7 surefire ways to stay poor

By Liz Pulliam Weston

In trying to unscramble a friend's finances, I noticed she was making a fat car payment. I knew she drove a clunker, so I couldn't figure out why she was paying so much.

Her previous car had needed a $2,000 repair, she told me. She had no savings or room on her credit card to pay the bill. But her friendly neighborhood used-car dealer offered her "easy financing" on another used vehicle -- at an astronomical interest rate, thanks to her bad credit -- with a monthly payment she could swing, just barely.

Of course, the cost of this loan meant she had no money left over to pay down her credit card debt, build up her savings or even properly maintain the vehicle. It didn't take much imagination to picture her even deeper in the hole next year.

Such are the economics of being broke.

When you don't have much money or the money you have never seems to last, you're constantly backing yourself into financial corners. Instead of gradually building your wealth over time, you tread water or go under.

In the past, you might have been able to count on raises at work and a gradually improving standard of living to bail you out. But those doors are closing for many because:

• Incomes aren't growing the way they used to. In fact, when adjusted for inflation, median incomes are below where they were in 1999, the Census Bureau tells us.

• Inflation and health care costs chew up a bigger part of what we earn.

• More people experience wider swings in their income, as my colleague Jim Jubak explained recently in "Where did our financial stability go?"

A swing upward is great, but not if you base your spending on getting overtime at work and then your hours are suddenly cut or your job is eliminated.

It's setbacks like those that, when you're already broke, can easily send you over the financial edge into bankruptcy.

7 life-altering mistakes

With so many headwinds, it's more important than ever to get the basics of money management right. Otherwise, you're just guaranteeing you'll stay broke by:

Getting the big stuff wrong. A lot of "save money" advice focuses on the little stuff: how to cut back on lattes or trim your utility bill by a few bucks. But those who are chronically short of cash often overspend on the big stuff, especially shelter and transportation.

If your mortgage or rent payment eats up much more than 30% of your gross income or your vehicle costs you more than 10% (including financing, repairs and gas), you're going to have a tough time making ends meet.

(MSN Money's Home Affordability Calculator offers a realistic look at what's truly manageable. And here's a great tip for estimating what you'll spend monthly on any given car over five years: Double the price tag and divide by 60.)

Confusing needs and wants. This is a biggie, and it's a problem for people at every economic level. But when you're broke, the consequences of deciding you need something that's actually a want can be devastating.

Continued: Real needs

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