It’s no secret that our country is in the midst of an economic crisis. The pandemic and the current recession have decimated businesses large and small, leaving millions of Americans unemployed and struggling to make ends meet. If you’re one of the many people who are currently broke, you may be feeling hopeless and wondering how you’ll ever get ahead financially.
But there is hope. While it may seem impossible to get ahead when you’re broke, it can be done. It will take time, effort, and discipline, but if you’re willing to put in the work, you can get your finances back on track. Here are seven steps to get ahead financially when you’re broke:
- Create a budget
- Build up an emergency fund
- Pay off your debt
- Start investing
- Save for retirement
- Earn extra income
- Live below your means
1. Create a budget
The first step to getting ahead financially is creating a budget. This will help you pinpoint where your money is going and where you can cut back. There are a number of ways to create a budget, so find one that works for you and stick to it. There are also a number of helpful budgeting apps that can make tracking your spending easier.
The first step to creating a budget is understanding your current financial situation. This means knowing how much money you have coming in and going out each month. Once you have a clear picture of your financial status, you can start working on a budget that makes sense for your situation.
One common mistake people make when creating a budget is over-estimating their income. It’s important to be realistic about your income so that you don’t end up spending more money than you actually have. Another mistake people make is underestimating their expenses. Make sure to include all of your fixed expenses, like rent or mortgage payments, as well as variable costs, like groceries and gas.
Once you have a good idea of your income and expenses, you can start creating a budget that works for you. There are a number of different ways to approach budgeting, but one simple method is the 50/20/30 rule. This rule divides your after-tax income into three categories: 50% for necessities, 20% for savings and debt repayment, and 30% for discretionary spending.
While the 50/20/30 rule is a helpful starting point, it’s not a one-size-fits-all solution. You may need to adjust the percentages based on your unique financial situation. For example, if you have a lot of debt, you may need to allocate more of your income towards debt repayment. Or if you’re trying to boost your savings, you may need to cut back on discretionary spending in order to reach your goal.
The most important thing is to find a budgeting method that works for you and stick with it. Creating and sticking to a budget can be difficult, but it’s worth it in the long run. A budget will help you stay on top of your finances and reach your financial goals.
2. Build up an emergency fund
Another important step to getting ahead financially is building up an emergency fund. This will help you cover unexpected expenses, like a car repair or medical bill, without going into debt. Aim to save enough money to cover three to six months of living expenses.
No one ever thinks they’ll need an emergency fund—until they do. Whether it’s a sudden medical expense, a layoff, or a major home repair, having a cushion of cash to fall back on can make all the difference. But if you’re living paycheck to paycheck, it can feel impossible to save.
How can you get started?
Automate your savings: Set up a direct deposit from your paycheck into a separate savings account, and make it automatic. This way, you won’t be tempted to spend the money before it hits your account. Even better, you’ll start to accrue interest on the funds, which can help them grow over time.
Cut back on expenses: Take a close look at your budget and see where you can cut back—even by a little bit. Every little bit counts when you’re trying to save. You may be surprised how much money you can save by making small changes to your spending habits.
Pick up some extra work: If you have some free time, consider picking up a part-time job or freelancing gig to help boost your income. This extra cash can go straight into your emergency fund so that it grows even faster.
Start with $1: Yes, really! Just because you don’t have hundreds or thousands of dollars doesn’t mean you can’t start saving now. Set aside whatever you can each month until you reach your goal—even if it takes longer than you’d like. The important thing is that you’re getting started and building good habits for the future.
3. Pay off your debt
If you have any outstanding debt, now is the time to pay it off. The sooner you can get rid of your debt, the better off you’ll be financially. Make a list of all your debts and create a plan for how you’ll pay them off. You may want to consider consolidating your debt or negotiating with your creditors for lower interest rates or payment terms.
One of the most effective ways to pay off debt is by using the snowball method. This involves attacking your smallest debts first while making minimum payments on your other debts. As each small debt is paid off, you’ll have more money available to put toward the next smallest debt—and so on until all of your debts are paid in full. Not only does this method allow you keep momentum going as you pay off debts, but it also helps address any feelings of overwhelm by breaking the process down into smaller, more manageable steps.
If you’re struggling to make your monthly debt payments, the first thing you should do is contact your creditors to explain your situation. Many creditors are willing to work with customers who are having financial difficulties. They may be able to lower your interest rate or extend the term of your loan so that your payments are more affordable.
If you’re unable to reach an agreement with your creditors, you may want to consider filing for bankruptcy. This should be a last resort, however, as it will have a major impact on your credit score and make it difficult to obtain new credit in the future.
There are also non-profit organizations that offer counseling and assistance for people who are struggling with debt. These organizations can help you create a budget, negotiate with creditors, and develop a plan to get out of debt.
4. Start investing
Another way to get ahead financially is by investing your money wisely. This could include investing in stocks, bonds, mutual funds, or real estate. If you don’t have much money to invest, there are still options available, like investing in penny stocks or index funds.
Many people believe that in order to start investing, they need a large sum of money. That simply isn’t true. There are plenty of investment opportunities available for those with limited funds. Here are the best investment options when you’re broke.
Employer-sponsored retirement plans – If your employer offers a retirement plan, such as a 401(k), 403(b), or 457(b), contribute as much as you can. Employers often offer matching contributions, which essentially means free money for you. If your employer doesn’t offer a retirement plan, consider opening an Individual Retirement Account (IRA).
Savings account – A savings account is a great place to start investing if you don’t have much money. Look for a high-yield savings account so that you can earn more interest on your deposited funds. Many online banks offer higher interest rates than traditional banks. Just be sure to research the bank thoroughly before depositing any money to ensure that it’s FDIC insured.
Certificate of deposit – A certificate of deposit (CD) is another safe investment option for those with limited funds. When you open a CD, you agree to leave your money deposited for a fixed period of time, usually between six months and five years. In exchange for locking up your money, the bank offers a higher interest rate than what’s offered on savings accounts. CDs are FDIC insured, just like savings accounts.
Government bonds – Another safe investment option for those with limited funds is government bonds. These bonds are issued by the federal government and are backed by the full faith and credit of the US government. They tend to offer lower returns than other investment options but are still a relatively safe bet.
Mutual funds – If you’re looking to invest in stocks but don’t have a lot of money to do so, mutual funds are a good option. When you invest in a mutual fund, your money is pooled together with other investors’ money and invested in a diversified portfolio of stocks and/or bonds. This allows you to diversify your portfolio without having to buy individual stocks and/or bonds, which can be costly if you don’t have much money to invest.
5. Save for retirement
Retirement may seem like a long way off, but it’s never too early to start saving for it. If your employer offers a retirement savings plan, like a 401(k), make sure you’re taking advantage of it. If not, there are other options, like IRA accounts.
Start with a small savings goal. Trying to save too much too soon can be overwhelming and discouraging. Instead, start with a small goal, such as $50 per week or $200 per month. Once you reach that goal, you can gradually increase your savings until you’re putting away 10-15% of your income.
Think long-term. It can be difficult to think about retirement when you’re young and have other financial obligations, such as student loans or credit card debt. But if you start saving now, even if it’s just a little bit, compound interest will help your money grow over time. By the time you retire, you’ll be glad you started saving early!
Take advantage of employer matches. If your employer offers a 401(k) or other retirement savings plan, make sure you’re contributing at least enough to take advantage of any employer matches. That’s free money that can help you reach your retirement goals!
6. Earn extra income
One way to speed up the process of getting ahead financially is by earning extra income. This could include picking up a part-time job, freelancing, or starting a side hustle.
It may seem like an impossible task, but there are actually quite a few things you can do to earn some extra income even when you’re broke. From creative uses of your existing possessions to picking up odd jobs around town, there are plenty of opportunities to put some extra money in your pocket. So if you’re feeling tight on cash, read on for some ideas on how to earn a little extra income.
Get Paid for Your Online Activities: One easy way to make some extra money is to get paid for the things you’re already doing online. If you enjoy spending time on social media, for example, why not sign up for a service that will pay you to post content on behalf of brands? Or if you’re always sharing new articles and blog posts with your friends, you could start a blog of your own and get paid for advertisements. There are also a number of companies that will pay you to take online surveys or participate in focus groups. So if you’ve got some free time and an internet connection, there are plenty of ways to start earning a little extra income.
Sell Your Stuff: Take a look around your house—chances are you’ve got a lot of stuff that you don’t use or need anymore. One easy way to earn some quick cash is to sell some of this stuff that’s taking up space in your home. You can hold a garage sale, list items on eBay or Craigslist, or even donate items to a consignment shop. And if you really want to get rid of stuff quickly, there are always people looking for cheap furniture or electronics on Freecycle or similar websites. So go through your stuff and see what you can live without—you might be surprised at how much money you can raise by getting rid of things you no longer need.
Do Odd Jobs for People in Your Neighborhood: Another great way to earn some extra income is to do odd jobs for people in your neighborhood or community. This could include anything from mowing lawns and shoveling snow to walking dogs and running errands. If you’re not sure where to start, try asking family and friends if they know anyone who could use some help. Or post a notice in your local community center or grocery store letting people know that you’re available for hire. Once word gets out that you’re dependable and reasonably priced, chances are you’ll have more work than you know what to do with!
7. Live below your means
Finally, one of the most important steps to getting ahead financially is living below your means. This means spending less than you earn and being mindful of your spending habits. It may require making some changes in your lifestyle, but Living below your means will help you save money and become debt-free faster.
These are difficult times we are living in, but if you’re willing to put in the work, it is possible to get ahead financially—even when you’re broke. By following these seven steps, you can take control of your finances and build a bright future for yourself and your family.