money mistakes — Beating Broke

Things to Avoid When You're Broke

Most of us have been there. You have three dollars in your checking account, and it’s five more days until payday. You may feel overwhelmed and not sure what to do. Unfortunately, many people in this circumstance feel that there is nothing to be done and, out of desperation, ignore their situation – continuing to live life as if their finances aren’t dire. However, all this does is make the situation worse. Instead, consider things to avoid when you’re broke so even if you’re not improving your situation, you’re not making it worse.

Things to Avoid When You’re Broke

Using Credit Cards

When you’re broke, credit cards can feel like a lifeline. For a while, at least until you reach your credit limit, you can continue to maintain your current lifestyle. But, this is a mistake! You’re broke! If you admit that and are frugal with your money, once your current financial hardship ends, you’ll be in a position to improve your finances. However, if you have to pay back thousands of dollars of debt, you’ll still be broke. Please don’t make this mistake.

Paying for Entertainment

Entertainment is expensive. Movie tickets cost $10 or more; a meal out costs $10 to $40, depending on where you dine. Netflix costs $13 a month. All of these expenses add up over 30 days. If you’re broke, don’t pay for your entertainment!

Go to the library and check out a movie for free. Attend a local free concert at the university. Invite friends over for board games.

Nobody says you can’t have fun when you’re broke, but find ways to be entertained that don’t cost any money.

Not Having a Budget

Burying your head in the sand is easy when you have no money. If you ignore the situation, it won’t exist, right? Wrong. Ideally, you should be budgeting every month, but this is even more important when you’re broke.

You have limited money, and you have to decide where that money should go. When you have a plan that you can follow, you’re much more likely to not overspend. Having a budget and following it is absolutely necessary when you’re broke so you don’t make your financial situation worse.

Hiding Your Situation

Don't Do These Things When You're Broke — Photo by Ali Tareq on Unsplash

Being broke is embarrassing, but being honest with your family and friends is the best way to handle the situation. If you’re not honest and you pretend that everything is fine, your friends may be offended when you repeatedly turn down invitations. If they know your situation, they may be more willing to find things you can do together without putting a financial strain on you.

Things to Remember When You’re Broke

Even though at the moment you may feel hopeless, remember that you’re likely not going to be broke forever. You will get a better job or have fewer expenses in the future (probably the former rather than the latter). Your financial situation will improve, but that improvement can come faster if you make sure to consider these things to avoid when you’re broke. Don’t make your future more difficult by making bad money decisions when money is tight!

what is your worst money mistake?

For those of you that haven’t come across my blog – which I’m assuming is most of you – I should start by saying that my financial struggles and moronic financial mistakes is what led me to become a Dave Ramsey-trained Counselor and an Investment Advisor.

So, as I discuss my biggest money mistake(s), I will preface with: I realize that these are extremely dumb decisions. However, I made them, I learned from them, and ultimately they helped me grow into the person I am today.

Who Wants to Trade Penny Stocks?

Despite knowing the topic we were writing about today, I couldn’t only limit my response to ONE financial mistake because I have two that are pretty brutal.

The first involves trading penny stocks and losing $30,000!

Ever since I was in high school I remember LOVING the concept of the stock market and investing money. I don’t know what it was but it just fascinated me.

So, a few years ago I worked with some friends and one of our usual conversations revolved around investments. It was right around the time that Apple started to boom and my co-workers would always bounce ideas off of me and prod me for my input.

Well, one of these co-workers ended up telling me about this “hot” penny stock. You know…he heard about from a friend whose sister’s brother’s nephew worked for the company.

Anyway, he was told about this great new technology that was going to change the oil industry, and apparently this company had a patent on the technology that was going to make it happen! Cha-ching!

As with all penny stocks, this one was a sure thing!

After many hours of research and digging into the company and their product, I went ahead and invested all of my IRA into the stock. Please know that I would not recommend this for any of you.

Considering that I was young (and dumb), I figured I could afford to lose the small retirement savings that I had earned in my first year of employment after school. It was indeed a whopping $3,000 that I was putting at risk; what’s the big deal, right?

Well, after much speculation (which most penny stocks are surrounded by) the stock, and my portfolio, continued to go UP and UP over the course of a few weeks.

Instead of being a prudent investor (which investing in penny stocks throws that notion out the window) and selling off some of my shares to lock in the gains, I got greedy and thought that the stock would continue to rise.

I mean seriously, the rise was all based on speculation and the company hadn’t even landed a big contract yet. ‘Just think how much the stock could be worth when it lands with one of the big oil companies!’

Despite my IRA being worth $30,000 (yes, up from the $3,000 that I started with) I decided to stay put.

It’s needless to say considering this is a post about one of the worst financial mistakes I’ve made but I’ll say it: the value of the stock plumeted the two weeks that followed as the speculation dwindled and my “hot” penny stock turned ice cold.

I know…I know…I was pretty (extremely) dumb and got greedy. I gambled and I lost.

I wanted the get-rich-quick scheme and ignored all sound investing advice.

Attending an Out-of-State College

My wife and I were actually talking about this a few weeks ago, but I have come to learn to view my past differently than some.

While I could beat myself up over all of the ignorant decisions I’ve made over my life, I’ve realized that I wouldn’t be the person I am today without them. I wouldn’t be married to my wonderful wife, I wouldn’t work a job that I love, and overall I just wouldn’t be who I am today.

So, even though this post is about past mistakes I’ve made, I encourage everybody reading out there to embrace your failures, learn from them, and ultimately be thankful for them.

Life has a weird way of teaching us things and the reality of our world is that most of us learn from mistakes; we as stubborn people love to learn things the hard way!

Despite saying that, I acknowledge that my second biggest financial mistake was going to an out-of-state school and going into debt for all of it.

I know that my decisions were made in pure ignorance as I was never really taught anything about managing money growing up as a kid.

Nobody ever stopped to tell me that I was making a huge mistake by going $20,000/year into debt each year for college, and instead explained to me that I could choose to attend an in-state school and only pay half or a quarter of that!

Who am I kidding though?

Knowing me back then I’m not sure it would have mattered. I didn’t understand wise financial principles. I was ready to leave and have fun. I was ready to finance my lifestyle by taking on as many student loans that the lenders would give me!

…and I’m still paying for it today (literally).

Applied Knowledge is Power

Speaking from experience both personally and from what I’ve gained in coaching hundreds of invididuals over the past few years, writing this post about my moronic financial decisions will prove meaningless at the end of the day unless those that reading this will learn from the mistakes of others and not make the same mistakes themselves.

If you have children, I’d encourage you to teach them sound financial principles at a young age (or as soon as you can). Teach them about debt, living on less than they make, the principles of budgeting, investing and how to retire comfortably, and making smart decisions when they’re getting prepared for college.

Where most of us fall short in our personal development is that we don’t apply what we learn. Sure, we learn (as evidence that you’re reading this article) but what you do with the information is ultimately what will set you a part.