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Assessing the Middle Class

While the economy is seeing some progress towards recovery, average Americans continue to be affected by the recession last year. In general, living standards have dropped to below the thresholds that exemplify middle-class lifestyle. Among the different metric used by economists include income, property value, home size, cars, medical expenses, college savings, vacation, and retirement savings. If you’re curious to know how you’re faring compared to other families, below is a lowdown:

Income – middle-class families (two-parent households) have a household income that range from $51,000 to $123,000. The median income is placed at $81,000 as of 2008. This figure is believed to have fallen by 5 to 7 percent due to the financial crisis. The median income of a single-parent household with two children is at $25,000

Property Value – the typical home of a two-parent American household is worth $231,000. Costs have basically more than doubled during the past decade. But while property values had steadily increased since 1990s, the trend is now reversing due to the housing bust.

Home Size – one factor that contributed to the increase in housing costs was bigger home size. The median size of a regular single-family home rose by 40% from 1979 to 2007. Right now, most houses are about 2,300 square feet. This is fast changing because families are downsizing their homes and lifestyle.

Medical Expenses – according to the study conducted by a team commissioned by Vice President Joe Biden, two-parent families spend $5,100 on average on health insurance including non-covered expenses. Healthcare costs have risen astronomically since 1990 and it may continue to rise in the near future.

Cars – the middle-class is typified by cars and mobility. Mist families spend $12,400 a year for their two sedans or other car equivalents. The recession has dampened their passion for cars so car sales dropped down by 40 percent.

College Savings – most families set aside $4,100 for the college education of their two children. Whenever possible, they save more for the college fund. In the past, financial aid accounted for the rest of the expenses. With most states facing budget problems though, school fees are bound to go up.

Vacation – another metric on the quality of life is the amount of vacation families have. A usual vacation costs around $3,000 a week for a family of four. Those who can afford a bit more spend around $6,100 for a two-week vacation.

Retirement Spending – another important consideration for middle-class families is retirement savings. In general, most people put aside $2,600 annually in preparation for retirement. This is 3.2 percent of a family’s income. It is problematic that a significant number of families don’t hit this goal due to stock market losses and other financial fluctuations.

Personal Finance Tips for Fresh Graduates

Fresh graduates will face one of the most competitive career landscapes in decades. While there is work to go around, the prospect of career growth, promotions, and salary increase seems dim in many industries. Some businesses are optimistic. However, for recent graduates, it is important to be on the safe side. Those who are new to the work force are most at risk of lay-offs and job cuts. Below are some personal finance tips that make sense for your situation:

Write Down Your Specific Goals

Simply writing down your goals will increase your chances of fulfilling them. There is a phenomenon known as the “mere measurement effect”. A research study wherein people were phoned and asked if they were going to the precincts reveals that if they answer yes, there is a higher probability that they really will attend. When more details were asked such as how they will go and what time they planned to vote were asked, the likelihood further increases. So write what your goals are right now, tell your friends about it, and make it happen.

Shop Wisely, Don’t Spend More than Necessary

It is a proven fact that people spend more when they earn more. For example, if they changed jobs and suddenly got a salary of $10,000 this month, it doesn’t matter that they previously subsisted on $3,000. They will make their lifestyles will drastically change immediately. There’s nothing wrong with rewarding and pampering yourself, just don’t overdo it especially if you’re a fresh graduate. That same job might be gone in an instant.

Stop Comparing Incomes

Wealth is truly a state of mind. The perception of wealth is relative. For example, a survey conducted by Harvard in 1995 asked students if they prefer to live in an area where they earn $50,000 while the average was $25,000 as opposed to an area where they earn $100,000 when the rest are earning $200,000. A huge majority said that they will settle for the former. They would rather earn $50,000 than $100,000 as long as others are earning less than they do. Income is just a small barometer of success. It is important to be comfortable in your own skin and pursue excellence where you are.

$1 Million No Longer Enough for Retirement

For many years, $1 million seems to be the standard when it comes to the amount of money you should set aside for retirement. However, even if it seems impossible to achieve for some, the truth is that it might not actually be enough to cater to your care during retirement. Inflation, the uncertainty of Social Security benefits, and longer life span all contribute to make the long-touted savings target inadequate.

Recently, there was a survey conducted among 226 investment advisers. Around 71% stated that $1 million is no longer sufficient for the needs of a regular American family. Many advisers recommend doubling or even tripling the amount. Younger generations are seen to be most vulnerable to the economic problems. When they grow older, they will inherit the problems caused today. The recommended savings (based on generation) are as follows:

  • Generation Y (18-26 years old): should have to save at least $2 million. Some advisers even stated the figure at $3 million to remain on the safe side.
  • Generation X (27-42 years old): should set a goal of $1 million. Around forty percent of the respondents believe that they should save $3 million.
  • Boomers (43-64 years old): the recommendations for baby boomers seem to be mixed. 35% said $2-$3 million is important. Meanwhile, 30% said $1.5-$2 million may be enough.

Based on the survey, it seems that the only generation that comes close to living comfortably for $1 million are seniors. Experts say that $500,000 to $1.5 million is enough for many families under that age bracket.

It is true that in general, people tend to spend less during retirement. However, unforeseen circumstances like inflation or illness can easily wipe out savings. It is important to get appropriate financial protection against these risks.

Making Extra Money during the Recession

Under normal circumstances, many people struggle to make ends meet.  But during the recession, the situation becomes even more desperate. As a result, many people are increasingly looking for ways to boost their income. Tighter credit, job loss, and the increasingly popularity of saving has forced many ordinary Americans to be innovative and tap into their networks, skills, and even hobbies.

Jennifer Winslow used to work part-time. While she needed to increase her income, she also didn’t want to give up the flexibility of part-time work. She turned to baking. Around five years later, her thriving bakery in Winslow, Maine has become an inspiration to people who want the same flexibility. Fortunately for individuals who have limited baking skills, there are many other ways to make extra money.

According to Gail Cunningham from the National Foundation for Credit Counseling, the key is to discover your skill or “what you think would be fun to do.” For example someone familiar with web development can offer courses that teach people how to build basic websites. Meanwhile, renting out a room in your house, getting paid for your opinion, or selling extra furniture can provide much-needed cash.

Selling It – this is probably the fastest way to generate cash. If you have unused or unwanted stuff in your home, you can make hundreds or even thousands of dollars from selling them. Set up a garage sale, auction things on eBay, or join flea markets. Some people have discovered astounding success on eBay. In fact, their products became so in-demand, they turned it into a business.

Renting It – real estate is the biggest asset of majority of people. Rent out a room, grab a roommate, or even rent your entire apartment. It is a good and almost hassle-free way to generate cash when you feel strapped. In the same way, cars can also be rented. Just be sure to complete all legal requirements before you get started.

Doing It – that means using your talent, capability, and interest. It can be as simple as teaching a class, working as a caddy, or cooking for small businesses. A lot of people also earn extra income by watching their child friend after all. One lucrative area to get into is to be a tutor. Pay ranges from $30 to $100 an hour.

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