The middle class has been slowly disappearing for a number of decades now. Over the past 50 years, the percentage of Americans in the middle class plummeted from 61% to 50%. And I’ve got to tell you: I only see it getting worse from here.
Of course, there are a number of systemic and economic factors that go into this tightening of the middle class. For one, inflation over the past few years has hit the middle class especially hard. But there are also a handful of big mistakes people make that hinder their progress toward financial freedom. Today we’re going to explore 5 major money pitfalls that the middle-class faces. If you’re ready to transform your financial situation and start building wealth, this episode is for you!
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- Buying liabilities. A liability is anything that takes money out of your pocket every single month—your mortgage, your car payment, credit cards, and loans. When you’re pouring your money into these expensive liabilities month after month, there’s little room in your budget for anything else. Not to mention, most liabilities come along with an outrageous interest rate – interest rates on certain retail credit cards recently surpassed 33%. Once you fall prey to this trap, it becomes increasingly harder to start buying performing assets that will help you build wealth. If this sounds like your situation, I really encourage you to check out the video I recently published on credit card debt in the US.
- Not building enough income streams. A lot of middle-class families live off one or maybe two salaries. If you want to start building wealth, you’ll need to start adding income streams to your family’s overall income. This can be businesses, side hustles, or my favorite, rental properties. Diversifying your income streams is an incredible way to start building wealth.
- Practicing lifestyle inflation. The lifestyle creep keeps people locked into a lifestyle of living paycheck-to-paycheck. If you’ve never heard of this term before, let me explain. Lifestyle inflation is when your income rises, and you also bump up your spending habits. So let’s say you get a raise at work, and then you plan a big vacation, and buy a fancy new car. So instead of bringing home extra money every month, you end up spending more. The lifestyle creep prevents you from building wealth and keeps you in a cycle of living paycheck-to-paycheck.
- Trying to time the market. This might be the biggest middle-class mistake of them all. Too many middle-class people talk themselves out of building wealth because of market conditions. Yes, rates are higher right now than they were in the past several years… but we are not going to see rates to the tune of 3 or 4% for a very, very long time. The ability to build wealth through real estate is going to get harder and harder to reach as prices go up later this year, and the 1% continues to gobble up available real estate. This is how the middle class’ wealth is shriveling up, and the top 1% is amassing more and more assets. Do you think wealthy investors give a crap about fluctuations in interest rate? No, they don’t. Let me tell you why. Successful investors aren’t splitting hairs over 1 or 2 percentage points. They see the value in making a long-term asset, and they go for it.
- Not focusing on financial education. One of the most powerful things you can do to reach any type of goal is to focus on education. The more that you learn, the more options open up for you. No matter your financial situation, I highly recommend making financial education a priority in your life. So be sure to check out this next video – The Beginner’s Guide to Financial Education
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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
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