficult to pull money together and takes a great deal of discipline to achieve. It is however very easy to blow it all off in just one moment of spending "madness"

First, work at your savings. Cut your expenses starting from now to allow you save at least 10% of your income every month. Just put it aside and forget it. If you save $ 100 per month, you will have $ 6000 in 5years (60months). The good news about having a careful savings culture is that after just 6months of doing it, you will begin to feel more confident, have more peace and less anxiety about tomorrow and you will know you have something to fall back on.

Another great advantage is that each time you save some more, you will watch your account grow a little more and this gets you ready for bigger opportunities. For instance, you can decide to buy a house after 5years, become a landlord, earn rent from your property while you still continue to work, save and make more money from property rentals.

Practice these 3 steps on a continual basis and you will gradually discover that you will stop getting broke, live a happier, less stressful life and in time move from a dry pocket to a fat bank account.

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