<-- -->
Mon. Oct 28th, 2019

Just Over Broke

Financial Advice For The Soul

What To Do If You Are Broke

17 min read

Do you know what to do if you are broke?

You’ve reached rock bottom.

You have no money in your bank account.

In fact, your bank account is overdrawn and is negative, so now you actually owe the bank money.

You have no cash.

Your credit cards are all maxed out. Your credit rating is less than flattering.

You are living paycheck to paycheck, or worse yet, you have been laid off from work and you have no source of income.

You’re barely getting by on unemployment insurance and food stamps, if even that.

You have collection agencies constantly hounding you.

And you have no idea how you are going to get caught up on the rent or the mortgage, on which you have fallen behind.

You are, by definition, officially flat broke.

So this begs the question: 

Do You Know What To Do If You Are Broke?

just over brokeSo what you should you do if you are broke? What should you do if you are barely able to keep your head above the water, as you are swamped with bills and debt? And what should you do if you find yourself caught in a vicious cycle of living paycheck to paycheck, hand to mouth, with seemingly no light at the end of the tunnel, with which to give you the hope that you might be able to break free some day? Short of a miracle, what can you do to pick yourself up out of what may seem like a desperate situation, and turn things around?

First and foremost, you will need to understand what are your options. More importantly, in order to formulate an action plan to help you overcome financial adversity, and start living a life where you have abundant money (or at the very least, have enough money to make ends meet, and live a comfortable life, while being able to save a little extra) then you need to understand what it is that got you into this situation in the first place. Why dwell on the past, when you need to focus on the future? Why focus on the problem when you need to focus on the solution?

Personal Finance Does Not Offer A One-Size-Fits-All Solution

square peg round holeThe answer to the question “what to do if you are broke” is simple:

There is no one-size-fits-all solution for everybody.

So many financial experts out there will give you generic advice. But how many times have you read their advice, only to realize that your specific situation is unique and doesn’t exactly fit within the cookie-cutter profile that they try to categorize everybody as falling into. Everyone’s situation is unique.

Finances is a very cut and dry science. But the problem is that we are not cold, emotionless robots. We are human beings. We have responsibilities. We’ve got children, spouses, significant others, family members, and friends who depend on us.

Some of us:

  • financially support our parents or even our extended families.
  • have businesses.
  • are renters.
  • are homeowners, who are on the verge of facing foreclosure.
  • may be so over-leveraged, that we have to contemplate whether or not to file for bankruptcy (and if so, what kind – Chapter 7 or 13).
  • have a college degree and some of us don’t.
  • have medical issues.
  • live in rural areas.
  • live in metropolitan areas.

The bottom line is, every person is different. And the method to solving our financial problems can vary from person to person.

  • Some of us:
  • have religious convictions that motivate us to donate money to a church or a charitable organization.
  • follow religions in which paying compound interest is forbidden – such as in the form of credit cards or mortgages.
  • are more tax-advantaged than others, based on the number and type of deductions we can take.
  • have money saved up for retirement.
  • do not have any money saved up for retirement.

Therefore, in order to create a road map to help you figure out what to do if you are broke, we need to first answer the question:

How Did You Get Into This Situation?

pay yourself firstThere are a number of theories about how people get into financial ruts. Many financial experts exhort us to take responsibility for our financial failures, through a lack of financial education, a lack of financial discipline, a lack of financial planning, not paying ourselves first, not having access to good health insurance, homeowners insurance, or car insurance, and succumbing to the whims of our materialistic culture of instant gratification.

But it is not always the case. It would be very naive to assert that all of our financial problems are entirely of our own doing. Many times, fiscal difficulties can arise due to circumstances beyond our control. Life happens. Accidents happen. People get sick. People get injured. Theft can occur. Vandalism can occur. Deaths can occur. Anytime an unexpected expense is incurred, that you did not plan for, and you were not financially ready for, can become a fiscal burden that will bog you down, and if left unchecked, can lead you to having little to no money at the end of the pay cycle, and eventually into a downward spiral into the abyss of financial ruin.

Did We Get Into This Rut Due To Our Own Mistakes Or Due To Circumstances Beyond Our Control?

financial mouse trapIf we look back at the choices we have made, that got us here, into this mess, we might not always be able to say that the situation was preventable, particularly if it was due to causes beyond your control. But we can and we must use the circumstances that got us into our financial dilemma, as a teachable lesson, to help us seek the answer to the question as to not only how to get ourselves out of the situation, but just as importantly: how to prevent ourselves from falling into this financial trap again in the future.

But what about those situations where we get into financial problems due to mistakes of our own doing? There is a great deal of buzz across the Internet about the importance of financial literacy and financial education. This is absolutely true.

It is tragic that our public school system fails us by not including financial planning as part of its core curriculum. It does not teach us:

  • How to create and stick to a budget
  • The importance of saving money and paying yourself first
  • How to save for major investments
  • How to use credit cards responsibly
  • What is the difference between good debt versus bad debt

… and so on and so forth.

What To Do If You Are Broke And Living Paycheck To Paycheck

There are really two ways to approach the solution of what to do if you are broke:

Option A: Make more money

or

Option B: spend less money.

Different financial experts will give you different advice. Some will tell you to expand your horizons, be optimistic, pick yourself up by your bootstraps, and work on ways to make more money. Some will tell you to take a good hard look at your budget and figure out how to downsize to make it all fit within your existing means. The former implies “thinking big”, and the latter implies “thinking small”, depending on who you ask.

Another way to frame the aforementioned question might be:

Is it important to make more money or to work with the money that you have?

The Problem Of Cash Flow

cash flowIf you analyze your current financial dilemma, it does not take a rocket scientist to figure out that your problem really comes down to fact that you don’t have money to cover your expenses and obligations.

So there are really only two fundamental ways to resolve this issue of insufficient cash flow:

Make more money or Reduce your expenses.

(If there were a third option, it would be to do a combination of both.)

Let’s explore both of these options now, shall we? (And then later on we will talk about some of the measures that you can take in order to prevent yourself from becoming broke again.

What To Do If You Are Broke? Make More Money.

At the risk of stating the obvious, if you simply had the means or the ability to make more money, then your problems would be solved, right? But you already knew that. I assume that you have already thought of that. And you have probably already resolved in your mind that you are unable to do that.

My question to you is: why?

Why have you determined that you are unable to make more money?

Is it because you:

  • don’t believe you have any more spare time during the day during which you could get a second job?
  • can’t seem to find any spare time during which you could start up your own side business on the side?
  • feel that you lack the skills or the education necessary to be able to go out and get a better paying job?
  • blame your employer for not giving you that raise or that bonus that you think that you deserve?
  • have been looking for other jobs, in earnest, but nobody else seems to be hiring right now?
  • blame the economy?
  • have other family, personal, or social obligations or commitments that are taking up your time, attention, energy, and focus away from being able to devote any time toward those actions that can help you earn more money?

What if I were to tell you that these are all just excuses, conjured up in your mind?

What if I were to tell you that you can make more money, but the problem is that you are limiting your options?

Now suppose that the solution to your financial cash flow problems and what to do if you are broke requires you to start “thinking outside of the box”. What if it requires you to “step outside of your comfort zone”?

You Have To Start Thinking Outside Of The Box For Solutions For What To Do If You Are Broke

think outside the boxYou may or may not have heard of this expression… What does it mean to “think outside of the box”? This expression is a figure of speech. It refers to people’s tendency to go through life merely reacting to predefined choices placed before them.

If presented with two choices, humans will resign themselves to doing what is expected and predictable: choosing one of them. This person’s decision-making process, and the ensuing choices he makes, are figuratively “boxed in”, confined, and limited to just those that were presented before him. Very limited creativity, deliberation, critical thinking or problem solving skills were employed in order to make the decision. In fact, the person believes that there are no other alternatives apart from the obvious ones that have been placed before him or her. The stark reality is that when someone chooses to passively acquiesce to one’s circumstances, it can lead to weak-mindedness and being flat out broke and depressed.

Out of the box thinking refers to act of refusing to accept that they must choose from only those obvious alternatives that have been presented before you. You use your creativity, imagination, and ingenuity to devise a totally different alternative, or set of alternatives. This typically might violate “conventional wisdom”. It might require fundamental challenges to the original assumptions that led to the original boxed in choices in the first place.

Conventional Approach To Figuring Out What To Do If You Are Broke

Wage Slavery - What To Do If You Are BrokeYou have two choices of how to approach a scenario where you must decide what to do if you are broke:

Let’s say you have a job that pays minimum wage, and you work every day from 9am to 5pm. You cannot afford to miss even one day of work, otherwise you will fall way behind on your bills.

Let’s say that you have a job interview at another place of employment that pays twice as much as your current job. But the job interview is supposed to last for 2 hours and starts at 12pm sharp. It is a one hour drive from your home. So basically you are going to have to miss the entire day of work in order to attend this job interview.

And there is no guarantee that you are going to get this new job. You know that there is a risk involved, and you try to rationalize to yourself that it might be worth the risk. But what if you don’t get the job, and you fall behind on your bills further, and risk losing your home or having the utilities disconnected, for example?

Conventional, risk-averse, fear-based decision making might compel you to pass on the job interview and stick with what is safe: your current job. Your current financial situation might not be great. But at least the situation can’t get any worse, as long as you keep showing up for work every day.

Out-Of-The-Box Ideas For What To Do If You Are Broke

But out of the box thinking would require you to come up with a bold and creative solution that would allow you to still get paid for your work day while still being able to attend the job interview.

What are some examples of out of the box solutions to the dilemma presented in this mock scenario above? Here is where you have to brainstorm ideas. You have to come up with some creative solutions to the problem, and evaluate each one to see what are the risks and rewards, which ones would be practical and doable versus which ones would not.

For example, you could simply negotiate with the prospective interviewer on being able to do a phone interview during your lunch break. Or you could even offer to do the interview over video conferencing using Apple FaceTime, Google Hangouts, or Skype video chat, for example. Or you could negotiate with the prospective interviewer if you could do the interview before the start of your work day or after the end of your work day.

Another similar example of conventional versus out of the box thinking would be the question of whether to get up and go to work so that you can earn your paycheck and continue living paycheck to paycheck, or stay home to start working on a side business and risk being fired.

You would obviously choose the former.

But out of the box thinking would compel you to come up with creative ways to work on a side business without jeopardizing your current job, such as doing the work during your lunch break.

Stepping Outside Of Your Comfort Zone

Comfort Zone - Life Begins - What To Do If You Are BrokeAll living beings seek comfort. We want safety and security. We want guarantees in life. And we want to minimize risk. We want to ensure our survival. And we want to safeguard our self-esteem.

However, history has shown that when you remain comfortable, and are unwilling to struggle, unwilling to sacrifice a little bit of comfort, then you will never make progress.

But if you are willing to endure some inconvenience, hardship, struggle, and strenuous effort, then and only then will you be able to make significant progress and achieve your goals.

This is no different than the timeless axiom of “no pain no gain”.

If you are struggling financially and wondering what to do if you are broke, then you are going to have to work hard to get out of the hole that you have gotten yourself into.

You will have to work smart, not hard.

Therefore, in order to earn more money, you are going to have to think outside of the box in order to come up with a game plan of how you can achieve it. You are going to have to overcome any self-doubt, any self-defeating excuses. You will have to come up with a creative solution to your problem, that will allow you to earn more money on the job, start a side business, or get a new, better paying job.

And that is exactly what we aim to show you how to figure out what to do if you are broke.

Reducing Your Debt

debt elimination

There are two ways to eliminate the problem of what to do if you are broke:

  • earning more money
  • reducing your expenses

Thinking outside of the box, for ways to start earning more money, is a powerful means of curtailing your financial woes, and addressing the issue of what to do if you are broke.

Now let’s talk about debt reduction:

If you have credit card debt, then you know that if you don’t pay your balance in full each month, you are charged interest. If you are late on any of your minimum monthly payments, you are charged late fees.

The minimum monthly payment due mostly covers just the interest and late fees. Only a small portion of that payment actually goes toward paying down the outstanding balance.

This is a recipe for disaster. You are literally throwing your money away by perpetuating this vicious cycle.

Many financial experts will advise you to aggressively pay down your debt.

They advise you to do this by paying any extra money you may have in your budget, no matter how little, toward your outstanding debt. By paying more than the minimum monthly payment, you will get out of debt faster.

You will either be paying off your creditors with the lowest balance or with the highest interest rate first.

Once you pay off one creditor, you take the same amount of money you were paying toward the previous card and add that amount to the minimum payment toward the next card.

Each time you pay off one creditor, your minimum payment for the next creditor increases by the minimum payment you were paying toward the previous creditor.

This is called the “Debt Snowball” effect. The “snowball” of minimum payments keeps getting larger, the more you add to it.

Chicken And The Egg Conundrum

chicken-eggNow this is all well and good in theory. But if you are truly in a financial rut, you may not even have enough room in your budget, to be able to contribute toward the debt snowball.

So in that case, what can you do?

It is like the “chicken and the egg conundrum”: You need spare money in order to pay down your debt. But in order to have spare money to be able to pay down your debt, you need extra income.

I rest my case:

Do you have a plan for what to do if you are broke and need money fast? If you need to choose between earning more money and paying down your debt, the clear answer is that you need to focus your efforts on earning more money.

Once you earn more money, then you will be able to comfortably and aggressively pay down your debt. By attempting to pay down your debt with your existing income, you could actually end up making your situation worse.

Filing For Bankruptcy: Weighing Your Options For What To Do If You Are Broke

Bankruptcy - What To Do If You Are BrokeCan you do other creative things such as debt consolidation or even filing for bankruptcy? Yes you can. But here me out on this:

Even if you file for bankruptcy, you run the very real risk of falling back into debt again! That is, unless you take the necessary measures to change your spending habits and review your income and revenue sources.

They say that old habits die hard. You need to take the necessary, proactive measures to prevent yourself from falling into the same financial trap again.

It’s like gaining all of your weight back after going on a diet. It happens to far too many people.

Even if your financial rut is not your fault, you need to take action. You need to take preventative measures so that there is no next time. We want to ensure that we never fall into financial traps again. This is true even if it was caused by unforeseen life circumstances, beyond your control.

Again, this may require some out of the box thinking, to come up with a solution.

What To Do If You Are Broke And Have No Emergency Savings Fund

Emergency Savings Fund - What To Do If You Are BrokeMany financial experts will tell you that you need to start an emergency fund (or if you have exhausted it already, you should work on replenishing it again) of anywhere from three to six, to even twelve months worth of emergency living expenses.

The only problem with this advice is that it can take months, if not years to fully replenish an emergency fund. For many people, it could take one year to even two years to even be able to save one month’s emergency living expenses. At this point, some people might give up out of hopeless ambivalence. They might decry “why even bother”! But that would be a defeatist approach. Clearly, it takes a long time to build up an emergency savings fund.

And the chicken and the egg conundrum applies here as well: How do you save up for an emergency fund when you don’t have any spare money to save in the first place?

Furthermore, wouldn’t you rather put your spare money into paying off your debt before putting into an emergency fund? Or should we splitting our spare money? Should we be putting half of it into an emergency savings fund and half of it toward a debt snowball?

This is where out of the box thinking comes into play. Can you come up with ways to pay off your debt and replenish your savings at the same time?

The answer comes down to the need to make more money.

Do I Need A Loan Now? Uh, No You Don’t!

If there is a voice in your head trying to convince you that “I need a loan now“, just know that you don’t. Getting out a loan is a path that you do not want to go down, as a means to solve your financial conundrums. The math doesn’t add up. You may experience short-term boost in financial gain, but in the long term, you will end up suffering.

But What About Living Within Your Means?

They say that you should try to live within your means. Yes, of course you should never overextend yourself and spend more money than you make. But this should never preclude the fact that we have the  right to live up to our fullest potential. We have the right to earn more money.

Why settle for that minimum wage job, or that middle-class salary, when you deserve a chance at earning more money? Why settle for a dead end J.O.B.  where you will always be “Just Over Broke”.

There is one thing that you should be striving for:

To equip yourself with the knowledge, motivation, ideas, and tools necessary to step outside of your comfort zone. You should start thinking outside of the box. Strive to break free of the vicious cycle of living paycheck to paycheck. Stop living in a state of perpetual doubt about what to do if you are broke. You must endeavor to achieve the financial freedom and independence that you deserve.

If you need advice on what to do if you are broke, you have come to the right place.