Why The Middle Class Are Financially RUINED

What's up, you guys? It's Graham here and unfortunately, I have some rather discouraging news. Some of this might come as a surprise to you, and some of it might not. But regardless, here's what we're dealing with right now in terms of the middle class here in the United States.

Seventy-eight percent of full-time workers are living paycheck to paycheck. Sixty percent of Americans don't have five hundred dollars in savings. The average American holds five thousand seven hundred dollars worth of credit card debt. They spend on average one thousand four hundred and ninety-seven dollars per month on non-essential items. Finally, to top it all off, twenty-five percent have absolutely nothing saved for retirement.

And the culprit of all of this, besides the lack of financial literacy taught in schools combined with the toxic consumer psychology to keep buying new things, is the average American budget. That's right. When I started digging deeper into how much normal, everyday people spend on their day-to-day expenses, it came as quite the shock and quite the revelation as to exactly why people have so little money left over at the end of every month. Not to mention, at this current rate, if this continues, the middle class are going to be financially ruined unless changes are made as soon as possible.

But really quick, before I begin, I just want to sincerely thank everyone for all of your support for hitting the like button or commenting down below. It seriously makes a huge difference in my videos, and the more engagement a video gets, the more likely the algorithm is to push the video out to a brand new audience. You can also hit the like button and just repeat the cycle. And also, I want to thank our video sponsor today, Wealthfront, but more on that later.

Alright, so here's where this all begins and where the trouble starts. According to the current population survey, the average U.S. household income is sixty-three thousand one hundred seventy-nine dollars a year, which, that in itself, is not the main issue. But instead, the problem is where all of that money is going. The consumer expenditure survey broke down the average American budget, and now some of the statistics that I mentioned in the beginning of the video are gonna start to make some sense.

First, we have ten thousand eight hundred dollars going towards housing, nine thousand dollars towards transportation, seven thousand four hundred dollars towards taxes, seven thousand dollars gets eaten up by utilities and other household operating costs, six thousand six hundred dollars goes towards food, and social security is paying off debt or savings. As you can see, this goes on and on. That means that the amount of money total left over on the average income, on the average budget, is nothing.

At the end of the day, for the majority of the middle class in America, there is nothing left over for any emergencies or any savings or any buffer should something happen. But there's another side effect of not having enough money left over that many people don't talk about, and that's the profit you miss out on when you're not investing your money. When everything you have goes towards expenses, you inadvertently don't get to participate in the market in such a way that your money can continue to grow.

That's why the top one percent has seen such tremendous growth over the last forty years, because they've been able to invest in the markets and subsequently grow their wealth without working any harder. So with the bad news out of the way, how could this be solved? Well, I'll tell you. It's by taxing the rich because they make too much money. Just kidding!

But now that I got your attention, we could do this by adding just a few small adjustments to the average American budget, and with a few very small minor adjustments, building your wealth is going to be a lot easier. Alright, so here are the biggest mistakes that the average person is making, and of course, how you could fix them.

First, let's start with housing. When you combine both the housing expense of ten thousand eight hundred dollars and the operating expenses of owning a home that very few people think of, you come to a total of seventeen thousand one hundred and forty-eight dollars a year. Now, the general rule of thumb when it comes to this is that you should never spend more than one-third of your income on rent. So in this situation, it's right on the line in terms of what's acceptable.

Now, what most people don't realize is that things like insurance, property taxes, repairs, maintenance, and lawn care and everything else that goes into owning a home could really add up, and it gets expensive. So much so that on average, renting a home can often be slightly less expensive than buying that same home when you take into account non-recoverable costs. However, there are some ways around this where you could get the best of both worlds and make money in the process.

And that would be through a term called house hacking. This is the practice where you could buy a two to four unit property or a home with a guest house or a home with a livable basement, and then you could rent out the spaces that you're not using and then use that money to cover your expenses. This is what I did shortly after investing in real estate. I bought a duplex, I moved in one side, and between the tax write-offs and renting out the other, I was able to cover my entire overhead of living in the home, essentially being able to live there for totally free.

Now, the difficult part for this is that depending on where you live, buying a property could be very expensive. Beyond that, though, it's really important to also evaluate very closely whether or not it's actually a good idea to buy a home in your area. In many locations, renting can very much work out to be the cheaper option. But on the downside, you're gonna miss out on home appreciation, and you're not going to be forced into a savings account by paying down your mortgage every single month.

But either way, house hacking still has the potential to bring down your costs substantially, as long as you could save up enough for the down payment and you find the right house that cash flows for you to be able to live there for free. In fact, I'm actually going to be putting a counter right here just to show you guys how much you could be saving every single month.

Now, even though it might be unrealistic to assume that everyone could house hack and live for free, even by renting out an unused space or bedroom or anything else like this, I have a feeling that this would be able to save you on average about four hundred dollars a month. But before we go into that, when Wealthfront found out I was making this video and discussing why so many people were falling behind financially, they immediately wanted to step in and help more people invest.

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The second we have one of the biggest money wasters of the middle class, and that would be transportation. What I find remarkable is that on average, ten thousand eight hundred dollars is spent on housing, and almost the same amount at nine thousand four dollars a year is spent on transportation. Now, according to Experian, they found that the average U.S. car payment is five hundred sixty-eight dollars a month.

Combine that with another two hundred fifty dollars a month in gas, one hundred fifty dollars a month for insurance, and then maintenance beyond that, and it's easy to see why transportation is holding so many people back. Plus, if you want to hear this getting even worse, the average interest rate on a car loan is five point twenty-seven percent. So right there, the average person is buying a car that's losing value every day, that's costing them nine thousand dollars a year, including a five percent interest rate on whatever their loan balance is.

Arguably, this is one of the worst purchases that someone can make, and just by fixing this one single expense, you could change the entire trajectory of your life, your net worth, and how much money you have invested. My recommendation is this: unless you need a really nice car for professional use, go and get the most affordable, reliable, good on gas used car that you could possibly find, and then drive it until it doesn't run anymore.

I know it's not going to be the coolest car, but a 2008-2012 Toyota Camry is something you could buy for less than ten thousand dollars. It's incredibly reliable, with good gas mileage, cheap insurance, and cheap parts. So instead, it's worth it to wait until the car that you want has already taken the biggest hit on depreciation and then buy it at the bottom of its depreciation curve.

For example, a brand new Toyota Corolla costs twenty-seven thousand dollars, but buy a 2014 car that's seven years old and it's half the price at twelve thousand dollars. Now you buy that same car ten years old and it's eight thousand dollars, and buy a car fourteen years old and it's seven thousand dollars. So as you can see, the difference in price between a 2011 and a 2008 is just a thousand dollars.

So over those seven years, you've only lost twenty-seven dollars a month in depreciation. And when you see that the average American is buying a brand new car every six years, you can see how that depreciation really adds up significantly over time until the rest of eternity. So instead, buy a used car at the bottom of its depreciation curve; don't lose a lot of money from this, and then drive it until it stops running.

That alone could easily save you five thousand dollars a year or four hundred sixteen dollars a month. Now, even though you might not be the coolest person on the road driving around in this, you're certainly going to be the coolest person at the bank. Next, we got to talk about one of my least favorite terms in the entire dictionary, and that would be taxes.

That, for me, is basically the monetary equivalent of smashing that dislike button. Now here we see, on average, seven thousand four hundred and thirty-two dollars is going to the IRS, which is pretty normal for most W-2 employees on payroll. However, for many people in this situation, one of the best ways to save money and invest at the same time is to make sure you're taking advantage of your employer's 401k if you have one.

This is a tax-advantaged account that lets you contribute up to nineteen thousand five hundred dollars a year in pre-tax money, meaning for every one dollar you contribute to a 401k, you are reducing your taxable income by that very same one dollar. So that way, you owe less money in tax, and therefore, you're gonna have more money saved up to invest. Even better than that, some employers will also match your contribution dollar for dollar, essentially doubling your initial investment upfront, instantaneously with no risk whatsoever.

Now, if you're watching this and you're thinking, "But Graham, why are you telling me this? This is all just common sense. Why don't you go back to making more black and white angry compilations of you yelling? That's what I really want to see." Well, if you thought it was common sense, again, you would be surprised. According to the U.S. Census Bureau, only thirty-two percent of Americans are investing in a 401k.

That means that more than two-thirds of Americans are not utilizing this to reduce their tax bill, even though this would not only help them save more money but also invest more money. So my biggest tip here to reduce your taxes is to contribute to a 401k that's going to get you invested in the markets, and most likely you'll end up saving about one hundred fifty dollars a month.

After that, we have food at six thousand six hundred dollars a year or five hundred fifty dollars a month. According to the study, about sixty percent of that food was eaten at home, and the remaining forty percent, or two hundred twenty dollars a month, was eaten out at restaurants.

Now I'm not just gonna sit here behind my phone or computer screen and start yelling at you for spending money at restaurants. That's a no-no. Even though that would be an easy solution to start saving more money, but instead, I'll take a more reasonable approach. I think if you're dining out, going to restaurants, or getting food delivery, avoid doing that out of laziness.

Like if you're going and buying a twenty-dollar lunch from work every day because you don't feel like packing lunch from home, avoid doing that! And that's a big money waster. But if your idea of having a good time is going out once a week with friends or family to a restaurant, then sure, I think it can be a valid expense as long as you're not dining out at Mastro's.

So I would say the best way to save money here is to eliminate all lazy spending. If you're too lazy to make coffee at home so you go to Starbucks, stop it! If you're too lazy to make food at home, so you spend thirty dollars on food delivery, stop it! Going out to eat at restaurants even though you have perfectly good food at home that's about to expire? Stop it!

By doing this, even if you're able to save just one hundred dollars a month, it really begins to add up, and this is all money that you could be using to put yourself ahead financially. Next, we have social security, personal insurance, and pensions at one hundred twenty-eight dollars per year or four hundred sixty dollars a month.

Now, even though social security and pensions might be a fixed cost depending on where you work, personal insurance is something you're absolutely able to shop around for. I think you would be utterly surprised how much money you could save with an hour's worth of work calling around just to compare your insurance rates to try to save a little bit more money.

After all, I saved fifteen percent of my car insurance by smashing the like button for the YouTube algorithm. But seriously, just recently I had to switch my car insurance over to Las Vegas. I spent about a half hour submitting applications around, and I was able to find an insurance provider for thirty dollars a month cheaper than the other lowest rate I got.

That works out to be a three hundred sixty dollars a year savings, just for some work I was doing in the background. And I bet that same would apply for you. If you spent the time to shop around, I nearly guarantee for probably seventy-five to eighty percent of you, if you just spent thirty minutes shopping around insurance rates, you'd probably be able to save another thirty dollars a month.

Now, I know it's a pain because that means you're gonna be getting a bajillion phone calls from all the insurance companies you decided not to go with, but just block those numbers and enjoy some of those sweet, sweet savings. Next, we'll talk very briefly about debt repayment and savings. This study lumps them together at five thousand two hundred fifty-two dollars a year.

But when the average American has five thousand seven hundred dollars worth of credit card debt, I think any type of expense like this is unacceptable, especially if there are other ways that you could cut back and eliminate this debt altogether. I would say the biggest issue I have with this is that the average credit card interest rate is sixteen percent, and that means on a five thousand seven hundred dollar balance, you are spending seventy-six dollars a month that goes straight to the credit card companies every single month that you don't pay off your bill in full.

Now that might be a good thing if you're buying American Express or Visa stock, but it's not so good for you if you're actually the one paying interest because that's essentially just like you're flushing money down the toilet. So instead, I would take the approach of cutting back as much as you can in any area possible and then throwing all of that money towards paying down any debt that's above a five percent interest rate.

Now once the debt's paid off, you're going to have that entire amount left over to then go and reinvest elsewhere. But until you're completely out of credit card debt, I would say paying down credit card debt would be your biggest priority, and since we're adding all of this up, the average person would see a savings of seventy-six dollars a month that would otherwise just be going to the credit card companies every single month.

Beyond that, we have a few other things that we can improve on. Americans are spending on average one hundred thirty-three dollars a month on apparel. If this sounds like you, just go and take a look at your closet and evaluate how many of these clothes you actually wear on a regular basis. If I were to guess, you probably have the same few shirts and pants and jackets that you wear ninety percent of the time. Or maybe I'm just projecting myself onto you because that's what I do.

But if that sounds accurate, stop shopping, or at the very least, cut down your shopping by fifty percent. That would equate to another sixty-five dollars a month in savings. And finally, we have another one: vices. This includes things like lottery tickets and so on. Now even though this one is only sixty-four dollars a month, unless there's some sort of hidden benefit here that I'm not understanding, most likely this is bad for you, and it's a waste.

Now I understand the occasional glass of wine or drink with friends or the occasional lottery ticket just for fun. But really consider how much value you're getting out of this and whether or not this is actually adding to your life. Even if you're able to cut back on this by just twenty dollars a month, that does add up.

That means between everything I just mentioned, it's possible for the average household to begin saving one thousand two hundred fifty-seven dollars a month with very minimal effort, relatively easily just by cutting back slightly on existing expenses. And I'm sure for a lot of people watching, just having an extra twelve hundred dollars a month left over every single month would be a game changer for you.

And in terms of how much you can invest, it really begins to add up. If you were able to keep up that savings for thirty-five years and invest one thousand two hundred fifty-seven dollars a month into a broad index fund averaging an eight percent return with dividends reinvested adjusted for inflation, you would have over three million dollars at the end of those thirty-five years.

You could literally be a multi-millionaire in the future just by slightly cutting back on some of your expenses today. And that's all on a household income of sixty-three thousand dollars a year. I would argue that everything I've mentioned so far is not too unreasonable, it's not too extreme, and it's not too out of the ordinary.

These are really just solid, long-standing financial habits that you could begin implementing today. And doing this is going to add up to a significant amount of money in the future. Even if you were just able to save this amount up for twenty-five years, it would still turn into a 1.3 million dollar nest egg and continually grow at ninety-six thousand dollars per year, even if you never contributed any more money.

So even though, yes, the middle class is financially ruined as long as they're living paycheck to paycheck, thankfully it doesn't always have to be that way. And with a little adjustment, you could try to work out of it with some of these methods that I just mentioned here.

So with that said, you guys, thank you so much for watching. I really appreciate it. As always, if you guys find this helpful, make sure to destroy the like button, subscribe button, and notification bell. Also, feel free to add me on my second channel, The Graham Stephan Show. I post there every single day I'm not posting here, so if you want to see a brand new video from me every single day, make sure to add yourself to that.

And finally, if you guys want four free stocks, use the link down below in the description because Weeble is going to be giving you four free stocks when you deposit a hundred dollars on the platform, with those stocks potentially worth all the way up to one thousand six hundred dollars. So if you want to get the offer before it expires, use the link down below. Let me know which ones you get! Thank you so much for watching, and until next time.