• Make It or Break It. The Day You Realize You’re No Longer Broke

    by  • November 8, 2011 • Lifestyle, Money Management and Planning • 1 Comment

    If you’re successful in digging yourself out of debt, the day will come when you aren’t broke anymore. The mountain of struggle and sacrifice that was ahead of you for so long is now behind you.

    This is a defining moment.

    Will You Go Back?

    Recidivism is a common phenomenon among convicted criminals. Recidivism is when a person is arrested and sent back to prison after being released either on parole or after completing their sentence.

    According to Wikipedia:

    One of the main reasons why [convicts] find themselves back in jail is because it is difficult for the individual to fit back in with ‘normal’ life. They have to reestablish ties with their family, return to high-risk places and secure formal identification; they often have a poor work history and now have a criminal record to deal with. Many prisoners report being anxious about their release; they are excited about how their life will be different *this time* which does not always end up being the case.

    Does this sound familiar?

    Without a fundamental change to the way you think about and manage money, simply having money doesn’t change anything.

    Mentality and Self

    Being broke defines you. You have a reason for not going on nice vacations (where you would form enduring positive memories with your friends and/or family). You have a reason for not investing in your personal appearance. You have an excuse for not engaging in many behaviors which would make you more appealing to other people and possibly more successful. You have an excuse for not doing all the things that financially healthy people enjoy.

    Maybe the truth is that you’re just not an interesting person. Maybe you don’t go out and do interesting things because you’re afraid to be around other people. Maybe you don’t go on trips because you just don’t care about what’s out there in the world. Maybe you don’t invest in making yourself more appealing to other people because you don’t feel comfortable being around other people.

    But perhaps you’re a wonderful and interesting person trapped by a set of bad habits and lack of knowledge about personal finance and money management. I’d like to believe that I fall into this category.

    Being broke gives you an excuse to live with these shortcomings. Having no money enables you (in a backwards sort of way) to perpetuate whatever is keeping you broke. Better yet, you can project all of your shortcomings on everyone else. It’s the big banks that are stealing your money. Or maybe you choose to believe that materialistic people are shallow and less interesting than you are. “They only care about money.”

    The truth is that none of those things are true. The world is not out to get you. The banks aren’t trying to destroy you. And past a certain point, how much money you have doesn’t define who you are as a person.

    If you’re successful in improving your financial health, and reach a point where you have no debt and have enough savings to endure reasonably adverse unexpected events, then you will have to decide what your future holds.

    My Big Day

    This day came for me. And when it did, it completely freaked me out. It crept up on me over a series of several weeks. For the first time in my life I had real money in the bank.

    For years and years, every time I received a financial windfall, the money went straight to pay off debt, leaving me with nothing. Then my bad money management skills would work me straight back into debt. This cycle repeated over and over.

    I eventually got myself on the right track. Years later I had paid off all my debts. Several months later I received a bonus from my employer and received a nice tax refund. That money went into the bank and it stayed there.

    For about two months I dove in to learn about investing. I thought that now that I had money in the bank I was on the verge of becoming a zillionaire through savvy investments. I was so eager. I felt that I had accomplished so much. I felt that the hard part was behind me.

    Pause

    What I realized was that it was more important for me to not go back to the lifestyle of being broke than it was for me to become a zillionaire overnight. I knew that the likelihood of losing money was higher than the likelihood of making money through investments given my relative lack of competitive advantage in the marketplace. I knew that investing was absolutely in my future. And I knew that I wanted to be successful at it. And that meant waiting until the probability of being successful was more in my favor.

    Taking time to pause at this turning point was invaluable for me. It gave me time to appreciate what I had accomplished. It gave me time to think about all of the lessons I had learned through my past mistakes. It gave me an opportunity to set new goals and develop plans to achieve those new goals.

    The Bottom Line

    Money management is a skill like any other. Some people know how to paint in the impressionist style. Some people can drive an 800 horsepower car around a track at 200 miles an hour without crashing. Some people can play the trumpet. Some people can build rockets. Some people can perform brain surgery. Some people can manage money.

    Money management is a simple skill that anyone can learn. However, the psychological association between wealth and personal identity is hard to change. And until a person allows him or her self to accumulate wealth, they won’t. They will come up with reason after reason to justify their financial situation, deferring the moment when they have to confront their financial mistakes and admit that their choices have yielded all of the financial abilities and disabilities that they live with.

    Final Note

    Many people are broke by circumstance, not by (bad) choice or dysfunction. These are not the people I’m talking about. Those who are broke by circumstance need aid more than they need lessons in personal finance. There can be a grey area though between the two groups however. Some financial hardships are caused by lack of planning, knowledge and forethought and are therefore entirely preventable. Others (such as those caused by inherited diseases or injuries caused by an accident) cannot be foreseen and therefore need treatment instead of prevention.

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    About

    I had an unhealthy relationship with money until my early 30's. I write about how I developed a healthy relationship with money. I share ideas about personal finance that have helped me to break the cycle of living paycheck to paycheck and achieve greater financial freedom.

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