Ellie Diop knows what it’s like to be broke.
After a divorce and getting laid off from her six-figure job at the start of 2020, she was forced to move back home with her four kids to live with her mother. She was also faced with the reality that she was living on welfare with barely any money to her name.
“I kind of woke up and realized that there was a problem after losing my job and realizing that I didn’t have anything to fall back on, although I was earning a good amount of money,” she said.
Diop knew she had some bad money habits that helped put her in that position. She struggled to set money aside for the future, felt like she was living paycheck to paycheck, and wasn’t investing.
While living at her mom’s house, she realized she had hit a desperate point in her finances and had to break out of her bad money habits. Breaking bad habits and starting new ones doesn’t happen overnight, but what she did next was the catalyst that changed her financial trajectory.
She started budgeting and used her $1,200 COVID-19 stimulus check to launch her business, where she now helps new and aspiring entrepreneurs scale their businesses through digital marketing. Her company made its first $1 million in 10 months.
Diop is grateful for the much-needed financial lessons her broke days taught her. She’s been able to apply those money lessons to grow her savings, expand her investment portfolio, and create generational wealth for her and her family while teaching others how to avoid or break them.
“It was a big and hard lesson,” she said. Here are the five bad money habits that kept Diop broke for years, and how she freed herself from them.
Not Having a Budget
If you make a good amount of money but do not know how to manage it properly, you can still end up broke. That’s what happened to Diop. She had a six-figure job before getting laid off, but still barely had any money to her name because of her spending habits.
“I was making money, but it never felt like I had any money. I didn’t have a budget,” she said.
Her idea to start a business is what spurred her into action. She realized she needed to get organized with her money and create a budget to clearly see where her dollars were going for her personal and business expenses.
“I realized there was no way I was going to be able to make any type of success happen if I didn’t start looking for ways to budget and manage my money,” she said.
She began printing her bank statements regularly to highlight significant spending areas and began implementing a zero-based budget, which she recommends for anyone new to budgeting. With zero-based budgeting, your income minus what you spend and save each month equals zero, and you give every dollar a purpose throughout the month — whether it’s spending, saving, paying off debt, or investing.
She also leveraged a version of cash stuffing with different prepaid cards for each spending category to efficiently manage her budget. She had a prepaid card for groceries, a prepaid card for expenses for her kids, and a prepaid card for emergencies, among others. It’s a method she recommends to others who may struggle to control their spending.
“If that card got to zero, that’s it. I can’t overspend because there’s nothing left on the card,” Diop said. “It became important to me to budget because I remembered making over $100,000 a year but not having anything to show for it and living paycheck to paycheck.”
Not Investing in Herself
Knowing how to manage your money should not be all about saving it — it should also include investing. Diop learned that after going from broke to being a successful entrepreneur with a seven-figure business in her late 20s.
“I didn’t believe in investing,” she recalled while explaining that she barely contributed to her previous employer’s 401(k) plan. “I thought it was better to have your money in a savings account.”
It took a meeting with a financial planner at the start of 2021 for her to get a “huge wake-up call” and realize that investing would allow her money to work for her.
“I thought to myself that I should just hire someone since I don’t know what to do and I’m afraid,” she said. “I needed someone to tell me what wealthy people were doing that I wasn’t doing.”
Based on the financial planner’s advice, she opened a SEP IRA (Simplified Employee Pension), a brokerage account, and eventually custodial Roth IRAs for her children. Diop says she invests most of her contributions in index funds, which offer broad exposure to large segments of the entire stock market at a low cost. Most experts recommend broad-based, low-cost index funds because they help diversify investments across multiple assets within a portfolio.
While Diop felt behind on investing, she also recognizes that it’s never too late to start. If you feel like that, it’s not a lost cause. You can start investing and saving now for your future, whether through a company-sponsored 401(k) plan or your own individual retirement account (IRA). Both are retirement vehicles that can grow your contributions by investing them and allow you to build long-term wealth.
Not Having Life Insurance
You probably don’t need life insurance if you don’t have any dependents. But Diop — plus many experts — believes being a parent warrants it. It was in 2021 that Ellie purchased life insurance outside of what her previous job offered.
“I always knew how important it was. I just hadn’t been setting aside the money to do it,” she said. “That kept me broke because had anything happened to me at that time, my family would’ve been left with nothing.”
She’s now leveraging life insurance to protect her children from the financial fallout of a sudden loss of income or unexpected funeral expenses. While Diop has whole life insurance that builds cash value, term life insurance can also give you peace of mind that your beneficiaries will be taken care of should you pass away.
Term life insurance typically costs less than whole life insurance and covers you for a particular period. For most people, financial experts we spoke to recommend term life insurance as opposed to whole, or permanent, life insurance.
“Life insurance is a huge part of any wealth plan,” Diop said. “If you don’t have any money to protect your family when you pass away, it could keep you broke.”
Having a Negative Mindset About Money
Diop used to believe that being broke was solely about not having the amount of money to purchase things she wanted. But when she learned that her mindset was the issue, something clicked, and she began questioning her beliefs about money and how they influenced her financial decisions.
“I had a lack of mindset around money,” she said. “You think about it as this finite thing that’s going to end versus seeing it as a tool that can be used to help you get more money when it’s invested and utilized properly.”
Like so many other women of color and single moms, Diop points to her upbringing as the main reason behind her negative money mindset. There was always a fear around money, she said.
Shifting her money mentality from negative to positive was daunting, especially since she didn’t grow up talking and learning about things like budgeting and saving.
But as a Black woman with aspirations of becoming a successful entrepreneur, she knew she needed to. She started rejecting whatever did not align with her vision and goals and became very conscious about what she was feeding her mind. Setting clear, specific financial goals helped.
“That’s something I continue to work on even now,” she said.
Not Investing in Her Kids
While investing for herself, Diop quickly learned that time in the market is better than timing in the market. The longer you let your money sit in the stock market, the longer it has to compound and build wealth.
Once she realized this, her desire to invest in her kids while they were still young started. She says it also allows them to learn alongside her about the power of investing.
“In hindsight, it was keeping me broke and starting them off as broke too,” Diop said. “Had I not changed that mindset, my kids may not have grown up with investing as normalized.”
She now pays her kids anywhere from $250 to $500 per month to do simple tasks for her business, such as cleaning her office, organizing paperwork, and taking pictures. It allows her kids to claim earned income — a requirement for investing in a Roth IRA. The money may not be theirs right now, but it will make them millionaires in the future.
You don’t need to be a 7-figure business owner or have a lot of money to start investing for your kids. If you don’t have a business, there are some custodial investment accounts, like a UGMA or UTMA account, you can use for your children. With the proper investment steps and strategies, all parents can create generational wealth to pass on to their kids.