Broke vs. Poor

Broke vs. Poor

To say that I have made poor choices with my money is an understatement. When I look back at all the stupid things I decided to do with money it sometimes hurts. By the time I turned age 21 I had wasted over $100,000 in three short years. SICK! If you missed that, let me write that again for emphasis. I WASTED OVER $100,000 IN LESS THAN 3 YEARS BY THE TIME I TURNED 21 YEARS OLD! Now, I won’t get too much into that story (maybe another time), I do want to talk about the concept of being broke vs. being poor.

Broke vs. Poor

I want to lay out a quick definition so as to show the difference between being broke and being poor. Poor is a state of being brought on by circumstantial problems. Poor is a lack of income and resources to provide for the basic needs of life. That being said, poor does not mean stupid. My mother-in-law was poor for a little while. A single mother of three children with a mortgage and a part-time job. And though she was poor, she was an amazing budgeter and was able to provide for the needs of her family through wise financial choices.

Now broke, on the other hand, happens when well-meaning people make bad choices with their money. Broke is brought on by the lack of planning in one’s financial life. I like to call it “Financial User Error”. There are many people with the means and resources to build a solid financial foundation and grow wealth, but who seem to always be running out of cash. These people live paycheck to paycheck and wonder how they can ever get ahead. If you fall into this category, I’m glad you’re here!

We’ve All “Done Stupid”

Dave Ramsey likes to call out those who make mistakes by saying that they “did stupid”. I can definitely resonate with that. After going through more money in 3 years than I had even earned up to that point, I realized that I had done major stupid with my money. I had lost some great investing opportunities and the ability to make my money work for me.

Those of you who followed my Budgeting Basics Series were called to go through all of your spending over the last 2 months and detail out where EVERY DOLLAR WAS SPENT. If you still have that paper, it might be fun to go back and write “stupid” next to every frivolous transaction that you blew your money on. It might help you visualize how many times you wasted money on things that are not important to you. I would especially highlight any time you had to PAY INTEREST on anything (credit cards, short-term loans, etc.) because if you actually had the money for those items, you would not have paid any interest on them. I think it’s definitely freeing to admit you have spent your money in the wrong places because it allows you to stop living in ignorance of the fact that just because you make money, doesn’t mean you know what to do with it.

So, What Now?

If you are in the poor category, keep up your diligent work towards meeting the necessities of yourself and your family. If you are in the broke category, you have some work to do, but don’t lose heart! I would suggest going through the Budgeting Basics Series to help you get a handle on your spending. The series covers a few topics that will help curb excessive spending:

  1. Setting up a list of priorities to help guide your money-handling decisions
  1. Tracking your income/expenses to see where your money comes from and where it’s going. This will help you identify where you should STOP SPENDING YOUR MONEY!
  1. Setting up a budget to put all of your spending on paper before the month begins.
  1. Getting a month ahead so all of your money is available at the beginning of the month
  2. Using Savings Buckets to plan for irregular expenses so your monthly budget doesn’t get thrown off.

As someone who was in the broke category for the better half of a decade, I know that it can feel like you are stuck and what you really need is MORE MONEY! Trust me when I say that you would still be broke if you had more money. What you really need is a change in your mindset in how you think about your finances. GIVE YOURSELF A RAISE by getting on a budget and doing a little planning. We budgeters do have more fun than anyone else, so come join us and take the leap to the other side!

Comments: Are you in the poor category or the broke category? Do you feel like you are stuck living paycheck to paycheck? If you have started a budget, what do you find to be the hardest thing to stop or reduce spending money on? Is Men in Black 3 quite possibly the world’s greatest sequel? Will Smith has NEVER made a bad movie, amirite?

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Comments

  1. lol at the Will Smith tangent in the comments.

    I wouldn’t go so far as calling past money mistakes stupid. That is being a bit too hard on yourself. There are probably other less harsh words that are more accurate, such as naive or reckless. If you are recognizing those things as mistakes you are definitely not stupid. People who are stupid would never accept that those things are even mistakes at all.

    I’m currently riding the line between the broke and poor category. I have money saved up. So I guess I’m not technically poor, but since I’m between jobs it feels that way. Mostly I’m just trying to get my finances straightened and get more responsible with my money. Getting active with financial blogging is certainly opening my eyes to a lot though.

    • I think reckless is definitely a fitting word. Good call. The reason I like the word stupid is that is has a bit more bite to it and can serve as a wake-up call to those who are still doing it. You are right, acknowledging your mistakes means you are definitely not stupid, but at some point, you DID stupid with your money.

      Don’t get me wrong, I am definitely not calling anyone stupid, but there is a bit of freedom being able to look back and say “wow, I did some stupid stuff with my money”. I also look back and say things like “wow, I did stupid stuff in college”. Just the fact that your ackowledging it does show a sign of maturity and growth, ya’know?

      Thanks for dropping by 🙂

  2. I did stupid! We’ve always made decent wages, but I guess we’ve been less-than-brilliant about budgeting. Also, we did everything on our own. My parents didn’t pay for my education or my wedding. Jeff’s parents didn’t give him a house or a car. A lot of our peers were gifted these things, and I feel like we hit the ground running from the get-go. We started with debt! We’ve gotten close to paying it all off in the past, but we weren’t smart about it and definitely didn’t make it a priority then.

    • Good for you two, paying your own way! We did the same (paid for wedding, cars, house). The nice thing about budgeting is it kicks the whole “I can’t ever get out of this hole” mindset and gets you on a path to achieve some serious financial goals. Sounds like killing debt is your first goal, sounds like you’re almost there! WOOHOO! What goals do you have after debt payoff?

  3. DebtsnTaxes says:

    I don’t think I’m really in either category right now. In the past I was definitely in the broke category. Buying video games and eating junk food wasted a ton of money. The biggest thing we waste money on now is eating out. In the 3 months that we have been tracking our money we have gotten a little bit better at not wasting as much, but there is still work to be done. It’s a tough process, but hopefully my refi gets done in the next two weeks, that will really help the debt snowball that I’ve been waiting to start on.

    P.S. I was never really a fan of MIB, although Will Smith is a great actor. I should probably watch those movies again. Maybe I’ll like them now.

  4. MIB 1 is great, MIB 2 is…meh.

    Good luck on the debt snowball. It’s definitely a tough journey, but it’s SOO worth it! We definitely are prone to blow the food (including eating out) category as well! We just started a new way of meal planning, so we’ll see how that helps. My wife is AWESOME at keeping our food bill to a bare minimum already, so this new meal plan should just help us stick to our planned budget. Thanks for dropping by 🙂

  5. Amen! Just because you’re poor doesn’t mean you’re irresponsible or someone to be looked down upon. I don’t think we should look down on broke people because, like you said, we’ve all done dumb things over the course of our lives. But it does hint at some irresponsible tendencies. Great tips on how to fix!

  6. I definitely used to be “broke.” I was a dumb, young highschool dropout. But now my wife and me are getting by, I’m not even sure we could be called poor anymore, although we used to be. Good definitions, I compeltely agree with them.

    • Thanks for dropping by. I was definitely in the “broke” camp for a long time. I even had a ton of money, but blew it all and then had to move home after college because I wasted all my cash. Congrats on moving to a new category and good luck building your busniess and wealth. If you need any help getting on a budget at all, feel free to contact me directly using the Contact form at the top of the page.

  7. Great post and so true of course!

    It annoys me when people are always saying how broke they are, and I think, you have no f***king idea how lucky you are to be making the money you make… And I know they’ve been blowing it on designer gear, gadgets and other crap! Seriously, someone I know didn’t sponsor me for a charity event I participated in (not even for like £5) because they said they were broke, yet I know for a fact they’d bought the iPad just weeks before. Great priorities there.

    Get a reality check, get a budget, and start spending your money on important things! Most of these people wouldn’t know poor if it punched them in the face.

    I should mention I have no real issue with people buying that stuff (I do have an iPad! No designer rubbish though) if they CAN actually afford it, and also spend some on worthy causes and save enough for their future as well. Oh yea and don’t moan you are broke in the next sentence after saying you’ve just bought an £800 handbag!

    • People have jacked up priorities. But they are not honest about it. I’m even cool with people wasting money, as long as they admit it, and don’t complain when they can’t afford something that it truly important. Broke is a series of bad choices, and can be changes.

      There is a path from ‘Broke’ to ‘Wealthy’, and it’s start’s with a budget.

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