There are several financial lessons we can learn from broke people, even though some of these people haven't made the wisest financial choices or they’ve dealt with hardships beyond their control. Their experiences and mindset can help us grasp the right and wrong ways to manage our personal finances. For that matter, here are seven financial lessons we can learn from broke people.
Unfortunately, some broke people fail to realize that they don't need everything they want. In a perfect world, we all would be able to walk into any store and buy the things we like. But given our limited income, and the fact that we have other financial obligations, we have to prioritize spending and save up for certain purchases. People who master these financial lessons typically have more cash in the bank.
There is no rule that says you have to move out as soon as you get a job, unless you and your parents are simply unable to live together. The truth is, many entry-level salaries don’t cope with the high cost of living in certain cities. While moving out might provide the independence you seek, you might not be financially ready to be on your own. Consider getting a roommate or staying at home until you're able to save up and improve your finances.
If your job seems stable, you may feel that you're invincible to a layoff. However, no one is invincible, and pink slips can come without warning. Some broke people used to earn a lot of money, but due to circumstances beyond their control, they find themselves living paycheck to paycheck, or just getting by.
Buying a house is the so-called American dream. Unfortunately, purchasing a home requires a down payment which can wipe out any emergency savings you have. In addition, homes require regular maintenance and repairs that require a cash reserve. If you're not earning a lot of money, buying a house might complicate your finances, in which case you’re better off renting.
Even if you’re broke, you need to set cash aside for an emergency. It might not be the 3 to 6-month cash reserve that financial experts recommend. Even if you’re only able to save $1,000 or $2,000, that’s money available for a financial crisis, such as a car or home repair. Deposit something from your paycheck into savings each pay period, whether it’s 5% of your income or 10%.
Even if you’re living paycheck to paycheck, living within your means can reduce financial worries. What does this mean exactly? For example, your house payment should be no more than 28% to 30% of your gross monthly salary. In addition, your total debt payments should not exceed 43% of your gross salary. If you stay within these percentages, you'll probably have enough money to cover remaining living expenses.
People with a huge bankroll might be able to travel and shop but in all honesty, money does not bring true happiness. I personally know a few self-proclaimed broke people. They always have a big smile on their faces, and they’ve learn how to be content and make the best of their circumstances. This proves that you can be grateful even if you don't have a lot.
There are many financial lessons we can learn from people who don't have a lot financially. Whether you’re trying to improve your personal finances or make peace with your current lot in life, remember that money does not define you or determine your happiness.
What other lessons can we learn from people who are broke?