5 Ways People in the Middle Class Could Become Poor in the Next 5 Years
According to Pew Research Center, about half of the United States qualifies as middle class. That’s lower than it has been in prior decades. For example, in the ’70s, about 60% of Americans qualified as middle class. Currently, any household making between $50,000 and $150,000 a year is considered middle class. Lower class would be those households making less than $50,000.
Those in the middle class have been slipping to lower class over the past 40 years. Here’s what financial experts say causes one to go from middle class to lower class.
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They Don’t Have an Emergency Fund
Financial experts advise that you try to build up an emergency fund of at least three to six months’ worth of expenses. Not having one can lead to a huge loss if something unexpected were to happen.
“Losing a job and not having adequate savings or other sources of income is a major problem,” said Léonie Rosenstiel, the president of Dayspring Resources, Inc. “It’s more a result of the lack of alternative income streams than the lack of a specific job that’s the issue.”
Rosenstiel said the best way to guard against this is to create passive and residual income streams that do not require a lot of maintenance.
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They Take Financial Responsibilities for Others
Rosenstiel said that, though caring for a loved one is a noble thing to do, it can drain you of your resources if you don’t strategize. You might find yourself paying for accessibility needs that are incredibly expensive, and you might have to take time off work to provide care. These can both be very costly.
“It might cost upwards of $40,000 just to install two lifts in a split-level home, for example,” Rosenstiel said. “That would only be the beginning of your retrofitting expenses, because stairs aren’t the only potential hazards. Caregiving takes your time away from your job. You can’t make money if that’s the only income stream you have.”
Even if you decide to keep your loved one in a home, Rosenstiel added that it might cost $100,000 or more per year for a facility.
It’s important to be realistic about how much you can help, and see if there are other sources of income or assistance that you can ask for so that you don’t have to be entirely on the hook financially for your loved ones’ care.
They Have Costly Medical Expenses
“Medical expenses can be devastating, especially because they can, in severe cases, lead to years or even decades of healthcare costs,” financial expert Erika Kullberg said. “With inadequate health care coverage being a problem for many, medical expenses can quite easily lead to long-term debt.”
If you’re finding that you have medical debt that seems insurmountable, there are programs to help. One option is charity care. Charity care is something offered through your doctor’s office or hospital. Ask the billing department about what options charity care offers and if they might be able to help pay your medical bills.
They Have Other Types of Debt
Medical debt isn’t the only type of debt that will keep someone down financially.
“High credit card balances, student loans and mortgages can spiral out of control, especially if income drops or unexpected expenses arise,” said Dominique Broadway, founder and CEO at Finances De·mys·ti·fied. “It can be very difficult to climb out of debt once it begins to pile up.”
For credit cards, consider a balance transfer to see if you can get a year without interest, so making your payments is easier. For student loan and mortgage debt, prioritize these in your budget, so you don’t have to default on these loans. Seek a financial advisor’s help. You’re never in this alone.
Inflation
Simply put: Prices getting higher can cause people to descend classes.
“With consistently higher prices across so many markets and sectors, many people may struggle to adjust their lifestyle, eventually leading to a fall down the financial ladder,” Kullberg said.
Though it might seem impossible at first, it’s important to adjust your budget to current pricing, then cut back your spending. Make sure to revisit your budget every couple months or so to see that it still matches your income and present day prices.
Another option is to ask for a raise. “Can your paycheck keep up with rising rent, healthcare and education costs?” Broadway asked. “If wages lag behind inflation, maintaining your lifestyle becomes practically impossible.”
If it’s been awhile since you received a bump in salary and you can make a case for one, go ahead and ask for what you’re worth. The worst they can say is no, and in the best case scenario, you won’t be scraping by with your finances anymore.
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