In my more than twenty years in the business of financial services I have personally seen various reasons why people went financially broke and for some not only once but two or more times. Some of the causes people go broke:
- They spend more than what they earn. They do not make a budget and as a result, they do not have savings in time of need or emergency.
- They purchase big house more than what they need. Because their friends or relatives have big houses they also buy a big house and carry a big mortgage, pay more property tax, utilities and house maintenance.
- Purchases are always on credit. With easy credit, every time they buy something, they use their credit cards, line of credits or apply for a loan instead of saving money before buying the item, except on big purchases like a car or a house.
- Pay only the interest or the minimum. Every time they receive statement of accounts on their credit cards, line of credit or loans, instead of paying more than the minimum they choose to pay only the minimum. Paying only the minimum is practically paying only the interest, thus, they could not get out of debts.
- Purchase or lease an expensive car. Instead of buying or leasing less expensive car, they choose to buy or lease expensive vehicle when they can barely afford. Furthermore, after paying in full the car loan or when the lease expires they buy or lease a new vehicle instead of keeping the old vehicle that is still in good running condition.
- Extravagant birthday celebrations. Instead of celebrating a simple birthday with only close friends and relatives, birthday celebrations are in luxury hotel or restaurant that cost a bundle of money.
- Taking expensive vacations. Instead saving money for vacations they take expensive vacations on borrowed money from their credit cards, line of credit or a bank loan.
- Eat outside instead of preparing food at home. They prefer to eat outside for it is convenient and relaxing.
To keep financially healthy, avoid the above causes of becoming financially broke.