18 Habits of Broke vs. Average vs. Wealthy People

It's no secret that Dave Ramsey’s advice has become a staple for many households seeking to improve their financial situation. Over the years, Ramsey has built out a team of equally financially savvy show hosts who provide tons of advice on how to move beyond living paycheck to paycheck.

On a recent episode of the Ramsey Show, called Don’t Overcomplicate Building Wealth, Keep It Simple, George Campbell and John Delony dive into some of the different habits that are keeping people broke and pushing people to wealth.

Here are some of the top takeaways from their episode.

Kicking off with the habits of broke people, Campbell pointed out that using payday loans is a habit that can keep people from getting ahead financially. Unfortunately, the high interest rates attached to payday loans often put borrowers in a cycle that they struggle to climb out of.

“The interest rates when you actually do the math are astronomical and it keeps people in a cycle of debt with these short term crazy high loans,” Campbell explained. “Interest rates average 400%. So it keeps them chained.”

Title loans involve taking out a loan using something you own (like a car) as collateral. Since a vehicle title is attached to a depreciating asset, borrowers can quickly end up underwater.

Unfortunately, borrowers who fall behind on these payments might see their car repossessed. And without a vehicle, someone who is already struggling financially may find it even harder to make ends meet. .

Broke people in need of a vehicle often feel like they have no other options but to get their cars from “buy here, pay here” car lots.

Generally, these dealerships make it easier to get into a vehicle. But the sky-high interest rates attached to the auto loan can make it impossible to get ahead for most.

A cash advance — which involves a short-term high-interest loan — can trap borrowers in a vicious debt cycle.

After taking out this high-interest loan, the borrower only has a short timeline to pay it back. If they use their next paycheck to cover their last cash advance, they often end up needing another cash advance before their next payday. This leaves nothing left over to save for the future.

Using a rent-to-own service may sound ideal — after all, you’ll at least be working towards owning something as you make payments on the items you’re renting — but the reality is that these types of services usually involve spending beyond your means.

“Most of these have crazy hidden fees and it might sound like a good idea but it preys on people who have poor credit and can't come up with the money,” says Campbell.

Broke people often have a habit of playing the lottery, which is something that Campbell describes as a “tax on the poor.”

“It's a regressive tax. And if you look at who's playing the lottery, it's not people making a hundred thousand dollars,” he continues. “It's people who can barely afford to cover the bills and they're hoping with false hope this is gonna be their ticket out.”

Moving on to the habits of average people, Campbell points out that average people often chase credit card rewards. Although chasing rewards might feel like winning, it’s generally the habit of a person who has average wealth.

“Recent survey shows 23% of people didn't even redeem their rewards in the last 12 months,” said Campbell.

According to Campbell, average people also tend to be the ones buying new cars. Generally, these drivers justify the purchase based on safety and reliability. But Campbell suggests the purchase is more ego-based.

“Just admit that used cars are less expensive,” says Campbell, “You've already taken the hit on depreciation. You let someone else do it. We know new cars drop 60% in value in the first five years. We know the average new car payment is now over $700 a month.”

Homeowners with enough equity in their home might be tempted to take out a home equity line of credit (HELOC), but Campbell says opting to take a credit line out on the equity in your property isn’t always a smart financial move.

Although the popularity of HELOCs are on the rise, this move presents a major financial risk, because you could lose your home if you fall behind on your payments.

“You're putting your home at risk and your family at risk by doing this,” says Campbell.

Student loans offer a way to pay for college, but when a borrower piles on the debt without assessing the potential return on this investment, it’s often a recipe for an average financial life.

“Don't do this,” advises Campbell, “There's no way out. Student loans are not discharged by declaring bankruptcy. So you can't even get out of this thing from bankruptcy.”

Whole life insurance might sound like a smart move. But this type of life insurance policy is often aimed at average people.

“It's super expensive,” says Campbell. “And we know that term life is a fraction of the cost. And you can invest the difference and be way better off than giving someone fat commissions.”

If you have dependents Campbell says you should consider seeking out a term life insurance policy instead.

Buy Now, Pay Later (BNPL) services allow you to stretch out the cost of a purchase over time. While this might seem like a way to stay on budget, it often leads to spending beyond your means in the long-term.

When people focus on the monthly payments instead of the total cost, they’ll often spend more than they truly should. Campbel advises only making purchases when you can afford to do so in cash today.

Finally, the podcast covered the habits of wealthy people. Starting with the fact that wealthy people generally don’t pay interest. Instead, they focus on earning interest.

Most invest in assets, like mutual funds and real estate, to build their wealth over the long term.

Although many assume that wealthy people are driving around in fancy new cars, the reality is that many buy used, even when they can afford new ones.

“Most millionaires are driving Hondas and Toyotas, not crazy luxury cars,” says Campbell, “Not Lamborghinis.”

Most millionaires choose to pay off their mortgages early. On average, millionaires paid off their homes in 10.2 years.

“I don't care if the interest rate is 9% or 2%,” Campbell says. “Getting rid of that payment allows you to build more wealth.”

Wealthy people tend to make investing for the future a top priority. According to Campbell, eight out of 10 millionaires invest in their company's 401(k), and three out of four invest outside their company plan.

Wealth might take time to create, but choosing to consistently invest for the future puts many on a path to wealth.

When it comes to buying wealth, it might not be surprising that wealthy people choose to purchase assets instead of liabilities.

“They know that investing over a long period of time instead of buying crap you don't need with money, you don't have is the key to building wealth,” says Campbell.

Delony pointed out that wealthy people tend to solve for different problems than we might expect. And, in general, wealthy people manage their money to strengthen their own peace of mind.

For example, this idea shines through when most wealthy people choose to pay off their mortgages. “And so they pay off their mortgage, they invest, they know that come what may I'm gonna be okay then no one can take my house,” says Delony.

Instead of focusing on short-term problems, Delony argues that wealthy people solve for long-term peace of mind.

Understanding the habits of broke, average, and wealthy people can help you get a better idea of what habits you might want to start including in your financial life.

For example, you might make crushing your debt a priority or focus on building long-term wealth for your future. A good financial advisor can help you with this goal, and explain what choices you could start making today to make a difference.