Fancy cars, brand name clothing and expensive meals out can all significantly damage your wallet if you’re not paying attention. And for those in the middle class, keeping an eye on these expenses can help you manage your finances more wisely in the future.
GOBankingRates spoke with Stoy Hall, a certified financial planner (CFP) and the CEO of Black Mammoth , to find out what the biggest money-wasters are for the middle class from an advising perspective .
“You want to know the number one reason why you’re broke?” asked Hall. “It’s not what you think. It’s not the economy, it’s not your job, it’s your lack of a plan.”
Being disorganized is one of the leading causes of being broke. As Hall explained, the middle class can have a lot of moving parts in their finances. They have more assets meaning they’re purchasing more things and have more opportunities to build wealth .
But if they don’t understand how all the parts fit together, they can end up overspending.
“Stop living in the dark about where your money’s coming from and where it’s going,” said Hall. “Without a clear plan, you’re just throwing money into the wind.”
Clothes
According to Hall, the middle class is burning through cash at places like Target, Amazon and Kohl’s because they have that extra bit of spending money.
“You think you need that new sweatshirt from Target? Think again,” said Hall.
“Clothes are a huge, huge item and issue when it comes to someone’s budget, because it’s something where you’re just like, ‘oh, I need a sweatshirt, I need pants, I need this.’ And you have the money to do so.”
Hall warned that without a plan, you’re probably overspending on clothes. And if you let yourself, you could fill your closet to the brim with impulse purchases that are bleeding you dry.
“Wake up and smell the overpriced cotton, people,” Hall added.
Cars are the classic, middle-class status symbol. When you’ve worked hard to get where you are, you deserve that shiny new SUV, right? Not according to Hall.
“The majority of people in the middle class didn’t come from the middle class. They came from the near-middle class or have worked themselves into an income that puts them in the middle class,” he explained. “And typically, that means they’re going to get a nice, new car.”
Hall noted that on average, people spend about $15,000 too much on a vehicle purchase.
“That’s fifteen grand down the drain, people,” he warned. “And that’s before you even factor in gas and maintenance.
“Ask yourself: do you really need that gas-guzzling behemoth, or are you just trying to keep up with the Joneses?”
Food
Turns out that you’re not overspending just on groceries or just on dining out — you’re overspending on both.
“You’re stocking up your fridge like you’re preparing for the apocalypse, and then you’re too lazy to actually cook the food,” Hall said. “So, what do you do? You go out to eat, effectively doubling your food expenses.”
He added that there’s nothing wrong with that as long as you’re budgeting for it.
For example, Hall said, “We’re a family that loves to go out, so we’re going to spend less on groceries or vice versa.”
He also suggested “treating your food budget as one big pot.” He continued, “It doesn’t matter if it’s going out. It doesn’t matter if it’s groceries. You have $900 a month… and then you can balance it from there.”
Kids’ Sports
According to Hall, kids’ sports in America have gotten out of control in terms of costs. And the middle-class spends a lot of money on it because they want what’s best for their kids.
“We do the same, but it is overspending in general because there are ways to get your kids exposed to programs, et cetera, that don’t cost an arm and a leg,” said Hall.
He said these sports clubs and clinics are taking you for a ride, and it’s time to put on the brakes.
“Your kid doesn’t need to be in three travel leagues and four summer camps to succeed in life,” he added. “There are more affordable ways to keep your kids active and engaged without mortgaging your future.”
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