It may be challenging to wrap your mind around the fact that the median household income in the 1980s was around $50,000. Now, in some of the most popular cities in the country, such as Boston, a family needs to make a minimum of $350,000 to maintain a typical middle-class lifestyle.

It may be even more challenging to grasp this idea of what is required for the middle-class salary when we consider that wages have generally remained the same despite the consistently increasing cost of living. In fact, “today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago. And what wage gains there have mostly flowed to the highest-paid tier of workers” [3].

This wage stagnation has dramatically affected the middle class. The middle class is shrinking, and inflation is primarily to blame. According to the most recent BLS report for CPI price data, all consumer goods and services on the free market have increased by 56% since 1988. Some of those goods have increased significantly more than the average inflation rate of this period. Some of these goods include hospital services, which have increased by 211%, and college tuition, which has increased by 183.8% [1].

With the rate of inflation and wages not matching, it’s no wonder why so many families are falling below their class bracket. However, some things can be done to help middle-class families thrive rather than struggle. In fact, the decline in the middle class is partially due to some adults moving up a class bracket.

From 1971 to 2019, the number of those in “the upper-income tier increased from 14% to 20%. Meanwhile, the share in the lower-income tier increased from 25% to 29%. On balance, there was more movement up the income ladder than down the income ladder” [2].

What Can Middle-Class Families Do to Better Their Financial Situation?

Hire a Professional

One of the best and often overlooked options available to middle-class families is to hire a family financial advisor or financial planner.

It is a common misconception that only the “rich” can benefit from hiring a financial advisor or planner; this is simply untrue. As a family financial planner, I have helped numerous middle-class families figure out how to live more comfortably and even move up to the higher income bracket. 

I teach people how to manage their finances better and instill the idea that planning is vital. People can save their way out of the middle class. The most significant factor is the savings rate.  Someone making $100,000 and saving 10% of their income will have a much more successful retirement than someone earning $200,000 and spending every penny. Doing this works not only because they have money saved but also because they are educated on living within their means.

I can assist my clients by utilizing several different tools. One such tool is an investment portfolio. An investment portfolio is a beautiful way to build your income and plan for the future. Establishing a passive income stream creates an opportunity to increase your wealth and create financial freedom.

I teach my clients the importance of staying on top of their finances. One of the best decisions you can make is to keep track of your finances actively. I take care of all the background and simplify things into a concise 1-2 page plan only consisting of the most important things so you can focus your valuable time and resources appropriately.

I highly encourage you to make a plan and consistently monitor your income, assets, and expenses. You can learn more about automating your finances to don’t overwhelm your day-to-day life but still make progress.

It’s also important to be mindful of your family’s needs as well as your lifestyle. Recording this data makes it much easier to figure out where you can afford to cut back on your spending. There are minor changes we can make in our day-to-day lives without sacrificing everything we love. For instance, if you love Goat Yoga, cut back on your classes from 3 times a month to one session per month. You don’t need to give up what you enjoy doing to start planning for the future. 

Click the Link to Read

“How to Budget Without Actually Making a Budget”!

Move Locations To Best Suit Your Needs

Another feasible option is to move to a location with a lower cost of living.

Not all places require a minimum of $350,000 per year to live comfortably on a middle-class income. Some middle-class families in Mississippi can get by just fine on a salary of less than $50,000 per year [4]. The cost of living varies from state to state and even from city to city.  

Surrounding Boston prices are on the move, but there are still some desirable and much more affordable places. Moving to a location with a more affordable cost of living is a perfectly respectable decision.

Although, if you do choose to move, I still urge you to hire a fee-only financial planner. It’s essential to work with an experienced professional to help you pursue your financial goals. Make informed decisions with confidence. Have the end goal in mind, and make sure the short-term choices align with the overall vision. Your life could change drastically, and your dreams can be reached within as little as three to five years just by hiring a family financial professional.

Although the middle class is shrinking, and the figures above can be intimidating, you have tools and resources available to help you and your family live a comfortable lifestyle. You can still make that trip to Disney every couple of years!

Contact me today to learn more about how you can build a solid financial foundation for your family.

References

[1] https://www.aei.org/carpe-diem/chart-of-the-day-or-century/

[2] https://www.pewresearch.org/social-trends/2020/01/09/trends-in-income-and-wealth-inequality/

[3] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/
[4] https://worldpopulationreview.com/state-rankings/states-with-lowest-cost-of-living