How to tell if you are in the middle class

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It is an open question whether the country’s middle class is shrinking, if only because there is no real definition of what constitutes the middle class.

But it’s clear that many people above the poverty line and below rich status (another vague definition) are struggling.

The pressures facing those in the middle range from job insecurity and stagnant wages to rising costs of living, inadequate retirement preparations and enormous vulnerability to financial calamity. unforeseen.

Rather than focusing on the exact dollar numbers, another way to gauge whether you’re in the middle class, with a good chance of staying there, is to look at certain behaviors, traits, attitudes, and skills.

If you are truly in the middle class, most, if not all, of the following five characteristics should apply to you.

1. You generate significant income

Yes, it’s hard to define “ample” in dollar terms, but you should have a job, pension, or other income that allows you to meet basic living needs.

Cars and annual vacations are not requirements for middle class status, and you certainly don’t have to own a home. But you should be able to pay for food, clothing, shelter, and other expenses (including unexpected expenses) without relying on food stamps, tax subsidies like the Federal Working Income Tax Credit, or miscellaneous. forms of public aid. And you should be able to keep spending according to your income without having to rely on chronic credit card borrowing or other debt.

“If you earn enough, the most important factor is that you can’t spend more than what you earn,” said Mike Sullivan, personal finance consultant at Take Charge America, a goal-oriented debt and credit management agency. nonprofit in Phoenix. “It is cardinal sin.”

Federal poverty guidelines vary by state and the number of people in a household, but the upper limits are about $ 13,000 per year for one person or $ 17,000 for two. Yet millions of Americans with incomes well above these levels probably don’t feel like they’re living a middle-class lifestyle.

It is a blurred distinction between the poor, the working poor and the real middle class.

2. You know the basics

Modern finance isn’t easy to navigate, and most people don’t learn in school about topics ranging from managing bank accounts and using credit wisely to investing in scholarship and obtaining adequate insurance. Nonetheless, you should have a good understanding of how some things work.

Tucson’s 3rd Decade Nonprofit (3rddecade.org) tries to do what it can to keep people in the middle class. The group provides free financial instruction and mentoring to working young adults – typically those in their twenties (third decade) or thirties – and even offers a Roth Individual Retirement Account Reward of $ 1,000 to those who complete them. Classes.

Scott Bennett, executive director of the group, considers a basic knowledge of several financial concepts essential for those who want to join and stay in the middle class. These include knowledge about the importance of capitalization (for a debtor and an investor), a basic understanding of the tax system, the fundamentals of insurance, the costs of investing and the difference between investing. active and passive.

Incidentally, the group currently operates in Arizona, Denver and Reno, Nevada, and is expanding in Los Angeles, Charlotte and Austin. Classes fill up quickly, but most classes and other tips can be read for free by anyone on the group’s website.

3. You have an emergency fund

If there is one type of account essential to having and maintaining middle class status, it is an emergency or rainy day type of fund that you can tap into in a pinch.

You will end up facing unforeseen medical or auto repair bills, or you may lose your job or face other challenges. Without an emergency fund, these pressures can turn into missed payments, rising credit card balances, cashing in retirement accounts, and depending on high interest payday loans or auto title loans.

“Without emergency funds, it triggers the domino effect,” Bennett said. He suggests building up an amount that can cover three to six months of your “payable” expenses after you identify and track what those costs are.

Sullivan agrees. “Everyone faces these events at some point in their life, but those who survive anticipate them,” he said. The ability to manage and anticipate risk is a hallmark of middle class thinking, he added.

To better manage risk, it’s important to have enough medical, auto, life, and other insurance. These policies provide the safety nets that can keep you in the middle class if and when calamity strikes.

4. You are willing and able to invest

If you have enough income, you can enjoy a middle class lifestyle right now, even if you spend all you earn. But unless you divert some of that income into investments that are built for the future, your middle class status could end up eroding.

Social security income, and even pensions if available, may not be enough to maintain middle class status when you retire, unless you have made some personal investments to complement it. Could you live a middle class lifestyle on $ 1,550 per month? That’s about the average Social Security retirement payment. Future reductions in benefits are possible given demographic changes that have resulted in a decrease in the number of workers supporting the program.

For most people,especially the younger ones, a good bet is to lay a foundation focused on equity funds, with various other assets completing the mix. Yet only about half of all Americans are exposed to the stock markets.

Homeownership is associated with the American dream and therefore middle class status and can also be a great way to build wealth. But Bennett is offering some caution here. “The perception is that buying a home is good and renting is bad, but it doesn’t have to be,” he said.

Affordability is also important. “Many financial plans have been derailed because people are buying too many houses, too fast,” he said.

5. You know where to get help

Middle class people are often resourceful and have the ability to get answers. A general education, especially a college diploma, is one aspect – because college education equates to higher lifetime earnings on average – but it’s also about taking advantage of other programs.

Bennett cites VITA, the Volunteer Tax Assistance Program, as an example. Rather than paying a few hundred dollars or more, taxpayers who use this Internal Revenue Service related program can receive free, personalized tax preparation assistance. Or they can prepare their own returns using popular tax software through the IRS Free File Program.

With general income eligibility of up to $ 57,000 and $ 72,000, respectively, both programs are open to many middle class people.

Those who hope to achieve and maintain middle class status may also benefit from the support of family members, friends and others.

“There are so many organizations out there just to help people,” Sullivan said. “But you must be able to ask for it.”

Contact the reporter at [email protected].

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