New to the Upper Middle Class? Avoid These 10 Mistakes If You Want To Stay There
You’ve joined the ranks of the upper-middle class, finally making good money, owning a comfortable home and better enjoying life’s luxuries. And most importantly – you want to stay there.
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GOBankingRates spoke to two personal finance experts about hanging on to upper middle class status, even if you weren’t born into it.
Avoid these mistakes if you want to stay upper middle class.
Spending Money On Things You Don’t Need
Aaron Cirksena, founder and CEO of MDRN Capital, shared that people new to being upper middle class can easily spend too much money just by trying to keep up with their neighbors
“Meaning they buy into nice cars, fancy neighborhoods, [and] name brand clothing to reflect that they are upper class,” Cirksena said. “This leaves them with no real assets, only material items that quickly depreciate.”
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It’s easy to buy, buy, buy when there’s cash in the bank – but remember that if you spend, spend, spend — that cash might not be there tomorrow.
Spending money on things doesn’t grow your wealth, so resist the temptation to buy objects that quickly depreciate.
Resting On Your Laurels
Cirksena also said you should keep the hustle that gets you to where you are.
“[Newly upper middle class people] think because they may have a high income, they are set. But if they don’t invest it and save still, it can leave them in a big financial hole.” Cirksena said.
Just because the paychecks are rolling in now doesn’t mean you should coast. Keep striving and growing and remember how you got where you are.
Not Planning For the Future
Cirksena shared that some new upper-middle class members “stop planning for the future because they believe they have finally ‘made it.'”
This is a dangerous way to think because the future will be here before you know it. If you’re not actively planning for what’s next, you might miss the train on holding on to (and building!) your wealth.
Not Curbing Lifestyle-Fueled Debt
As spending increases, so can debt.
“They accumulate high-interest debt by spending more on their credit cards to keep up with the lifestyle,” said Cirksena.
Racking up credit card balances is a quick way to chip away at your financial security.
Not Diversifying Your Income Streams
Cirksena also shared needing to get creative to keep the money rolling in.
“[Newly upper middle class people] over-rely on their earnings from their job, instead of fostering other avenues of revenue such as investments. What happens if they lose their job and take a pay cut?”
Your paycheck alone isn’t enough – think of other sources of income and more importantly, investing to keep your money growing.
Not Using the Spending Less Than You Earn Principle
Personal finance expert Asher Furst underscored the fundamental importance of this principle: “The most important principle in building wealth is spending less than you make; not earning more money.”
No matter how high your income gets, if your spending rises in tandem, you’ll never get ahead.
Not Managing Guilt
Furst shared two challenges that can affect the new upper middle class: guilt and lifestyle inflation.
“Guilt is definitely a problem often faced by people who make it to the upper middle class,” he said. “While not strictly a financial problem, it can prevent them from enjoying the wealth they have earned.”
Remember that you earned what you have and you deserve it. Enjoy it within reason, and keep the hustle going!
Not Avoiding Taking On More Debt
Furst cautioned against accumulating more debt – for example, a bigger mortgage – when moving up the income ladder.
“Another mistake is taking on additional debt,” Furst said. “Some people move to a nicer house and take out a mortgage to do so. Instead of using their newly attained resources to become financially free, they burden themselves with more debt.”
Not Staying Grounded and Focused
Furst shared the importance of maintaining financial discipline, even as your income grows.
“People who suddenly are earning much more than before can start feeling like they’re invincible,” Furst said. “This dangerous mindset can lead to carelessness with how they spend their money and other financial practices.”
Not Prioritizing Debt Payoff
Finally, Furst recommended aggressively paying off high-interest debts, like student loans.
“With additional income coming in don’t just make your monthly payments on your student loans – pay them off completely. This can save you tens of thousands of dollars in interest.” Furst said.
The Final Word
By listening to experts like Cirksena and Furst, you can confidently navigate the upper-middle class landscape.
Just remember to stay grounded, plan for the future, and resist the temptation of short-term gratification. Do that, and you’ll be well on your way to lifestyles of the upper middle class and extremely comfortable!
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This article originally appeared on GOBankingRates.com: New to the Upper Middle Class? Avoid These 10 Mistakes If You Want To Stay There
