Why most people are broke
Why are most people broke?
I worked as an accountant, financial adviser, and investment manager for many years and from what I have seen people go broke either from bad luck or else because of some faulty personality trait.
To start with a personal perspective. Very early on, in secondary school, reading Charles Dickens' "David Copperfield", I was very lucky to learn this hugely important lesson:
“Mr. Micawber was waiting for me within the gate, and we went up to his room (top story but one), and cried very much. He solemnly conjured me, I remember, to take warning by his fate; and to observe that if a man had twenty pounds a-year for his income, and spent nineteen pounds nineteen shillings and sixpence, he would be happy, but that if he spent twenty pounds one he would be miserable. After which he borrowed a shilling of me for porter, gave me a written order on Mrs. Micawber for the amount, and put away his pocket-handkerchief, and cheered up.”
Dickens taught me that it ought to be a paramount principle in my life always to live well within my means. So far, with a bit of discipline and luck, I managed to do this. As soon as I expect my income to decline, I trained myself like Pavlov's dog to cut my expenses proportionately, (I was nearly always self-employed, and income fluctuations happen!) At times, especially during my student years, I even had to cut expenses to the bone, and learn to focus more on the good in my life: not being outright broke, people who still loved and respected me even during hard times, good books, simple food......
I always stay away from borrowing for personal expenses, though I did on various occasions borrow moderately to buy property, and less often (and very exceptionally) good quality stocks when at very low prices.
I also do not like to spend money on things I can do without and which will go to add to my worries and waste of time.
It is important to keep up one's image - smart suits, watches, cars - but I try to do this according to my actual image needs at the time. At times I needed an expensive cars because appearing successful was very important, but I went through most of my life so far driving comfortable, reliable, adequately powerful, and relatively inexpensive cars. I also eat out occasionally, but do not make a habit of it. I prefer a few close friends to the many. This last has helped me avoid many, but not all, jerks.
Over the years, I learned many precious lessons from observing and advising others. I am writing this piece to pass on some of these lessons.
First, many people not only take on too much credit for themselves which they just spend, rather than invest, but also are too willing to give credit to others. This is a very bad habit of some people in business who want to expand quickly. An acquaintance of mine did just this and it led to his bankruptcy. Everyone used to say what a fine gentleman he was when he carried them as debtors, but no one came to help him when the bank went after him.
Second, one has to look at the quality of one's life rather than just the assets s/he amassed. I know people who are harnessed to their unpleasant work like slaves, even though they are quite advanced in years, are rich or very well-off, and do not need the grief. They just keep amassing as a score, or sometimes to finance expensive hobbies, or even to leave their children even richer. There is nothing wrong with this if for you this is a quality life, and you get a kick out of it, but I often observed these people get very greedy and then make big mistakes. So, I guess, you have to take an arm's length view of things.
Some people I know gamble or drink alcohol. These can lead to ruin quicker than one imagines.
The best investment is in your health - this gives you energy and often helps you avoid high medical and pharma bills. All you need is half-an-hour a day of good exercise to get the blood going and the muscles used and flexed. (No need to lift weights, run marathons, etc.)
You have to invest in yourself, learning a skill, profession, and practical things you can do, to increase your chances of always having a job. Many people spend ages and huge amounts of dollars learning subjects of very little practical use, and thus with very few employment opportunities, perhaps misled by slick advertising promising heaven on earth if only one could get a degree. Education is a big and important investment and decide very carefully both what you would like to do as well as what would be wise to do. Ideally, you combine the two, but sometimes you just can't have perfection. Don't spend money on foolish degrees because you would then have the triple problem of no money, student loans, and no job.
Some people, especially seniors, go broke because they donated too much to their children too early, believing that if the need arose, their children (and their spouses) would help them. Sadly, this rarely works out. Keep your money to the very last, but make sure you leave a good will.
Some people went broke because they listened uncritically to bad professional advice. Professionals are susceptible to greed as much as other humans and sometimes their greed takes precedence over giving good advice. I advised many companies and it seems incredible to me that as soon as a company starts considering buying any other business (even a stupid one!), there's always some professional who urges them on and declares that acquiring the business is a brilliant opportunity not to be missed. There're a lot of business entities you should not even touch with a barge pole, zombie companies.....
I don't want to sound cynical, but there is also a lot of fraud and hoaxes out there and people who would skin their mothers alive to get hold of another buck or two.
Over-expenditure, taking and giving excess and inappropriate credit, susceptibility, and greed explain a lot of things but, unfortunately, luck plays a part as well. To hazard a wild guess, I would say that 50% of our life is effort, and 50% is just luck.
I know people who had to escape from their country due to war, carrying only what they could in a small sack. Others had to spend a lot of money trying to cure themselves or their loved ones from some illness. Others who thought their health was insured but were shafted by their insurance company when they fell ill. (Corporate interests and health mix as well as oil and water - we all know what goes to the top, and what goes to the bottom.)
So many bad things can happen in life that we have to thank God for every good day He sends along. But, there are two things we can do against luck.
First, to work smart and hard to build strong levees around a river before it floods. Preparation can avoid or make good a lot of bad luck. To make the metaphor literal, I am always so impressed when I visit The Netherlands to see how the Dutch managed to build such wealth and such a lovely country from a land below sea level.
The second thing we can do against luck is to build a strong community. I believe that how evolved a society is can be seen by the extent to which its members co-operate and assist each other in time of need. How much of a team the community is, rather each seeking his own selfish interests. I am therefore in favour of a caring society, rather than an uncaring one.
Bad personality traits can be improved or even done away with if one trains oneself, learns and through self-discipline. Bad luck, which at some time or another hits most of us, can be protected against by preparation and a strong community.
Source: https://www.quora.com/Why-are-most-people-broke
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