How to Go Broke in a Year or Less

I think it’s interesting how someone’s habits change from when they’re building wealth to when they have it.

When you’re building wealth you typically have pretty stringent rules in place to follow to help you get to where you want to be. But as soon as people have money, it’s time to break all of those good well-established habits and show off their money. Those actions can ultimately reverse all the work you’ve done, and cause all of the wealth you’ve built to seemingly vanish overnight.

It’s a lot easier to lose or spend money than it is to gain or make it. Here are three of the easiest ways to become broke in a year (or less). By learning about them, hopefully, you can avoid them.

1. Buying Materialistic Things

One of the quickest ways to go broke is to spend money on materialistic things, things most people never need. Whether it’s designer clothes, flashy cars, or anything in between. When people feel like they’ve ‘made it’, they get the sense they have to show everyone about it. Which often goes against how they got to where they are in the first place.

While someone is working hard and creating wealth, they aren’t spending money on things. But then all of a sudden when someone has wealth, a switch flips and it seems like a good idea to break all of their good habits, and instead of continuing to build wealth, they blow their money. From look at all of the money I have, to look at all of the money I had.

You often hear about professional athletes or celebrities going broke. When people start making money they lose their sense of reason and spend it all, usually on stuff that doesn’t matter. That’s why building good habits early on is important.

When it comes to materialistic things, no one remembers what they wore a month ago, let alone years ago. So no one else will remember what clothes, or watches, or expensive things you had in the past either. So I wouldn’t focus on that, honestly, no one who truly cares about you, cares about your ‘things’.

2. Chasing Stock Market Profits

With cryptocurrency and other hot stocks as of late, a lot of people are flocking to markets to try to get rich quick. The problem is a lot of people lose money, and sometimes a lot of money.

Stock markets don’t create wealth, they transfer wealth. Every time someone sells, someone buys, and vice versa. Not everyone gets rich, people are often holding on to expensive companies, or selling for huge losses. If you lose 50% of your investment, you actually need a 100% increase for you to break even. It’s a lot easier to lose money than it is to make money.

People take on more risk than they can really afford to, and it often turns out to be disastrous. Putting people in tough financial situations for often very long times. It’s important to understand how investing works, the fundamentals of companies you want to invest in, and what good returns are. If you’ve made a good investment, and have profit, know when to get out and lock those profits in.

Despite people saying these stocks are going to the moon, there’s actually no stock market on the moon, or currency, or value. The moon might actually be the worse place for stocks to go to.

3. Not Thinking About Your Future Self

With money, especially new money, a lot of people get the impression it will go on forever, that they don’t need to worry about things normal people worry about. Things like budgeting, setting up an emergency fund, saving, and investing for their future.

That causes people to be underprepared and exposes them to a lot of risk. When we’ve created wealth, there are things that can happen to us that would deplete it. Things like being unable to work, or an unexpected death.

On the other hand, some people just don’t think much about the future, the yolo mentality. Causing people not to put things in perspective or think big picture. Good financial health is a balancing act of living a happy lifestyle today while looking out for your future self. You want to do things that your future self will look back on and thank you for.

I believe 100% that everyone should do what makes them happy, otherwise life is not really worth it. But again, it’s a balancing act. Spending everything today and having nothing for tomorrow doesn’t make sense, and neither does having nothing now while saving everything for tomorrow.

About the Author

Derek Condon, CFP®

Derek Condon is a Certified Financial Planner and Mortgage Advisor specializing in financial planning, investments, wealth-preserving insurance, mortgages, and others. I help my clients with a variety of goals. From someone who is just starting their investing journey to a retiree managing their wealth. From a first-time home buyer to someone refinancing to get their very best mortgage. And, of course, everywhere in between.