How you can cope with ‘middle-class crunch’

5. Treat credit-card debt like the plague that it is. Unfortunately, many families and individuals grappling with excessive money worries have gotten themselves into a bind with credit cards. Credit cards can be your friends — but only if you’re scrupulous about paying your balances off in full and on time each month. If you’re already weighed down with debt, though, try this: Transfer your credit-card balances to a card with a lower interest rate right away. You’ll save $730 if you transfer a $2,000 balance from an 18-percent card to an 8.25-percent card and then pay off your balance at a rate of $50 a month. Even better, transfer balances to cards with rates of 0, 1 or 2 percent if you can and concentrate on paying them off entirely while those low rates last. Here are some additional insights from Edward Gjertsen II, a financial planner in Glenview, Ill.: “I created the ‘Seven-Day Cash Challenge’ that has clients put away the credit card and use cash — (not a debit card, but cash) — to pay for most everything for seven days. This helps them quickly realize how much flows out in everyday expenditures. … From this we build upon the premise (that) it’s not what you save that is critical to wealth-building, it’s realizing what you spend.”

6. No matter how strapped you are, don’t skimp on your retirement savings. Saving for retirement may seem like a low priority when you’re feeling squeezed. But in many cases, you can view your contributions to a 401(k) or 403(b) tax-deferred retirement plan as an instant raise. That’s because many employers will match your contributions up to a certain point. Don’t let such free money slip away! Even if you don’t get a match from your employer, get in the habit of regularly socking away at least some money for retirement. You’ll be glad you did so at tax time — and in your later years as well. As William Keen, a financial planner from Norcross, Ga., put it: “Remember that kids can borrow for education, but you can’t borrow for retirement.”

7. Play the percentages game. Jan Dahlin Geiger, author of the book “Get Your Assets in Gear! Smart Money Strategies,” recommended that people should decide up front how to allocate their spending by percentages and then work out the details afterward. She provided this example: 

• Total income: 100 percent.
• Long-term savings: 10 percent. (This is savings for financial independence.)
• Short-term savings: 5 percent. (This is for an emergency fund, repairs and unexpected expenses.)
• Taxes: 25 percent.
• Housing expenses: 25 percent. (This includes mortgage/rent, utilities, repairs, upkeep, landscaping.)
• Car expenses: 10 percent. (This includes car payments/savings, insurance, gas, repairs.)
• Everything else: 25 percent. (This includes food, clothes, vacations, gifts, expenses for children, restaurants, entertainment and the million other things that pop up.)

“Most people who take time to do this exercise realize they are spending far more than 25 percent on housing and far more than 10 percent on cars,” said Dahlin Geiger, a financial planner in Atlanta. “The big ‘aha’ finally hits and they realize why they can’t save anything. … Until you look at the big picture like this, most people are just throwing Band-Aids at their situation.”

Next week's 10 Tips topic High cost of Halloween Everyone knows that the Christmas season leaves millions of people saddled with relentless credit-card debt – but who knew Halloween could pack such a wallop? Be forewarned: It can. Do you have advice about how to have fun this Halloween without spending too much? If so,   please share them here.

8. Pay careful attention to your tax bracket. Yet another reason many two-income families feel pressured financially is that they often make just enough money to stop qualifying for valuable tax credits, such as the child tax credit. “I do a lot of tax work, and middle-class families are the ones that get whacked,” said Daniel Wishnatsky, a financial planner in Phoenix. Wishnatsky recommends working with a tax professional, not simply a tax preparer, to find ways to minimize taxes. “This is a huge issue,” he said. “If nothing else, folks need to realize that a nice raise … requires prudent planning.”

9. Find a reputable financial planner. You can attain real peace of mind by getting control of your money matters and putting a smart financial plan in place for the years to come. You can accomplish this by hiring a fee-only financial planner through the National Association of Personal Financial Advisors, the Financial Planning Association or the Garrett Planning Network. (Fee-only planners do not make commissions by selling you certain financial products.) You may end up paying an hourly rate of about $150 to $250 to get the help you need – not dirt cheap, but potentially worth it if you can get your house in order for the next five to 10 years in the span of a few hours. When contacting the organizations referenced here, specify that you’re looking for a fee-only financial planner. Depending on your needs, you could spell out that you’re looking for a fee-only planner who also is an experienced tax professional.

10. Understand your money personalities. This last tip is a special one just for couples. In order to apply any of the tips suggested here successfully, you’re both going to need to be on the same page together. This can be difficult if you have wildly different money personalities. To find out whether you do, take this quick quiz at Moneyharmony.com. Compare your answers and results carefully, and use this as a springboard for a frank — yet non-judgmental — conversation about your approaches to money. Remember to stay calm and take lots of deep breaths!

Sources and resources:

• “The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke”
• The Financial Planning Association
• Moneyharmony.com
• U.S. Census Bureau

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