8 Middle-Class Traps That Keep Americans From Building Wealth

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Several factors make it more challenging to maintain middle-class lifestyles than it was at the turn of the century. The (current state of the) economy and inflation are two of the biggest challenges. 

With the above in mind, let’s look at eight middle-class lifestyle traps that could damage your ability to enjoy life as you should with your hard-earned money. 

Credit Card Debt 

Being middle class doesn’t mean being debt-free. Most middle-class households have debt, like student loans, a mortgage or a financed car.

However, what’s crippling financially is credit card or store debt. If you’ve got a good credit score, it can be tempting to take out a card, get another on 0% and roll it over and treat yourself to purchases that are just a bit out of your income bracket. 

The problem is that this costs in the long term. It’s very difficult to become wealthy when you have a lot of debt, since you’re paying off debt instead of investing money into the market or putting it into a high-yield savings account.

Renting Instead of Buying

According to The New York Times, renting is increasingly becoming unaffordable for many, including those on middle-class salaries, especially in big cities. 

In America’s largest urban areas, such as New York, Boston, Chicago and San Francisco, rent is much higher than the average guideline of spending no more than 30% of your salary on a lease. 

Almost every year, real estate values have increased every year. This does make it more challenging to purchase a property. But once you’ve achieved that, it means you can build wealth more easily.

As a homeowner, you won’t be spending money on renting but instead building equity in a potentially appreciating asset, you home. 

Expensive Cars 

Cars are among the worst ways to lose money quickly. Cars depreciate faster than any asset, losing 9% of it’s value just driving it off the lot and 60% over five years, per Ramsey Solutions. So the more expensive a car you buy, the quicker you’ll lose a pile of money. 

It’s even worse if you buy on credit. You’ll be paying high rates of interest and losing money as the asset you’re driving around depreciates before your eyes. Having an expensive car is a middle-class financial trap you do not need. 

Keeping Up With the Joneses

Like with credit and store cards and expensive cars, trying to keep up with what your neighbors are spending is a pointless vanity exercise. 

Most of us don’t know anyone else’s real financial status, so you don’t know how much of what you’re seeing online and in your area is on credit. Keeping up with the neighbors is an expense you don’t need. 

Not Saving or Investing 

Saving into a high-yield savings account and just investing in the S&P are two of the most effective ways to build wealth. The more you save and invest, the greater your overall wealth and net worth. 

If you invest just $300 per month, over 35 years, with a 12% return starting with nothing (which is possible according to Ramsey Solutions), you’ll have a $1,553,989 fund. And if you let it grow for five more years, you’ll have nearly $3,000,000. If you aggressively invested $1,000 per month, you could reach over $5 million over 35 years and $9 million over 40 years.

Now, these numbers aren’t inflation-adjusted, but it’s clear that you’ll have a hefty retirement fund if you invest regularly.

Putting it into a high-yield savings account won’t yield anything close to the above returns, but it’ll likely beat inflation and provide a very modest and safe interest income.

Not Planning for Retirement 

Following on from that, saving to retire is crucial, especially if you’re in your 30s or approaching 40. The more money you put in, the more comfortable and secure your retirement will be. 

You don’t want to be relying on things like Social Security.

And even if you’ve got an employer-backed 401(k) or another type of retirement account, make sure to put extra money in and find other ways to save and invest to build long-term wealth to make sure you are financially secure in retirement.

Not Delegating Low-Cost, Time-Consuming Tasks 

How much time do you probably spend cooking, cleaning, doing laundry, gardening and washing the car? 

Hours and hours of unpaid yet essential labor. One thing that wealthy Americans do is know that they can spend their time more effectively. So, they delegate, they have staff or contractors do those kinds of jobs. 

Look into the cost of hiring a cleaner and gardener for $15 to $20 per hour (according to Indeed). If you can use your time for better things, like a side hustle to make over that hourly wage, then it could be worth the cost. 

Not Using Tax Deductions Smartly 

Smart tax deductions are another great way to keep your costs low, so you can use the money more effectively, like for savings and investments. 

Smart tax deductions like the child tax credit (CTC) or the American opportunity tax credit could be worth looking into, alongside numerous others. If you’ve got an accountant, it’s worth asking for advice on this.

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