What to Do When You're Broke: A 6-Step Plan - Clo Bare Money Coach (2024)

By Chloe Daniels / 7 minutes of reading

We’ve all been there (I certainly have).

Being broke isn’t fun, but it’s something millions of us go through at some point in our lives.

If you’re in a rough patch and want to get out, this article is for you.

What does it mean to be broke, exactly?

Chances are, “broke” means something different to everyone reading this.

When I was broke, it meant:

$80,000 in debt
$2,000 in my bank account
$10,000 in my 401(k)
No direction or idea of what to do

Put simply, it was a terrible feeling.

But only one in three Americans can afford an emergency if it costs $400 or more. And more than half of those who make six figures live paycheck to paycheck.

For those people, “broke” might mean something completely different.

In general, “broke” describes a financial situation in which you cannot cover your expenses and have very little (if any) money saved for emergencies.

A 1,050-adult survey conducted by CreditLoan.com revealed that most Americans have been broke at some point. 86% of respondents confirmed that they have either faced financial hardship in the past or are currently.

6 Steps to Get Out of Being Broke

The above figure underscores a hard truth: Money problems are practically universal, and yours—while unique to your situation—isn’t “special”. (Which means there is hope!)

No matter what “broke” looks like for you, there are options. The important thing to remember is not to panic. We’ve all been there, and with a few simple steps, you can get back on your feet.

Here’s a six-step plan to help you get back on your feet.

1. Determine what makes you broke.

Again, “broke” means something different at every life stage.

College students might consider themselves broke because they have limited funds. But they still have basic necessities like food and shelter.

For an adult, being broke could mean inadequate funds to cover expenses with extra left over for leisure.

To figure out what makes you broke, ask yourself, “What got me here?”

Understanding what landed you in the spot you’re in will ensure you don’t wind up back there when it’s all said and done.

Referencing the CreditLoan.com study, the top three reasons millennials considered themselves broke were:

Food (28%)
Unnecessary items (25%)
Quit their job (17%)

Take a good look at your habits, the things you spend money on, and your decisions. Most of my clients find that they’re overspending in one of the following categories:

Bars and clubs
Restaurants and fast food
Concerts and festivals
Online shopping
Travel
Fixed monthly expenses (e.g., apartment, car, etc.)

Once you pinpoint your weakness, you can start making practical changes that’ll actually make a difference.

2. Figure out what would get you out of your situation.

Your next step is to figure out what your indicator of success would be.

This could be anything from paying off your debt to having enough money saved for a rainy day.

No matter what number you come up with, make sure it’s realistic and attainable. Otherwise, you risk demotivating yourself before you even start.

When I was broke, all I wanted was to pay down my debt to have the ability to travel the world for a few years. For me, that would have made me “not broke anymore.”

Remember: This shouldn’t be an unattainable number. It should be within reach — something that you can work toward without feeling overwhelmed or defeated.

3. Fix your broke mindset.

Most people who are in a bad spot financially owe part of their situation to their negative mindset about money.

They think that they’ll never get out of their financial situation and feel like they can’t turn things around. Unfortunately, this kind of thinking is counterproductive—it only serves to keep you stuck in the same spot.

To break free from your broke mentality, here are a few tips:

Start by reframing your thoughts. When you have a negative thought like, “I’m never going to get out of this,” counteract that thought with what you are doing—for example, “I can get out of this. I made a plan and I am sticking to it.”
Talk to others who were in your position. Chances are, you’ll learn about their difficulties and find a way to incorporate their strategies into your life.
Make a list of all the things you’re grateful for—money or not. This will help you focus on what’s important and appreciate the progress that you make along the way.
Take action. Taking action is the only way you’ll actually change your situation. Try tracking what you spend and setting up a budget for yourself.
Reward yourself when you hit certain goals. This will help reinforce your positive behavior and keep you motivated to reach even greater heights.

4. Make a budget and stick to it.

You need a plan to get out of your current situation. And that starts with a budget.

Budgeting when you’re broke can be broken down into these basic steps:

Avoid immediate disasters. Work with your creditors and prioritize your most important expenses. Let’s say your rent is $650, but you’re $200 short. You have bills of $60 for your phone and cable, $100 for electricity, and $40 for your cell phone. If you can postpone paying these bills until your next paycheck, you’ll be able to pay your rent now and avoid eviction.
Review your credit card payments. Making only the minimum payment on your credit card(s) can be disastrous for your credit score. Plus, you’ll be drowning in interest. Prioritize credit card bills first because they’ll be the hardest to pay off the more interest accumulates.
Prioritize other bills. To prioritize which bills need to be paid first, review all your bills and create a payment schedule according to your paydays. Make sure to include time (months if you need) to catch up on any overdue bills.
Balance your budget before saving. You shouldn’t put $100 into a savings account when dealing with debt collectors. Your savings will have to wait until your financial situation becomes more stable.
Review previous months’ spending. By using online banking and budgeting software or apps, you can organize your spending into categories and make necessary changes.

5. Cut back on the expenses that make a difference.

When you review your expenses, you’ll probably see a few glaring areas where you can make some cuts.

Where most people get it wrong: People usually cut “high-cost” food items (think: avocados and Starbucks) or monthly expenses like streaming services when thinking about budgeting.

And… Yes, saving $5 by making coffee at home might make a small difference.

But not if you’re spending thousands on your car or apartment.

Your big expenses are the ones that make a real difference in your budget.

For example, if you’re paying $2500 for rent, look for ways to reduce your monthly payments. Move somewhere cheaper, get a roommate, or even downsize.

Three more tips:

Eliminate impulse purchases. If you see a package from Amazon at your door and forget what’s inside, I’m talking to you.
Find cheaper transportation options. If you’re broke (and don’t commute to work), you almost certainly don’t need a car. Uber or get rides from friends instead.
Go out less. Your $5 coffee won’t add up as fast as $15 co*cktails and $20 plates of food. Skipping happy hour will make a difference.

6. Look for side gigs or ways to make extra money.

Starting a side hustle is the ultimate way to get ahead financially. Whether you’ve already implemented a new budget or you’d rather make more money than cut your expenses, you definitely won’t regret investing in a side business.

The only reason you’re reading this article is that I did the same.

Here are a few of my favorite side gigs to get you started:

Freelance writing (or any other online service)
Uber/Lyft driver
Food delivery
Dog-walking or pet-sitting
Virtual Assistant

There are plenty of other side hustles to choose from, but these cost no money to start.

Final Thoughts

If you’re currently broke, trust me. I’ve been there, too.

That’s how I know the steps I outlined will work. Start with a budget, prioritize bills and debts, cut back on expenses that make a difference, and add in side gigs or other ways to make extra money.

By taking these steps, you’ll have more control of your finances and be better prepared to handle anything life throws at you.