Financial PlanningPersonal FinanceSavings

How To Avoid The Middle-Income Squeeze

‘Middle-income’ or ‘Middle-class’ squeeze is the term for what happens when inflation hits people with moderately well-payed jobs: the costs associated with maintaining a certain lifestyle rise but wages don’t necessarily follow.

Traditionally, middle-earners play a vital role in helping to keep the economy healthy. By making more purchases, investing in health, housing and education, and paying a higher rate of income than people on lower incomes, they help to ensure that businesses and services are well-funded. When middle incomes become ‘squeezed’, this happens a lot less, as people find that they aren’t left with a lot of extra cash to spend on non-essentials.

If your household fits into that middle-income bracket, there are actually several things that you can do to avoid this. This means that you can maintain your family’s comfort whilst also ensuring that you’re able to continue supporting the local economy: a win for everyone involved.

Look for ways to increase your passive income

Making sensible investments at the right time is one of the easiest ways to ensure that you maintain your financial position. It is described as ‘passive income’ because, after the initial work of making the investment in the first place, it doesn’t require much input from you to start making money.

You’ll probably want to work with an advisor who can help you create an investment portfolio that meets your needs. This is better than simply going for the latest investment fad, as it means that you’ll likely see better returns over the long term. If you have to make cut-backs so that you have a little money leftover for investing, then it’s probably worth it: it’s one of the best ways to futureproof your bank balance.

Try to spend a lower proportion of the debt that’s available to you

Opening credit cards with great incentives or increasing your agreed overdraft – these can be handy things to do when you have the option, since it ensures that you’ll have some money available to you in case of emergency. However, it’s not a good idea to rush out and start spending this credit on keeping up with neighbours.

Ideally, you should be aiming to only use a small percentage of the credit that’s available to you. The rest is there as a buffer, in case you ever need it. The same goes with things like car loans. Try to take a loan that’s smaller than the maximum amount available to you.

Find ways to adjust your lifestyle without lowering quality of life

When you see your income increase, it’s easy to start telling yourself that all those little luxuries are actually life essentials. However, things like choosing well-known brands at the supermarket are probably putting your shopping bill up without actually giving you a noticeable difference in terms of quality. Things like this can mean that it’s possible to reduce your spending without even really noticing it.

Similarly, you may be spending your money ineffectively. A coffee machine for your kitchen, for instance, may seem like a costly purchase – but once you’ve compared it to the price of buying a morning coffee on your way to work every day, you’ll realise that it pays for itself quicker than expected.

Being thrifty doesn’t always mean surviving without much cash. Sometimes, it means managing a slightly larger income more efficiently, so that you and your family can maintain your lifestyle for years to come.

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