Why Am I Broke? 12 Reasons and Solutions

Is the question ‘why am I broke?’ in your head all day, every day? We need to fix that, and we’ll do so with 12 practical tips that will help you get out of that mindset, and situation.

Do you spend your days (and nights) dreaming about all those areas of your life you’d like to improve but feel there’s no way out for you financially? Does the question why am I broke never leave your mind? You’re not alone. 

While being broke may seem like an unchangeable position in life, and we may even try to come to terms with it, the reality is that there’s a reason behind your financial situation, and once you get to the root of it, you might be able to solve it.

This doesn’t mean you’ll get rich overnight (no one does) but you could improve your situation and live a more comfortable life. 

If you’re tired of being broke and depressed, this post is for you. But first, let’s start with the basics and be clear on what we mean by the word ‘‘broke’’.

“Broke”: What Exactly Do We Mean?

Of course, we don’t mean “broke” in the strictest financial sense of the word in that you have literally no money and are on the verge of declaring bankruptcy. The majority of people are not facing that kind of situation, but they might be doing what is often referred to as “just treading water.” 

This is what we’re referring to in today’s post when we say “ I am broke.” It essentially refers to a situation where you have just about the money you need for your essentials, but absolutely nothing for extras, investment, savings, long-term planning, and all the other things that would deliver financial security.

12 Reasons Why You’re Broke, with Solutions

Next, let’s dive in with the reasons why you’re always feeling broke.

Reason #1: You spend more than what you earn

To start, the first and most obvious reason why you may be always questioning yourself why am I so broke is that you’re living beyond your means.

You spend far more than what you earn, are building up a debt mountain, and increasingly struggling to pay back the people you owe. When the outgoings column is longer and worth more than your income, then you will inevitably be broke.

▶ SOLUTION: Cut, cut, cut; grow, grow, grow

The only solution to this is to make cuts on the outgoings column, while also trying to increase the income column.

Consider overtime at work, an additional side gig, selling off your unwanted or unneeded stuff, and more to boost your income, while at the same time making sacrifices to reduce your expenditure. Only by balancing your books will you get out of the lifestyle of being perpetually broke and in need of money.

You’ll feel a lot less stressed too – one of the benefits of living below your means.

Reason #2: You buy stuff you don’t need (to impress others)

Do you buy things for yourself because you really need them, or do you think to yourself when buying, “oh man, the guys/girls will love this”?

If you’re making big purchases of things like furniture, games consoles, flatware, cookware, appliances and more just to get an impressed gasp from your friends, it’s no wonder you never have money left over.

▶ SOLUTION: Shop for needs, not for “likes”. STOP buying stuff you don’t need.

The need to impress others is one of the main reasons why you are broke, so if you can shake off that mindset and stop making purchases for the sake of having things to share on social media, you can start to make yourself more financially stable and healthy.

Reason #3: You use your credit card like it’s free money

You find that you are pre-approved for an Am-Ex card or another credit card with a huge $20,000 limit. “Wow,” you think to yourself, “I’ve got $20,000!” That’s exactly what many banks and other lenders hope you’ll think.

A credit card with $20,000 as a limit is not $20,000 in your bank balance. It’s a license to spend $20,000 that you don’t actually have, and if you spend it like it’s already yours it’s no wonder you’re moaning I am so broke every time you look at your card statement.

▶ SOLUTION: Save credit cards for emergencies only

One event in which credit cards are useful is in case of emergency. Unforeseen high costs, like urgent car repairs or medical expenses, can really hurt your finances, and while using a credit card is not ideal, it can get you out of that situation. Using your credit card in other irresponsible ways inevitably sets you up in a debt trap (see reason #9).

However, if you do pay off your credit card balance in full every month, using a card is perfectly fine. Credit cards are not evil! You can earn points and miles and get great rewards, but credit cards are only ideal if you’re not tempted to use them as “free money”.

Reason #4: You lack financial literacy

Do financial news make you fall asleep? How much do you know about investing and saving? When you lack financial literacy, you don’t just not know how to manage your money on a personal level, but you also have no way to start making that money work for you.

▶ SOLUTION: Start reading, today!

Get yourself onto some personal finance blogs (like this one!) and start learning all you can about how to make your money start working for you. You don’t have to become some kind of financial whizzkid; you just need enough knowledge to know what options you have, and to create a pathway forward to greater financial success and independence.

Reason #5: You don’t make enough money

When was the last time you got a raise at work? Has your salary been keeping up with inflation? If not, you’ll likely find it has been harder and harder to maintain your lifestyle on your main salary. You might have even contemplated getting a second job to do in the evenings or weekends.

▶ SOLUTION: Negotiate better terms at work, or move on

If you’ve worked in a place for a long period of time, have performed well but not received any significant improvement in your remuneration package, then it’s time to start a negotiation with your current employer.

You can start by looking at alternative jobs to see if they sound more appealing to you. If they do, and they pay well, a negotiation might not be needed. On the other hand, if you want to stay where you are, you can use potential new job offers as leverage to get more favorable terms.

Remember that it’s not all about salary increases. Any additional perks you can get into your contract can also help. For example, if the company will pay for your commuting expenses like gas or subway, that’s an additional saving. If they’ll offer support for your housing, even better. Be sure to factor these things into your decision when weighing up offers.

Reason #6: You don’t budget

If you’re someone who just spends money as and when they want, then it’s more than likely you will burn through the money faster and end up on a paycheck-to-paycheck lifestyle.

You don’t have any notion in your mind on how much you should spend on each area, so you invariably spend far too much on things. Even worse, you don’t know how much you spend on anything, and that’s one of the main things that make you broke.

▶ SOLUTION: Reflect on your monthly expenses and set budget boundaries

Think about how much of your income would be reasonable to spend on certain things and then make a budget. Include all essential spending and treats to your budget, so everything is contemplated.

Set an amount for things like rent, groceries and utilities, and amounts for your social life and leisure time. Stay within your budget and you will find money left over each month to use for other things. You’ll soon find out what are all the benefits of budgeting!

Reason #7: You don’t keep track of expenses

Pop quiz: how much did you spend on drinks with your friends last month? How much do all your streaming and other online subscriptions add up to? What do you typically spend on utilities and groceries every month? What percentage of your income is used for these things?

If you don’t know the answers to these questions immediately, then you are not keeping track of your expenses. No surprise you’re wondering why am I always broke? on a daily basis!

▶ SOLUTION: Print out an expense report every month

To get a handle on your expenses, where they are and where you might therefore make cuts, you need to get a reading on them. To do this, you can use a budget app and record expenses as you make them, or you can simply get a printout of your bank statement and see where the money from you account is going. 

The latter is increasingly useful since we now spend most of our money via cards and online payments rather than cash. In any event, bring together your cash receipts, statements and whatever else you have to create an itemized expense report. You’ll be amazed at how quickly you can start making changes once you know where the money is going.

Reason #8: Sales are your weakness

When you see that your favorite online or downtown stores have sales promising up to 50% off retail prices, what’s your typical reaction? Do you immediately start buying stuff? If so, then you have discovered another factor that explains why you’re always broke.

A sales event is essentially a marketing opportunity that makes you spend money while believing that you are actually saving money. All money spent on things you don’t need is “dead money”.

▶ SOLUTION: Only attend sales to buy things you need. Stop buying clothes and other stuff!

Sales periods can be beneficial for your finances if you use them as an opportunity to stock up on essentials. When you buy food, clothing you need, toiletries and similar items in a sale, you are saving money you would otherwise have to spend anyway. Just don’t buy things because they’re on sale.

Reason #9: You’re in a debt cycle

One of the reasons most people are broke is debt. How much thought do you give to credit card debt each month? Do you leave bills unopened on your kitchen counter? If this sounds familiar to you, then you might be someone who is broke because you are stuck in a debt trap.

Overuse of the credit card and failure to pay the balance in full, resulting in interest charges being applied, is a neat and efficient way to remain in financial limbo for long periods of time.

▶ SOLUTION: Curtail and control your credit card spending; begin debt reduction measures

Don’t follow the TV solution of cutting up your credit cards, nor should you call the bank to cancel them. Credit cards remain a useful tool for building your credit score, so keep them alive.

Allocate a portion of your monthly income to debt reduction, and stop using your credit cards immediately for anything other than absolute emergencies.

If you have other debts, including personal loans to friends and family, ensure that you take a portion of your earnings and use it to pay down debt before you start allocating money to your monthly budget.

Be as strict as possible with yourself and allocate as much as you can to debt reduction, even if it means cutting way back on your usual lifestyle choices. Eradicating debt should be your top priority to get rid of the why I am broke mantra.

Reason #10: You don’t know about savings apps

You hear a friend speak about Ibotta or Fetch Rewards, and you realize you have no idea what they’re talking about. This is all the evidence you need to know that you have never heard of a savings app, cashback app, or coupons app. These are small savings you can make that really add up when you put them together over the course of a month or a year.

▶ SOLUTION: Download Ibotta or a similar app

All you need to do is download and sign up for these services that are free to use. Cashback basically gives you back (in cash!) a percentage of what you spend on certain online stores.

With some apps you can also get coupons or discount codes by uploading a picture of your receipt – from whatever store you visited – and earning those benefits for future (needed) purchases. Even if this option doesn’t save you money directly, it’s a way to make the money you spend go even further.

Reason #11: You don’t have an emergency fund

Picture the following scenarios:

• Your car breaks down and you find you need a new alternator – $600
• You spill water all over your computer and it’s broken beyond repair – New laptop $700
• You broke your leg and don’t have medical coverage – medical bills $5,000

All of these are conservative estimates based on average costs, and all of them are connected by a sudden or accidental set of circumstances that you have no way to change or prevent.

What will you do in these situations? Take a payday loan? It might cover the bills, but can you cover the interest and repayment plan for such a loan? If only you had an emergency fund.

▶ SOLUTION: Start an Emergency Fund Now

Develop the habit of setting aside money every month to put into an emergency fund, “rainy day account” or whatever you want to call it.

It’s a good idea to have this as a separate account so you can keep track of how much is in there and that you won’t miscalculate and then mistakenly spend it from your main account.

Reason #12: You don’t invest

”Oh, the reason why I’m broke is that I don’t invest” is a thought that has probably crossed no one’s mind, but it’s a major differential on your long-term financial health, which depends on you being able to invest your money from an early point in your life.

Ideally you should start buying assets when you’re still in your 20s, but in your 30s is also alright, especially if you’re still single. 

Don’t think that investing always means buying a stake in the next Facebook or Google, either. Most investing is careful, low-risk squirrelling away of money into various funds and schemes that will take years, even decades to mature. The earlier you start, the lower risk you can enjoy for big rewards later down the road.

▶ SOLUTION: Hire a Financial Advisor or Start Saving on your Own

Investing is one of the best financial decisions you can make. You should, however, educate yourself on the subject before placing your money anywhere (you don’t want to fall into traps!) or hire a financial advisor to lend you a hand. 

If you’re still not sure about how or where you should invest, start saving that money while you figure out the best options. Tons of apps that are easy to use and reliable, like eToro, can help you make your first investments.

Hopefully the above advice will help you get back in the black and give you a better financial feeling at the end of each month.