Financial freedom can mean different things to different people. It may mean the ability to retire early, while others may see it as being able to afford to travel the world. However, middle-class families may consider the idea of financial freedom to just be not having to worry about money.
Indeed, these families have to budget carefully, the direct opposite of some people in society. There are some common principles and practices middle-class families should pay attention to in order to hit their goal. Making smart choices now can put your family on track to achieving financial independence in the future. Keeping that in mind, we broke down 29 relatively simple ways that middle-class families can achieve financial independence below.
29. First, Make A Budget
Ah, the dreaded “b” word. However, making a budget is not a means of restricting your fun and enjoyment of life. Making a budget determines how much money you have available to do the things you want and also eventually escape that middle-class mindset.
So really, a budget is about prioritizing the most essential things in your life are. Think about it in terms of determining who and what are most important to you and how you can build your life around keeping those things central.
28. Track Exact Earnings To Escape The Middle Class
The first part of setting up a budget is determining how much money you bring in each month. After all, you can’t figure out how much money you have available to do what you enjoy if you do not first know how much money you make.
Look through the past six months of bank statements and calculate the average of how much you bring home each month. Exclude bonuses, because they are not reliable income. That number is the absolute maximum amount that you can spend each month. Sticking to this plan will help your family escape middle-class worries.
27. Then, Track Exact Spending
Now is the more painful part of setting up a budget: figuring how much you are spending. If you’re like many middle-class American families, you regularly spend more than you are bringing in. If you are in that position, you need to slam on the brakes and get your spending under control.
Go to your last six months of bank statements and figure out how much you have been spending. Divide your spending into different categories, including housing, debt payments, clothing, food, entertainment, saving, et cetera. The types that you set up will depend on the essential things to you. Again, adhering to a stricter spending plan will help your family get out of a constant middle-class grind.
26. Seek Ways To Spend Less
Even if you are already spending less than you bring in each month, if you want to take steps towards escaping the middle class, you need to look for ways to spend less. Again, this is not about imposing austerity measures on yourself. It is about prioritizing the things that are most important in life.
Look at the different classifications of expenditures you have set up, and determine which categories are not as important. Those are the ones that you can probably start with shaving down your spending. After all, if you can get by without television, you can probably ditch the expensive satellite subscription, especially if you also subscribe to Netflix and Amazon Prime.
25. Cook At Home Instead of Eating Out
Eating out is expensive, and many middle-class families are shocked to realize how much money they are spending each month by going to restaurants instead of the grocery store. Sure, eating out may be more convenient than cooking at home, and it more fun. But it can put a dent in your budget.
You can probably cut your food expenditures in half if you stop eating out so much. If you miss having dinners with friends, invite them over for a home-cooked meal at your place. Cooking for a group of friends can be cheaper than just one meal at a sit-down restaurant.
24. Brew Your Own Coffee To Escape The Middle Class
You can buy a bag of high-quality, organic coffee grounds, enough to make dozens of cups of coffee, for the price of about two coffees from Starbucks. Brewing your own cup at home costs about a quarter or less per cup. If you don’t like the idea of black coffee, do what your parents did: add cream and sugar.
Perhaps you buy fancy creamers with all of the flavors as your favorite Starbucks drinks. You can pour those into your homemade brew and still come out ahead financially. If you don’t think that trips to Starbucks add up, consider that a $5 cup of coffee each day is nearly $2000 per year. That’s a number that will put a dent in any middle-class family’s bottom line.
23. Don’t Buy Things Just Because They Are On Sale
Amazon has a flash sale on something that looks like it might be intriguing, but you never really thought about it before and didn’t need it. Or your favorite department store is having a semi-annual clearance, and you could use yet another outfit to wear to work.
Rule of thumb: don’t buy things just because they are on sale. If something you already know you need is on sale, that’s a huge bonus. But if you routinely buy things because they are on sale and not because you need them, you will end up spending more than if you pay full-price for items that you need. Again, not a way for your middle-class family to rise up out of that grind.
22. Be Mindful As A Member Of The Middle Class
Again, a budget is not about putting a damper on the fun and keeping you from enjoying your life. It is about prioritizing the most important things so that you can get the most out of every day and every dollar you earn.
So be mindful of where you spend your money. You work hard for it, so don’t throw it away just for convenience or the thrill of getting a great bargain. When you think about money, think about values. Most importantly, think. Don’t fall for the latest and greatest. Be conscious of what you buy and why.
21. Track Extra Expenditures
Hold onto receipts and make a practice of recording how much money you are spending outside of your major bills each month. You can use each of the categories that you have set up in your budget. At least every week, write down how much you have spent.
Don’t cut corners. You won’t get out of the middle class doing that. Remember that you are not trying to impress anyone; you are trying to get your life in the direction of financial freedom and make it out of that middle class. Don’t neglect the money you spent on things like snacks and clothing. Those numbers add up.
20. Plan For The Unexpected
Many people have credit cards to help them with unexpected expenses. The result is that when they get a flat tire or have a medical emergency, they wind up in debt and have to pay interest that can quickly accrue and derail their finances.
Get ahead of the curve by planning for unexpected things to happen. Create an emergency fund of $500, and save to grow it. Get it up to $1000, then $1500. Keep putting money into your emergency fund until you get to the point that you have three months of expenses covered. Then, you can weather anything from a medical emergency to a job loss. That will be crucial to helping your middle-class family achieve financial freedom.
19. Start Saving For More Than Middle-Class Emergencies
Having a regular savings plan is about more than setting aside money for emergencies. Emergencies are going to happen, and the ones that are most likely to happen are the ones you do not plan for. Saving money in a regular plan is about planning for the future that you do want so that you do not have to settle for anything less.
If you hope to be able to buy a house within the next few years, you need to save to make a down payment. If you wish to retire early, you need to start saving with that goal in mind. Again, planning for your financial future is about values and prioritizing those values.
18. Make Sure You Have Insurance
Nothing can derail your finances faster than getting into a car accident or having a medical emergency without proper insurance. Just the time that you may have to miss from work can be enough to set your finances back months if you have not planned appropriately.
Having adequate insurance is the most important thing you can do to ensure that these unexpected events do not run you off the rails. Make sure that your health insurance is sufficient to cover hospitalizations, preventative care, and any other needs that you might anticipate. Ensure that your car insurance is adequate that if you do get in an accident, your finances will survive (even if the car doesn’t).
17. Pay Down Debt
The vast majority of American households carry debt, from credit cards to student loans to car leases to mortgages. Moreover, while being able to get a loan to buy a house or go to school may be beneficial in the long run, if you are not careful, the interest on those debts can run your finances into the ground.
Alongside a savings plan, you need to be aggressively paying down debts. This is paramount to escaping middle-class status. Put in more than the minimum payment each month so that the debts can go down quicker. Focus on the debts with the highest interest rates, because those are costing you the most in the long run.
16. That Includes Your Car
If you have a monthly car payment, you need to prioritize paying it off. Car payments tend to come with high-interest rates, and as much as half of your monthly payment may be going to interest. Make a plan to get your car paid off as quickly as you can.
After your car is paid off, don’t buy a new car and taking on another debt. That’s a common mistake middle-class people make. Drive your paid-off vehicle for as long as you can and set aside the money you would use on the car note. That money can be used to pay off other debts, save, or plan for when you truly need to buy another car.
15. Focus On Credit Cards
Many middle-class American families have upwards of $40,000 in credit card debt, and are paying a heavy price for it. Because the interest is killing their dreams to save money, invest, and one day retire. If you want to escape the middle class, get your credit cards paid off.
Start with the credit card with the highest interest rate and do whatever you can to get it paid off. Once that is paid off, apply the funds you used toward it to the card with the second-highest interest rate. Get momentum going and get those credit card debts out of your life if you want to escape the middle class.
Your mortgage is probably the most crucial debt of your life, and qualifying for it may have been a dream come true. After all, you are no longer a renter beholden to the whims of a landlord. You have your own house, and this is rightfully the dream of many middle-class families.
But your home needs to get paid off because the interest on your mortgage is not helping you achieve you escape the middle class. Once other debts in your life are downsized, pay more each month on your mortgage than you owe to get it paid off early. Consider a refinancing program that may lower monthly interest.
13. Check Your Credit Score
Your credit score is an important component of your financial life because it helps determine how much you can do with your money. If you are hoping to buy a house within the next few years, you will need a solid credit score, especially to get the best interest rate possible.
Some programs allow you to check your credit score for free. When you check it, make sure that you read it carefully to see any errors. You can take action to get any errors corrected so that your credit score reflects your actual state of financial health. Keeping a healthy credit score is key to escaping the middle class.
12. Look For Ways To Improve Credit
If you’re not entirely happy with your credit score, there are things you can do to improve it. Paying off debt will enhance your debt-to-assets ratio and automatically cause your score to go up. Paying your bills on time will also improve it.
While your credit score is not the only factor determining if you can buy a house, it is an essential factor. Bankruptcies, unpaid debts, collections, and other malicious remarks on your credit score can derail your plans for the next few years, so prioritize getting it cleaned up if you want to escape the middle class.
11. Pay Your Bills On Time
This one sounds obvious, and it is. Ideally, you should be able to pay your bills as soon as they arrive. However, even if you cannot pay the electricity bill or car payment as soon as the bill arrives, whatever you do, do not become neglectful and forget to pay it. One late payment can knock down your credit score noticeably and prevent you from escaping the middle class.
Additionally, not paying your bills on time can cause you to incur interest and late fees that you did not plan for in your budget. And if you don’t pay them by the time the next cycle comes around, they could go into collections and cripple your credit score for years.
10. Consider Ways To Earn Passive Income
Passive income is money that you can earn without actively working for it, as you do when you go to your job every day. Royalties are one form of passive income because the check arrives based on some investment that you made in the past.
Writing and selling eBooks is one way of earning passive income (though the venture is not for everyone). Renting out your basement is another. Check online for ways that you can earn passive income, and see what might work best for you. After all, what could be better than making money while you sleep? These days, passive income helps many Americans escape the middle class.
9. Start Investing
Making sound investments can be an effective way of generating passive income. The money you earn as interest and based on the company’s performance does not depend on how many hours you put in at work or how well you nailed your latest presentation.
But make sure that you remember the cardinal rule of investing. Only invest money that you are willing to lose. In other words, making investments has to be independent of your regular savings. The money that you have in savings needs to say there, in liquid form. Investments are a bonus, and any money earned from them is a bonus too. Being too risky with your investments could make you wish you were even back in the middle class.
8. Build A Diverse Investment Portfolio
When people begin investing, they often have questions about whether they should invest in high-risk, high-reward funds, or low-risk, low-reward funds. The best answer is to do both. Building up a diverse investment portfolio is one of the best ways to weather the rollercoaster ride that the stock market regularly goes on and build up wealth over time.
When building up your investment portfolio, make sure that you keep your values central. If you value the environment, invest in stocks separate from companies that produce fossil fuels and genetically modified food. If you value education, invest in stocks for companies that benefit education. Doing so intelligently will put you on the path out of the middle class.
7. Put Money Into Investments While In The Middle Class
Building up an investment portfolio that will carry you into retirement and eventually allow you to pass on wealth to your children is not something that happens overnight. It would be best if you planned to make regular investments so that you build up your portfolio over the decades.
Remember that investments are not the same as savings. A stock market downturn can cause you to lose significant amounts of money, as happened in 2008 and then again in 2020. Having liquid savings will help you weather those downturns and still be able to achieve your financial goals, like escaping the middle class.
6. Talk With A Financial Advisor
A financial advisor can help you determine the best way to achieve your financial goals throughout your lifetime. While many people believe that a sudden windfall will change their fortunes and allow them to fulfill all of their dreams, a financial advisor can help you look at what you have available and what you can realistically expect.
Creating a financial strategy with a professional can help you make sure that you can pass on wealth to your children. While no plan is fail-safe (as many found out when the crisis of 2020 hit), having an idea that is grounded in realistic expectations and past performance generates a higher possibility of success.
5. Create A Retirement Plan
A retirement plan is more than a retirement hope. Of course, you hope to retreat early, but many people don’t think they will ever be able to retire without some miracle. A retirement plan involves making regular investments into a retirement account, getting matching employer contributions, and making parallel plans that will produce the best possible outcome.
You may end up not being able to retire when you want to because unexpected things do happen. But a retirement plan, and meaningful steps towards making that plan become a reality, will put you ahead of the curve. Even if you did not fulfill your dreams and goals like vacating the middle class when you had hoped to, you will one day be able to.
4. Stick With Your Goals
Saying that you are going to stop eating out so much is one thing. Getting some recipe cards and cooking meals at home for a week is a step in the right direction. But you have to keep with the program to see long-term results.
When things get hard, keep making payments towards your debts. Keep up with your regular savings plan. Keep shaving money off of your monthly expenses so that you can plan for the future. Stick with your goals so that one day, you can start seeing meaningful results and eventually escape the middle class.
3. Associate With People Who Have Similar Goals
Spending $5 a day on one gourmet coffee cup is an effortless thing to do when you are surrounded by people who also pay $5 a day on one gourmet coffee cup. But when you start spending time with people committed to financial freedom, so much so that they are willing to brew their own coffee at home, then making those changes and sticking with them becomes more manageable.
Look for people who have similar goals as you, and make those people part of your life. Maybe you have a sibling or relative who is also trying to reduce monthly expenditures and start planning for the future. Make those people part of your inner circle. They will provide accountability and help you get to where you want to go.
2. Keep Personal Values Central To Planning
Again, making a budget and planning your financial future to escape the middle class, at its heart, is really about values and prioritizing the most critical things in your life. If being able to get out and spend time with friends is essential to you, make that part of your financial plan. Perhaps traveling and seeing the world is important, so plan a budget that allows you to continue doing so.
If you don’t care about being able to make regular visits to Disneyland, then don’t bother making those kinds of things part of your financial planning. Stick with what is important to you, and then you are more likely to stick with the program. When you have your own plan laid out, you can begin to build towards leaving the middle class.
1. Give Generously Even While In The Middle Class
In keeping with your values, give to charities and programs that bring you joy. Giving away part of your income is about more than being able to get a tax deduction at the end of the year; it is about using your money in a way that is particularly meaningful to you. That way, you can get more joy and fulfillment out of your financial plan.
Maybe there is a local charity that you believe in, like a nearby chapter of Big Brothers and Big Sisters of America. If you cannot commit to making regular financial gifts, look for other ways to give, such as becoming a mentor to one of the children in its program. Or maybe volunteer at your local food bank or senior center. Because remember, your finances are really about your values, so make sure that you keep the most critical things central.