Top 10 Reasons Why People Are Dead Broke And Spend More Than They Earn

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The number one golden rule for financial freedom is to spend less than one earns. Yet I continue to be saddened talking with friends and family over the last couple of weeks. And this mainly why I have started recently doing some weekend posts focusing on personal finance for the trader. It's time we start learning together to make more money trading but also keep that money to invest over and over again.

When I talk to friends and family, to them it seems they will never be financially successful no matter how hard they work, how many hours they put in, how many promotions they receive, or how much money they make. Yet to me, the answer is clear. They are focusing on the wrong side of the coin - i.e. they are trying to MAKE more money instead of SPENDING less.

Common Sense Rule - Maybe Not

It sounds so simple, doesn’t it? Spend less than you earn. Yet there are many people out there burying themselves in debt (spending more than they earn) or living purely paycheck to paycheck (spending exactly what they earn).

We all know that simply spending less than you earn has a cascade of positive effects including:

  • Eliminating your debts
  • You build up some cash savings
  • Your stress level falls
  • You are now able to explore possibilities closed to you before
  • Your excess cash makes creates income
  • And many more...

It is a simple rule…however the U.S. has a very poor savings rate, meaning that this common sense rule may not be so common place. Nearly half of American families spend more than they earn each year!

The Only Chart You Need To Become Financially Free

I'll be the first to admit that my wife and I weren't always strong financially. Nor are we even close to where we want to be just yet and we are still young. But we are making progress each day.

I still have never owned a new car, we still live in our small 3 bedroom condo, and we keep ourselves to a very strict budget each month regardless of my trading income. It was tough at first saying "NO" to so many things we wanted but after a while you realize that you are much better off without them.

I keep this chart in my office for it's simplicity and effectiveness. Since we all are visual learners here (as stock/option traders and chartists) this may indeed help you understand why you are not financially free yet.

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Top 10 Reasons Why People Spend More

1) Just Can’t Say No. Some people feel like a failure when they can’t meet the wants of others. Whether it’s new toys for the kids, something new for one’s spouse, or a night out with friends, some people just can’t say no, even when they can’t afford to say yes.

2) Proving Self Worth? Buying that fancy new car proves you are somebody, right? For some people spending makes them feel like they are worth something to the world.

3) A Sense of Power. Spending money actually makes some people feel powerful. The more they spend, the more powerful they feel, and the only way to get that rush is to spend more money.

4) Modest Upbringing. Whether trying to make up for deprivation as a child, a fear of money being taken away that isn’t spent immediately, or a lack of financial understanding, being poor as a child is an often used excuse for the overspending of adults.

5) Lifestyle Maintenance. Most people increase their expenses as quickly as they increase their income. The same cannot be said for decreases in income. Once we become accustomed to a certain lifestyle, it’s pretty difficult to cut back, even if our financial situation  changes for the worse.

6) Immediate Gratification. It’s all around us, we’re bombarded with the immediate gratification mentality. “Instant relief”, “fast food”, “on-demand video”, and the big financial tease – “buy now, pay later”. We’re too used to getting what we want now even if we don’t know how we’ll pay for it later.

7) Plastic Doesn’t Feel Like Real Money. It’s common to spend more when using credit cards rather than cash. The experience of handing over a card that you get back is just not the same as handing over some cold hard cash and watching it disappear.

Need 3 More Reasons From You Via Comments...

I'm sure you can point to 100 reasons why people spend more and save less. I deliberately left out 3 (or more) reasons so that you all can add your comments to this post and help others. Your comments might just help turn someones financial life around.

About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at #215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.