The middle-class squeeze has become a reality for millions of global middle-class workers who can’t afford to miss even one paycheck. This has been highlighted by the recent 35-day federal shutdown in the US. 800,000 largely middle-class workers were not paid during that time, and as a consequence, the media was awash with stories of many middle-class families struggling to pay their mortgages, access vital medication, and feed their children. It turns out that 40% of American families cannot afford a $400 emergency expense.
Unfortunately, Americans are far from alone in this. While once upon a time, a middle-class family could get by comfortably with one breadwinner while running two cars, eating out once a week, holidaying every year, putting the kids through university and not having to worry about the cost of healthcare, the gradual erosion of spending power due to rising costs and static wages has resulted in a very different reality for today’s middle classes characterised by a constant state of financial discomfort and a lack of security with regard to jobs, pensions, healthcare and general finances.
This is problematic not only in the short term but also over the long term. Most middle-class people are so caught up in keeping the wolf from the door that they are unable to think about how they will survive when they no longer have a paycheck coming in.
However, it’s crucial that people do think ahead. As difficult as it can be, it is important to take time to think about the future and plan so that you can free yourself from a hand-to-mouth existence and put savings aside not only to get you through difficult months now but to afford you a reasonable standard of living when you retire.
One of the cornerstones of financial planning is budgeting. Keeping track of where your money goes will enable you to identify areas where you may be able to cut back. Those will most likely be expenses which afford you instant gratification but little long-term benefit – a new pair of shoes, a fancy meal with friends, a cheeky weekend away from the grind. If you’re struggling to save, those are areas where you can reduce expenditure and free up cash. First, for an emergency fund so that a month without a paycheck won’t land you in hot water financially – and then towards longer-term financial goals, prioritising your retirement savings. Pour as much money as you can into savings and once you have a decent-sized pot, invest it wisely.
Think creatively about your financial situation. Are there ways you can improve your skills to move up the career ladder and increase your salary? Can you switch service providers and save money on insurance, utility, phone and internet bills? There are solutions to alleviate financial stress, but they will require compromise and hard work. It’s worth putting in the effort to find a balance between your current lifestyle needs and the requirements for your future financial security.
If you’d like someone in your corner to help you put together a sound financial plan which will banish the day-to-day financial discomfort, a professional financial adviser can help. Infinity’s financial advisors are friendly and approachable and can work with you to safeguard your financial future and beat the squeeze, whatever your personal circumstances. Get in touch today at email@example.com. We’d be happy to help you.
What is financial planning?
Financial planning is essentially an ongoing process that will help alleviate financial stress and provide you with a secure future and financial life. The importance of financial planning should not be underestimated, as it enables you to make the most of your money and other assets and brings you one step closer to achieving your financial goals.
Financial planning should be executed by everyone, from the wealthy to the middle class. Seeking guidance from a financial advisor is recommended to ensure you create a diverse and effective investment portfolio and execute your retirement planning efficiently. Fortunately, financial advisors are available in many affordable forms today. People can now even consult robo-advisors to get investment advice.
6 Steps To Execute Effective Financial Planning
(1) Set Financial Goals
A well-designed financial plan will be directed at achieving your financial goals. Therefore, you have to approach personal finances with your goals in mind and know how you can spend your money to achieve them. Fortunately, you have a wide range of investment options that aid asset allocation. Whether you opt for mutual funds or property to generate rental income, you will feel like your investment plan has a clear intention.
Ask yourself some financial questions when deciding on your goals: Do you need to save for your children’s schooling? What do you expect from your own retirement? What is your risk tolerance level, and does it allow for something like exchange-traded funds or stock market investments? Do you have an unpredictable salary, or do you earn a fixed monthly income?
(2) Track Your Money and Spend it Wisely
Create a draft of your cash flow situation and determine the approximate amounts of money going out and coming in each month. You need to have a clear and broad picture of your financial cycle in order to create a financial plan. This may help you identify new ways you can direct more money into your savings account or potentially pay off outstanding debt.
When you are able to contribute more money to monthly fixed income deposits or even fixed income securities, you will earn compound interest without lifting a hand.
(3) Prepare For Emergencies
Putting money into a savings account to serve as an emergency fund is fundamental to any diligent financial plan. This may seem like overkill for many middle-class families, but even just putting away minute amounts every month could potentially save you massive amounts of money and prevent the generation of substantial credit card debt if an unfortunate event crosses your path.
Furthermore, building good credit is a surefire way to protect your personal finances when significant payments are unexpectedly demanded of you. For instance, you may be able to take out a very reasonable car loan and have access to inexpensive insurance coverage if you have a good credit score.
(4) Take Care of Debt With High Interest Rates
Arguably the most important step in setting up a financial plan is paying off debts with substantial interest rates, like title loans, payday loans, home loans, and credit card debt, for example. The interest rates on particular loans could end up being double or triple the amount you initially loaned.
(5) Opt For Smart Investment Plans
Although investments may sound like a rich man’s game, this is far from the truth. Investments play a major role in any financial plan and can be as simple as opening a brokerage account or contributing minor amounts to unit-linked insurance plans.
Fortunately, there is a wide range of financial products for all risk tolerance levels, so don’t fret if you are not the type to cope with the stress of volatile investments. Typical investment plans vary from fixed deposits and government schemes to a mutual fund or any private vehicle of your choosing. Many investment plans may even qualify for tax savings under the Income Tax Act. Consult an experienced financial advisor who can offer you sound investment advice and help you navigate your current financial capabilities, realistic future needs, and retirement goals before committing to an investment.
Financial planning includes exploring various investment options that will further your retirement planning and help you save for substantial expenses such as your children’s education and home loans. Here are just a few commonly-used tools:
- Traditional investment accounts or Roth IRA: These investment vehicles are tax-advantageous investment accounts that could contribute greatly to your retirement savings, whereas contributions to most other investment plans are tax-deductible.
- Employer-sponsored retirement plans: If you already have a retirement plan, such as a 401(k) or anything similar, start saving more in a gradual fashion.
- 529 College savings: These plans are sponsored by the state and offer you the opportunity to grow your investment tax fee for the purpose of covering educational expenses.
(6) Grow and Protect Your Financial Well-being
With all the steps mentioned above, you are effectively protecting your and your family’s financial future against any setbacks. As time passes and your career progresses, continuously grow and improve your financial moat by doing the following:
- Contribute to your emergency fund to be able to cover six months’ worth of living expenses.
- Increase the amount you contribute to your retirement savings.
- Opt for insurance coverage to protect you, your family, and your assets against financial disaster in the case of an unfortunate event. For instance, life insurance is essential to protect your loved ones and those who depend on you financially in the case of your untimely death.
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