How the Middle Class Can Get Back on Solid Financial Ground

Ok, I've calmed down enough that I can talk about this article without my blood pressure shooting up -- but it's taken several weeks for me to get to this point.

I'm talking about a Parade magazine article titled Is the American Dream Still Possible? in which Parade spends three pages bemoaning the fact that America's middle class is so hard-pressed financially, people are fighting to keep the American dream alive, and blah, blah, blah, blah. It's really a bunch of rubbish -- their conclusions that is. Their basic thought is that it's difficult for middle class Americans to make it these days -- that they are struggling just to get by. Garbage.

The piece is not a total waste. In fact, there's some good information here that tells what's REALLY going on. It's just that Parade has some sort of agenda and is not willing to look at the facts. But that's just what we're going to do in this post.

Before I do that, let me say that I am aware that there are truly poor, disadvantaged people in America who are genuinely struggling. That said, that's not who Parade is talking about. They surveyed 2,200 Americans in the "middle class" -- people making $30,000 to $99,000 a year -- asking them their thoughts on money, how they were doing financially, and the like. This isn't your down-and-out crowd -- these people are making decent money. They shouldn't be struggling. Yet, according to Parade (and the respondents themselves), they are. Why? Look at these facts from Parade's survey:

• The savings rate for Americans is the lowest it has been in 73 years.

• Credit-card debt is at an all-time high, averaging $9,312 per household.

• 66% say they tend to live from paycheck to paycheck.

• 47% say that no matter how hard they work, they cannot get ahead.

• Nearly 83% say that there is not much money left to save after they have paid their bills.

I'll be brief about this: these people are simply spending more than they earn, racking up tons of debt in the process, and making stupid financial mistakes like taking out interest-only and no-money-down loans. What do they expect? Do they think they can spend whatever they like and everything will be fine? Come on, people!!!!! Hello????!!!!!

Yet they describe themselves as "struggling" and have quotes like the following:

• "The words retirement and vacation are not in our vocabulary."

• "For most Americans, the traditional American Dream is a pipe dream."

• "It used to be that if you stayed with your job, you were rewarded."

Well, if you spend like wild hyenas, retirement, vacation, and the traditional American dream are pretty much out of reach. And as far as staying with a job and being rewarded goes, people are rewarded in their jobs. It's called PERFORMANCE. That's what they are rewarded for -- not longevity.

So what do I suggest the middle class people do to get back on track? Here goes:

1. Spend less than you earn. This also means to quit borrowing to support an over-extravagant lifestyle.

2. Pay off debt -- credit card debt first and then get out of all other debt.

3. Establish an emergency fund so when a setback occurs, you're prepared for it.

4. Start to save, invest, and prepare for life's big expenses like college for the kids and retirement.

It seems simple to see it typed out -- just four easy steps -- but it requires discipline, something most Americans don't have much of when it comes to money.

Think it's impossible to save money because you earn so little? Check out page 30 of Kiplinger's Personal Finance May issue. It tells the story of Bob Przybylski who is 44, single and "invests $16,000 a year, about one-third of what he earns as a producer for a public-TV station."

Also see my post on eliminating 15 years of debt in 14 months. It can be done but it requires discipline. That's the one thing that many middle class Americans are struggling with.

Ok, the blood pressure did get a bit high there, but I'm ok now. ;-)

Comments

[Financial Freedumb]

Probably not going to read Kiplinger's...or at least I haven't before...About this: "It tells the story of Bob Przybylski who is 44, single and "invests $16,000 a year, about one-third of what he earns as a producer for a public-TV station." What happened to Bob now? How is he doing?

[FMF]

FF -- Not sure what you mean. It's a story about a guy who's saving a lot on a regular income. You'll have to read the piece if you want to know more, but that's 90% of the story.

[G]

Man, that is a great post!!!! I love that it pisses you off too. I get SO sick of reading articles and seeing garbage on TV about how only the "wealthy" can make it these days and that the middle class is getting screwed. I think it has come to the point where nobody actually understands "The American Dream" anyway. Bottom line these days: people have become very, very lazy and take absolutely no responsibility for themselves in any aspect of life, especially financially.

I love this blog. Keep it up!!

[Kim]

A lot easier to save 1/3 of your income when you're single and (presumably) child-less. :-)

[FMF]

Kim -- Probably, but he's not making a fortune either. And while it's "easier", you can't defend most American's poor saving habits by saying they have kids. Heck, I'll give them a break because they have kids and ask that they only save 10%. Are they anywhere close? Nope.

[JG]

What a refreshing post. I'm here to tell you that it can be done. Here's my story-
two children in private school in Cordova, Tn., making contributions of just over $1500 per month into my 401k, all on a salary of $66,000. And not a penny of debt. Don't tell me you have to be in debt up to your eyeballs.
JG

[Terry]

Hey Neighbor JG - I’m just down the street in Germantown.

Great Post FMF! You are absolutely right. I think a good chuck of it comes from the fact kids today graduate from high school or college and expect to continue the lifestyle they lived in with their parents. I also blame some of the parents. They never had their kids get a job and teach their kids to pay for some of their own things. When I was growing up I was provided a car I shared with my brother. I had to pay for gas and insurance. You bet I was careful not to have a wreck or waste gas. When I went to college I was told “You get 4 years that we pay, after that – you pay”. Guess what? I finished in 4 years. It is the right thing to do to help your kids get through those years, but you cant give them everything or in the end you get nothing.

As far as not getting anywhere as middle class – I started out in the workforce with a new worth of $0 and a new wife. I have worked for almost 15 years for the same employer. I am defiantly rewarded because I do a good job. I get more vacation, more pension accrual, more sick time, and a salary increase ever year. I get great tax credits being middle class and having kids. I live in a nice house, have a nice 401K nest egg, my wife stays homes and raises the kids. What more could I ask for? How did I do it? Just use many of the suggestions FMF and others give here – I have no credit card debt, rarely take a car loan (and only for a very short time), invest wisely, save, save, save, and (duah!) spend less than I earn.

I mean guys – this aint rocket science. It is what most of our parents and defiantly our grandparents did. If they are still around – just ask them!

[Alex]

I do not know why you get so worked up. You cannot judge the people until you have been in their shoes. First of all, most of these people have a family. Between paying for the high housing cost to live in the suburbs with a good education system, paying for the rising cost of college education (especially private), and the growth in wage less than or equal to inflation, it is no wonder families are going bankrupt. You have to buy and maintain your car. Gas these days are not cheap. Multiply car expenses by two if the spouse is also working. Insurance probably eats up a good chunk of income, unless security from insurance isn't part of the American dream.

By the way, just because people consider themselves middle class does not mean they are. A family making $30,000 is poor.

[FMF]

FYI, I HAVE been in their shoes. But I worked hard, went to school, and applied the principles I talk about here at Free Money Finance. As a result, I'm not in those shoes any longer.

Also, the article highlighted people making $30,000 to $99,000 a year. While $30,000 isn't "rich", $99,000 certainly isn't poor. On average, these people are making decent incomes -- and most are making more than the guy who was saving 1/3 of his pay!

[Mary]

I cannot see where is the problem that credit-card debt is high all the time and a lot of people are living from paycheck to paycheck…Any economist would say that it’s better to work with bank’s money than with your savings; so I think those facts from Parade’s survey are not real indicators of “struggling”.

[mysticaltyger]

To those who think being single and childless makes it easier to save I say: Probably not. I see it all the time--friends who are single in their 40s and 50s and save nowhere close to 1/3 of their incomes or even 10%. People who make the decision to save find a way to save--that's all there is to it. And I might remind people who have kids--yes they are expensive, but having kids is also a choice. If you don't want 'em, then use birth control religiously.

[Aggie]

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