5 Middle Class Money Traps to AVOID

hey everybody welcome back to whiteboard finance my name is marco and i'm here to help you master your money and build your wealth thanks to policy genius for sponsoring this video but more on that later in today's video we're going to talk about the five middle class money traps to avoid like the plague a lot of people watching my channel fall into the socioeconomic category of being middle class which is why i felt compelled to make this video the way i'm going to position this video is in chronological order meaning these are typically the traps that come up as a person goes through a traditional middle class life let's get into it okay so the first middle class money mistake is going into deep student loan debt the traditional path of the middle class is to finish higher education in order to have a career that allows you to earn a healthy living throughout the course of your life if you come from an immigrant family or if you're the first generation then you definitely know that higher education is priority number one for getting out of the lower class and having a better life there is a problem with this however because the cost of college just keeps going up up and up here are some fun facts about student loans and tuition costs according to education data.org the average cost of college in the united states is 35 thousand seven hundred and twenty dollars per student per year that cost has tripled in twenty years with an annual growth rate of six point eight percent student loan debt in the united states totals one point seven five trillion and grows six times faster than the nation's economy and finally 43.2 million student borrowers are in debt by an average of 39 351 dollars each so what does this mean it means that most people are starting their careers in the red before they even start earning an income so what do we do about this make sure the degree that you're studying for has a proven roi after you graduate a proven return on investment if you're going to college just to have a good time which i highly recommend you better make sure that you can find a job with a proper roi with your underwater basket weaving degree if you're going to college to properly network and truly make connections that will benefit you and your career in the future you need to make sure that you're in a field with a high roi post graduation on average the highest paying degrees are in the stem fields stem stands for science technology engineering and mathematics i graduated with the finance degree in 2010 and i most likely wouldn't have been able to get the jobs that i've had throughout my life without it there's nothing wrong with going into debt to better yourself with a degree just make sure that the roi is there so to finish this part of the video take a look at this screenshot which is the median weekly earnings by educational attainment you can clearly see a correlation between higher education and higher weekly earnings i'm not going to cover every single one of these numbers but you can always pause the video and see for yourself middle class money trap number two is taking out a huge car loan so now that you've gotten your first big boy or big girl job earning probably the most amount of money you've ever earned in your life you start to get enticed by toys which are usually in the form of a new car you want to justify it to yourself that you've earned your degree you went through a bunch of interviews and you finally nailed that job that you've wanted so you reward yourself i've seen this happen time and time again and to be quite honest i really don't blame these people however they need to realize that they're making a huge financial mistake so why is this uh well we just learned that most people graduate with tens of thousands of dollars of student loans to begin with so why would you want to start or take on more debt throughout your life well there are pressures that come with working in a professional setting you have peer pressure especially in corporate america if you're in a sales position or a client-facing position you want to maintain a certain image and you're not going to do that with the honda civic with 300 000 miles on it no the bumper stickers don't add extra horsepower so you want to make a good impression so you lease a new 3-series bmw or a c-class mercedes however this new lease is now burning hundreds of dollars a month that you could be using to allocate towards paying down student loans or high interest rate debt that you may have accumulated during your college years so not only are you limiting your income but you're hurting your soldiers you're killing your soldiers aka dollars that could be used to start investing which is how you truly start to build wealth over time so here are some fun facts about car loans according to lendingtree the average monthly car payment in the united states is 563 dollars for new vehicles 397 for used vehicles and 450 for leased vehicles overall americans owe nearly 1.4 trillion dollars in auto loan debt americans also borrow an average of 34 635 for new vehicles and 21 438 for used the average loan term is 70 months for new cars 65 months for used cars and 37 months for lease vehicles imagine having a 563 a month payment for 70 months this is 70 months that could have been used to build wealth or pay down debt if you want to build a strong financial foundation avoid getting a big car loan and talking about a strong foundation let's get into today's spot by today's sponsor policy genius if someone in your life relies on your financial support whether it's a child aging parent or even a business partner you need life insurance life insurance can give you peace of mind that if something happens to you your loved ones would have a financial cushion to pay for things like rent mortgage payments loans education costs and everyday expenses getting started is easy click the link in the description or head to policygenius.com whiteboard finance and answer a few questions about yourself in minutes you can work out how much life insurance coverage you need and compare personalized quotes to find your best price you could save 50 percent or more on life insurance by comparing quotes with policy genius their licensed experts will help you understand your options and ensure you apply for the right policy policy genius works for you not the insurance companies so you can trust them to offer unbiased advice and help you navigate every step of the shopping and buying process when you're ready to apply the policy genius team will handle the paperwork and scheduling for free head to policygenius.com whiteboard finance to get your free life insurance quotes and see how much you could save middle class money trap number three is not investing if you follow the typical middle class money trap up until this point you probably have student loans and a shiny new 3 series in your garage yolo all joking aside these are actually two huge precursors to money trap number three which is not investing at all or investing the proper amount that you should be everyone has seen the cliche charts that say if you invest 300 a month for 738 years you'll be a multi-millionaire in retirement and they conveniently never account for inflation but this is not going to go into that what what this is we'll go into is the overall premise of investing in general why do we invest okay what's the point for some is to preserve their wealth for others is to build wealth for others is to be able to pass down their hard work and effort to future generations of their family what people need to realize is is that this isn't the 50s anymore very few people have pensions and there's a high likelihood that most of these pensions will be insolvent or under deliver their promised amounts upon retirement time most pensions are not 100 funded and some are severely underfunded in this country you absolutely need to save for retirement because social security will most likely not be able to maintain a respectable standard of living depending on when you retire okay this is your responsibility my grandparents retired 30 years after working in this country and they moved back to europe for a much higher quality of life and a significantly lower cost of living now i know i'm pairing investing with retirement when this isn't necessarily the case or the goal for everyone but for most people in the middle class which this video is about and who it's intended for you need to invest for your retirement otherwise you will lead a significantly lower quality of life during your golden years when you're supposed to enjoy it the goal is to not be a financial burden on your partner or family but to be a financial blessing to them so i can sit here and give you a million numbers and statistics but the only one that you really need to follow is to save at least 15 to 20 percent of your net annual income for investing and retirement i would also be very wary of any government sponsored plans based on the trajectory that this country is going in they can very easily say that your roth ira is now taxable or your 401k is going to have an exponentially higher tax rate upon retirement a lot of people don't want this to happen or don't think this could happen because americans are typically naive and spoiled financially and economically but this is absolutely why you need to have a diversified portfolio and invest throughout the course of your life you should absolutely take advantage of these tax advantaged platforms like a roth or 401k but make sure to have outside investments of them as well number four is plateauing in your career or compensation so now that you have student debt your first big boy big girl job you can't afford to invest and you realize things need to change however you become complacent and you plateau in your career as well as your comp now you are absolutely on the w-2 uh middle-class hamster wheel and it's spinning and spinning and spinning and you feel like you're not moving forward because all of your disposable income is going towards student loans and your shiny three series while inflation is eating away at any extra purchasing power that you may have had the key to moving forward in your career is envisioning what you want for yourself and asking yourself why are you even in the job that you're in if you want to stay where you're at and you're happy with that you have to realize that financially you're more or less going to be in the same place that you're right in right now 10 or 20 years from now or at least until you retire if you're okay with that then you can skip this section of the video however if you want to keep progressing financially you're going to have to progress in your career okay check this out the easiest way to make jumps in corporate america is by switching positions or switching companies every two to three years work hard in the roles that you have and when you get that two or three year mark under your belt start working with recruiters and start looking for new positions with higher pay the goal is to avoid lateral moves and make moves up career-wise not sideways the other advice that i would give you is if you're complacent or plateauing your career you may want to look into starting a side hustle or a side business that's exactly what i did with this youtube channel and now it's been my full-time living for about two and a half years now there was nothing wrong with my corporate career and finance but with youtube i'm now able to spend more time with my friends and family which i value more than corporate finance life number five is the biggest money trap for the middle class and that's buying too much house one of the biggest mistakes you can possibly make in your life is buying too much house if you watch my last video where i reported that the median cost of a new home in america has doubled over the last 10 years then you're aware of how crazy this housing market really is at the time of this recording buying too much house it typically happens when you advance in your career and you start to have a bigger and bigger family along with a bigger paycheck this had this typically happens in your 30s or 40s when your kids start to get older and you start to outgrow your current living conditions not only are people buying more expensive houses simply due to low interest rates high demand and low supply the average size of a home has grown from 600 square feet in 1973 to 2300 in 2019 people are buying bigger and more expensive homes just so they can fill it up with consumer junk it's the classic george carlin line of americans buying bigger and bigger homes just so they can fill it up with stuff now don't get me wrong there's absolutely nothing wrong with buying a nice big home just as long as you can afford it with rates being so low right now more people only think in terms of monthly payments which means hey honey we can squeeze more house into our budget because the monthly payment is lower if you want to dig deeper i highly suggest that you guys click on the link down below and get my home affordability spreadsheet and you can watch my home affordability video here's a quick rule of thumb on how much house you can afford twenty percent down fifteen year fixed rate mortgage all housing costs should be no more than twenty eight percent of your net income now you may say hey marco why would i put down twenty percent when i can get an fha loan for three and a half percent down well there's a million different reasons but it boils down to paying pmi and in case of a real estate crash and you need to sell that house in a pinch you're going to be under water by putting down three and a half percent putting down 20 percent gives you an equity cushion it gets rid of pmi and it also gives you lower monthly payments which results in overall lower interest paid over time so i have a million videos on if you should pay down your mortgage or invest which i go into these numbers deeper now you may also say hey marco why would i go for a 15-year fixed rate mortgage when i can choose a 30-year fixed which is an excellent hedge against inflation and the u.s dollar well this is a hundred percent true and i would absolutely do this but again we're dealing with michael middle class who isn't good with his money so to speak however if you're a follower of dave ramsey and you're not good with your money go with the 15-year fix if you're a follower of whiteboard finance and you're smart funny good-looking have excellent taste in wine have a beautiful spouse have a perfect hairline and are overall a great human being then go with the 30-year fixed that's what i did and finally what do i define as all housing costs i define this as your mortgage payment interest taxes insurance hoa if there is one and utility costs we want to make sure that everything is falling under the housing category within that 28 percent not just the mortgage and interest that would be disingenuous and we would be lying to ourselves and our overall budget so as always i hope you got value out of this video please give the video a like please share it with a friend share it on social media to anyone in the middle class that needs to see this if you avoid these five things i can almost promise you that you will be setting yourself up for success when it comes to building wealth and finances thank you so much everybody and have a prosperous day i also forgot to mention impeccable style uh just a big heart really giving generous philanthropy um dad jokes you're just you're just great people if you follow this channel [Music]

Channel: Marko - WhiteBoard Finance

Views: 337,576

Keywords: money traps, money traps to avoid, money mistakes, money management, personal finance, how to invest, investing 101, middle class money traps, money mistakes to avoid, how to save money, money tips, money traps to avoid in your 40s

Id: pgxPBj20FcA

Length: 14min 43sec (883 seconds)

Published: Tue Jan 11 2022