There are many causes why people go financially broke. Some reasons include: low income and could not get employment because of health reason. Those are logical explanation why they are penniless.
However, there are people with good income and yet financially broke. Why? The primary cause is they do not know how to manage their finances. They spend more than what they earn.
Example: A person who earns a monthly net income of $5,000.00 and spends $6,000.00 monthly. He/she has monthly shortfall of $1,000.00.
In is common for people to increase their spending when they earn more, instead of saving. They tend to live an extravagant lifestyle. A good illustration was a couple with two children, had a detached three -bedroom house.
When their monthly income increased, they decided to sell their three –bedroom house and purchased a five bedroom -house with a mortgage monthly payment of almost double of what they were paying on their old three bedroom-house.
Moreover, they gave away their old furniture and purchased expensive ones and also purchased two brand new luxury cars using their credit cards and line of credit. Therefore, paying exorbitant interest on credit cards.
Without savings, when the wife was laid off, It did not take long they defaulted their payments on their outstanding debts. The bank that financed their cars, confiscated one of their cars for non-payment of monthly installments. They were also behind on some of their bills.
The couple was in financial trouble for they did not know how to manage their finances. To properly manage personal finances, first and foremost, buy only items that you need not your wants. Big house, new furniture and luxury cars are not needs. Those are extravagant life-styles.
They were living more than they could afford – that was acting rich when they were not. An ideal way to budget your family income is as follows: 10%; 10% and 80%.
If you are God’s faithful follower you give the first 10% of your income to the church where you worship to help finance the operation of God’s church specially sharing the gospel (Good News) to others.
The next 10% is for force-savings. Save that amount for the “rainy days” so to speak, for possible times of need like: sickness and other emergencies. Don’t spend said savings for any other purpose, but in case of emergency only.
The balance of 80% that would be for all your other expense: food, clothing, housing, utilities, transportation, tuition fees, social events, vacations and miscellaneous expenses.
You need discipline (using your God-given will-power) on your spending habit to truly carry out the above-mentioned, ideal budget. Otherwise, you will never succeed financially, for acting rich makes you poor.