How to love your life and treat your money well as a member of the middle class. See our top 5 tips for success.
Just over half of the American population is considered middle class. However, many financial planners market to the wealthy and require a minimum asset level for their services. This leaves a lot of people trying to navigate the financial world on their ow, with little to no financial literacy.
Here are five financial tips for middle-class people you can use to meet your financial goals no matter where you’re starting from.
1. Build an Emergency Fund
You’re out on a drive, and woof! Your check engine light comes on. A trip to the mechanic reveals you need major engine work. After getting your car repaired, you’re stuck with a $2,250 bill.
If you don’t have an emergency fund, unexpected expenses like this can feel like a setback as you take on debt to pay for something you desperately need.
You can help avoid this pitfall and stay on track financially by building an emergency fund. To get started, you can make a savings Track in the Monorail app and put a little away each month to start creating your emergency fund.
To determine how much money you need in your emergency fund, think about how much money you spend each month. Include your bills and also the costs of essential items such as groceries and gas.
Once you have your monthly number in mind, multiply it by three. This is a good amount of money to start with for an emergency fund, and you can build on that from there. Some experts recommend saving up six months’ worth of living expenses.
This is enough to help you tackle unexpected life events such as:
- Broken appliances that need repair or replacement
- Medical procedures
- Job loss
- Surprise tax bills
- Emergency veterinary care
When you have cash to pay for the unexpected, life’s curveballs won’t strike you out financially.
2. Invest Your Savings
You need some cash on hand in your emergency fund that you can access immediately if a crisis arises. But money in a basic savings account isn’t earning much interest and may not outpace inflation.
Instead, consider investing your additional savings so it can grow. Money that you invest allows you to generate wealth so you can have a prosperous future. For maximum benefit, you could consider creating a diverse investment portfolio.
3. Don’t Inflate Your Lifestyle
If you’re going into debt simply to keep up with the Joneses, you could be well on your way to going broke. Succeeding financially often means curbing your spending. The less you spend, the more you can save and invest.
Here are a few tips to help you live happily within your means:
- Pay yourself first. Each payday, put money in your emergency fund or in your investments before you do anything else.
- Pay cash or debit for vacations. You’ll be able to relax more knowing that there won’t be a struggle to pay off credit cards when you get back.
- Create a realistic budget and stick to it. This way, there’s no guilt about purchases since you know the money is there.
- Write down your long-term financial goals and keep these in mind each time you tell yourself ‘no’ for now.
And remember, you’re working toward financial success. You won’t always have such a strict budget. But knowing your goals today will help you reach them in the future. If shopping feels like a trouble spot in your budget, an app like Monorail can help you create your wishlist and save for the things you want.
4. Make Sure You Have Enough Insurance
Insurance can help you manage risks and avoid financial setbacks. If you don’t have the right types or amounts of coverage, you could be financially vulnerable.
For example, the minimum car insurance mandated in your state might not be enough to cover all of the damages if you’re at fault for a major accident. This leaves all of your assets at risk since you may be forced to sell your home and clear out your retirement accounts to pay for the damage.
When you apply for insurance coverage, make sure you get enough to protect your assets. Car insurance isn’t the only type of insurance you need. You’ll also want to consider:
- Life insurance
- Health insurance
- Long-term disability insurance
These insurance policies can help protect your finances if something happens to you.
5. Pay off Debt
Think of how much more you could save and invest each month if you didn’t have a house payment. It’s hard to get ahead financially if you’re always in a hole. One of the best ways to win with money is to be debt-free. But when you’re living paycheck to paycheck, that goal might seem unattainable.
If you’re struggling with debt, it’s important to know where you are. Take time to go through your bills and figure out how much you owe. Then, make a plan to pay it off. The snowball or avalanche methods work well for getting your debt paid off.
The snowball method focuses on paying off your smallest debt first. This way you pay it off more quickly and can experience an early win—motivating you to keep going with your next smallest debt. With the avalanche method, you pay off your debt with the highest interest rate first. Then you move on to the next high-interest debt. By knocking out debts with high APRs, you can save significant money on interest. That cash can then go toward making bigger dents in your debt balance.
To help tackle your debt more quickly, you might consider increasing your income until you pay everything off. Here are some easy ways to generate some money:
- Launching a side hustle such as freelance writing, dog walking, or tutoring.
- Renting out extra space in your house.
- Working overtime or getting an additional part-time job.
- Asking your boss for a raise. (You never know until you ask!)
- Selling things you no longer need.
It’s important to create a financial plan so you know what to do with each dollar you bring in, and avoid any future financial stress. It’ll likely require some short-term sacrifice as you cut spending and increase your income, but if you can swing it, it’ll be well worth the effort.
Top Financial Tips for Members of the Middle Class
You don’t have to be rich to be in control of your money. By implementing these top five financial tips, you can start building a better future right now. Make a plan and then start implementing it slowly. Change one financial habit at a time and celebrate your progress. You can win with money.
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