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Income Inequality Is Rising Quickly: 8 Ways To Stay on Track Financially If You Make an Average Salary

If you make an average salary, it may seem difficult or impossible to maintain financial security when you’re facing stagnant wages and rising costs of living.

The Federal Reserve recently looked at how family incomes changed between 2019 and 2022. It found that median income went up by just 3% during those three years. The average income, however, jumped up by 15%.

What does this tell us? The growth in income was much higher for families at the top end than for middle and lower earners. In other words, the rich have gotten richer much faster than everyone else. According to the Federal Reserve, this represents one of the largest three-year rises in inequality in recent US history.

If your annual salary is around the median, or about $70,000, the cards may seem stacked against you. But you can take proactive steps to take control of your finances and work toward your goals. With some budget adjustments, smart saving habits and focus on increased earning potential, financial stability is possible even in the face of increasing inequality.

Stay Out of Debt

When you are living on an average salary, the most important thing is to stay out of debt. Debt can quickly snowball and put your financial goals out of reach.

“Debt steals from your future,” said Jay Zigmont, PhD, CFP and founder of Childfree Wealth. “If you don’t expect your salary to go up dramatically, you could end up in trouble. If you are currently in debt, getting out of debt needs to be a priority, as credit card interest rates are now at some of the highest levels ever.”

Focus on paying off high interest debt like credit cards first, and explore debt management programs if you are struggling. Limit new borrowing and live below your means to avoid accumulating more debt when possible.

Automate Your Savings

One of the easiest ways to save consistently is by setting up automatic transfers from your checking account to savings and investment accounts.

“Start saving, no matter how small the amount,” said Jeff Rose, CFP and founder of Good Financial Cents. “The key is to make it automatic. According to the Federal Reserve, the personal saving rate in the United States is about 9%. By automating, you’ll likely exceed this rate without even thinking about it, building up a nest egg for emergencies or long-term goals.”

Even small amounts add up over time. Arrange to have a portion of your paycheck direct deposited into a separate savings account before you have a chance to spend it.

Take Advantage of Workplace Benefits

If your employer offers matching contributions for retirement accounts, make sure to contribute at least enough to get the full match. This is one of the best guaranteed returns you can get to boost your savings.

“Always go for the 401(k) match,” said Rose. “It’s free money. A study from the National Institute on Retirement Security shows that 59% of working-age people don’t have any retirement account assets. By just using the match, you’re already ahead of more than half the population.”

Build an Emergency Fund

Having cash reserves on hand means you don’t have to rely on credit cards or loans when unexpected expenses pop up.

As Nicole Sanchez, financial health expert at Chase, said, “Saving and establishing an emergency or rainy-day fund is an important step to practice smart saving at any age and with an average salary… By saving regularly, no matter the frequency or amount, you’ll have the financial flexibility to help take on your goals.”

Start small if needed, but make regular contributions to build up at least three to six months’ worth of living expenses in your emergency fund over time.

Invest for Long-Term Growth

Don’t miss out on the potential for your money to grow over the long run.

“Learn the basics of investing,” said Rose. “It’s not just for the wealthy. A report from the Federal Reserve showed that just over half of U.S. families have some investment in the stock market. Low-cost index funds are a good way to start; they’re diversified and have lower fees, which means more of your money works for you.”

Educate yourself on investing basics and consider setting aside a portion of your savings in low-fee stock or bond index funds. Going beyond just savings accounts can help your money work harder.

Learn Personal Finance Skills

Understanding concepts like budgeting, saving, investing, taxes and retirement planning can put you in control of your financial life.

“Understanding personal finance can help you make better decisions regarding your situation,” said Britta Ferguson, vice president at Wealth Enhancement Group. “Attend seminars, use online financial calculators and tools, and work with a financial professional for personalized advice and strategies to game plan your goals.”

Seek out free resources to improve your money management abilities. Public libraries, non-profits and reputable websites offer personal finance education.

“I highly recommend reading books like ‘Rich Dad, Poor Dad,’ ‘The Richest Man in Babylon’ and — if you’re in debt — anything by Dave Ramsey,” said Vijay Marolia, co-founder at The Cash Square. “But today, books are just the beginning — podcasts and blogs provide another valuable and sometimes entertaining source of helpful information.”

Live Below Your Means

“Budgets are where financial freedom begins!” said Marolia. “If you treat it like a game, where saving and investing balances are treated like a score, it can actually become fun. Updating a new high score feels better than having to ‘update my budget.’”

Avoid “lifestyle inflation” as your income rises, and stick to a budget that aligns with your true needs. Limit dining out, entertainment and discretionary purchases that aren’t moving you closer to your goals.

“Make mindful spending choices by differentiating between wants and needs,” said Ferguson. “Looking for discounts, using coupons and comparing prices can help you get the best bang for your buck. Every dollar saved counts and gets you one step closer to achieving your financial goals.”

Focus on Your Goals

Clearly defining your financial goals is key to making a plan and tracking progress. Write down short- and long-term goals, understand your current financial situation and map out steps to reach your targets. Having a visual motivator can make it easier to stick to responsible spending and saving habits.

“Set financial goals,” said Evan Press, CFP with Equitable Advisors. “Write down what’s important to you, what type of lifestyle you currently live, what kind of lifestyle you want, and what actions you need to change to achieve those goals. It’s a lot easier to change spending habits when you have a roadmap.”

Source: finance.yahoo.com

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