6 Tips For Gen Z To Avoid Dropping Out of the Middle Class
Youth has many perks — endless opportunities, less responsibility and more energy to accomplish their goals. On the downside, the younger generations also face significant challenges that can prevent them from maintaining a sense of stability. And staying within the middle class is a top concern for Gen Z.
“Gen Z faces unprecedented hurdles like high inflation, crippling student loan debt and the allure of digital payment methods that fuel overspending,” said Justin Godur, CEO and founder of Capital Max.
Below are some tips, according to experts, for Gen Z to avoid dropping out of the middle class.
Also see how Gen Z’s wealth now compares to baby boomers in their 20s.
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Budgeting Is Crucial
“Gen Z faces higher student loan debt than any previous generation because the cost of higher education has grown far more quickly than the rate of inflation,” said Melanie Musson, finance expert with Clearsurance.
In addition, she said overall inflation hit them right when they were trying to find a career and establish themselves.
“In addition to those tough economic hardships, Gen Z spends more easily than any other generation because it’s never been easier,” Musson said. “Gen Z can spend money with their phone without a second thought, which can lead to overspending and inattention to keeping a budget.”
“Don’t despair, Gen Z; you have youth on your side,” she said. “If you get your finances on track now, you have time to build your wealth. First, write down your financial goals. What is most important to you? Second, formulate a plan to reach your goal.”
“That plan will start with a budget for right now,” Musson said.
If you don’t live within your means today, she adds that you won’t be making progress toward your goals. “Instead, you’ll be digging yourself into a deeper financial hole. So, make a budget that keeps you afloat.”
Godur equally agrees that budgeting is crucial.
“While it might sound basic, creating a detailed budget helps track income and expenses, ensuring they live within their means,” he said. “Embrace budgeting apps that categorize spending and highlight areas for savings.”
Be Aware: How Much Does the Average Middle-Class Person Have in Savings?
Be Extra Cautious With Digital Payment Systems
“It’s shockingly easy to overspend when a transaction is just a blink away, with seemingly no spending limits,” said Zachary Jarvinen, vice president of Exact Payments. “Make a pact with yourself not to waste too much money and stick to it.”
Godur emphasizes the same. “Be mindful of digital payment methods,” he said.
While convenient, he said they often lead to impulse purchases. “Set spending limits and use features that track and alert on spending patterns to avoid unnecessary debt.”
Become Money-Savvy
According to Jarvinen, investing some time into learning about finances can really pay off.
“Being money-savvy helps you make smart decisions, like choosing the best savings account or crafting informed investment strategies,” he said. “The goal here is to build a solid financial foundation, keeping you comfortably within the middle class and setting you up for even brighter financial futures.”
Build an Emergency Fund
Building an emergency fund is essential, said Rhett Stubbendeck, CEO and founder of Leverage Planning.
“At [my company], we always stress the importance of having at least three to six months of expenses saved,” he said. “When I got my first job, I started putting part of my paycheck into a savings account right away. This fund has been a lifesaver for unexpected costs.”
Godur agrees that developing a savings habit early is essential for staying within the middle class.
“Start with an emergency fund to cover at least three to six months of expenses,” he said. “Then, consistently contribute to retirement accounts like a 401(k) or IRA. Compound interest over time will significantly boost savings.”
Prioritize Paying Off High-Interest Debt
Godur said this is especially true of student loans. “The snowball or avalanche method can be effective strategies,” he said.
Additionally, he advised exploring income-driven repayment plans or refinancing options to reduce monthly payments and overall interest.
Stubbendeck equally explained that student loans are another big stress for Gen Z.
“It’s crucial to have a repayment plan,” he said. “I paid off my high-interest loans first to save on interest. This approach made a huge difference in my financial stability.”
Invest Wisely
“Diversify investments across various asset classes to mitigate risk,” Godur said. “Educate yourself on investment opportunities and seek advice from financial advisors to make informed decisions.”
Stubbendeck equally agrees.
“Inflation is cutting into our buying power,” he explained. “I always suggest diversifying investments. For instance, when inflation went up last year, I invested more in real estate through [my company], which helped balance out my portfolio.”
By adopting these strategies, experts say Gen Z can overcome economic challenges and build a secure financial future, ensuring they remain firmly in the middle class.
“Let’s navigate these times with confidence and foresight,” Godur said.
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This article originally appeared on GOBankingRates.com: 6 Tips For Gen Z To Avoid Dropping Out of the Middle Class
