9 Middle Class Money Traps People Fall For

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According to the U.S. Department of Commerce Census Bureau, if your household earns between $50,000 and $150,000 a year, you are considered middle class in most parts in America.

While there is absolutely nothing wrong with being in the middle-class, most people have a desire to make more, have more, and move up the wealth ladder.

So, in this quick article I want to talk about 9 middle-class money traps that are subtle pitfalls that many people in the middle-income bracket get caught in like a hamster on a hamster wheel.

Let's dive deeper...

9 Middle-Class Money Traps People Fall For

1. Car payments – Car payments are a killer of wealth. I always hear the argument that "my interest rate is lower than the rate of return I could get if I invested my money elsewhere." Well, the fact is that's speculation that involves a considerable number of risks, because you can’t guarantee that you can get a higher rate elsewhere. And, if you can’t guarantee that, then you’re just assuming you can get a higher rate of return than the interest rate you’re paying on that car payment. Also, the average monthly payment for a new car today is $738, and for a used car is $532. Not to mention, the average interest rate right now on an automobile loan is anywhere from 8% to 13%. And when you include insurance, that car payment becomes a lot of money you are spending on a depreciating item. Check out 5 Reasons I NEVER Finance Cars .
2. Relying too heavily credit cards – Living to get those credit card points, if you’re not careful, can wind up being a $5,000 credit card balance just hanging around like braces on bad teeth. If you want to get your credit card points, I’m not mad at you. I don’t necessarily think anything is wrong with keeping a credit card, if you desire to keep one. However, it's important to take note that the average American household is nearly $8,000 in credit card debt, and right now the average American household pays around 20% interest on credit cards. That’s not a long-term formula for success with money. Remember, every time you swipe a credit card, you're taking out a loan on depreciating things, which is the opposite of wealth building.
3. Allowing debt to become a lifestyle - Having easy access to credit cards and loans can lead to overspending and accumulating debt, especially if not managed wisely. Many people in the middle-class get trapped into the miry clay called debt on things going down in value, and instead being an anomaly, it becomes a regular part of their lifestyle. The goal is to reach your 40s and 50s, and especially your 60s, with no debt. When you have no debt, you have more money.? And that is the key to retiring comfortably with money, retiring with choices, and ushering your way to the next level with your personal finances.
4. The Joneses – The pressure to maintain a certain social status or image can lead to overspending on material possessions and experiences to impress others. What often happens is people live above their means, and living above your means, while not wanting to make the steep sacrifices it takes to make significant changes, keeps a lot of people caught up in the rat race. Despite often times having a higher-than-average income, many middle-class people find themselves struggling to save money due to high expenses, low rates of investing, and just a lack of discipline and the ability to delay pleasure. This can lead to a feeling of living paycheck to paycheck, while spending money you don't really have trying to keep up with the Joneses. The first thing you have to do to move out of the middle-class is start thinking differently. Here are 5 Assets That Cost $0 That Everyone Has Access Too .
5. Fear and just playing it too safe. The fear of running out of money, not having enough cash available, not wanting to invest too much into the stock market, or not being able to make that large mortgage payment. The fear is often times the reason you work so hard, save so little, and do whatever it takes to keep up with the joneses. Fear can also lead you to make emotional decisions with your money, because fear is an emotion. And when you mix emotions with money, it can have a detrimental effect on your personal finances. When strategizing and financial planning, remove fear from the equation, and make rational and well-informed decisions that are based on logic and reasonable assumptions. Everything you do with money involves risks. The key to mitigating risk and subduing fear with your personal finances is developing a clear understanding, remaining optimistic but realistic, and addressing risks without the emotion of fear.
6. Not investing enough - You are not supposed to save for your retirement. Instead, you are supposed to invest for your retirement. Huge difference. Please don’t do what a lot of people do, which is neglect your retirement investing until it’s too late.? Retirement investing must be enough over a long period of time. For people in the middle-class, not planning for future needs is a huge problem. I know how it is to get stuck in the jaws of life only investing 3% of your money into your jobs retirement plan. I've been there. But we have to focus on stretching ourselves and investing more money for our future. Focusing on immediate financial needs rather than long-term goals can result in insufficient retirement savings, which leaves a lot of people in the middle-class financially vulnerable in their later years.
7. Lifestyle creep - For most people in the middle-class, as their income increases, so do their expenses. And therein lies one of the biggest problems that keeps people trapped in the middle-class. People usually upgrade their lifestyle with bigger houses, fancier cars, and more luxurious vacations, and more expensive everything, which leads to constant financial strain. And that strain is what adds a tremendous amount of stress to people in the middle-class, but it becomes such a habit and a regular part of life, that many people literally don’t realize what's happening. Of course there is inflation and other naturally occurring price increases that happen, but if you can find a way to make refrain from spending more every time you make more, and build up that cushion between your monthly income and monthly expenses, you can avoid this common lifestyle creep, and increase your chances of leaving the middle-class behind.
8. Focusing on income instead of net worth – when you focus on a high income, it easily leads to things like overspending on higher education. There is nothing wrong with higher education. However, if you’re going to spend an extra $100,000 on more education, then you should be seeing where and how that is going to increase your income! A lot of people in the middle-class love titles and love feeling a sense of educational attainment. And all of that is wonderful, but we have to make a business decision on the higher education we do obtain. While middle-class people are focused on more education to get more income, people moving up out of the middle class and into the wealthy class are focusing on accumulating appreciating assets and lowering liabilities to build up their net worth. The key to moving up the financial ladder is not the amount of income you earn, it's the amount of your income that you don't burn. Income doesn’t define wealth and doesn’t guarantee wealth, but your net worth is what defines wealth, in terms of money, and what you save and invest for your future is what actually guarantees wealth.
9. Relying on only one source of income. Relying solely on earned income from one job, which is the highest taxed income, as your only source of income can be very risky. Why, because a job’s security is never guaranteed. ?If you are in the middle-class with a household income of between $50,000 and $150,000, and you are reading this, please prioritize diversifying your income streams through investments or side hustles so that you can provide yourself and your family with a safety net. Think about the 7 income streams and see how many of them you have and how you can add more than what you currently have. Click here to check out The 7 Income Streams Rich People Have.

Don’t neglect your spiritual, mental, and physical well-being while avoiding these 9 middle class money traps. The goal is to get out of the middle class and move up to another level with your personal finances, and it helps to be in good health while you’re doing it.

Navigating around these 9 middle class money traps requires focus, discipline, and a commitment to being proactive towards your financial planning. You can do it. You got this!

Personal finance is personal, and for that reason, I provide 1 on 1 personal financial mentoring and coaching strategy sessions HERE .

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