We often don’t realize when we’re making poor financial decisions. Many middle-class people spend mindlessly on stuff that looks impressive but only ends up draining their savings and keeping them from growing their wealth.
“One of the most damaging habits is spending more than you earn,” said Christopher William, a CPA finance expert and founder of Balanced News Summary. “This is a common problem in the middle class, as people are often tempted to buy more than they can afford,” he explained.
William notes that this often leads to high levels of debt, which makes it difficult to save for retirement and other long-term investments. “Additionally, if someone is consistently spending more than they earn, it can be difficult to break the cycle.” Below is a list of things you shouldn’t spend money on if you’re middle class but want to become rich.
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Student Loans and Other Debt
We all know that education is important, but caution is also needed, warned Jonathan Merry, finance expert at Moneyzine. “I’ve observed the student loan crisis firsthand, and I believe it’s alarming how institutions offer massive loans to young adults from middle-class families without a full grasp of the commitment.”
The main thing here is to steer clear of such massive debts while amplifying your professional skills. Merry said, “Excessive loans and debts will hold back middle-class families, so try to manage debts before taking more and more.”
Speaking on the topic of debt, Carter Seuthe, CEO of Credit Summit Consolidation, pointed out that lots of people in the middle class tend to carry a lot of it, whether that’s student loans or credit card debt. “If you’re not staying on top of this, it can quickly balloon out of your control, and represent a pretty significant drain on your resources,” he said.
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“I would say one of the largest expenditures in the middle class that could be holding them back from achieving a better financial status is debt,” Seuthe continued. “Working your way up the financial ladder becomes much easier once you focus your budget and financial efforts on paying off debt and moving forward without those monthly interest payments.”
Memberships and Subscriptions
Many middle-class people today have memberships to many retail stores, or subscriptions to every online app they need, said Merry. “It might seem cheap, but when these fees accumulate, it will equate to significant expenses.” He continued, “For example, if a $50 monthly gym subscription is only used twice, that’s $25 per visit. Maybe there’s a more economical workout option?”
He added that if you’re subscribed to several streaming platforms but only tune in occasionally, you might be overspending on entertainment as well.
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Investing in Depreciating Assets
Many middle-class individuals invest in items that lose value over time, Merry explained. “In my opinion, making flashy purchases, possibly to mimic the wealthierclass, often misses the mark.”
He added that new purchases like cars are attractive but not always wise. A brand-new car’s value drops the moment it leaves the dealership. “Being a smart shopper means considering options like slightly older cars with fewer miles, which don’t lose their value as quickly.”
Steven Neeley, CFP and financial advisor at Fortress Capital Advisors shares a similar opinion on depreciating assets. “Finance gurus often beat people up about spending money on things like lattes and avocado toast, but the impact is nothing compared to consistently buying expensive cars over one’s lifetime.”
Neeley also observed that way too many people in the middle class buy expensive SUVs or trucks, like $65k to $100k, drive them for three to five years, then trade them in after the value has depreciated 50% to 70% to start over again. “Doing this instead of buying a reasonable vehicle like a Toyota Corolla or a Honda Accord can easily cost you hundreds of thousands of dollars over the course of 30 years when you factor in the opportunity cost of investing.”
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Covering Expenses for Adult Children
One frequent mistake that middle-class families make, according to Merry, is taking care of their grown children’s bills when nearing retirement.“Many middle-class parents fall into this trap, wanting to assist their struggling adult kids since they empathize with their struggles,” he explained, noting that this makes a huge impact on their savings.
“It’s important they learn financial independence rather than depending on you,” he advised. “It might be beneficial to stop funding your adult children and allocate that money to your retirement savings instead. I always suggest stopping financial aid to adult children, if possible, to ensure a comfortable retirement.”
Overlooking the Hidden Costs of Frugality
While frugality is a commendable trait, being excessively thrifty can lead to missed opportunities, said Percy Grunwald, finance expert and co-founder of Compare Banks. “Sometimes, spending a little more upfront on quality items or experiences can save you money in the long run. For instance, investing in energy-efficient appliances can reduce long-term utility costs.”
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Living Beyond Your Means
According to Dennis Shirshikov, finance expert and head of growth at Awning, a significant barrier for the middle class in their journey toward wealth accumulation is lifestyle inflation. “As individuals earn more, they tend to increase their spending proportionally, or even excessively, which can stymie their ability to save and invest effectively,” he said.
For instance, a common misconception is that driving a luxury car or living in a bigger house signifies wealth. While these might be indicators of ahigher income, they don’t necessarily translate to long-term wealth if they’re financed with debt.
“Taking on a larger mortgage just because a bank approves you for a certain amount doesn’t mean it’s financially wise,” Shirshikov stated. “Overextending on a mortgage can prevent one from investing in assets that can appreciate over time or from building an emergency fund.”
Giving Into Societal Pressure
Spending money for appearance’s sake will be your ultimate downfall, warned Shirshikov. “It’s worth mentioning the emotional spending driven by the desire to keep up with peers or societal pressures.”
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In fact, the “Keeping up with the Joneses” mentality can be particularly detrimental, he observed. “I recall a colleague who, despite earning a six-figure salary, was living paycheck to paycheck due to the constant need to upgrade, be it gadgets, vacations, or even wardrobes, based on what his peers and neighbors were doing. It’s a trap that’s easy to fall into but has long-term repercussions on wealth-building.”
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