The Middle Class Squeeze: Understanding the Challenges and Mistakes to Avoid.

The middle class has long been viewed as a comfortable and stable group in society. However, recent studies show that 62 percent of Americans do not feel that their lives are as comfortable as they would like them to be. This is due to a major economic hurdle known as the middle class squeeze, where millions of people are slowly falling into financial despair. To avoid ending up in this unfortunate group, it is important to understand the challenges facing the middle class and the mistakes that should be avoided.

Defining the Middle Class

The middle class is typically defined as individuals who earn between $42,000 and $126,000 annually. However, this is a vast range of incomes, and there is no denying that one's lifestyle will differ significantly depending on where they fall in this spectrum. Despite this, the middle class faces numerous challenges that are acting as the biggest threat to their financial well-being.

The Income-Cost Paradox

The primary reason the middle class is facing financial difficulties is due to what is called the income-cost paradox. The middle class relies on a 9-to-5 salary as their primary means of making money, and making $200,000 or more through a job is rare. The issue, however, is that annual salary raises average between 3 to 5 percent, which leaves most people with an extra $3,000 at best, which is insufficient to cover rising costs.

Additionally, inflation has become a major concern in the economy, which impacts mortgage rates and investment returns. Rising costs are especially pernicious in essential items that the middle class relies on, such as homes and child care. Home prices have increased by a record 13.2 percent in 2021, while middle-class child care users spend upwards of 25 percent of their incomes on this necessary expense.

Mistakes to Avoid

One of the biggest mistakes that most people in the middle class fall into is a constant battle with debt. Debt is one of the least fun ways to spend money, as hundreds of dollars go towards repayments and interest charges every month. Therefore, it is important to avoid assuming too much debt.

Another mistake is failing to save for the future. While it may be challenging to save money when living paycheck to paycheck, saving even small amounts regularly can have a significant impact in the long run. Additionally, failing to invest money can be a costly mistake, as investments can grow exponentially over time.

It is also important to avoid lifestyle inflation, which refers to increasing one's spending as their income rises. While it may be difficult to control on luxuries, this behavior can have long-term consequences.

Conclusion

The middle class squeeze is a real and pressing issue for millions of Americans. By understanding the challenges facing the middle class and avoiding common mistakes, it is possible to ensure financial stability and avoid falling into financial despair. Avoiding debt, saving for the future, investing money, and avoiding lifestyle inflation are just a few steps that can be taken to secure one's financial future