3 Habits of People Who Are Never Broke

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People who are never broke use money in certain ways. Here’s how you can embrace their tricks. 

Being broke, or not feeling like you ever have enough money, can be a frightening experience. It can cause a lot of financial stress.

The good news is, there are some habits you can adopt that will reduce the chances of ever finding yourself in this situation. Here are three habits of people who always have at least some money to spare.

1. Spending less than you earn

According to Pew Charitable Trusts, a shocking 55% of Americans either break even or spend more money than they make each month. If you are doing this, you’ll never get ahead financially.

If you want to make sure you’re never broke, you’ll need to find a way to either increase income or cut expenses so you can set aside money to have in reserves in case you need it. In general, you’ll want to keep your spending to 80% of your income or less while saving the rest to give yourself a financial cushion.

You can do this by:

Keeping fixed expenses low: Do not commit to ongoing expenses (like housing costs and car payments) that exceed 50% of your income. This may mean you need to live somewhere cheaper, drive an older used car, or get a roommate.Budgeting your money: You’ll need to allocate where your funds should go to ensure you aren’t spending all that you earn or even close to it. Give each dollar a job and make sure you’re being realistic by tracking spending for a while before making your budget.Prioritizing paying yourself first: Aim to transfer at least 20% of your money on payday into savings (for short-term goals) or retirement or brokerage accounts (for long-term goals).

2. Avoiding high-interest debt

Debt makes it a lot harder to avoid being broke in two ways:

It increases your costs: Anything you borrow to buy costs you more because of the interest you must pay. If you buy something that costs $1,000 and you pay cash for it, you pay $1,000 for it (plus tax, if applicable). If you buy something that costs $1,000, charge it on a credit card with an 18% interest rate, and make only a minimum payment equal to the lesser of $20 or 2% of your balance, it will cost you $2,396.76 before it’s paid off.It takes away your future income: If you commit to debt, you are reducing the future income available to you. Part of the money you earn each month must go towards past expenses. In the above example, for instance, you’d be making credit card payments for 151 months. When you use current income to pay for past expenses, you have less to spend on current needs, so you are more likely to need to borrow more.

A recent survey conducted by Ramsey Solutions found that 40% of people who are in debt indicated they were struggling or in crisis financially. This is almost double the 22% of people with no debt who said the same. If you don’t want to be broke, try to avoid borrowing money, except for low-interest loans that help increase your net worth (like a mortgage loan). You can save up for larger purchases or buy used to keep costs down rather than borrowing.

3. Maintaining an emergency fund

Emergencies are inevitable and they can leave you broke if you aren’t prepared for them. A Pew Charitable Trusts survey found that 60% of households had experienced a financial shock over the past year such as major repairs or an income drop. More than half (55%) said this shock made it difficult for them to make ends meet.

If you want to make sure you never end up lacking funds, aim to save money for emergencies in a high-yield savings account. You should build an emergency fund with three to six months of living expenses so unexpected costs won’t send you into debt (or leave you facing long-term financial damage such as a foreclosure or repossession).

To save up your emergency fund, save your windfalls (like raises or tax refunds), work saving into your budget by cutting expenses like dining out or gym memberships, or consider working a side gig until you have enough emergency savings.

You can adopt these habits of people who are never broke, and soon you may find yourself in a position where you have plenty of money to live on and the financial security that goes along with it.

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