4 Ways Successful Middle Class Families Invest
Although the U.S. government clearly defines what it means to live in poverty, it doesn’t provide the same clarity for what it means to be “middle class." You tend to hear a lot about this group during presidential election years, as middle class families make up the majority of American households.
What exactly is “middle class" ? Economists slice and dice it in many ways, but the most typical definition categorizes families as middle class by their annual household income. The Pew Research Center defines middle class families as those that earn between $46,960 and $140,900 annually. Other sources draw the line around typical middle class aspirations like home ownership, vacations, and college funds for children. Middle class families also aspire to plan for their future through investment and retirement accounts.
So how are they doing? It turns out that only 45% of middle class adults have investment accounts. You can learn from their success and start investing for your own future today.
Here are 4 investing tips you can learn from successful middle class families:
1. Don’t Wait Until You Have “Enough” to Start Investing.
After paying for the essentials, such as housing, food, utilities, and transportation, you need to decide what to do with your discretionary income. Investing isn’t always the first thing that comes to mind, and if you really stopped to think about it, you might be putting off investing because you don’t think you have enough to start. Successful middle class families recognize that they may never feel financially “ready” to start investing. There will always be competing forces claiming rights to the money in your wallet. Make the decision to start today, with just a little bit. You can always add to it as your financial situation changes. What you can’t do is make up lost time. With interest rates as low as they currently are, that cash you have sitting in your savings account is likely losing purchasing power over time.
2. Work on Multiple Financial Goals at the Same Time.
Remember those typical middle class aspirations - home ownership, vacations, college education, and retirement? Start to tackle them all at once. If you wait to start investing until you pay off your mortgage, you may be eligible for social security before you start. Tackle high-interest debt like credit cards aggressively, as compounding is working against you. But then you’re in a prime situation to flip the power of compounding in your own favor. The secret behind the math is that your earnings, no matter how small in the beginning, have the potential to make earnings, too. And that’s why you can’t afford to wait even 5 years before you start.
3. Educate Yourself on the Benefits of What’s Out There.
There’s a lot out there for middle class families to take advantage of -- and tax benefits for doing it, too. For example, Roth IRAs are tax-favorable for everyone, but particularly lower wage earners, and earnings on 529 college accounts are not subject to federal tax or state tax when used for education expenses. If your employer doesn’t provide a 401k, find a way to start investing on your own and learn as you go.
4. Find Low-Cost Alternatives to Expensive Financial Advisors.
High income and spending power bring a particular kind of luxury service. “White glove” financial service - the kind where a personal financial advisor picks up the phone and calls you when the market drops - is an expensive luxury that often makes sense for the wealthy, but not for everyone else. But with the rise of technology, you no longer have to have significant amounts of money in order to be taken seriously by the financial industry. And without large overhead from one-on-one service, the costs are very affordable to start. In fact, you can start investing with as little as $5 at time.
Start investing today with Stash. Stash is an easy-to-use mobile app that breaks down complicated financial language into clear, relatable choices. In 2 minutes, with just $5, you can become an investor today.
Commentary is provided for educational and information purposes only and should not be considered as investment advice. Investing involves risk including the risk of loss. Before investing, consider your investment objectives, financial resources and risk factors.
