There are seven financial sins that will keep you broke. Taken to excess they can even make you poor. Broke is a state of mind while poor is a condition of poverty. Broke is being deeply in debt but still getting a $8 coffee while being poor is not being able to buy groceries when you’re hungry. These financial sins are what keeps people in the middle class and working at a job they may not like for 40 years.
These are not rare conditions, this is a list of what most normal people do and think nothing about it. These financial sins are the default settings for the majority of people because they are what they see other’s doing, what their family did, how they are programmed, and they don’t know any better way. Most importantly this is the path of least resistance and just easy.
The first step toward repentance is acknowledging the sin.
Let’s look at the seven deadly sins of personal finance for people that want more out of life with their money.
1. Being financially illiterate
Education doesn’t end after school is complete, it begins when you leave school and decide what you want in life. Many times there is little to no financial education in school and people must educate their self. Too many people know nothing about how to manage their personal finances much less about accounting, business, real estate or investing. The first sin of personal finance is ignorance. You don’t know what you don’t know and you’re ignorant of your own ignorance.
To repent of this sin and educate yourself you must learn what you need to be successful in finance. You have many choices for learning, you can read finance books by authors you like, watch YouTube channels that are entertaining and educational, or Google what you need to know. Information is abundant today but attention and focus are scarce.
Learn about the areas of finance you need to know about, educate yourself.
2. Spend more than you make
If you spend more than you make you will always be broke regardless of how much you’re paid, you win, or you inherit. You can’t out earn out of control spending. This is the lifestyle creep that the middle class feels as they make sure they upgrade their car, house, or vacation with every pay raise, promotion, or bonus from work. If you increase your spending and debt with your income you will always be broke, you’ll just be sitting in a nicer car or home with no money.
This is even true for the biggest earners like professional athletes and lottery winners. If they receive large amounts of money and don’t know how to manage it, invest it, and make it grow it will disappear into consumer spending and bad choices. However, people that can manage money can come from nothing and become millionaires due to their knowledge, discipline, and focus.
If you spend less than you make you will not be broke, stop the cycle.
3. Stay in debt
Debt can be a tool in real estate and business to leverage the bank’s capital to earn more than you could with just your money. However, using debt for consumer goods that go down in value is a formula for being broke. If you are in bad debt then the money that should be going into investments and assets is going toward car payments and credit card payments. Large debt payments kill your positive cash flow and limits your financial choices in life.
You make payments on bad debt, you receive cash flow and capital gains from good debt. Your home mortgage can be good debt if the house goes up in value, your car payment is bad debt as it goes down in value. The more monthly payments you have the less capital you have for investment and asset acquisition. If you are buying things with credit cards and not paying off the bills monthly you likely can’t afford it and are living beyond your means.
Having a large amount of consumer debt shows a lack of self-control.
4. Sell your time for money
If you limit what you can make to how much you work then you will not be able to scale into wealth. Wealth comes from leverage and the way you get rich is to make money by using a financial model that doesn’t require a 100% correlation with your time. Your time is limited and you can’t duplicate it so the constraint limits your earnings.
Here are ways to make money without selling your time directly for money, the correlation is not 1 to 1.
- Create a business that makes money when you are not there.
- Buy a stock that pays a dividend.
- Own a stock that goes up in value.
- Sell option contracts on a stock you own.
- Publish a book you make royalties on.
- Create a cash flowing website.
- Create eCourses on your area of expertise.
- Create a YouTube channel.
- Rent an Airbnb.
- Rent a car on Turo.
- Own a vending machine.
- Own a home that goes up in value.
Of course time is required to research, create, and manage these assets but you don’t get paid for your time, you get paid for the monetary performance of your asset. You are risking some of your time and capital in some cases for a reward but you are not paid for your time. You’re investing you time and capital for potential future returns. These potentially cash flowing assets break the correlation between time and making money. This is the way.
Work a job to learn how a business works, gain experience, and make connections, don’t just sell your time for money, look for a personal return on your investment of time and energy.
5. A job is your only income
Almost everyone has a job when they start out in life but it shouldn’t be your only source of income or how you spend the next 40 years. You should have more than one source of income for financial risk management and to grow your wealth. Millionaires have on average seven sources of income according to the IRS.
- Employment income
- Capital gains income
- Interest Income
- Dividend Income
- Rental Income
- Business Income
- Royalty Income
It’s a financial sin not to start building at least some type of second income early in life. If you do it right it could be one of only seven sources of income one day.
6. Own no cash flowing assets
You must make a payment to own liabilities, while assets pay you to own them. Cash flowing assets have a profit factor when you own them. Once you have created one cash flowing asset then you can duplicate it over and over again. This is why you see so many businesses with different locations, once they have a financial model that works, they duplicate it to scale. This is why authors write so many books, they are each cash flowing assets. This is why entrepreneurs create businesses, they are cash flowing assets. This is what a trading or investing system with an edge is, a cash flowing asset over the long-term.
It’s a financial sin to not own any cash flowing assets.
7. Broke mindset
While having a rich mindset focused on wealth creation doesn’t guarantee you will be a millionaire a broke mindset can lock in your destiny of not having money. Creating wealth is not an easy journey and requires the right positive mindset to pursue it. A broke mindset is easy to identify as it’s a mental model of negativity, victimhood, and many times jealousy.
A broke mindset thinks that they will never get ahead, and that their current reality is their lifetime destiny. They don’t believe they can create wealth, get ahead in life, or become rich. They think wealth is only created by selfish and greedy people exploiting others. Most also have spending problems and think money is only good if it’s used to buy things. They have no understanding of saving and investing along with no self-control for spending.
Having a broke mindset is the unforgivable sin for cash flow. Capital avoids people with a negative mindset.
Now that you know the seven sins of finance go and sin no more against your money.
