It's not uncommon to hear people say that they're content with being middle class. After all, it's a comfortable place to be - not too rich and not too poor. But is it okay to settle for being middle class?
There are 120million with a median household income that ranges between $50,641 to $135,042. Individuals who make up the middle class are still hardworking, but the things that they hope they would have, like retirement benefits, a house, a lifestyle without debts, are not there anymore. At the time of retirement, many individuals in this group do not have retirement savings, do not live comfortably, and are in considerable debts.
From the above synopsis, let's look at why it might not be as good of an option as you think.
Challenges of being Middle Class
1. They Have No Savings
Many middle-class Americans do not have enough savings for unforeseen emergencies, and many bill emergency expenses on their credit cards or decide to take short-term loans. This makes an already difficult situation more problematic.
It is crucial to have financial security by having savings for emergencies, as this assists in meeting emergency needs without any extra cost of going into debt. If you are middle class, work on building up your savings for emergencies and start propelling yourself to the next level debt-free.
2. They Do Not Invest
Lack of investment is another money trap associated with middles class groups. More than half of the Middle-class Americans have no investments in the stock market, cryptocurrency, real estate, or other types of investments. This is because middle-class individuals are mainly risk-averse and may not fully understand the different investment vehicles. Many of the American middle-class do not trust the stock market. Bankrate.com survey indicates that 52% of Americans avoid investing in the stock market. Most of them believe that investing in CDs, Bonds, or having a 401k will see them through retirement. Most of these options cannot even keep up with the inflation rate, and in the long run, you will end up having nothing to sustain you.
Investment in stocks through mutual funds or ETFs will help you grow your wealth over the long term. The stock market is one of the best ways to make long financial gains. You need an investment plan that aligns your investments with your goals and risk tolerance. This will be a sure way of moving you from middle class to upper class.
3. They Spend on Liabilities, Not Assets
Most middle-class individuals do not think of long-term plans with their money. They buy things that they do not need, and they buy liabilities rather than purchasing assets that can be profitable in the long run. Most of them buy cars and gadgets subject to depreciation and lose value with time.
Investment in assets like real estate will prove to be more effective in terms of monetary gains than having liabilities that need to be financed from time to time.
4. Racking Up a Lot of Debt
A study by the federal reserve bank indicates that 65% of Americans prefer carrying credit card debts from one month to another and paying the accrued interest on them. This is a costly mistake for middle-class individuals trying to get ahead financially. Furthermore, the average credit card interest is over 15% which is expensive debt. The quickest way to have more money in your pocket and take control of your finances is by setting your credit card bills to automatically make a full payment at the end of the month. It will help you avoid interest charges, and no benefit is derived from carrying credit card debts.
5. Not Taking Advantage of Health Savings Account
Most middle-class people are losing a lot on th
e benefit of the Health Savings Account. In case you have a high deductible health plan, you are qualified to use the health savings account. The health savings account will allow you to save free of taxes and pay for your current and future medical bills. The health savings account can also be used to pay for expenses that were not covered in traditional health insurance, such as chiropractor visits, including eyeglasses and contact lenses. Not using a health savings account translates to giving up to a 25% discount on your medical expenses. This amount can make you have more in your pocket, which in the long run can take you to an upper class.
6. Delaying Retirement Savings
Many people in the middle class have a habit of prioritizing other financial expenses and making retirement savings second. They believe that you should start saving for retirement after paying off student loans or buying a house and funding the college education for your kids. They realize retirement savings when it is too late.
As a middle-class earner, you should realize that it will require time for your funds to grow. Starting early will earn your money a higher compounded interest on your finances, which will significantly impact your retirement. Do not gamble with your retirement. Start saving early and have enough in your pocket to enable you to move to the next economic class
Final Take Away
When it comes to money, there are many challenges that the American Middle-class face. From stagnated wages to the rise in inflation affecting the cost of basics like housing and healthcare. Most middle-class families do not have enough savings to see them through the future. This is because of poor economic and financial decisions that this group makes that keep them stuck and not moving forward to the upper economic class. It would be best if you are not comfortable staying in the middle class because of decisions like delaying your retirement savings, investing in depreciating assets, and acquiring credit card debt. It would be best if you strived to make investments in stock markets, appreciate purchases, and take advantage of the health savings account. This will add money to your pocket and move you higher to the next level.
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