3 Reasons Why You're Broke

Learn how to break bad habits, fix your finances and reach your money goals

If you're always running out of cash before your next paycheck, you may be in a recurring cycle of mismanaging your finances. Of course, some low-paying professions can contribute to your financial woes. But maybe you're carrying too much debt. Or perhaps you're not budgeting well or you don't know where your money is going each month.

While there are dozens of factors that could be keeping you in a cycle of struggling to pay your bills and eliminate debt, ask yourself if you're always broke due to any of these reasons – and learn how take action and boost your financial well-being.

1. You haven't planned ahead. "The primary reason people run out of money is a failure to understand just how much more expensive life will get over time," says Mike Pruitt, a certified financial planner with MBE Wealth Management in Sun Prairie, Wisconsin.

And if you don't realize that your everyday expenses will change 10 years from now, you'll probably compile too much debt, Pruitt adds. He recommends you ensure your home expenses and your total debt amount is no more than 30 percent of your income.

"If you can't find a reasonably priced home that fits within those parameters because of the other debts, then the answer is simple: You aren't ready for a home purchase and you need to focus on paying down your debts," Pruitt says.

He suggests people budget their income so 30 percent goes to all of your debt payments, from your home mortgage to credit card to student loans and so on. According to Pruitt, 20 percent should go to retirement savings and 10 percent should be applied to non-retirement savings like an emergency fund. The remaining 40 percent should go toward discretionary spending, such as your cellphone bill, movie tickets or a vacation, Pruitt says.

Even if you can't make Pruitt's formula work for you, just remember that with inflation, lifestyle creep and future expenses coming down the pike (think: saving for your kids' summer camp or college tuition), it's only going to get more challenging to cut costs.

2. You aren't tracking your spending. It's easy to fall into a pattern where you don't realize where your cash is going. "Sometimes, just knowing where your money goes is enough to change your behavior," says Stuart Ritter, a Baltimore-based senior financial planner at T. Rowe Price. "When I taught a personal finance class to undergraduates at Johns Hopkins University, one exercise I had them do was to track their spending for one month in two of three categories: entertainment inside their home (like internet access, Hulu, Netflix, movies and music they purchased), entertainment outside the home, like concerts and movies in theaters and food purchased outside the home, like fast food, snacks on the go and dinners out."

By the end of the month, Ritter asked his students to submit a short essay about the experience and what they learned. "[Students] seeing in black and white what they were spending was often both surprising and inspiring. Many of them had no idea how much they were spending on food that they could make almost as easily at home," Ritter says, noting that, as an added bonus, making meals at home is much healthier.

"So my first suggestion is to simply see where your money is going," he says. Ritter also thinks people shouldn't worry about where every dollar is going, since that can become overwhelming, but focus on a few categories of spending that they're concerned about. For instance, if you suspect you're spending too much on clothing, start tracking how much you're spending a month on your wardrobe. If you think it's probably your grocery bill that's getting you in trouble, tally up exactly what you're spending at the supermarket; if it's a sky-high number, it's time to start looking for ways to save, such as clipping coupons or looking for weekly specials.

"Having that knowledge can actually be enough, in some cases, to change behavior," he says.

3. You have poor financial habits. Emily Guy Birken, author of "The 5 Years Before You Retire: Retirement Planning When You Need It the Most," suggests that once you've tracked your spending, you can identify the source of your financial hardship. It may not be as simple as knowing you're spending too much money on entertainment, groceries or restaurants.

"The best way to end the paycheck-to-paycheck cycle depends on why you're stuck in it," she says. "If you're stuck in the cycle because of overspending, then you need to remove spending temptations from your life. Stop carrying credit cards, remove your credit card information from your favorite retail sites and move your savings account to a bank that is inconvenient for you to access." For example, if you often spend money over the weekend at the mall, consider looking into hiking at a nature park instead to curb costs.

Maybe the problem isn't that you are overspending – it's that you aren't budgeting, Guy Birken says. In this case, she says you might want to try some automatic savings and budgeting apps, such as Pennies ($3.99), Digit ($2.99 per month after a 100-day free trial period) and Rize, which is free. "These apps will save money for you automatically, or let you know how much you can spend in various categories," she says. For instance, if you want to spend a certain amount of money on groceries every month, Pennies will tell you how much you've been spending and how much you have left to spend before you run over your budget.

Perhaps you're always broke because of unexpected problems that come up, such as your car needing new shocks or a new serpentine belt. "If a lack of savings is the reason you cannot seem to break out of the paycheck-to-paycheck cycle, then starting an emergency fund is essential," she says.

Even if you've carefully constructed a budget that accounts for fixed costs, you should be prepared for unexpected expenses, like your car breaking down or your air conditioning dying during the summer. You should be able to pull money out of your emergency fund to always stay within your budget. Just make sure your budget has you putting money toward your emergency fund every month, so you always have enough money for those surprise expenses.