Last weekend, a casual friend asked me if my husband and I wanted to join her and her spouse for a double date. The proposed plan was to leave the kids with a sitter, get dressed up (new shoes!) and hit the town for drinks, dinner and dessert at a trendy new tapas bar. “Sorry,” I told her as I expressed my regrets, “I’m broke.”
I find myself using those two words – “I’m broke” – as an excuse a lot lately. Why have I yet to pay my annual homeowner’s association dues? I’m broke. Why haven’t I purchased new tires for my car? I’m broke. Why am I still wearing the same jeans I bought eight years ago (aside from the miraculous fact that they still fit)? I’m broke.
But what does it actually mean to be broke? Miriam-Webster’s definition of broke can be summed up in one word – penniless. The fact is, while four in ten Americans live paycheck to paycheck – including an astounding 14 percent of those who bring home a six-figure salary – I’d venture to say the vast majority of people who say they’re broke aren’t.
Example 1: My Grandmother
I come from a long line of money hoarders, hence my penchant for saying I’m broke when I’m actually not. Case in point? My grandmother. At 85 years old, the woman hasn’t worked outside the home – and hence, hasn’t earned a paycheck – since the 1940s. That may seem like ample qualifications for her alleged penniless state, but on the contrary: she and my late grandfather saved and invested exceptionally well. My grandmother’s estate is actually worth more than a million dollars. But my grandmother refuses to liquidate any of these assets, relying instead on the meager paycheck she gets from my grandfather’s pension and her monthly Social Security check. When she says she’s broke, what she’s actually saying is, “It’s the 29th of the month and my social security check doesn’t arrive until the 1st, meaning for the next few days I’ll live off whatever gas is in the tank and food is in the cupboard.”
Example 2: My Dad
My dad, although not a blood relative of my grandmother’s, certainly inherited her definition of broke. I recently asked my parents if they planned to visit our house for my son’s first birthday. My father’s answer? Nope, sorry, I’m broke. Now, I know my father isn’t one of those high-earners who’s living paycheck to paycheck. Instead, he has an exceptionally frugal definition of broke. Instead of meaning he has no money in the bank, when he says he’s broke, he’s actually saying, “I didn’t fully fund my 401(k) this calendar year.”
Example 3: My Brother-In-Law
My husband’s oldest brother, in my opinion, encapsulates what many Americans who don’t live paycheck to paycheck mean when they say they’re broke. My brother-in-law and his wife, along with my two nephews, rent a home. They own two large SUVs, a 55-inch LED TV, every gaming console you can imagine and a membership to a ritzy country club. Yet, my brother-in-law is always complaining that he’s young and broke. But is he? When he says he’s broke, he’s actually saying, “I may not be able to afford to fill up my gas tank, but I’m not so broke that I’ll consider selling my gas guzzler.”
Setting Your Financial Priorities
The three examples above – as well as my own definition of broke – illustrate pretty clearly that the words “I’m broke” mean vastly different things to different people. Despite that, they all have something in common: whether you’re a millionaire senior citizen, a retirement-minded Baby Boomer or someone who thinks they’re young and broke, the way you view your financial state boils down not to how much money you make but how you prioritize it.
Ask yourself these three simple questions:
- Can I afford the items in my monthly budget without which I couldn’t survive? We’re talking the necessities of budgeting here: shelter, food, basic transportation.
- Is there enough money for the items in my monthly budget that I enjoy, but which aren’t necessary? You know this stuff, too: your $20 a week iced latte habit, my brother-in-law’s pricy membership to the country club, my addiction to cowboy boots (they are an investment, thankyouverymuch).
- Am I setting aside a part of my monthly income for my investments? This, of course, assumes you’ve already fully funded your emergency fund, which should have enough cash in it for at least six months of the expenses you listed in reply to Question #1.
If you answered yes to all three of these questions, then – sorry, Dad – you are not broke. Sure, you may be short on liquid assets, you may have a large portion of your net worth tied up in investments or property. You have the money to spend on frivolous things, you just choose not to because they’re ancillary to your life – in other words, they’re not a priority.
If you answered yes to questions one and three, then you’re probably not broke. You may not have the wiggle room in your budget to do the fun stuff – like whisk your family away on a grand vacation – but you’re doing what it takes to get by not only today, but in the future as well.
If you answered yes to questions one and two, you’re doing yourself a disservice. This would be my brother-in-law’s case. He has the money to invest in his retirement accounts and boys’ college funds, but they aren’t his priorities: instead, he’d rather blow the money on electronics and fancy cars. He may not be broke now, but if he continues on this path, he will most certainly be broke down the road.
If you answered yes to question one – and let’s be clear, if you’re only going to answer yes to one of these questions, it should be the first – then you are, truly, living paycheck to paycheck. While this doesn’t technically meet the definition of broke you’ll find in the dictionary (penniless, bankrupt), not having a stable financial foundation on which to fall back in case of emergency comes pretty darn close.
So why, then, do so many decidedly un-broke people, myself included, like to say “I’m broke”?
In some cases, I think people do it for the attention (I’m talking to you, brother-in-law). In other cases, such as my grandmother’s, they really do feel like they don’t have enough money. But for me, I simply do it because I don’t like to admit the truth: that the request at hand – be it a high schooler in my neighborhood selling magazines door to door or the friend who wants to out for an extravagant meal – isn’t a priority.
With so many Americans truly living under dire financial straits, I’m making a pledge to stop saying I’m broke when I’m actually not. The next time I find myself in a situation that makes me question my financial priorities, I’m going to take a deep breath, count to five and calmly say, “I’m sorry, but that’s just not in my budget.”