How to Not Be Broke: The Beginner’s Guide to Better Money Decisions

How to Not Be Broke: The Beginner’s Guide to Better Money Decisions

Being broke is a temporary situation. Being poor is a state of mind. -Mike Todd

Most people’s idea of building wealth focuses solely on one thing only; I need to make more money. This is undoubtedly true, but it isn’t that easy. Wealth is a mindset, and in changing how you approach your money habits, you will see a drastic uptick in your monetary gains.

More to the Equation

Let’s start by defining wealth:

Wealth = Assets – Liabilities (Debts) 

Clicking around the internet for a few minutes will uncover countless articles that deal with making money. This is an easy topic to sell, because obviously everybody is trying to make more money. But it’s other side of the coin that is often misunderstood or neglected – the spending money part.

Poor spending habits are what cripple most people financially, despite income levels. One can make very little money, but be financially prudent and responsible. Likewise, someone can make tons of money and waste it all away just as quickly. When it comes to low earners, however, carelessness with money can create a vicious cycle that can result in decades of financial stagnation for generations of the same family. Children learn spending habits from their parents, and if these habits don’t exist, children never learn them, and this grow up with the same lack of self-control as their parents. This results in the continuation of poverty for the family, transferred from one generation to the next. This will continue indefinitely until someone in the family becomes educated enough to realize the self-sabotaging habits, primarily careless spending and debt accumulation.

Without question, your net worth is mainly dictated by what you earn. Yet, spending habits play such a vital role in wealth building. This is what most people overlook, and they fail to accumulate significant wealth due to bad financial decision-making. Because such people have no plan when it comes to building their net worth, they simply spend what they make and save little beyond that. This applies equally to minimum wage workers and high earners alike. As we will come to see, the majority of people sabotage themselves through poor spending habits and careless over-reliance on debt. This pattern will continue indefinitely until said person realizes their deteriorating financial position, often times too late to make a short term fix.

Savings & Debt…It’s Bad

Gone are the days where the family accounts for every dollar it acquires. Today, the “more is better” lifestyle reigns supreme. People live rich by spending money without accounting for it. Wants are confused for needs, and both are purchased at a feverish pace. Society has become  enamored with the shopaholic persona, and the result is a population that is over-consumed, but less wealthy than earlier generations. Consumption and acquiring goods have become the barometer for success; the de facto method of comparison to friends and family. This leads to nothing but empty wallets and tarnished bank accounts.

It should come as no surprise that Americans aren’t coming close to saving enough money. The latest data shows the U.S. Personal Savings Rate at 5.30%.


This means that for every $100 earned, a person only saves $5.30. The recommended savings rate (including retirement) differs greatly depending on circumstances, but usually lies between 10-20% of take home pay, and should be even higher if working towards a long-term goal such as a home purchase. One cannot be faulted if they genuinely don’t earn enough to hit these targets, but often people make enough money to save comfortably, but chose to spend not save. Below is a chart of the savings rate over the past few years:

U.S. Personal Savings Rate

Americans fare no better with their retirement savings either, coming up drastically short of recommended targets. According to Bloomberg:

Americans aren’t saving enough for retirement.

True, this has been a refrain for longer than many can remember. But now some disturbing numbers show exactly how bad it’s gotten. Two-thirds of all Americans don’t contribute anything to a 401(k) or other retirement account available through their employer.

The working age population in the United States (15-64) is roughly 205 million people. This means roughly 135 million of those people aren’t saving a dime towards retirement. Financial Samurai has a great piece on why American’s who don’t prioritize their 401k savings are in a lot of trouble. The chart below shoes how bad things really are, as the median 401k balance is $5,000:

Retirement Account Savings by Percentile

So with 401k balances being so low, one would think general savings accounts are the beneficiary,  right? Nope. In fact, the numbers here might be even worse. Every year the Federal Reserve releases a 100+ page publication titled the “Report on the Economic Well-Being of U.S. Households.” The 2017 version goes in-depth on a variety of statistics (you can read it here), but one area stood out to me the most:

Forty-four percent of adults say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money, which has continued to improve from the 50 percent who were ill-prepared for this magnitude of expense when first asked in 2013.

44% of adults do not have enough cash on hand to cover an unexpected $400 expense. Let that sink in…

So if Americans aren’t saving for retirement OR putting money into a savings account, where does it all go? Consumerism is a hell of a drug my friends. Multiple studies found similar concerns, as noted in this Atlantic article from May 2016:

Financial impotence goes by other names: financial fragility, financial insecurity, financial distress. But whatever you call it, the evidence strongly indicates that either a sizable minority or a slim majority of Americans are on thin ice financially. How thin? A 2014 Bankrate survey, echoing the Fed’s data, found that only 38 percent of Americans would cover a $1,000 emergency-room visit or $500 car repair with money they’d saved. Two reports published last year by the Pew Charitable Trusts found, respectively, that 55 percent of households didn’t have enough liquid savings to replace a month’s worth of lost income, and that of the 56 percent of people who said they’d worried about their finances in the previous year, 71 percent were concerned about having enough money to cover everyday expenses. A similar study conducted by Annamaria Lusardi of George Washington University, Peter Tufano of Oxford, and Daniel Schneider, then of Princeton, asked individuals whether they could “come up with” $2,000 within 30 days for an unanticipated expense. They found that slightly more than one-quarter could not, and another 19 percent could do so only if they pawned possessions or took out payday loans. The conclusion: Nearly half of American adults are “financially fragile” and “living very close to the financial edge.”

The fragile state of financial competency is compounded by the debt issue. Because credit card’s are given so freely to so many people, trouble ensues. I know from my own personal experience how one can get cratered with debt so easily. I’ve recently opened several different credit cards, and after entering in a few pieces of personal information, was approved for a $20,000 credit limit on several of these cards! No income verification whatsoever. My credit score is excellent, but what if I flipped a switch and began buying everything in sight? Credit is abused because it gives financially irresponsible people a way to spend beyond their means without understanding (or caring about) the long term consequences of their actions.

What is funny is that economists use debt numbers as an indicator of a healthy economy, since consumers spend more when times are “good.” This sounds well and good in theory, but is more debt really a good thing for people? Whether times are good or bad, countless people lean on debt in a way that is irresponsible and outright dangerous. The New York Times came out with an article in May 2017 titled, “Household Debt Makes a Comeback in the U.S.” Multiple forms of debt are discussed in detail, and student loans were noted to be one of the largest growing forms of debt in America. Some economists aren’t convinced “more debt equals good times,” as noted by Heather Boushey’s comments below:

One of the major factors behind the latest debt binge has been student loans, a mounting burden that can stifle economic growth by preventing Americans from buying homes or spending on big-ticket consumer items.

The fear is that ballooning debt from student loans — and from auto loans and credit cards — could put many Americans back into a hole, prompting a new wave of defaults, much like the one that accompanied the mortgage meltdown a decade ago.

 “This is not a marker we should be superexcited to get back to,” said Heather Boushey, the executive director and chief economist at the Washington Center for Equitable Growth, a liberal think tank. “In the abstract, more debt signals optimism. But in reality, families are using debt as a mechanism to pay for things their incomes don’t support.”

Total Consumer Debt Balance

Because most people little to no self-discipline with their spending habits, you can see how debt can quickly swirl out of control. Being in deep debt is the worst way to crater your long term financial situation. Late or missed payments will torpedo your credit score, and a worse case scenario involves bankruptcy which is equally devastating (although student loan debt is immune to bankruptcy). Debt kills physical and financial mobility, and forces you to pay back substantially more than you initially borrowed (thanks 30% interest rates!) There is a reason why companies such as Visa and American Express are behemoths who rake in tens of billions of dollars annually.

Yet despite this, people embrace debt more than ever. People will do whatever it takes to convince the world they are truly “keeping up with the Joneses.” Next time you see a friend showing off on Instagram or Facebook, ask yourself if they really have the means to do so. Chances are, they don’t, and debt played a big part in their picture perfect lifestyle.

Minimal debt + self-disciplined spending leads to wealth accumulation, a healthy financial situation, and physical mobility.

Certainly there is a sharp divide between income and education levels. Poorer Americans tend to accumulate more debt and make bad financial decisions. Wealthier Americans do “better” with money, but the majority of people, despite their income levels, continue to live beyond their means. The ignorant see debt as a free form of currency to accumulate more and/or better possessions. Wrong, wrong, wrong. But because American society is predicated on consumerism, every one of us has to be responsible enough to fend off urge to spend useless money. We are surrounded with mechanisms that try to get us to give in, but it’s up to you to resist the itch to give in.

I’m Screwed! What Do I Do?

The numbers I noted above paint a stark financial picture for most Americans. However, there is still hope. A healthy financial situation is still attainable if you act smart with the money you do have. Below I have outlined the steps you need to take to improve your financial outlook. I will touch on several areas that encompass one’s entire financial portfolio. If you follow my advice and use the resources that I offer, I can promise your situation will turn from weak to strong and you will begin to see your financial savings truly compound. Let’s me help you avoid the broke pit like so many of your peers.


Just as you need to count calories to lose or gain weight, you must also keep track your spending. This is called a budget.

Most people are well aware of their cash inflows but do not keep track of their cash outflows (as the data above shows), which leads to undisciplined spending. Your budget can be as detailed as you’d like, but at a minimum it needs to track monthly outflows by category. You will want to categorize each transaction, so think of things such as mortgage/rent, car insurance, entertainment, food, etc. A budget is necessary so you can pinpoint exactly what you are spending on. When this is accomplished you can begin to cut back in areas where you have gone overboard. If you calculate your monthly discretionary spending correctly, you can then accurately allocate a portion of this amount to your savings account. Without completing a budget, it will be next to impossible to design a savings plan.

What can help me with this?  I use an awesome website called Personal Capital.  I have linked all of my financial accounts, and the smooth interface allows me to see my spending habits, net worth, cash flows, and retirement elections. This is a free site to use and I highly recommended everyone give it a look. The website Mint is also a quality resource that has more detailed budgeting tools, but Personal Capital is my favorite for its ease of use and appearance. Whatever you chose, remember that financial organization is key when it comes to building wealth.


I was lucky enough to major in finance in college, so personal finance comes easy to me. I understand this isn’t the case for everyone. For those without this background, this article might seem like a foreign language. Fear not, however, as there is an abundance of great (free) resources available to you. It’s up to you to self-educate yourself so you don’t fall into the same trap as everyone else. No longer can you claim ignorance when it comes to knowledge. Nobody will look out for your financial well-being, it has to be you. The calling card of the unsuccessful is to make excuses and blame society for their problems. This blame game shifts responsibility so they can continue to claim ignorance for their poor decision-making.

What can help me with this? Here are my favorite personal finance resources:

Better Curriculum in Schools

Schools need to step up to the plate when it comes to personal finance. The gross neglect of important life skills has failed the youth of America. This applies to colleges as well as formal schooling.

Personal finance should be a cornerstone of our educational system. Concepts such as debt, retirement, home buying, earning potential of different occupations, minimum savings rates, and a host of other topics should be taught every year from elementary school to high school and  on into college. Instead, children are taught non-practical topics such as geography or literature. Practical subjects are completely neglected so students can do algebra problems with paper and pencil. It’s astonishing these methods continue, but they do. Can you imagine if middle school students are taught about different jobs and the earnings potential of each? Imagine if this continued into high school – how much better would college decisions be, especially when it comes to choosing majors? Nothing screams practical more than personal finance. If schools figure out how to actually educate again as opposed to maximizing profits, the knowledge gap between the “have’s” and “have not’s” will slowly begin to close.

What can help me with this? Unfortunately, you can’t force your local public schools to teach certain subjects. The same can be said for colleges. However, there are free courses available that will certainly help on your quest to financial freedom:

Automatic transfers

Since my early 20’s, I have used automatic transfers to fund my savings account. It’s not ground breaking by any stretch, but automatic transfers every week from my checking account to my savings account have been wonders for my net worth. It’s an out of sight, out of mind method. You are “paying yourself” before you pay anything else.

I hear people say they don’t need automatic transfers, that they can fund their savings manually with their spare money. They are wrong. We can’t trusted to not waste excess money, so having it automatically save itself is the best course of action. Automatic transfers are a simple, yet highly underrated move for slowly building up your worth. Even if it’s a small amount, it’s SOMETHING. This amount will continue to snowball an eventually become a significant piece of your worth.

What can help me with this? Nothing, beyond setting up automatic weekly transfers from your primary bank account into a secondary account for saving money.

Supersize Your Income

At the end of the day, making more money is still the king of building wealth (shocker, right?). In order to earn more, you must be worth more. It’s up to you to differentiate yourself from the pack of average. You have to offer something better or different than everyone else. Lots of people expect to be paid for showing up, and not for actually offering a unique skill set that is valuable to an employer.

There is no shortcut to success. It requires deep focus and hours upon hours of dedication to developing mastery in a certain field. Hustle hard to improve your knowledge of your craft, and there is no question you will reap financial gain from it. It also doesn’t hurt to learn how to monetize a side hustle, something that can go a long way towards accelerating your savings. There are countless tasks/activities you can do on top of your day-to-day job to make extra income. Some tasks may be more boring than others, but if you are desperate, you have to do what it takes to get out of that financial purgatory.

What can help me with this? Here are some resources to help you with big ideas and lifelong knowledge:

How Do You BUY?

We can’t go through life without buying anything. But we can make sure the things we do purchase are bought at a good price. I’ve saved hundreds, perhaps thousands over the years by purchasing items at deep discounts or from wholesalers/manufacturers. If you are accustomed to buying things through retailers, chances are you have paid full price (and gotten ripped off) more than once. Be disciplined in your spending, but chose specific methods for buying that will save you money.

What can help me with this? Here are some e-commerce sites I use to buy goods.

  • Amazon – Most of my day-to-day items are purchased on Amazon, but for books, there is no equal. For almost every book, you will be able to buy a used copy for a few dollars plus the standard $3.99 shipping.
  • eBay – I always price check higher end items to eBay. You will often find the same item or something used once or twice at a deep discount.
  • Ali Express – The retail arm of the Chinese giant Alibaba (Its online sales and profits surpassed all US retailers, including Wal-Mart, Amazon and eBay, combined, since 2015). Ali Express is pure gold for deals. You are buying directly from Chinese manufacturer’s, so expect longer shipping times, but if you spend some time sorting through the muck, you will uncover great deals on apparel. These factories are often fulfilling contracts for big brands along side the non-branded items you will be purchasing for a fraction of he price
  • Slick Deals & Groupon other deal sites: Everything can be purchased at a discount with patience and a bit of searching. Regularly check deal sites for everything from vacations to big-ticket items.

I don’t care what your income level is, unless you are a uber millionaire,you should be saving money every time you buy something. These sites will help you tremendously.

Retirement MATTERS

As we discussed earlier, retirement savings is nonexistent for most Americans. So make sure you are putting money into a 401k account, offered by your employer. If that’s not an option (some smaller employer’s don’t offer this), then you must open an IRA/Roth IRA account. Retirement might seem far away, but you must start early it you want to accumulate a significant sum of cash. I suggest reading up on the basics of retirement accounts, including the differences between accounts, tax treatments,  and distribution laws.

What can help me with this? Here are some resources to get you started.There will be many banks/brokers at offer IRA accounts, so make sure to compare the pro’s ad con’s of each.

Summing It All Up

It’s time to get serious. You have no more time to waste. Attack your financial situation head on. Begin by creating a budget and analyzing your spending habits to see where you are wasting money. Implement the tips and resources I have listed above. You’ll be surprised how a few small changes will go a long ways towards enhancing your wealth. Remember:

Net Worth = Assets (cash, investments, etc.)  – Liabilities (debt)

Get your spending under control, no matter what your income is. You could make $1 million a year, but also spend $1 million a year. I could make $500k a year, but only spend $100k a year. Who is worth more?

Never stop trying to improve yourself, and with that dedication, you will begin to make more money. You just have to want it bad enough. Keep a laser focus on your savings and spending habits. Chances are there are several decisions you can make TODAY to do a better job of stacking money – REAL WEALTH. Hopefully the resources linked above help get you started. Be patient and disciplined and you will see financial results.

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