Kristy's Blog

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The middle class has been in the news a lot lately thanks in part to the debates emerging around the 2016 presidential election cycle. Most notably Democratic candidate Bernie Sanders has said he is stumping for the working class and wants to fix the “rigged economy” we live in. Meanwhile studies have shown that the middle class is indeed shrinking and a report by the Federal Reserve reveals that 47% of Americans wouldn’t be able to cover a $400 emergency if they had to.
That’s probably why Neal Gabler’s piece in The Atlantic titled “The Secret Shame of Middle-Class Americans” has struck a chord and gone viral over the past few weeks. In his lengthy article Gabler confesses to the financially instability — which he refers to as “financial impotence” — he endures despite being a relatively successful author and writer. As Gabler points out (and the Fed survey drives home) he is not alone. So what lessons are there to be learned from Gabler’s story to help those in the 47% get themselves to a better financial place?

Standardize your expenses

One of the issues Gabler refers to often is his profession as a writer. This forces him to stretch his advances for years while he works to complete his books. As a result of this arrangement Gabler also ran into problems with the IRS since he would receive large sums of money some years and next to nothing in subsequent years. Furthermore this caused him to pay tax penalties since he didn’t have it in his budget to send a chunk of his advance to the government.

While most Americans aren’t likely to have a situation quite like this one there are circumstances where we might have more money in certain months or years than in others. The lesson here is to try to save as much as possible from the “fat” times to carry you through the “lean” ones. For example a teacher who is only paid for the nine months out of the year they work ought to set aside part of their paycheck to get them through summer (not to mention grow their savings as well).

Even if you don’t have a job that sees major monetary fluctuations there are other ways you should attempt to standardize your expenses. This could involve any number of tricks that help you budget for your larger expenses as well as set money aside. An example of this would be, if your electric bill is $150 dollars at its peak, budget for that $150 every month. That way, if your bill is lower, you’ll have money you can add to your emergency fund or other savings. Similarly, if you have an annual or bi-annual bill that’s due such as insurance, ensuring that you are stashing monthly payments towards this bill can prevent you from paying late or wiping out your savings when it comes due.

Be proactive with your financial problems

As Gabler addresses in his piece many of us with financial problems don’t talk about it. Worse yet, some may try to hide their issues or even ignore them all together. Unfortunately this can lead to more problems.

We’ve all had times when the last thing you want to do is check your bank account balance because of the bad news doing so will bring. However in these cases the best thing to do is be proactive and make changes. One such change Gabler reports making is moving his family from Brooklyn to East Hampton. This move not only saved them money on rent/mortgage payments but also allowed them to stop paying for the private school tuition they were paying in Brooklyn.

Sadly, in Gabler’s case, the advantages of the move were greatly offset by their inability to sell their Brooklyn apartment. Eventually Gabler was forced to sell the apartment at a loss but was able to rid himself and his family of that mortgage payment. He says, “I suppose I could have slashed the price sooner to bring in more would-be buyers—in retrospect, that would have been the wisest choice—but I wanted to cover what I owed the bank.”

Clearly Gabler’s logic in not wanting to lose money on the deal makes sense. On the other hand he doesn’t state how much he spent on unnecessary mortgage payments before inevitably taking a loss anyway. There’s no denying this is a tough situation but, by his own admission, it’s one that could have been mitigated by being more proactive.

There is a lot to be said for recognizing when you’re headed for or are in a tough financial situation and making changes to minimize the damage. Relocating or downsizing is just one example (even if it didn’t go so well for Gabler). Other potential options include selling an unneeded vehicle, tightening your budget using the envelopes method, or even consolidating your credit card debt with a personal loan. Of course you’ll also want to build up an emergency fund as soon as possible.

Avoid “keeping up with the Joneses” and set an example

Gabler points to the “keeping up with the Joneses” syndrome as one of the reasons the American middle class is struggling. This is to say that we buy things we can’t really afford just because we want the latest or greatest. In Gabler’s case — regarding his decision to send his children to private school — he says, “I never wanted to keep up with the Joneses. But, like many Americans, I wanted my children to keep up with the Joneses’ children, because I knew how easily my girls could be marginalized in a society where nearly all the rewards go to a small, well-educated elite.”

Although certainly noble, this still falls under the banner of living beyond your means. Overspending and pushing the limits of your income is what first leads to financial fragility and ultimately larger money issues. The most important thing is to take care of yourself and your family and not to get caught up in the affairs of others.

Additionally, while we’d all like to provide our children with a life as good as or even better than the ones we’ve had, piling up debt is not the answer. Not only does this jeopardize your entire family’s future but also sets a bad example. Children often learn financial habits from their parents meaning that your behavior could only serve to continue the cycle of paycheck-to-paycheck living for another generation.

As Gabler points out there is no easy solution to fixing the problems the middle class face. And, as we’ve seen over the past year, politicians all have their own diagnoses and set of ideas for setting Americans on a new financial course. Still the biggest change we can make is taking a look at our own situation and doing whatever we can to strengthen our savings.

This article by Jonathan Dyer first appeared on Dyer News and was distributed by the Personal Finance Syndication Network