What Does Financial Security Look Like for the Middle Class?
Written by
Jordan Rosenfeld
Edited by
Zuri Anderson
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The middle class is hailed as that group of people who are making at or above the national median income, around $50,000 up to about $150,000 at the high end.
It’s common to hear that the middle class is shrinking, or that times are now tougher for this group once considered to always have “enough.”
So what does financial security look like for the middle class? What criteria tell you that you have it, and when might you be at risk of losing it?
GOBankingRates spoke with some money experts to explain.
Here are five things the middle class wastes money on, according to financial advisors.
Your Ability to Retire Comfortably
Eric Mangold, founder and financial advisor with Argosy Wealth Management, said he often hears certain questions from middle-class clients, such as:
- Do we have enough money to retire?
- Are we going to be OK to retire?
- Will we run out of money when we retire?
These questions can apply no matter how wealthy you are, he said, adding, “I’ve worked with multi-millionaires who have financial struggles, and I’ve worked with folks who most would consider to not be that wealthy, but they are happy and comfortable.”
Being able to retire comfortably is a sign of financial security, he said, though the actual amount will vary for every individual or couple.
“Knowing what you want your retirement to really look like can help you set these expectations. And if you’ve put together your expectations while you are still a bit away from retirement day, then you have some time to course-correct and make the necessary changes so you can feel secure,” Mangold said.
Location Matters
Financial security for the middle class also varies widely depending on where you live, especially when considering the differences between lower-cost areas and high cost-of-living cities like New York, San Francisco or Los Angeles, according to Dr. David L. Tuyo II, a finance professional and the president and CEO of University Credit Union.
“In these major cities, the income needed to maintain a middle-class lifestyle is often significantly higher due to the increased costs of housing, transportation and everyday expenses,” Tuyo said.
So you might find you’re comfortably secure in Texas, but not so much in Hawaii, for example.
The National Average is Only a Benchmark
Those people living in high-cost areas may need to earn well above the national average, often closer to $100,000 or more, just to cover basic expenses, Tuyo explained.
“Housing, in particular, takes up a larger portion of income, so achieving financial security in these regions often involves managing higher mortgages or rent payments.”
However, saving for a down payment on a home can also be more challenging in pricey areas, leading many in these areas to rent longer, which can affect long-term wealth-building, Tuyo said.
Prioritizing Savings Is Crucial
It’s also worth noting that middle-class households might need to be more creative about maximizing savings and investments, Tuyo said.
“This could mean taking advantage of employer retirement contributions, investing in the stock market or even seeking out income opportunities like side gigs to supplement their primary income and stay ahead of inflation and rising costs,” Tuyo said.
Follow Best Practices in Finances
Despite the higher income requirements, the core principles of financial security remain the same. Tuyo said, “Having enough to cover your living expenses comfortably, maintaining an emergency fund, saving for retirement, and managing debt responsibly.”
Income Stability is Key
Financial security doesn’t just mean earning a lot, it means having steady, reliable income, according to Stephen Boatman, CFP and principal at Flat Fee Financial.
“I’ve observed people with high-paying, unstable positions struggle more than those with modest but steady jobs. They should aim to build an emergency fund covering six months of expenses for job security,” Boatman said.
A Diversified Asset Mix is Essential
Middle-class financial security usually involves property ownership, retirement assets, such as 401(k)s or IRAs, and cash reserves, Boatman said.
For example, a family earning $75,000 per year that owns their home and makes regular contributions to their retirement accounts is far more prepared for economic downturns than one that only has a savings account, according to the expert.
“Home equity plays a major role in wealth accumulation over time,” he shared.
Debt Reduction is Foundational
Lastly, financial security often means being free of high-interest debt, particularly credit cards, Boatman said.
“One client consolidated $20,000 in credit card debt, freeing up $500 in monthly cash flow to put towards savings and investments,” he explained. “This small change significantly improved their financial situation.”
While your own particular situation may vary from the suggestions here, making a plan to achieve financial security may require some changes. It’s always a good idea to speak to a financial advisor when possible.
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