7 Money Mistakes Both Poor and Rich People Make Everyday
Written by
Cindy Lamothe
Edited by
Chris Cluff
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Whether we’re rich or have less means, we all make money mistakes.
Regardless of your income level, you might prioritize certain aspects of your finances while neglecting others. Many of these habits are ingrained in us when we’re young, but knowing what they are and naming them can be a good first step in learning to change gears.
“The truth is both the rich and the poor have equal tendencies of making money mistakes, and everyday they do,” said Mafe Aclado, general manager of Coupon Snake. “However, when weighed on a scale, it becomes apparent that the implications have varied effects on both classes.”
Here are some of the biggest money mistakes that affect both the poor and rich alike.
Also see the biggest mistakes that make other people rich.
Giving In to Hasty Buys
“Rash purchases are bad for everyone’s budget, but they can wreak havoc on people with fewer resources to spend,” said Marom Anaky, marketing manager of Coinscipher.
If you give in to impulse buys, he said, you risk spending any of your savings on non-essentials.
“Ask yourself if you really need or desire anything before you buy it,” he said. “Make a list of everything that’s required before you go out to shop, and be cautious to follow it.”
He also suggested avoiding shopping while you are upset or anxious as this might motivate you to waste money.
Tim Connon, founder of ParamountQuote Insurance Advisors, similarly noted that impulse buys can quickly add up.
“Every time people stop by a gas station they are tempted to purchase a drink like soda or coffee instead of waiting until they are home,” Connon said. “Extra sandwiches or other snacks also add up, and people buy impulsively.”
By avoiding these impulses, he said, both poor and rich people save a lot of money.
Overspending on Housing
According to Aclado, both the rich and the poor make the mistake of overspending on housing projects.
“Though the rich look to improve the appearance of their home and upgrade it to their personal standard and taste, they neglect how this decision would impact the resale value of their home,” she explained.
On the other hand, she said the poor mostly attempt to increase the resale value of their homes. While this is generally a good idea, what makes it a money mistake is that too often both end up reducing the value of their homes.
“The poor go take in the wrong projects that really do not add value and sometimes even reduce the market value of their homes,” she said, noting that some of this includes adding a swimming pool and garage conversions.
Another house-related money mistake the rich and poor make, she said, is constantly cashing in on their home equity.
“The problem with this financial move,” she said, “is that the more equity you cash out, the more debt you accumulate.”
Ignoring Home Maintenance and Expenses
Another mistake both poor and rich people make, according to John Bodrozic, co-founder of HomeZada, involves ignoring the financial aspects of their home.
“They both forget or don’t know what preventative maintenance tasks to do or financially budgeting for remodel projects.”
He said both classes also tend to ignore tracking all home expenses such as property taxes, insurance and utility costs and don’t continually assess the estimated value of their home, their mortgage balance and their equity.
Living Beyond Their Means
Experts agree that both the poor and the rich fall prey to the money mistake of lifestyle inflation.
“No matter if you are rich or poor, any increase in your income is bound to bring more expenses due to lifestyle inflation,” said McKinzie Bean, personal finance mentor and owner of Moms Make Cents. “When they begin to earn more most poor people tend to spend more as well because they believe that it is finally their time to buy the things they weren’t able to buy before.”
She said most rich people tend to allocate more of their income to expenditures rather than to savings when they get additional income streams.
“Rather than saving,” she said, “the rich tend to upscale their lifestyle more every time they access new funds.”
Jake Hill, finance expert and CEO of DebtHammer, said you especially see this with housing.
“The newly rich often give into lifestyle inflation as their wealth grows, spending more and more on lavish homes and apartments,” he explained. “Those in lower income brackets often overspend on rentals, especially if they are trying to live in neighborhoods with especially good schools.”
This money mistake can’t always be avoided, Hill said, but doing your best to live within your means and researching average home prices/rents can help you find more reasonable housing.
Not Comparing Prices
A mistake that everyone makes regardless of income and net worth is not shopping around, said Darius Smith, financial advisor at Wealth is my Worth.
“In fact, this mistake is more popular for affluent individuals,” he said.
Making a purchase from the most marketed, most convenient vendor is a habit that’s generally a mistake, Smith added.
An example of this is purchasing insurance from the first agent that gives a quote and promises it’s the best they can give. Another example is using the same cell phone provider everyone else in the family uses just because it’s familiar.
Winging It on Their Budget
“People without a budget think they have a good idea of responsible spending,” said Melanie Musson, finance expert with Clearsurance. “Unfortunately, in most cases, both poor and rich people have an unrealistic idea of how much they can spend and still reach financial goals.”
Buying What They Can’t Afford
Whether it’s a boat or a cup of coffee, experts say spending money you don’t have and putting it on a credit card or taking out a loan can set you up for financial hardship in the future.
As Musson said, “The rich and poor alike can live paycheck to paycheck where they support their current lifestyle but neglect to prepare for their future.”
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