7 Mistakes That Keep Even Smart People Broke

All too often we hear stories of people who go from ‘rich’ to broke following one specific incident such as the loss of a job.

The high-flying corporate executive suddenly faces the harsh reality that he had merely borrowed a lifestyle, all as a result a few mistakes which he wasn’t even aware he was making.

This article will cover 7 mistakes that keep even smart people broke.

1.  Putting too much focus on active income

Your academic and technical skills can only support you for the length of your career.

It therefore pays to accumulate assets that will generate cash to replace your working income. Many people instead make the mistake of focusing on increasing their salaries to sustain their lifestyle.

2.   Failure to pay attention to the growing mountain of personal debt

If everyone around you has accumulated a lot of personal debt, it is natural to think that this is normal. This results in taking out loans for all the wrong reasons.

Some people actually believe that they can borrow and spend their way to wealth.

Unfortunately these same people end up with more debt that they can ever hope to repay, mainly because most of the debt was used for consumption.

3.  Living way above their means

This may sound obvious but most people do not deliberately set out to live above their means. In most cases, peer pressure plays a very big role when it comes to making lifestyle decisions.

These include renting a house in an affluent neighborhood as opposed to actually owning a home, and taking out a loan to buy a car when they can barely afford the monthly payments.

4.  Confusing income with wealth

Many people base their financial targets on income without realizing that income is only one component of the wealth equation. Having an income is just the starting point.

But if you do not use your income to increase your net worth, you are not creating wealth. This is because income by itself is not wealth.

5.  No personal goals

Strange enough, there are people out there who have no personal goals whatsoever. In most cases, these are people who do what they do because everybody else is doing it.

All their life decisions are based on what they see others doing and when faced with financial difficulties, they drown themselves in self-pity. Don’t let that happen to you.

6.  Poor money management skills

If you have never faced any form of financial pressure, it is hard to appreciate that money management is one of the most important skills that can shape your financial destiny.

There are those who believe they can do away with personal money management until they have enough money to manage. Unfortunately, this very rarely happens.

If you find yourself broke all the time, irrespective of how much you earn, poor money management is a very likely cause.

7.  Lack of financial discipline

In many cases people who lack financial discipline are the first ones to tell you that money is not important.  They wrongly assume that for as long as they keep earning, they can waste as much money as they want.

Before long, they are spending tomorrow’s income on yesterday’s expenses, which keeps them broke.

Money has always been and will always be important because as a medium of exchange, you need it to take care of yourself and your loved ones.

It is important to note that these mistakes are largely as a result of the way the media portrays how financially successful people should live, as opposed to a flaw in personality, and can be corrected.