Experiences and observations (by financial experts and financially literate people) lend credence to the fact that most adults are financial illiterates. Financial illiteracy is the direct consequence of lack of financial education. Due to the high level of financial illiteracy (and financial ignorance) in the society, many people (especially adults) are ignorant of the true meanings of basic and common financial terms and concepts. Consequently, they often misunderstand and abuse them.
The misunderstanding and abuse also reflect in their financial attitudes. Since financial attitudes determine financial altitudes, most people are hardly able to achieve any meaningful financial success all through their adult life, despite being very hardworking, because they have wrong financial notions, and deceptive financial mentalities and philosophies. They just cannot excel in their finances because their mindsets are hostile to the accumulation of material riches and wealth.
This is why it is important that you ascertain that your mindset is hospitable to wealth creation prior to aspiring to becoming rich. Among the most unpopular financial terms that are misunderstood are the phrases ‘being broke’ and ‘being poor’. It is imperative that you understand these concepts and how they are related so that you can take advantage of the knowledge in your journey to financial success because they are neither synonyms nor interchangeable phrases.
Being broke means having no money to address immediate financial challenges. However, being broke is not the same with being poor. The reason for this claim is that you can be broke without being poor, and you can also be poor without being broke. In order to explain these, there is the need to understand the meanings of the phrase, ‘being poor’. What does it mean to be poor? There are three definitions of being poor. The definitions correspond to the three levels of poverty.
The first definition of being poor is having no money to meet immediate basic financial challenges and needs. This is the highest level of poverty. It may be called abject poverty, absolute poverty, critical poverty, total poverty, severe poverty or acute poverty. This type of poverty is most undesirable because it is unworthy of any human being. People who experience it cannot afford the basic necessities of life. It is usually the status of people in societies with irresponsible leadership.
The second definition of being poor is having little (or insufficient) money to meet immediate and basic financial challenges and needs. It may also be called mild poverty. Unlike people who live in abject poverty, people who experience mild poverty can only meet part of their immediate basic financial challenges. This is also a condition that is unworthy of any human being. It is a condition that is undesirable by every human being because it degrades an individual’s human dignity.
The last definition of being poor is having money to meet only immediate needs. This can be described as moderate poverty or modest poverty. People in this category do not have more than they need. They will move to the second level of poverty, i.e. having insufficient money to meet their immediate and basic financial challenges, once they are out of earning. This is why they must continually work and earn before they can meet their financial needs. This is the class the so-called average people belong.
From the above, it may appear that it is better to be poor (at least in the second and third senses) than to be broke since it is better to have little money (than to have no money) to meet immediate financial challenges. You need to understand the true meanings of these phrases and their relevance to your financial life so that you can properly guide yourself in your financial pilgrimage. There are some relationships that exist between ‘being poor’ and ‘being broke’. They are as follows:
You may be poor and broke. This condition is experienced by people who live in abject poverty. It was earlier remarked that the first definition of being poor is having no money to meet immediate and basic financial challenges and needs. People who are poor and broke are those who have no money to meet their immediate and basic financial challenges and needs. They are people who experience First Class Poverty because they are always poor and broke.
You may be poor but not broke. It was remarked that the second definition of being poor is having little (or insufficient) money to meet basic financial challenges and needs. The implication of this definition is that you are poor if all the money you have is only good enough to meet your immediate financial challenges. People in this category will have no money to meet their basic needs in the near future, if they do not earn additional income.
However, inferring from the definition of being broke above, you are not broke for as long as you have enough money to meet your immediate needs; though, this does not imply that you are rich. It is worthy of note that some poor people are hardly broke because all their incomes serve the purpose of meeting their immediate needs, and they always live within their income. As earlier remarked, this does not imply that they are rich. They are simply moderately poor.
You may be rich but broke. Many rich people are always broke in the process of building a healthier financial future. One of the principles of success is that you should set goals that are (a little) above your abilities. When you set such goals, you must raise your ability to the level of the goal before you can accomplish it. This is why the accomplishment of such goals improves your life. This is also why you change in the process of striving to accomplish such goals.
As a matter of fact, sometimes, you should be broke because of your plans for a better and brighter financial future. When you set financial goals that are above your financial strength, no matter how rich you are, you will have to seek financial assistance in order to achieve the goal. This usually involves obtaining loan(s). This is why rich people, like the poor, also borrow money. But this does not mean that they are poor.
The difference, however, is that rich people do not borrow money to meet their basic necessities of life. They borrow money in order to fund the acquisition of investments. This is why borrowing is not necessarily a sign of poverty. When a rich person puts all his money in a prospective project, he is broke but not poor. If you truly desire to be rich, you should be prepared to be broke sometimes because of your financial plans. It is better to be rich but broke, than to be poor but not broke.