7 habits of well paid yet broke people

Earning good money – be it salary or business, is the first step towards a good lifestyle and being financially well off. Yet, it is not common for people to be well paid, have good lifestyle but financially struggling – almost broke. It might not be visible in their lifestyle, but bank statements may reveal otherwise. And for most, this is entirely avoidable.  But then, it requires a change in habits and changing the lifestyle that led to this. What are some habits of well paid but broke people?

7 habits of well paid but broke people

Before I begin, here is a disclaimer – I am not advocating penny pinching or cutting corners. Nor am I advocating to skip things which you don’t enjoy (assuming a basic affordability!)

But then, it can be a good idea to understand where is your money coming from and where is it going and then make lifestyle choices accordingly. 

7 habits of well paid yet broke people

1 Debt/ EMI driven lifestyle

Well-off broke people often pile up lot of liabilities in form of debt and EMIs. Most of these loans can be completely avoidable. Yet, affordability of things is often driven by access to loans and debts. Some of these avoidable debt include consumer loans, car loan, home loan (for investment), personal loan etc. 

What leads to these debts?

Probably is is due to the very habits listed here, which left you broke to begin with! 

2 Love for good, luxurious things in life

Nothing wrong in liking all good things in life. Isn’t it? But what if these good things in life pinch a hole in your pockets? There is no end to money that can be spent on such good things. No?

You can rent an apartment for say, Rs. 25,000 or for Rs. 100,000 also in a posh locality in Mumbai. You can buy a wrist watch for $50 or $5000! You can buy a pen for Rs. 10 also and Rs. 10,000 also. You can use the same rationale for perfumes, toys, wine and other indulgences you love!

But, as income grows, desire for better things also grow much. And this can soon outpace our income. 

This unsustainable pursuit of good & luxurious things in life is often a common thread on habits of broke people.

3 Love for fancy cars

I am categorizing this in a different categories than good things in life because, this seems to be one of the biggest lifestyle upgrade which many people seek. And it can be quite an expensive upgrade!

There is a school of thought that says that a car’s role is to take you from point A to point B. There is another school of thought that says that car is a status symbol. If you follow the latter, it won’t be long before you start aspiring for a Honda City if you have an Hyundai Santro. Or aspiring for a SUV if you have a Honda City. Or aspiring for an Audi if you have a SUV.

It can be an endless loop. And an endless money sink too.

And if you are already close to being broke, you’ll most probably be funding your next dream car with a car loan, which may continue the cycle of being broke.

4 The unending pursuit of entertainment & leisure

Pursuit of entertainment can be an endless pursuit if you have time (and probably some money!). Imagine how much money you’ll spend if you watch a movie (and an occasional concert/ sports tournament) every weekend with your family at a good multiplex every weekend? And then get entertained in a game zone few times. This followed by a dinner at a good restaurant. In current times, we are spoilt for choices. All that needs to be done is throw some money and have some spare time!

Not difficult to estimate how much money you can blow in these (and many more such entertainment)!

5 Addictions which cost money

Addictions like smoking or alcohol or gambling can cost a lot of money. This is true for all – whether you earn less or more. How much you end up spending in these depends to an extent on your choice of addiction and places where you fulfill them? And how much can you save if you have none of these addictions?

6 Frequent, expensive & sometimes unnecessary travels

Last moment travel is expensive. Especially if you earn well and seldom prefer anything less than a flight and a good hotel/ resort to stay!

And not all last moment travels are due to some emergency or personal reasons.  It can be often an unplanned vacation or just escaping from the city. Maybe, nothing wrong in this. Most of us love to have some small breaks. But imagine how expensive it can be if done frequently and often without planning!

7 Financial planning limited to next pay raise, not financial goals

Let’s accept it – Many of us don’t have a proper financial plan. We are maybe cruising along  day to day lives. However, this make the pursuit of long term goals difficult because you don’t have any financial goal to begin with!

‘Maybe, this goal is limited to the next pay raise (in same company or a salary jump) and consequent upgrade in lifestyle! Any major jolt to these projected cashflows can possibly derail your financial plans.

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Footnote –

How am I defining well-paid?

In Indian context, you have salary of over 1 lac per month (but less than Rs. 50 Lac per year). In American context this can be like between $100,000 to $500,000 a year. This is just an arbitrary number chosen by me with an assumption that this money is more than enough to cover your basics & save money.

You can be broke even if you earn more than what I have considered upper limit there! But even the lower end of the salary range probably puts you among top few percent people of your country!.

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Have any other thoughts an observations?

Do share in comments!

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