If you've ever read money advice that didn't seem to apply to your situation, you may have been right. The following information is taken from the words of expert financial planner Liz Weston. Give me some feedback if this helped you. Thanks!
Guidance that makes sense for a middle-income household might not apply if you're under the poverty line. If your income is on the lower end, you'll have different priorities and concerns than if your W-2 has six figures before the decimal point.
Here are some tips using five income brackets that correspond, roughly, with the five income quintiles defined by the latest Current Population Survey, conducted jointly by the Bureau of Labor Statistics and the Census Bureau. Each bracket represents about 20% of U.S. households. There's plenty of overlap, since tips that apply to one bracket often apply to the ones above it as well. But these bits of advice will give you some idea of what you should focus on now.
Low income: Below $20,000
The official poverty line for a family of four is just under $22,000. Even if you don't consider yourself poor, you don't have a lot of financial wiggle room at the bottom of the income ladder. So here's what's most important:
- Get a break. If you earn income from a job or business, make sure you file a tax return and claim the earned income tax credit. This refundable credit, which is designed to help low- to moderate-income individuals and families, can put hundreds or even thousands of dollars in your pocket. Yet the Internal Revenue Service estimates one-fifth of taxpayers who qualify for this credit don't claim it. Another overlooked credit is the Savers Credit for low- to moderate-income workers. If you can put even a few bucks a year into a retirement account, you can get a tax credit for those contributions on top of being able to deduct them from your taxable income.
Avoid businesses that will rip you off. Some types of businesses will charge you outrageous amounts of money because you're poor and may not have access to mainstream credit. These include payday lenders, rent-to-own outfits and buy-here-pay-here car lots. If you want to hang on to the little money you have, you need to steer clear.
Lower middle income: $20,000 to $40,000
Review the tips for those earning under $20,000, because they probably apply to you as well. Then consider the following advice to help you get by:
Middle income: $40,000 to $60,000
You're smack in the middle of U.S. incomes, but the tips that apply to the folks in the $20,000 to $40,000 bracket also apply to you. Here are the additional steps you need to take:
- Nuke your credit card debt. The percentage of households with credit card debt really starts to climb as income rises. More than half (54.9%) of middle-income households had credit card debt, according to the Federal Reserve's latest Survey of Consumer Finances, compared with 25.7% in the lowest quintile of income and 39.4% of those in the second-lowest quintile. Credit card debt is a cancer on your finances, because you're paying interest on stuff that has little or no current value. Getting in the habit of paying off your credit cards in full every month will save you a ton of money and help you reduce your risk of bankruptcy.
Step up your retirement savings. You should be getting your full company 401k match, if a match is offered. Keep boosting your retirement contributions by 1% a year until you're saving at least 10% of your income (15% is even better). The more you save now, the more options you'll have later.
Upper middle income: $60,000 to $100,000
In high-cost areas, your income may not feel lavish, but you're now earning more than 60% of your fellow Americans. With higher income comes new challenges, so follow the tips for middle-income earners and consider the following new ones:
Here's a bonus tip: If you make six figures, don't complain in public how strapped you feel. The 80% of Americans who make less than you don't want to hear the whining.
Of course, you know the reality: that money problems exist at every income level. Here are some tips for coping, in addition to the ones you've already read: