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Before I start diving the more financial related topics, I wanted to lay a foundation regarding the difference between being poor vs broke.
I will speak a lot about how to handle finances that is dependant on one’s financial status.
So to me, making the difference between them is a must. I encourage you to also read more and evaluate where you stand (assuming you have financial strain).
It’s almost universally accepted that having no money or very little money to live your day to day life with a decent standard of living. You don’t really get to spend money outside of survival (self or family) and there aren’t as many options to get out of being poor.
It is very possible to move up out of poverty and improve your financial status over time (see my debt story). Realistically speaking, you will have the hardest path towards success both short and long-term.
I was born into poverty and grew up incredibly poor in a household with 2 brothers and a single mom. It’s very hard to shake off bad habits and learn good ones when you live in an environment where it was rare to see or acknowledge any good financial decisions.
Some extreme indicators of being poor instead of broke (from personal experience)
- No bank account
- Extended use of pre-paid cards
- All income received via checks
- Every payment made is by money order
- Requiring financial assistance and use of government programs (this is more a fact than an indicator)
- Going to use payday loans
- Renting out furniture
- You live in the worst neighborhoods and it’s not by choice
The general theme of being in poverty is that all decisions made are for the sake of liquidity. Saving money is rarely an option and net worth is related to what you have on you.
To me, being broke means you can make a decent amount of money but you don’t have money to spend, mainly living beyond your own means. Being broke involves a much wider spectrum as you can be lower, middle, and in some cases upper-class.
More often than not, qualifying as “broke” is often attributed to having poor spending habits and subpar understanding of money in general. Unlike being poor, a good amount of people who are broke do have the money to allocate for a better lifestyle but are often not taking cash flow seriously.
Some examples of poor money management I’ve seen
- High utilization of credit cards (aka: maxing them out)
- Making minimum payments on credit cards
- Lower credit scores
- Lifestyle creep (ex: Get a $5K raise and decide it’s a good idea to buy a $40K car and eat out 3x a week vs 3x month)
- After making minimum payments you start noticing you have less in your account than the month before
- No savings despite high amounts of spending
I’ve seen that by the time these people decide to track spend and make a budget, they are in way over their head and are forced to live paycheck to paycheck.
IMO there are dozens of moving pieces in the art of brokenness (social status, peer pressure, work image, lifestyle, mental health, upbringing, cost of living adjustments, etc). Everyone’s situation is different, as long as they realize it’s time to get back on the right track and take action then I’ll be happy.
Why People Mistake Being Poor vs Broke
Even though we made some solid distinctions between poor vs broke, then why do people still think that being poor is the same as being broke?
My thought is that if you are poor, you are still living paycheck to paycheck. If you manage to move up and make more money and don’t don’t develop good money habits, you still run the risk of going from poor to broke
If you are broke, eventually you’ll end up living paycheck to paycheck despite that fact that you might have a higher income. Despite the reasons for how someone ends up living paycheck to paycheck, both situations end up forcing that person to make decisions based on lack of money.
What do you guys think? Sometimes I have conversations about this with myself but I’d like to hear from you.
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