Yahoo Finance 7 Biggest Money Mistakes Keeping You in the Middle Class
Many people want to grow their wealth but find themselves stuck in the same financial bracket. Why is this the case? Often, it’s not just about how much you earn, but how you manage what you have.
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If you’re looking to break out of the middle-class mold and journey toward financial prosperity, understanding the money missteps you could be making could make all the difference.
Anything from making poor investment choices to a lack of financial literacy can slow your financial progress. Here are what financial experts identified as the seven biggest money mistakes keeping you in the middle class.
Avoiding Investing or Making Poor Investment Choices
“Many middle-class individuals either avoid investing due to risk aversion or make poor investment choices based on short-term trends or insufficient research,” said Taylor Kovar, CFP, CEO of Kovar Wealth Management. “Start by educating yourself on various investment options. Diversify your portfolio to balance risk and reward. Consider long-term investments like index funds, which historically have provided stable returns. If unsure, consulting a financial advisor can be a wise decision.”
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Succumbing to Lifestyle Inflation
“A common trap is lifestyle inflation — spending income increases, often leading to significant debt,” Kovar said. “This includes overspending on housing, cars and other luxuries, financed through loans and credit cards. Adopt a budget that prioritizes savings and debt repayment. Live within or below your means, even as your income grows. Focus on building an emergency fund and paying off high-interest debts. This approach not only secures your current financial position but also paves the way for upward mobility.”
Failing to Plan Ahead for Long-Term Financial Goals
“Many people fail to plan for long-term financial goals, including retirement, leading to a lack of sufficient funds in later years,” Kovar said. “Start planning and saving for retirement as early as possible. Take advantage of employer-sponsored retirement plans like 401(k)s, especially if they offer matching contributions. Additionally, explore IRAs and other retirement savings vehicles. Regularly review and adjust your retirement plan to ensure it aligns with your evolving financial goals and market conditions.”
Failing To Seek Income Growth
“Not seeking income growth can also be a setback,” said Jeff Rose, CFP and founder of Good Financial Cents. “Many people stay in the same job with modest annual raises. But, by actively seeking promotions or changing jobs, individuals can significantly increase their income. Data shows that workers who switch jobs can often see salary increases between 10% to 20%, much higher than the average 3% annual raise for staying put.”
Not Saving Consistently
“I always recommend that people save early and consistently for retirement,” said Doug Carey, CFA of WealthTrace. “I like to show people a picture of investments compounding over time. This helps give them a tangible idea of what saving early and often can do for them. I go through an example such as this: If a 30-year-old is able to save $10,000 to a 401(k) plan every year and earn 8%, that person will have slightly over $1.2 million saved in 30 years. But a 40-year-old who saves the same amount for 20 years would have just over $494,000. This shows the awesome power of compounding and it is why it is so important that people let their money work for them as long as possible.”
Living Beyond Your Means
“Living a lifestyle that requires constant spending on non-essential items, accumulating debt and failing to create a budget,” said Carey. “I advise my clients to live within their means by creating a budget, tracking expenses and cutting unnecessary spending. Pay off high-interest debt, such as credit cards, and focus on saving and investing for the future.”
Lack of Financial Education
“Many people lack basic financial literacy, which can lead to poor financial decisions and missed opportunities,” said Carey. “People need to become more educated when it comes to personal finance and preparing for retirement. I give my clients book recommendations [and] links to personal finance courses and good blogs on personal finance topics so they can become better educated.”
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This article originally appeared on GOBankingRates.com: 7 Biggest Money Mistakes Keeping You in the Middle Class
