About half of Americans lived in middle-income households in 2014, according to Pew Research.
This demographic includes families with incomes between $42,000 and $125,000.
The middle class provides and consumes the bulk of services that keep society afloat, driving economic growth and investment with each purchase they make.
Though sometimes we don’t always make the smartest decisions with our money.
Here are 7 money mistakes the middle class needs to stop making.
1. Racking up too much debt
According to a recent study by the Federal Reserve Bank of Boston, 65% of credit card users carry a balance, which means they are paying interest each month. That money is literally flying out the window.
For middle-class Americans trying to get ahead financially, this can be a costly mistake. Remember, the average credit card interest rate is now over 15%!
2. Not increasing your retirement amount.
It’s important to boost your retirement contributions as your income grows.
3. Not Starting a Business.
Not only do you increase your income and kill the curse of poverty, but also the tax advantages are super and many are not taking advantage of them.
4. Not having an emergency fund
Our lack of emergency savings is a problem. When you don’t have the cash to cover emergencies — which will inevitably occur — it’s far easier to let your finances spin out of control or get caught in a cycle of debt.
Nearly half (46%) of us would struggle to cover a $400 emergency, according to a 2016 Federal Reserve report on the financial well-being of Americans.
Keep an emergency fund stocked with three to six months’ worth of expenses. Instead of shopping sprees, and frivolous spending on shoes, bags, expensive dinners, the casino, etc, stock up your emergency fund first.
5. Delaying your retirement savings.
Save for retirement as early as possible to put the magic of compound interest on your side.
6. Not updating beneficiary designations.
Marriage, divorce, or any changes in your family situation are reasons to revisit your beneficiary forms. If not updated huge sums of money can wind up in the wrong hands.
7. Spending too much on liabilities and not assets.
As of 2016, the average car payment was $506 per month and 68 months long! That represents a large amount of cash for Americans who are already struggling to save.
Our accounts are drained every month because we are concerned and care about impressing others with our cars, but that often means overspending by thousands of dollars each year.
Most middle-class Americans would be better off driving older cars and investing their extra cash into their emergency fund or into starting a business.