Is it the Economy or Poor Decisions Pushing You Out of the Middle Class?

by Kevin on February 16, 2012

The major media outlets are on the warpath for the middle class. Everywhere I go I see articles talking about how this family used to make six figures and is now on the poverty line or how the middle class is simply disappearing. There are sad stories about people being out of work for years and sending out hundreds if not thousands of resumes with no reply. Everything is written in the light of their plights being the fault of the government, the economy, Wall Street, or some combination of the three.

But let’s hold the rush to judgment just yet. Is it really anyone’s¬†fault you’re broke?

Why is the Middle Class Disappearing?

Is the middle class disappearing because of the recession or because of their own poor decisions?

Yes, unemployment is a factor. I’m not trying to disregard the fact that over the last few years the unemployment rate has jumped to the 8-10% range. Some even believe true unemployment is around 15% because so many people have simply stopped looking for jobs. That’s a crazy amount of people not earning a paycheck, but thankfully still able to eat due to government handout programs.

So where’s my beef? Surely I can’t be mad at the person who has been unemployed for so long, can I?

While I do believe there have been some unfortunate examples of an unfair economy, I think a lot of problems have been brought on people through their own decision making.

So you used to make six figures? Great! Even in a high cost of living area you were pulling down a healthy amount of cash. Now wait a second, what did you spend that money on? Rent? An expensive home? New cars with financed loans?

How much of that income went into savings? How much of it went into a rainy day emergency fund? How many planned to be unemployed at some point in the future and prepared for that day?

The truth is as ugly as the questions. A majority of people in America live paycheck to paycheck. They’ve taken the nice salary they earn and leveraged it into a lifestyle they cannot truly afford. They are stretched thin even though the car loan is as long as you can stretch it out (60 months; although I have seen some advertised even longer). Living paycheck to paycheck means you would be in a financial plight if your next check didn’t come to you on time.

That’s the problem. For the longest time we were not a nation of savers. Our savings rate was actually negative¬†for a good bit. That’s insane. So many people were leveraged that on a national average no one was saving any money. Seriously? And I’m to be surprised when your financial world melts down when that next check doesn’t come in.

If you’re lucky enough to have a job today, I have some urgent advice for you.

Escape Poverty and the Lower Middle Class: Learn How to Save

There’s a funny-but-not-really-funny thing that happens when you have no savings: something is always wrong. There is always an emergency that needs your immediate financial attention. So much of your income is tied up in payments that you can’t really prepare.

If that’s you, drastic action is needed. You need to sell some of your crap, earn more income, and start chipping away at those bills. Every bill you pay off will reward you with additional cash flow to apply toward the next bill. You roll this process forward until you are out of consumer debt. (You might stop along the way to build up a few thousand dollars in emergency savings, too.)

Once you’re out of debt you need to build up significant savings. I’m talking 12 months of your living expenses designated to cover your cost of living every month in case you lose your job. It might take you two or three years to save up that level of income, but boy will it be worth it when the pink slip comes. No more panic. No more “who gets paid this month?”

You have essentially given yourself a 1 year notice to find a new job. That’s a long time.

Oh, and finding that new job? “Sending out resumes” will not cut it. We’ll talk about that in my next post.

{ 1 comment }

Rita February 16, 2012 at 8:03 am

When things were looking up for this country people went to the bank to get a mortgage. Some just needed enough to get the house but the bank said wouldn’t you like to have a garage on your house it would make it easier to sell later if you’d like. Or, looks like you might need a new roof soon. And furniture. You may need new for a new home. On and on. We don’t care what you use the money for. So people many who could not understand what they were signing or simply believed the banks took extra money sometimes a lot of extra money. I did not in fact I took less much less than they offered me and they had the most stunned look on their faces. They had no understanding of me paying off my mortgage about 5 years later. Are you sure? Couldn’t you use this money for other things. And on it goes. I paid my mortgage off because I knew in the retirement years I would not be able to afford to pay a mortgage. I think the banks are corrupt and I think the people above them are enjoying a huge windfall at the expense of people who could not understand what they were signing or believed what they were told. Sad situation. Austerity here we come.

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