Since I purchased my house in October 2023, I’ve been feeling broke. I’m living paycheck to paycheck to cover my bills and fund venture capital calls. In fact, even after realizing I had missed a $25,000 capital call, it took me another week to pay it off because I didn’t have enough money on hand.
The first six months of feeling broke were extremely uncomfortable. I was more stressed and had a shorter temper. When I received a surprise real estate capital distribution, I felt tremendous financial relief. But that relief was short-lived, as I ended up reinvesting 100% of the proceeds in stocks and my preferred private real estate fund.
Today, my cash flow remains tight because I’m on a mission to get my public equity exposure back to 25% of my net worth (from ~18% currently). Until I reach that goal, I won’t stop saving and investing aggressively.
When the Awareness of Feeling Broke Began
One day, while sitting in the hot tub, I found myself wondering why I was living with such razor-thin cash flow each month. It's unnecessary given my net worth.
The main reason, or so I thought, is that I’m focused on regaining my financial independence by December 31, 2027—when my passive investment income can cover my desired living expenses again.
However, I think there’s also a psychological reason that stems from my childhood.
Seeing Poverty in Middle School
My first realization of poverty came in the 6th grade in Kuala Lumpur, Malaysia. The contrast between the rich and poor was stark. I wondered why some families lived in mansions with chauffeurs while so many people begged on the streets. Where did it all go wrong?
I got to know several friends who were poor, including one who lived in a studio apartment with his sister, mother, and father. Despite his circumstances, he was kind and even gave me a Fossil watch, which I now suspect he may have stolen from the watch store where he worked. Every day, he’d take the bus to Sungei Wang Plaza, a mall where I’d go to play Nintendo for free.
Then there was a beautiful girl named Posey, who had tumors on her spine. She was also poor, but all the boys liked her. She ended up with a guy named David, who wasn’t the most attractive but drove a Jaguar. He was rich, or at least his parents were.
At the club DV8 one night, he approached my friend Adlin and me and said, “Look at this.”
“Look at what?” we asked. He then grabbed Posey, dipped her slightly, and kissed her. I was impressed because they seemed like such a mismatch. There was no way some random poor fellow could date her.
As a thirteen-year-old, I began to connect the dots between money and a potentially better life. Yes, I went clubbing at 13.
Feeling Guilty For Wanting More Or Having More
Growing up in developing countries, it’s hard not to marvel at the abundance we have here in the United States. We’re incredibly fortunate, which is why it’s difficult for immigrants to take living and working in America for granted.
Living in America can actually make you feel guilty, given how good we have it here. You might start asking yourself why you got the opportunity to come here while everyone you met growing up overseas did not.
But with so much wealth in America, you might ironically feel poor because so many people have even more. Even if you’re earning enough to make ends meet and save for retirement, the sheer amount of wealth around you can make you feel like you need to work much harder.
When I worked in banking, most people were richer than me. Feeling poorer made me want to work harder to one day reach their level of wealth. And when I finally reached the level my VP was aiming for, I decided to leave. I didn’t want to pursue accumulating more wealth partly because I felt guilty for wanting more.
Continuing to accumulate wealth also felt greedy because my friends who worked in the watch store or who got unlucky with spine tumors didn’t have the same opportunities.
That Broke Feeling Can Make You Rich
When you feel lucky or like you don’t deserve your good fortune, you may end up working extremely hard to prove that you do. Alternatively, you might purposefully try to make yourself feel broke as a way of making amends with the God of Unfairness.
However, this self-imposed financial constraint can make you rich for several reasons:
1) You’ll Understand Your Finances Inside and Out
When almost every dollar that comes into your checking account must go toward paying bills, you can’t afford to lose track of your finances. One careless spending mistake could mean not being able to pay your credit card bill in full or missing a capital call, both of which could lead to late payment penalties.
The more you track your cash flow, the better you’ll understand your finances. This knowledge creates better discipline in spending, saving, and investing. You’ll remember the cost of almost everything and the times when you wasted money, which will help you avoid repeating those mistakes.
2) You’ll Become a More Diligent Investor
Feeling broke will encourage you to do everything you can to stop feeling that way. Not only will you cut back on superfluous spending, but you’ll also be more careful in how you invest your money.
When you have no financial buffer, you can’t afford to do risky things like day trading stocks, taking on concentrated positions, buying on margin, or investing in a security without thorough research.
Investing FOMO is one of the hardest types of FOMO to overcome. We often chase the current hot investment, often to our detriment. Think about all the people who lost fortunes buying NFTs in 2020 and 2021, or those who won bidding wars for houses only to feel stuck years later.
When you feel broke, you become a more shrewd investor, thinking carefully about asset allocation to help meet your financial goals. Having too much cash could actually make you poorer, as you struggle to figure out how to invest it.
3) You Develop a Greater Appreciation for What You Have
When you feel broke, you’re forced to live within your means and rediscover the great things you already have. Since you’re not buying new things to fulfill your desires, you might start wearing those shoes you bought five years ago or that shirt that’s been gathering dust.
Instead of wasting money on a car you don’t need, you maintain the one you have and appreciate the aging car smell. Get your House-to-Car Ratio right, and you’ll achieve financial independence much faster than those who spend too much on cars.
There’s no need to get a new TV, laptop, or phone either. You keep using them until they break. When you feel broke, everything you have will last longer. The greater the utilization of your assets, the better value they become.
4) You Cure Your Addiction to a Home You Don’t Need.
I’m a real estate addict who wants to buy every property that I think is a bargain, especially at the start of a multi-year interest rate cut cycle. Our nation has a structural undersupply of homes that will likely only get worse. Unfortunately, this obsession has created strife in my marriage because my wife seldom wants to move.
For our last house purchase, it took tremendous convincing to buy something we didn’t need. Additionally, the purchase slashed our passive income by almost 40%, creating unnecessary stress.
But my addiction is now completely cured because I no longer have a 20% down payment, let alone a 10% down payment. When the choice is taken away from you, the only thing left to do is enjoy the house you already have.
If you have an unhealthy obsession with buying other high-priced things such as watches, art, and collectibles, you can cure your habit as well.
5) You Become More Aware and Empathetic to Those Who Have Less
If you diligently save and invest most of your income for at least 10 years, you will likely become much wealthier than the average person. Once you are, you might forget where you came from. Worse, you might treat people who have less, poorly. As a Financial Samurai, you must treat everyone with the utmost respect, no matter their circumstances.
My goal is to help as many people achieve financial freedom sooner rather than later. To do so, I need to be aware of the problems people face in order to come up with solutions. Otherwise, people might say I’m “out of touch with reality” or “living in a bubble.” Although I don’t believe one person’s reality is more real than another’s, I understand where they’re coming from.
When you focus only on your reality, you inevitably exclude those who face different challenges. I want everybody to feel welcome here, even if the topics might not pertain to them at the moment.
6) You Might Raise Better-Adjusted Children.
Without much money, you can’t spoil your children. And if you can’t spoil your children, you’re more likely to raise stronger, more appreciative, and maybe wealthier children in the long run.
Children, by definition, are broke. They depend on their parents for everything. Even if they work part-time during high school, they won’t earn enough to live independently.
By bringing yourself closer to their level of wealth, you’re now right there with them. How can they not help out with chores and participate in rental property maintenance if you’re not hiring people to do those things for you? How can you not be more empathetic to their needs and desires if you better understand what it's like to always depend on someone for money?
If dad is still wearing socks with holes, it's hard for children to whine about not having the latest new shoes. Having limited funds will create more resourceful children, and being resourceful is great for living a financially independent life.
7) You Might Awaken a Hungry Beast Within
Perhaps the most powerful benefit of adopting a broke mindset is that it can awaken a hungry beast within.
As the saying goes, “Hard times create strong men, strong men create good times, good times create weak men, and weak men create hard times.”
The biggest risk of living in a comfortable country or growing up wealthy is the temptation toward laziness. When there's no need to struggle, we often don't. Instead of going to the gym, we might spend six hours a day watching football and eating pizza. Instead of working on our business after dinner, we might play video games and mindlessly scroll through TikTok.
However, your hungry beast will push you to do the things you need to do, even when you don't feel like doing them. In other words, by adopting a broke mindset, you cultivate discipline. Once you have discipline, money will inevitably follow.
The Easiest Way to Feel Broke When You’re Not
Some of you might be rolling your eyes with the broke mindset. Saving and investing the vast majority of your cash flow won’t make you broke at all. Instead, it might do the opposite, and that’s the point.
You need to feel broke precisely because you’re funneling all your excess cash into investments that could appreciate in value. Treat your investments like expenditures if you want to invest more.
The easiest way to feel broke is to keep as little in your checking account as possible. Whenever income or distributions come in, immediately transfer everything except what you need to pay your bills into your brokerage account or other investments.
The next step to convince yourself you’re broke is to assign specific purposes for your investments. Once you do, the money no longer becomes yours.
For example, your 401(k) isn’t for your present self—it’s for your 60+-year-old self. The 529 plan is obviously for your children, so it’s easy to write off as money that’s no longer yours.
Once you make an investment in your taxable portfolio, tell yourself it’s gone forever since you’re a long-term investor. The same goes for the rental properties or private real estate investments you buy. You can’t sell because you don’t want to pay capital gains taxes.
You Can Make Yourself Believe Anything
For those still on your financial independence journey, adopting a broke mentality can be one of the best ways to build wealth. Stick to this mindset for 10+ years, and you’ll likely end up with more money than you ever imagined.
When you finally reach your financial goals, you can ease up on the self-imposed pressure of feeling broke. However, changing your financial habits might prove challenging. You may even find yourself buying things you don’t need just to recreate that broke feeling that fueled your wealth-building journey in the first place.
Remember, control your mind—don’t let your mind control you!
With stock market volatility returning and a potential recession on the horizon, it’s wise to get a second opinion from a professional. The ultra-wealthy do all the time so they can better enjoy their time elsewhere. The last thing you want is to be misallocated relative to your financial goals and risk tolerance. When you lose money, you ultimately lose precious time.
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Abundance is positive !
My Dad had stroke which took out his left side. His advice DANCE more !
Mom and Dad went dancing many Saturday nights and would escape one weekend a month.
My parents ran a small plumbing business one man and one woman ! They were happy to be free and together, Never really made a lot of money but enjoyed life. Both my parents had medical wake up call in early 30s which shifted their life goals to live today !
Morning Sam,
I agree with you on keeping the scarcity mindset. It just pushes me to get more to save and invest.
Happy Labor Day weekend!
Thanks,
John
My wife and I talk about this a lot. Just last night we chuckled that when our net worth was negative, our checking account had $1,500 – $3,000 in it. And now with a net worth over $2 million, our checking account has $1,500 – $3,000 in it. We do have liquid savings accounts to transfer funds into it, but it keeps us on our toes to be forced to transfer money before paying off credit cards or paying mortgages.
We definitely practice manufactured scarcity around here (saving and investing 50%+ of income off the top and living off the rest). While definitely effective for its purpose of building wealth, it can also be mentally grueling at times. Pretending to be broke can also light up a scarcity mindset, which is counterproductive to mental health. As a business owner, if I have a stellar month, I’ll celebrate it one night. At the beginning of the next month, I tell myself I’m back to $0. It works. I feel like my back is up against the wall again.
The older I get the more I agree with you on the importance of controlling our minds. With enough practice and mindfulness we can essentially rewire our thoughts. It’s not a fast process, but it’s something I’m working on.
Over the past few years I’ve also developed a better habit of transferring my disposable income into my investment account often. I’ve found that having the bare minimum in my checking/savings accounts helps me monitor my finances much more closely simply out of necessity for cash flow management. When I transfer money out I also like to make the remaining balance a perfectly round number down to the penny. This makes it easy to quickly see when I have a in/outflow afterward.
I also started depositing checks straight into my investment account vs into my checking account and then transferring it to my investment account. Not only saves time and steps, but it helps me keep a closer eye on my available cash balance for bill pays etc.
“When the choice is taken away from you, the only thing left to do is enjoy the house you already have.”
There is an amazing TED talk by Sheena Iyengar about choice and how it affects our happiness, I think you might enjoy it, Sam.
Choice is such an interesting thing to contend with. I often feel like I was happier when I was 22 and living paycheck-to-paycheck in downtown Chicago. I had no credit card so when I ran out of cash that was it. My biggest splurge was buying a new paperback to read but in hindsight I could have saved that $5 and gotten a book from the library instead.
My choices for entertainment and travel were pretty limited so it made decisions easier. No way I could afford a plane ticket anywhere so it was the $22 bus ride for me.
It’s also possible I just miss being 22 but things feel a lot more complicated now 18 years later.
Sam,
Yesterday, I just saw my new paycheck in the wake of just hugely upping my 403b contributions. I’m doing this, because this is the beginning of my last year working in traditional education. So when I looked at the amount left over, it made me depressed. Now that I’ve read this article, I’m no longer depressed. So now I’m off to look for discounts – my wife will be soooo happy.
I love your post. I grew up with parents who were proudly opposite of the broke mindset. While their dual income put us slightly above middle-class, they spent well above their means. Bill collectors called regularly. When I was accepted to college, they were aloof. It was clear to me that I was on my own. I moved out, claimed independence, got student loans, and worked to pay for my tuition, room and board.
After I graduated from college, I got my first art director job making a whopping $20k. I started living like I was making double that. The apple doesn’t fall far from the tree. After a couple years, the company let me go. I had to sell both of my cars. Yes, I had 2 new cars. Stupid. Since Detroit is the motor city, there is no public transportation to get to an interview let alone a job!
After 2 years of unemployment, I moved to San Francisco for better opportunities. I was the fifth guy in a two-bedroom apartment sleeping on the dining room floor. My night stand was a phone book. The menial labor jobs I found in SF barely fed me. I weighed 160lbs when I got to SF and 130lbs six months after. The world was collapsing on me and I looked and felt like I was dying. But with no health insurance, I didn’t know for sure because I couldn’t see a doctor.
It never crossed my mind to ask my parents for help because I already knew the situation. Luckily, I received a phone call from a guy who started a new ad agency. He made me an offer to come work for him and I accepted. Within a week, I was flying back to Detroit on his dime (because I was broke). When I started that Monday, I learned that it’s not a full-time job. I would be working as an independent contractor (freelance creative). While there was a learning curve, I quickly learned the financial advantages of living off pre-tax income versus the W2 post-tax income, in addition to business deductions which helped to lower my tax implications.
I started making good money billing 40 hours a week. But because of my broke mindset, I lived way below my means. My bank savings grew without thinking about it, and ironically, within 6 months, I saved enough money to put a downpayment on my first house. This was also strategic in helping to lower my tax liabilities using the mortgage interest deduction. After this company closed it’s doors, I decided to stay independent and work from my home. This was 1994 in Detroit, so I was a bit ahead of the normalcy of remote working we know today.
Without a regular client, I would have to learn how to adjust to a non-regular payment schedule. This wasn’t too difficult for me because I really didn’t want much. I was still satisfied with a phone book for a night stand. In the rare circumstance I did want to acquire something new, I developed rules to make sure I’d never be broke again.
For example, I considered buying a new guitar for $500. I made a rule that whatever unnecessary thing I want, I have to invest the same amount into my future or retirement. So now the guitar will cost me $1,000. Then one day I was sitting on the front porch of my new house and observed a squirrel. He would bury 3 nuts for every 1 he would eat. I thought this squirrel must know something I don’t. He obviously knows nothing about being in debt, being broke, or being forced to work for the man.
So I started applying the squirrel formula to my consumption habits. Now the $500 guitar would cost me $2,000. And the funny thing I discovered, was by the time I saved $2,000, the immediate gratification of a new guitar was gone, and having $2,000 in the bank felt better. After all, my shitty guitar worked fine for me thus far. The squirrel formula allowed me to stay independent ever since. I’ve owned two businesses, two nice houses, and all the while saved for retirement.
While 2008 destroyed my investments and one business, I had enough saved to keep my houses and weather the storm. When money builds up in my local savings account, I like to transfer funds to my long-term investment account (even if it’s sitting in cash) just to get it out of my sight. So I always feel broke. This also keeps me looking for new income opportunities and not spend on stupid stuff. I’ll admit I’m a bit extreme, and my wife gets irritated with my anti-consumerism, but she doesn’t complain about our assets.
And while I disagree with the financial approach my parents have taken, I respect that they live their life to their fullest, and I do appreciate the independence the experience it gave me. Plus, I believe people can also teach you what NOT to do. : ) Thanks again for work! I always enjoy your perspective on life and money. Peace!
Not meant as a judgmental comment at all but I found the cure for wanting more is to give more at a higher percentage. I would love to see a topic on the importance of giving and I’m secretly dying to know what poll results would look like on the gross giving percentages of the readers on this site. Love your site and content by the way..
Sounds good. It’s a tough balance between wanting more and needing more to provide for your family. I’ll have you been able to juggle this dilemma?
Let’s kick things off. Canyou share what percentage you give to charity? How have your percentages changed over time and how do you feel about it?
One of the reasons why I keep on writing here since 2009 is because it feels super really good to help others with their finances.
My mom taught me to give ten percent with envelopes with my paper route money when I was five years old. When I started to pay taxes that became 10% of my take home pay. The new challenge became to give 10% of my gross pay and we (married) currently give at 12% gross income. That is my personal income but we give 3% of our company profit away with goals in the future to give more personal and corporate. Our company is committed to trying to have a part in solving the world clean water crisis. Somewhere around 1 out of 8 people in the world still don’t have access to fresh drinking water. Certain people in remote villages have to walk 10-15 miles one way just to get water out of a mud pit. I can’t help but think if the business community in our country alone gave just 1% then we could solve this problem. It’s good business as well because most people need to know that their work has a purpose. That’s why giving is such a good thing. I hope that helps and I would love to see how our giving stacks up against the other readers with a poll. Can’t take any of the wealth with us when we die so might as well see the impact while still alive. Hope those specifics help.