Financial Mistakes Middle-Class People Need To Stop Making
Living in a middle-class household comes with a set of challenges higher earners do not need to worry about. So, if you want to build a financially sound future for yourself and your family, it is up to you to stop making certain mistakes.
Around half of the citizens of United States of America live in a middle-income household and work as teachers, plumbers, chefs and many other “common” professions. When you think about it, it is the middle class that is keeping any society financially sound and is the driving economic power for each society. However, the money situation is a bit troublesome as being in the middle class can cause certain issues.
For one, the wages are stagnating for the middle class since the early eighties and rising inflation are making middle-class families effectively poorer than they used to be. This means that early retirement tends to be wishful thinking for most of them.
However, not every problem is caused by the economy and a lot of issues you can fix by yourself and greatly improve your own living situation by simply realizing which mistakes you are constantly making.
These are the most common mistakes among the middle-class people.
Drowning in debt
In 2015, the Federal Reserve Bank of Boston carried out a study that noticed that 65% of people who use credit cards carry a debt. While some do not have a choice in the matter, others are simply too loose with the money. And that is a big mistake.
If you are trying to improve your financial situation you cannot let interest rates keep you down. Think about it, in 2014 an average interest rate for a credit card holder passed the 15% mark and is on an upward path still. You need to stop racking up debt as it can eat a lot more money than you can possibly imagine over time. Going into negative numbers on your credit card carries no benefits for you, but the debt, costs, and stress caused by it are a real problem.
Not keeping an emergency fund
Another study has shown that 46% of Americans would have a really tough time trying to cover an emergency cost of only 400 dollars. What’s worse. Of the people who make more than 100,000 dollars a year, 20% would still not easily cover the cost. And, when you look at those who earn less than 40,000 dollars. As many as 66% would fail to cover that emergency cost.
Emergencies will happen and you need to have a cash stash to cover them. Otherwise, you run a risk of getting in a cycle of debt it is really difficult getting out of. Any amount of money you can set aside each month will help. We would advise having enough money in your emergency fund to sustain yourself for at least 5 months if everybody in the household loses their jobs.
Not increasing your retirement contribution
To retire on time you need to be persistent, patient and smart. A lot of people just let their plans work their magic without ever thinking about them, which is a mistake.
If you have gotten a raise simply adjust the amount of money that goes into your 401(k) by the same percentage. You can even have it set up so that the process is automatic.
Not taking advantage of Health Savings Accounts
If you have a deductible health plan you may be able to use an HSA. While some of the rules are still up in the air due to newly proposed changes to the Affordable Care Act, the main system should not change too much. This way, you can save money on a basis that is free of taxes.
Right now, you can stash away around 3,400 dollars for an individual plan, or 6,750 dollars for your family if you have a high deductible health insurance plan. Keeping in mind that deposits like this one are deducted on your tax returns it is a good way to have some tax-free money set aside.
The thing about these plans is that you can use the money to pay for some expenses not usually covered by health insurance. You can purchase eyeglasses or contact lenses, pay for your visits to the dentist and other options. So, if you are in a 25% tax bracket, you are basically getting a 25% discount on your medical expenses.
More in Debt
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