According to Websters Dictionary, the word “broke” means penniless. While there are people who have no money because of misfortune, there are many people who are broke because of their habits. Here are five habits of broke people that you should avoid if you want to become wealthy some day:
1. They surround themselves with other broke people
If you want to stop being broke then you need to start hanging around people who are successful. People that don’t have any money tend to not give the best advice. Why? Because the choices that they have made are why they are broke. The same is true for successful people. The reason why they are successful is because they have made decisions that helped them spend less, save more, invest wisely,etc.
2. Broke people play the lottery
I’ll be the first to admit that I played the lottery in 2012. We had a company pool and everyone was throwing in money for a chance to win half of a BILLION dollars. I didn’t want to be the one guy in the office who didn’t play with the off-chance that we might actually win. However, there are people that play the lottery on a weekly basis. In fact, it has been cited that people making $13,000 or less spend 9% of their income on lottery tickets. That comes out to roughly $1,170 per year. What would happen if they decided to invest that money instead of buying lottery tickets and they were able to get 9% annualized return for 50 years? They would have $1,146,271.65! I think most broke people could live off of that in retirement and it is a lot more likely to happen than winning the lottery.
3. Broke people rent as a way of life
Just to be clear, renting is not bad…for a season. As a way of life it will definitely stunt your ability to become wealthy. Let’s say that you rent a place for $1,000 per month for the rest of your life starting at 20. With the average life expectancy being 78, this would be 58 years. You would end up paying $696,000 to rent some place and that is not even taking into account inflation. Let’s say that instead of renting that you buy a house for $150,000 with a 15 year mortgage at 3.5% and put 10% down; your payment would be $965 per month. You pay the place off in 15 years and at that point you have an extra grand per month to do whatever you want with. On top of that you paid $38,716 in interest with a total expense of $188,716. This is a difference of over $507,000! You better like the place that you’re renting to pay that much more.
4. Broke people spend money on things they can’t afford
My wife works at a title one public school which means that there is a large portion of the students that come from low-income households. She has mentioned to me on multiple occasions how even the kids that come from poor backgrounds have expensive smart phones or wear sneakers that cost over $100. If you want to avoid being broke then you have got to live below your means (See 10 Ways to Trim Your Budget).
5. Broke people get payday loans
This is one of the biggest disservices to the poor. With over 22,000 payday lending stores and close to $40 billion dollars in loans being given each year, it is no wonder that people aren’t able to get ahead. In 2012 a study by Pew Charitable Trusts’ Safe Small-Dollar Loans Research Project, it revealed that over 12 million Americans took out payday loans and paid an average annual interest rate of 391%. If you want to stop being broke then STOP going to payday lenders.
Interested in more tips on how to become wealthy? Check out 7 Habits of Wealthy People.
Image Credit: Musical Theatre Guy