Middle Class Money Mistakes (To Avoid)

When I graduated from college, I absolutely felt like I had “arrived”. Having come from a very respectable blue collar family, I was grateful for the work ethic that I saw in my parents and what they instilled in me, but I mistakenly thought that they were naive and closed minded in some of their financial practices. 

My mother modeled frugality and thrift and was REALLY amazing at stretching a dollar, especially in light of our low income and her unfortunate status as a single mother during much of my time growing up.

And I also watched my father succumb to the hedonic treadmill, making plenty of money, not having much to show for it and ultimately always seeming to struggle through financially.

At the other end of the spectrum, I watched friends of mine who had middle to upper middle class parents who were apparently doing very “wise” and “sophisticated” things with their decidedly larger paychecks (like leasing cars, buying  bigger houses, constantly upscaling their lifestyles, going on expensive vacations, etc) and I felt like my family and I were “missing out” on all the apparent fun.

And actually, it was all very confusing to me.

Even though my parents were very respectable blue collar shift workers, neither of them were really ever able to “get ahead” and I always just assumed that it was because of their blue collar lines of work and their NOT being a part of the visible middle class with all of its lofty artifacts and apparently sophisticated financial practices.

And while I wasn’t necessarily correct about this, I’m particularly glad for my mother’s sense and practice of frugality. But unfortunately, like the proverbial moth to the flame, I was drawn into that apparent upper middle class abundance I saw around me and felt like “they” knew something that my parents didn’t.

So, I went to college, graduated and somewhere in that socialization process started to embrace all the middle class money mindsets and unfortunate mistakes that I’m going to talk about in this video.

What I ended up with was a $174,000 pile of debt and a complete train wreck of a life that took me 2.5 years and A LOT of deprogramming to unwind. And I want to help you to completely avoid all of that, so you can do much better than I did and MUCH more quickly.

So, let’s talk about these 5 middle class money mistakes in brief and then unpack each one in more detail.

1. Student loans.
2. Car loans/leases.
3. Not investing.
4. Career burnout.
5. Buying too much house.

Student Loans

Education IS important BUT be careful here.  From the student loan carnage I’ve seen as a financial coach, I think one of the biggest crimes in our society is the incentive structures in place for large institutions to lend tens and hundreds of thousands of dollars basically to adolescents who really have no concept of what they’re actually signing up for.

Let’s look at a sobering report from Educationdata.org and parse out the realities of student loans (link in description below): https://educationdata.org/student-loan-debt-statistics

Here are some highlights. Student loan debt in the United States totals $1.75 trillion and grows 6 times faster than the nation’s economy.*

• The outstanding Federal Loan Portfolio is over $1.61 trillion.
• 43.4 million borrowers have federal student loan debt.
• The average federal student loan debt balance is $37,113.
• Including private loan debt, the average balance may be as high as $40,904.
• The average public university student borrows $30,030 to attain a bachelor’s degree.

Now, I was able to fund my college through the Army College fund and GI bill, so this wasn’t a trap that I fell into

BUT again as a financial coach, I’ve seen thousands of students absolutely wrecked by student loans.

And maybe college isn’t even the right move for you. Should you consider technical school or maybe online entrepreneurship or some other potentially lucrative career options?

If you are looking at college, it seems the study tracks with the best ROI are in the STEM fields, that’s Science, Technology, Engineering, Mathematics.

The main thing here is to make sure you stay as far away from this kind of debt as possible while elevating your marketable skills to the highest level possible. With all the options available online, you can get really creative here and avoid a ginormous debt load that could shackle you for decades to come.

Car Loans/Leases 

I leased my first car out of college (black on black top of the line Honda Accord). Since I was the first person in my family to graduate from college, let alone Magna Cum Laude with a 3.92 GPA, I was under the often repeated mantra that “I deserved it”.

Well, I guess I kind of did because I leased it, drove it off the lot and essentially proceeded to do the financial equivalent of tossing dozens of $100 bills out the window on the car ride home.

My monthly lease payment was more than $500/mo. (not including insurance) and I would look back many times over the coming decade and kick myself for this one horrid financial decision.

I actually have a blog post I wrote several years ago about the pitfalls of leasing vehicles and I’ll like it below: https://www.zerodebtcoach.com/blog/6-powerful-reasons-to-never-ever-lease-a-car

In this post, I talk about how the propaganda about the "wisdom" and "sophistication" of leasing a vehicle is a bunch of just… hogwash.

Here’s a quick 30,000 foot view of the 6 reasons you should never ever lease a car: 

1. Immediate loss on the purchase of the vehicle.
2. Monthly loss in value.
3. Dealership profit.
4. Interest rate on the lease note.
5. Potential (likely) excessive mileage and wear and tear charges.
6. Possible profits on investments that you would have earned.

To help you want to steer clear of this middle class money trap, I wanted share some statistics about car debt from lendingtree.com and I’ll leave the link below: https://www.lendingtree.com/auto/debt-statistics/

• The average monthly car payment in the U.S. is $563 for new vehicles, $397 for used vehicles and $450 for leased vehicles.
• Overall, Americans owe nearly $1.4 trillion in auto loan debt.
• Auto debt makes up 5% of American consumer debt.
• On average, Americans take out about $56 billion across 2.3 million new auto loans each month.
• Americans borrow an average $34,635 for new vehicles and $21,438 for used vehicles.
• The average loan term is 70 months for new cars, 65 months for used cars and 37 months for leased vehicles.
• 8% of outstanding auto debt is at least 90 days late and another 5.8% is 30 days overdue.

Leasing a car was one of the biggest financial mistakes of my life, and I guess it was just one of those things I had to learn the hard way. I hope you’ll learn from my experience on this one.

Not Investing

Let’s talk about investing for a minute, because investing is important for: net worth growth through the magic of compounding interest, hedging against the pernicious effects of inflation, divesting out of fiat currencies (like the dollar) that are rapidly declining in value, saving for short-mid-term purchases and finally for retirement planning.

But, what should your situation look like before you start investing? That’s a great question and I want to unpack that a little here, so it’s more clear for you.

In my system, the 8 Steps To Erase Debt/The Foundations of FI, you wouldn’t ACTUALLY start investing until Step 5.

Step 0: Stop all investing temporarily.

Step 1: Get on a written budget.

Step 2: Starter emergency fund of at least $3-%5k.

Step 3: Debt elimination plan: Snowball/Avalanche/Hybrid

Step 4: Full emergency fund of 6mo-1yr of expenses. 

Step 5: Invest at least 15% and then increase savings rate to 50%+.

If you want access to my 8 Steps To Erase Debt/The Foundations of FI Workshop, I’ll leave a link in the description box below.

Why wait until you’re consumer debt free? Well, for reasons like I mentioned before like: compound interest, inflation hedging, retirement planning, but even more important than that is focus.

In my over a decade of experience as a coach, I’ve seen that the focusing of your efforts on one thing at a time pays the biggest dividends.

I don’t have time to go into that, but suffice it to say you’ll get much better returns and much faster if you tackle investing after having paid down your consumer debt.

Vehicles for investing: I personally love index funds, some mutual funds, precious metals and some cryptocurrencies and again, we encourage our students to invest at least 15-20% of their income while trying to elevate their savings rate to upwards of 50% of their income.

Career Burnout

When I graduated from college, the potential burnout from grinding away in the W-2 rat race was something that wasn’t even remotely on my radar. At that moment, I was just SO happy to have graduated and that I was actually being considered for some of these middle class income level careers that stood to help me elevate my financial profile.

I couldn’t yet see the toll that operating as a low-level sales pawn in corporate America would take on my spirits over the next 3-5 years.

The long and the short of it is that corporate America was just not a good fit for me. The rigor of working for publicly traded companies and all of the inherently micromanaged administrative drag coupled with the toxic political environments were just never going to be a solid fit for my personality.

But here again, I had to learn this the hard way and slowly come around to the realization that I really needed to work for myself, which is ultimately how I started this platform.

So the question is, what do you REALLY want? What are you well-suited for in a career and just as importantly, what are you ill-suited for?

How do you progress in your career and avoid burnout?

My advice here is simple, stay flexible. Don’t get into a bunch of debt AND if you’re in a career you hate, start working your toward some kind of liberation by starting a side hustle/side business/online business.

I’ll have much more to say about this in forthcoming content, so make sure you’re subscribed to the channel and have notifications turned on. :)

Buying Too Much House

This is yet another huge mistake I made just a couple of years after graduating from college. And like some of the other items on this list, I see it as part of overconsumption/hyperconsumption, keeping up with the Kardashians phenomenon I was voluntarily living under.

Again, I was just swimming in that stream of middle class money attitudes that repeated things like: “you’ll always have a car loan, student loan, mortgage, credit card debt”, so I was just showing up on the hedonic treadmill every day feeding the beast of my overconsumption.

The problem was, I bought too much house for my income and debt levels and the system (i.e. my real estate agent, mortgage company and the whole complex) were more than happy to leverage me up to my eyeballs.

AND on top of that I went ahead and took out a $43,000 HELOC and piled on yet another boulder on my back.

I fell prey to all of the middle class money mistakes I see as a coach. 1. Not living within my means. 

2. I had no room in my (non-existent) budget for the “carry costs” of being a homeowner.
3. Without a budget, I was totally susceptible to lifestyle creep/lifestyle inflation.
4. I had bought a pretty big home for a single guy, which only equated to buying more stuff to fill it.

So, how you do this the right way is to:

• Save at least a 20% down payment
• Take out a 15 yr fixed mortgage
• Make sure all of your housing costs are no more than 25-30% of your total take home pay.

Again, I cover this in my 8 Steps To Erase Debt/The Foundations of FI Workshop, I’ll leave a link in the description box below.

So which of these middle class money mistakes have you fallen into and are trying to climb out of. Leave a comment below and let us encourage you along your journey.

Struggling Or Feeling Alone?

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Now, if this decision process is something you struggle with and you constantly feel isolated about, I’ve got some great news for you and it’s free.

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All that said, let's keep on building your financial acumen and make this your best year yet!

Thanks so much for reading and we’ll see you in the next video post!

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