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Winning the middle class financial battle
Families with what's considered middle-class income may seem caught between a rock and a hard place when it comes to paying the bills and making long term plans. A disciplined financial approach can help. - photo by Jeff Wuorio
Abbey Finch was raised in an upper middle class home, attended expensive private schools and, as she put it, Basically wanted for nothing and got every opportunity handed to us.

Fast forward a few years and the 27-year-old marketing content writer from Belleville, New Jersey, is in very different circumstances. A single parent with a 6-year-old daughter, her finances are stretched to the limit everyday spending needs weighing against finding what funds she can to save for her childs college education.

I struggle with things like saving for college a portion of my income and my ex's income goes into two separate college savings accounts each month, she said. It's not a lot, but I feel good about it.

That struggle is likely shared by millions of others who fall into the loosely defined category of middle class. And the financial challenge may have nothing to do with longing for pricey cars and top-shelf clothes. With every penny seemingly out the door the moment it comes in, substantial long-term goals can seem pointless to even pursue.

The temptation is to not even try to set or reach financial goals because it seems impossible, said R. Joseph Ritter Jr., a financial planner in Hobe Sound, Florida.

But to make it possible, those caught in the middle, financially speaking, must establish tight, financial priorities to reach major objectives, such as college or retirement. And a critical component of success is letting everyone involved know those objectives and how they can contribute.

Hard to define and afford

Defining what it means to be middle class can be difficult. Using data from the U.S. Census Bureau and other sources, National Public Radio recently placed the median annual income of middle class families in 30 cities at roughly $64,000. Income varied significantly from one metro area to another, ranging from a low of $30,000 in Detroit to San Joses $103,000 midpoint.

That may seem a long way away from a century ago when an annual income of $600 put a household in the middle class but the ongoing challenge of making ends meet remains. Even basic necessities such as housing have become a financial burden, according to the Pew Charitable Trusts.

In most states, the growing percentage of households paying 30 percent (the federal standard for housing affordability) or more of their income on housing illustrates that it is increasingly difficult for many American families to make ends meet, a recent Pew analysis said.

And, when it comes to building toward major financial goals, more immediate expenses and obligations have a habit of getting in the way.

Corporate America pays you just enough to pay the bills, but saving for college or retirement always gets put on hold if a large, unexpected expense comes up, said Todd Crane, an aerospace engineer from Fayetteville, Arkansas.

Priorities and saying no

But there are strategies that middle-income families can leverage to break the apparent stalemate between immediate expenses and long-term goals. A well thought out budget is one obvious option framing that with firm financial priorities in mind makes it all the more effective.

Make a list of all the non-priority necessary or enjoyable things you want to have and compare them to the money available in your budget, said Ritter. Decisions will need to be made on which are more important immediately and which can be delayed. This doesn't mean that some things cannot be done. Its about prioritizing when you can do some things.

That sort of disciplined approach naturally involves a fair amount of saying no to purchases and activities that more affluent families dont give a second thought to.

The biggest thing with money and kids is learning to say no, Finch said. We cant buy every toy, we can't go on every trip, we can't go out to eat every night but saying no to a lot of things gives me the chance to say yes to other important things.

Another principle suited to anyone at any income level is breaking down large goals into smaller, more manageable components. If nothing else, that can help get past the sense of intimidation when considering something that simply seems too big to accomplish.

As an example, if you want to save a six-month emergency fund of $20,000 that may take two years to complete, break down the amount into six month increments, explained Ritter. Every six months, your goal will be to save $5,000.

Encourage buy-in

Even the most effective financial strategy can be difficult to carry out in the face of disappointment or outright opposition. That makes it critical that all family members understand and support the thinking behind the financial plan.

While middle-income families know well the constraints of limited discretionary spending, that shouldnt translate to a monastic lifestyle, which can result in what Ritter called frugal fatigue.

An important part of this strategy is to continually reward good financial behavior, he said. Incorporate a goal centered around rewarding yourself with a small but meaningful splurge.

Be conscious of reinforcing what is financially possible rather than moping about everything that just seems out of reach. Thanks in part to an inheritance, Holvis and Marcia Delgadillos two children were able to attend an expensive private school. There, they sat side by side with other students from very affluent families.

Cause for envy? Not in the least.

Were not rich, but we always made sure they were very well grounded, said Marcia, 52, who works in business development at a San Francisco law firm. Appreciate what you have and dont be materialistic.

When talking to kids about healthy spending and saving, it can also be particularly effective that it be a real world conversation.

If youre trying to tell them to do what you do, have a conversation with your kids when they have some of their own money in hand, like the $15 they got for shoveling snow, said Paul Prete, vice president of retirement programs at First Investors Corp. That can really help build solid habits.

That ties in with reinforcing and, if need be, reframing everyones relationship with money. That means pointing out that money is not a one way street, but a rather strict give and take that, fortunately, doesnt have to mean saying no over and over.

As far as money is concerned, I teach my daughter that she won't get everything she wants all the time and privileges must be earned, said Finch. If she wants an allowance, she must complete her weekly chores. If she wants to get a new toy or participate in a special activity, she has to behave. But I honestly dont think she ever feels deprived.
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