High-earning people living paycheck to paycheck. It sounds like an oxymoron, but it is the reality for a staggering number of middle-class Americans.
When you take inflation into account, American wages have been stagnant since the mid-80s, while the cost of living has skyrocketed.
The reality is we live in an economy where we’re encouraged to spend to achieve a certain lifestyle. This mentality has many middle-class Americans suffering from poor debt to income ratios and having little to no emergency funds or retirement savings.
In this article, we explore how the economy got in this state, and strategies to get ahead in these rocky circumstances.
Why Are Wages so Low But The Cost of Living So High?
It used to be that when the economy was doing well, everyone benefitted. As the economy and worker productivity grew, wages grew in tandem. But according to research by the Economic Policy Institute (EPI), over the last 50 years productivity has increased 73.7% and wages only 12.3%.
The EPI has identified several reasons why this prosperity shift has occurred, having primarily to do with the influence of the 1%.
In 1965, CEOs made 20 times what typical workers made. As of 2013, they make just under 300 times typical workers’ pay. It’s also notable that policies implemented due to the influence of the highest earners in the U.S. have prevented modernization of labor-management laws and made it harder for workers unions to engage in collective bargaining.
As for costs, it’s no secret that housing demand in major urban centers is driving home costs and rents through the roof, eating large chunks of pay. Between housing, providing for your children, paying student loans, credit card debt, and transportation costs, it can be easy to give up hope of any financial security.
To get ahead, you need to start rethinking how you manage your finances.
Strategies to Get Ahead With a High Cost of Living
Better Budgeting
If you don’t have a formal budget in place, you’re in the majority. Only one-third of American households maintain a budget.
If you don’t have short and long-term savings goals in place, a budget is a great place to start. You are more likely to spend money wisely if you regularly monitor your spending, saving, and debt-payments against financial goals. Getting better at managing money will help you pay the bills and still be able to maintain a safety buffer for emergencies.
If you find budgeting more boring than watching paint dry, consider trying one of our creative ways of making budgeting more fun.
Adjust Your Spending Mindset
Nobody is immune to desiring things that are expensive and that they don’t need. After all, companies spend a fortune on marketing and the use of consumer psychology to get you to shell out your hard-earned cash.
Having a budget and regularly tracking purchases will help you stay accountable, but resisting spending is also a conscious choice. Of course, adjusting your mindset is easier said than done.
Some tips for resisting impulse purchases include:
- Break Down Costs For a Better Perspective
- Don’t Shop When Your Brain Is Busy
- Eat Before You Swipe
- Sleep On It
- Psycho-Analyze Yourself
Be sure to read our guide on resisting impulse purchases for more detail on how to change your spending mindset.
Carefully Weigh Making Large Purchases Vs. Debt and Savings
Whether it’s a family vacation, a new car, or a home renovation, every major expense needs to be weighed carefully.
Sometimes you’ll be tempted to take the plunge on these expenses because of the phycological fear of missing out. You might feel like you’re depriving your kids of a special experience if you don’t take them on a vacation.
But if going on a vacation means being deeper in debt, you’ll only be hurting your finances more in the long run. By sacrificing a bit today, you can be a lot better off tomorrow.
Which is not to say you should never take a vacation. Just ask yourself a few questions:
- Could I take my family somewhere cheaper or closer by?
- Can the trip be saved for next year when my finances will look better?
- Should I set up a monthly vacation saving contribution so I feel more comfortable spending on a trip in the future?
This mindset can apply to all major purchases. Sometimes it’s just better to wait or to find a cheaper alternative.
Start Saving For Retirement Now
The younger you are when you start your savings, the more you will earn in the long run.
Your 401(k) will only take you so far. So if you’re one of the 21% of Americans have nothing saved for retirement, don’t put it off!
There is no one answer as to how much you should contribute per year. At the end of the day, you will always need to prioritize paying off your bills, covering emergencies and paying down debts. Whatever is left that you can comfortably contribute should go into a fund that you do not touch and watch it grow.
Talk with a financial advisor about the different types of retirement accounts available including SEP-IRA, Roth IRA, and HSA to find out which one will work best for you.
Get Help From a Professional Financial Counsellor
To truly maximize your middle-class income and afford to live comfortably, it helps to get advice. The longer you wait to properly pay down your debts, the more interest eats away at the potential of ever feeling truly financially secure.
RepairCreditQuick was founded to help people like you find the best financial counseling to help you breathe easier. We’ll connect you with one of our trusted financial partners who are experts at helping you reach your financial goals.
To get started, we’ll provide you with a free credit check and a free consultation with a financial expert. Contact us today to start down the path to financial security.