5 Money Lessons You Can Learn From Being Broke
Written by
Caitlyn Moorhead
Edited by
Ashleigh Ray
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In today’s economy, many Americans live paycheck to paycheck. While barely making ends meet can be stressful and frustrating, there’s a lot living lean can teach you about money management. The lessons and skills you learn can help you improve your finances in the long-run and maybe even help you avoid falling backwards in hard times.
If you happen to find yourself struggling financially, here are five money lessons you can learn from being broke.
1. Don’t Live Beyond Your Means
When you don’t have a lot of money, you might not realize that you’re living beyond your means, but it’s easier to do than you might think. If you’re spending most of your income on housing or choosing to buy wants over needs, you’re probably living beyond what your paycheck can provide. Doing that often leads to relying on credit cards, creating a cycle of debt that can be very difficult to get out of.
Instead, you should establish a budget that takes into account all of your regular expenses while also looking at how much money you bring in monthly. This can help you see where you’re overspending, so that you can cut back and start living within your means. For example, you should aim to keep your housing expenses under 20% of what you make monthly so that you have enough left over for your other bills and purchases.
2. Know Where Your Money Is Going
If you want to break the cycle of living paycheck to paycheck, you need to know where your money is going. And to do that, you need to track every penny you spend. While this may seem tedious at first, this knowledge can change how you interact with your money. Having a better understanding of how and why you spend can help you develop better habits and lead to less money leaving your wallet every month.
3. Have a Safety Net
Yes, it’s hard to set aside money for savings when you barely have enough to cover the bills, but it’s an important step in improving your overall financial health. When an emergency strikes, you’d rather be prepared than in a position where you need to borrow money to get by.
Financial experts recommend saving at least three to six months’ worth of expenses in an emergency fund to act as a safety net in the face of any unexpected financial shocks like job loss or medical emergencies. And while it may seem like something you can work on once you’re no longer living paycheck to paycheck, this is actually when you need your safety net the most. Consider making small sacrifices now, so you don’t have to make major ones when the next emergency comes your way.
4. Realize That You Can Still Have Fun on a Budget
When you can’t afford to spend all your money on entertainment, you quickly learn that there are plenty of ways to have fun and enjoy life without spending much — or anything at all. You just have to look at your local community. Do some research into what free and low-cost activities are being offered in your city and take advantage of them. Instead of buying an expensive gym membership, workout in your home or in a nearby park. Opt to visit your favorite bar during happy hour to get your favorite items at a fraction of the price. These are just a few ways you can have fun without blowing your paycheck.
5. Don’t Get Discouraged
Don’t get stuck thinking that you’ll always be living paycheck to paycheck. As long as you’re working hard to improve yourself and your finances, being “broke” is only temporary. With a solid budget in place and a mindset focused on saving over spending, you’re sure to see your money grow in time. And remember, the lessons you’re learning from being broke now can help you avoid being broke in the future.
Cameron Huddleston contributed to the reporting for this article.
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