1. They confuse income with wealth
Some people get lucky and fall into high-paying jobs without having to put in much time or effort. Yet often, people with large salaries work hard to get there. But just because you work hard for your money doesn’t mean you’re actually saving it, or using it to get to a financially stable position.
One mistake people make all the time is figuring that because they earn a lot, they can afford to spend a lot. In reality, if you don’t keep any of your income, you’re going to end up broke.
A 2024 PYMNTS survey found that 48% of people earning more than $100,000 a year live paycheck to paycheck with no money in savings to fall back on. And the same holds true for 36% of people earning more than $200,000 a year.
If you’re fortunate enough to earn a six-figure salary, use it to better your financial situation. Aim to save 15% or more of your pay for retirement, and make sure you have an emergency fund with three to six months of expenses in savings at all times.
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Learn More2. They spend a lot on brand names
It’s okay to splurge on a quality item from time to time, especially if it’s something that helps you earn money, like a laptop you use for your job. But if you feel compelled to only buy brand names — and the fanciest ones out there — you’re likely to end up in a bad place financially.
During the third quarter of 2024, U.S. household debt increased by $147 billion, according to the Federal Reserve. And in that same quarter, mortgage, auto loan, HELOC and credit card balances all rose as well.
If you want to avoid becoming broke, don’t buy things — whether it’s a car, a house, or clothing — with the goal of showing off. Instead, buy things with the goal of addressing your needs as economically as possible.
Rather than get people’s respect, by being showy, you might end up becoming more alienated.
3. They lack financial discipline
People who are secretly broke tend to give into impulse purchases rather than plan and budget. And worse yet, they tend to use credit cards to fund impulse purchases, driving themselves even deeper into debt.
A 2024 Capital One Shopping report found that 89% of consumers have some history of impulse buying. So if you occasionally spring for a new outfit or gadget on a whim, you're not alone.
But while the occasional impulse purchase may not hurt your finances that badly, consistently making impulsive purchases probably will. Rather than do that, get yourself onto a budget and think carefully about the things you’re willing to spend money on.
And in the context of online impulse purchases, you may want to employ the 24-hour rule. When you’re tempted to order something online, put it into your cart and wait 24 hours before completing the transaction. If you still want the item a day later and can justify its cost, buy it. If not, delete it from your cart.
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Learn more4. They keep chasing get-rich-quick schemes
There are certain tried and true methods of growing wealth over time. These include buying a home and seeing its value increase, investing in stocks and holding them for decades, and putting money into bonds for slower but stable returns.
Chasing get-rich-quick schemes, on the other hand, is a good way to end up with less money rather than more. And that sort of behavior could run the gamut from putting money into speculative investments to peddling an overpriced product in a multi-level marketing (MLM) setup.
Fundera research says that about one in 13 U.S. adults has participated in an MLM. But it also found that at least 50% of MLM participants drop out after one year.
The unfortunate reality is that a lot of the direct sales or MLM opportunities people come across have the potential to result in financial losses, making them quite risky.
Even investing in stocks on a short-term basis is a risky move, because it commonly takes time for stocks to gain value. So instead of trying to make a quick buck, focus on ways to slowly but consistently grow your net worth, such as contributing to your employer’s 401(k) every month and choosing smart investments within that account.
5. They don't have an actual financial plan
When you head out on a road trip without directions, you risk getting lost along the way. Similarly, if you go through life without a financial plan, you risk winding up broke — or if not broke, at the very least, shy of your money-related goals.
A 2024 Northwestern Mutual survey found that 55% of Americans don't have a broad financial plan that allows them to balance near-term and long-term goals. If that’s the case, it’s a good idea to talk to a financial advisor and get on a better path.
An advisor can help you manage your income and work toward different objectives. They can also steer you away from mistakes that are likely to hurt your finances rather than help them.
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