5 Signs You Are on the Verge of Falling Out of Middle Class
Written by
Cindy Lamothe
Edited by
Molly Sullivan
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There are always warning signs whenever we’re in danger — like an engine overheating in distress. Our finances work similarly, according to experts. They’ll often let us know when we’re running on empty.
“Unfortunately, it doesn’t take much to start downshifting out of the middle class, especially with job loss or when someone can’t work due to illness or the caring of a family member,” said Jennifer P. Kirby, fiduciary financial advisor and managing partner of Talisman Wealth Advisors.
“I think the best word you could use to describe that slipping feeling is ‘tight,’ meaning — things start to feel a little less attainable, a little tougher,” she explained. “The check runs out a bit faster. The credit card slowly gets used more often. The balance of that credit card isn’t paid off monthly like it used to be. You find yourself needing to decide on trade-offs that you hadn’t before, such as: Which of these bills do I pay first, since I can’t pay both right now? It’s incremental until one day you realize that you aren’t making ends meet and you are one emergency away from real problems.”
Here are the top signs experts advise when you are on the verge of falling out of the middle class.
Unchecked Lifestyle Creep
“One of the most common reasons people fall out of the middle class is giving in to lifestyle creep,” said Jake Hill, CEO of DebtHammer Consolidation.
He said that allowing yourself to needlessly spend more on housing, upgrading your car or developing poor shopping habits are all common traps for middle-class people.
“A major sign these habits are putting you in danger of moving out of the middle class is having less discretionary income than you once did,” he noted. “This indicates that your bills and debt are on the rise, which will make it harder for you to continue making progress on your financial goals.”
Carter Seuthe, CEO of Credit Summit, similarly views lifestyle creep as a warning sign for middle-class individuals to look out for.
“Lifestyle creep is essentially when a person becomes gradually more accustomed to spending more money on non-necessities.”
He added that when you get used to a new “standard of living,” the tendency to start spending more and more on items that support that lifestyle — even if it’s realistically beyond your budget and your salary hasn’t increased for years — becomes commonplace.
“This is relatively common, but if left completely unchecked, can get out of hand quickly and damage a person’s finances. The best way to avoid overspending is always to practice budgeting.”
Living Paycheck to Paycheck
According to Ann Martin, director of operations of CreditDonkey, if you suddenly find yourself living paycheck to paycheck, you are definitely falling out of the middle class.
“The middle class typically has some money left over at the end of every month for savings and other goals, but that comfortable cushion can evaporate for several reasons. For example, if you suddenly take on more debt, your once-middle-class income might not be enough to keep you living comfortably.”
Melanie Musson, finance expert with Clearsurance, equally noted that paycheck-to-paycheck living is a clear indicator something’s gone awry.
“When your budget has no room for extra expenses, one unexpected event could put you into debt you don’t have the cushion to repay. The debt will accumulate interest, making it cost even more than it did initially.”
Constant Overdrafts
“I would say the most common sign I see with people falling out of the middle class are repeated overdrafts when this has never been a problem before,” said David Kemmerer, CEO of CoinLedger.
“Lots of comfortable people have bills on autopay as much as possible — and they might not think much about small day-to-day purchases. So, when bills being withdrawn from your account, or a purchase of a coffee or lunch, ends up with an overdraft when it hasn’t before, and especially when this is happening more and more frequently, this could certainly be a sign you are falling below a comfortable lifestyle.”
Accumulating Debt
“If your lifestyle means you’re adding to your debt every month, you’re getting close to slipping below middle class,” Musson said.
She also noted that if you’re making the same amount of money now that you were two years ago, you’re probably going to be slipping below a comfortable lifestyle.
“The cost of almost everything has increased significantly over the last two years, and if your paycheck hasn’t kept up, you can’t afford to maintain the same lifestyle.”
Other experts agree. Loretta Kilday, attorney and spokesperson for Debt Consolidation Care, said people should pay attention to increasing debt.
“I would stress that middle-class people must be on their toes looking for signs of their descent into uncomfortable lifestyles, more so in this unpredictable world economy,” she emphasized. “They may tell that they are living below the poverty level if they keep using loans to provide for basic needs while ending up with no savings and going deeper into debt.”
Finances Start Feeling Scary
“I’ve had older clients and family who lived through the Great Depression and that is exactly how they describe this phenomenon,” Kirby said.
“One day things were OK — everyone had to work, but you could get what you needed. But then they noticed a pattern where they and their peers started to have more trouble sourcing things because the income was less, or expenses were higher, or jobs were absent.”
“Next thing they knew, they were bartering for things because the money just wasn’t there. There is no difference between that time and people who go through similar situations now, except for scale. Many people are in their own personal Great Depression.”
To avoid this extreme scenario, experts note that it’s essential that financial literacy take precedence.
“Seeking advice from professionals occasionally as well as looking at diversified means of income generation will help shield them from recessions and maintain them within the middle class,” Kilday said.
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