2025 money moves for the middle class
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When it comes to wealth, Americans are growing further apart. According to a report from the Pew Research Center, between 1971 and 2023, the number of Americans who live in lower-middle income households increased from 27% to 30%, while the share of those living in upper-income households increased from 11% to 19%.
And while households across the board had much higher incomes in 2022 than in 1970, after adjusting for inflation, the report found gains for middle and lower-income households were less than those made in upper-income households. While it’s hard to predict just where the economy is headed, understanding the specific challenges Americans are facing and the steps they can take to continue improving their financial situation is crucial to reaching financial stability.
Recent years have brought an onslaught of economic challenges for many American families including inflation, cost of living increases, interest rate hikes and job market uncertainty. In addition to these expenses, many Americans are also dealing with escalating housing costs forcing them to move back home. Data from the U.S. Census Bureau found approximately 1 in 3 adults between the ages of 18 and 34 are living with at least one of their parents. Increasing healthcare costs and additional commuting and childcare expenses due to returning to office work, a lack of emergency savings, and massive debt are also contributing to these challenges. So how can middle class families prioritize these expenses while maintaining financial stability?
The first step is to assess your total income and create a budget. Review how much money you’re bringing in each month and figure out how much money you have going out and see where you can cut discretionary spending. Finding low-cost or free sources of entertainment, making meals at home, even shopping second-hand are great ways to cut costs.
Housing is often the largest expense for middle-class families, so it’s important to prioritize this expense. If your income is tight, consider refinancing options or down-size if possible. If you’re planning on getting involved in the real estate market, there are a few strategies I’d recommend to help navigate the market.
If you’re looking to purchase a new home, be sure to get pre-approved for a mortgage before starting your home search. Obtaining pre-approval from lenders can provide clarity on budget constraints and strengthen offers when bidding on homes.
It’s also important to research your local markets. Focus on specific neighborhoods where you’d like to live and analyze market trends such as average home prices and recent sales. You should also be prepared to compromise. Given potential competition in the market, buyers may need to adjust their expectations regarding size, location, and amenities.
Exploring alternative financing options like Financial Housing Administration loans or other assistance programs specifically designed for first-time buyers can make purchasing more feasible.
Childcare expenses are often another burden families face. If possible, check into working remotely, or see if a friend or loved one can watch over your children while you’re at work. Cutting out this cost can give you room to prioritize paying off debt, or boosting your emergency savings.
Speaking of savings, it’s highly recommended that you have at least three-to-six months worth of expenses saved up at all times. This can help cushion the impacts of an emergency expense or sudden job loss. When it comes to how much money you should save each month, I recommend the 50/30/20 rule. With this rule, 50% of your monthly income should be allocated to your needs like housing, food, and transportation; 30% of your income can be delegated for wants, but only if your budget allows, the remaining 20% should be used for savings and debt repayment.
The future of our economy is unknown and there are so many factors out of our control. However, budgeting, paying off debt, building savings and increasing financial literacy can all help middle-class families take the right steps to achieve financial stability in an ever-changing landscape. Consider attending financial seminars or working with a team of financial professionals who can analyze your situation and provide you with specific guidance