Written By: Tim Key
The middle-class. Most of us would likely say that’s where we fit if someone were to ask. It’s a group of hardworking people that make a decent income and are just trying to get ahead. Oftentimes though, it feels like we’re struggling just to make ends meet, and the road to get ahead is rocky and lined with many pitfalls.
How do we get to a better place financially? A place with fewer money fights and better sleep because we’re not dreaming about our money problems but, instead, dreaming about the retirement we will have where we maintain our independence and integrity. To get there, we must stop making the same money mistakes that the middle class has made for decades.
Of course, staying in debt is one of the biggest reasons we struggle to get ahead. Most of our paycheck is already committed to making the payments on things or experiences we’ve already bought. Most of us can agree that we spend too much money eating out. Or if you are like me and still have kids at home, we feel like an ATM as we pour money into the extracurricular activities. Then, there is the dreaded timeshare that one of my clients talked about recently with monthly dues of $200 and no good way to get out of it.
We must start making better decisions on where our money goes and setting some boundaries on our activities. Small changes can make a big difference in your retirement savings.
The biggest debt that most of us have is our mortgage. Wouldn’t it be nice to not have that payment? Yet many borrowers will take on a 30-year loan, and then, as their family grows, they buy a bigger house and start paying on a new 30-year loan. All the while, the payment is getting larger along with the real estate taxes, insurance and utility bills that come along with owning a larger house.
We financial advisors often see something very similar with car loans. Did you know that the average monthly payment on a new car is now $530 for 68.47 months? I’ve had many clients with much larger payments than this, and many of them have told me that they will always have a car payment.
We need to change our way of thinking. Can you imagine what we could do with an extra $530 a month if we learned to be content and drive the car a few more years, or even bought a nice used vehicle instead of brand new? And about that mortgage. What if we stayed in our comfortable home with an affordable payment and paid off the house instead of trading in for more square footage, more rooms, and more mortgage? Can you even imagine what that extra $1,000+ dollars per month could do for our retirement?
A final area where we in the middle class fall short is in funding our retirement. We tell ourselves that we’ll get started when we have some extra money in the budget, and so the cycle of delaying our savings goal starts or continues. Or, we get started saving in a retirement account only to take a loan against the investment or cash out the account altogether. And finally, many of us don’t take advantage of the Roth IRA and its tax-free income during retirement, especially those of us that have a number of years to go before we reach retirement age. However, be sure to speak to a financial advisor about the restrictions and limitations of a Roth IRA before deciding this is a good fit for you.
For retirement saving, the most important thing to do is get started as early as possible to give the money time to grow, and then leave the money there to do just that. Many companies offer a match to their retirement savings program [401(k), 403(b)]. For example, if you contribute 3% of your salary to your company sponsored plan at work, your employer may match that 3% contribution for a total of 6%. So, it could be best to take full advantage of it while being certain to increase the contribution percentage each year when you receive pay raises, bonuses, tax refunds, or even if you win the lottery.
So how does the middle-class get out of this rut that we’ve been in for so long? We’ve got to make some changes on how we handle that hard-earned paycheck. We need to determine our financial goals and then put a written plan together in order to reach them. A GenWealth Financial Advisor can help you cut through the confusion, create a clear plan, and help you build financial independence.
Let’s put our money mistakes behind us and start building a brighter future!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Experian Report: State of the Automotive Finance Market Q3 2018