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10 Tips: Middle class? Avoid the pain of financial squeeze

Middle class? Avoid squeeze of financial pain

Are you among the thousands of middle-class families who feel as though they're barely scraping by even though their income levels look pretty good on paper? These tips can help:

1 Avoid the danger zone.

If you're part of a two-income household, how strapped are you? If anything were to go wrong, such as a job loss, a divorce or an illness that prevented one of you from working, could all of your bills be covered by just one income? If not, focus on building an emergency fund. Squirrel away a regular chunk of change for yourself, even if it's only $25 to $50 a month.

2 Reflect on your housing costs. Are you thinking about buying a home that you could afford only by dedicating big chunks of your income to the cause? Consider renting longer or buying a home that's smaller than the home you want.

3 Be wise when it comes to your wheels. If your family needs more than one vehicle, try to have just one car payment. Ideally, at least one of your vehicles could be used and gas-efficient.

4 Invest in the right kind of insurance. Make sure you're insured for what you really need — for instance, sufficient life insurance if you have young children. But don't blow money on coverage you don't need. Also, you could save money by increasing deductibles on your auto insurance and other policies.

5 View credit card debt as the plague that it is. Pay your credit card balances in full and on time each month. If you're weighed down with debt, transfer your balances to a card with a lower interest rate and pay more than the minimum.

6 Don't rely on credit the wrong way. Many people use credit cards, home equity lines of credit and other forms of borrowing to mask the reality of their financial situations. Vow not to spend money you don't really have except in a real emergency.

7 Keep saving for retirement. This may seem hard when you're feeling squeezed, but do it even if your contributions aren't matched by your employer. You'll be glad you did at tax time and in your later years.

8 See the big picture. Decide how to allocate your income by percentages, and then work out the details later. Here's an example of how to do it: long-term savings, 10 percent; short-term savings, 5 percent; taxes, 25 percent; all housing expenses, 25 percent; all vehicle expenses, 10 percent; everything else, 25 percent.

9 Seek out reputable help if needed. Consider hiring a fee-only financial planner through the National Association of Personal Financial Advisors (www.napfa.org), the Financial Planning Association (www.fpanet.org) or the Garrett Planning Network (www.garrettplanningnetwork.com). (Fee-only planners do not make commissions.)

10 Understand your money personalities. If you're part of a couple and you've been clashing over money matters, you may have wildly different money personalities. Take the quick quiz at Moneyharmony.com (www.moneyharmony.com/MHQuiz.html). Use this as a springboard for a frank conversation about your approaches to money.

Laura T. Coffey

(laura@tentips.org)

Sources: "The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke" by Elizabeth Warren and Amelia Warren Tyagi; "Get Your Assets in Gear! Smart Money Strategies" by Jan Dahlin Geiger (www.jandahlingeiger.com); Financial Planning Association (www.fpanet.org)

10 Tips: Middle class? Avoid the pain of financial squeeze 04/26/08 [Last modified: Tuesday, April 29, 2008 2:26pm]

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