5 Mistakes Made by the Middle Class That Prevent Them From Being Rich, According to Financial Experts

Being middle class often conjures images of living comfortably, being able to save money while also having funds for leisure, owning a car and perhaps a house. Yet, looking at actual numbers puts a different spin on it, and being middle class in America is a far cry from being rich. So, what are the mistakes these individuals are making that prevent them from being wealthy?

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To put this in perspective, for the Pew Research Center, there is a clear definition of what middle-income households are: hose with an income that is two-thirds to double the U.S. median household income. And that median income was $74,580 in 2022, according to the latest Census Bureau data.

When you factor in inflation and soaring rates, this makes living comfortably while being able to save very tricky.

Yet, beyond these macroeconomic factors, there are also some mistakes that are made along the way that prevent middle class families from becoming “rich,” according to financial experts.

Money mistakes the super wealthy never make - that you might be doing now.

Falling for Lifestyle Creep

Falling for lifestyle creep is one key mistake, according to experts.

While it’s natural to spend more as you make more throughout the course of your life, lifestyle creep — overspending as your income increases — can quickly get out of hand and keep you in a financial limbo, or even worse, sabotage your financial future, said Steve Sexton, CEO of Sexton Advisory Group .

“Lifestyle creep happens for several reasons, whether it is pressure to ‘keep up with the Joneses’ or overestimating how much you make while underestimating how much you spend,” he said. “Either way, lifestyle creep can be a major financial obstacle and can prevent people from achieving true wealth in the long run.”

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Lack of Financial Literacy

Another challenge is that many middle-class Americans do not have a strong understanding of personal finance or investing, and, as a result, they may not take advantage of opportunities to increase their wealth through smart investments or tax strategies, some experts noted.

According to Michael Collins, CFA, founder and CEO of WinCap Financial , this lack of knowledge also makes them vulnerable to scams or risky investment decisions, hindering their ability to grow their wealth over time.

“It’s important for individuals to educate themselves on topics like saving, budgeting and investing, so they can make informed financial decisions,” added Collins.

Poor Debt Management

Another factor sometimes hindering the transition from middle class to being rich is poor debt management.

In fact, everything from credit card debt to a large mortgage can weigh on people’s ability to consistently grow wealth throughout their lives, according to Stephen Kates, CFP, principal financial analyst at RetireGuide .

Kates added that while non-productive and high-interest debt, such as credit cards or personal loans, are the most damaging to one’s finances, long-term auto loans or an excessive mortgage payment can cause people to save or invest very little.

“Housing is often considered to be forced saving, but that wealth is locked away and harder to tap without borrowing or selling,” he added.

Over-Investing in a Home

Another mistake is over-investing in a home, and some experts argue that home ownership is not a very effective way to accumulate long-term wealth for retirement, despite conventional wisdom suggesting the contrary.

“What many fail to realize are all the attendant costs of homeownership beyond the mortgage payment — property taxes, insurance, upkeep, etc.,” said Robert R. Johnson, Ph.D., CFA, CAIA, professor of finance at Heider College of Business, Creighton University .

According to him, the problem that people get into is that too large a portion of their monthly income is consumed by mortgage payments, effectively crowding out other, more lucrative investments, such as building wealth.

Inadequately Planning for Emergencies

As Sexton argued, if you’re not prepared, a financial emergency “can make or break you.”

Whether due to unexpected job loss, a medical emergency or a car accident, financial emergencies are inevitable in life, and an emergency fund containing three to six months’ worth of expenses can help soften the financial blow and prevent you from going into financial ruin.

“If you don’t already have an emergency fund, it’s never too late to start saving today,” he added.

This article originally appeared on GOBankingRates.com : 5 Mistakes Made by the Middle Class That Prevent Them From Being Rich, According to Financial Experts