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6 Signs Inflation Has Bumped You From the Middle Class

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Say you’ve settled onto a path of financial security — and are enjoying all the perks that come along with it, like a comfortable home and some savings set aside. But new inflation costs have upended your monthly budget, jeopardizing your hard-won middle-class position.

“I’ve witnessed how rapidly rising costs can significantly impact a family’s financial status,” said Jonathan Feniak, general counsel at LLC Attorney.

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“Inflation is indeed a concern, and when an average family finds they are paying $11,000 more per year for basic necessities, that’s a clear sign they may be pushed beyond the boundaries of traditional middle-class thresholds.”

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Here are some signs that rising costs are in effect changing your own financial status.

Consider the Ratio of Household Income to Expenses

“Traditionally, middle-class families have certain financial security wherein basic living expenses shouldn’t exceed 50% of their income, allowing a comfortable margin for savings, investments and sometimes luxuries,” Feniak said.

However, when the basic cost of living increases dramatically, without parallel growth in income, he said this ratio is disrupted, translating into financial strain.

David Kemmerer, CEO of CoinLedger, said it’s going to be pretty difficult to remain in the middle class if you’re spending over $10,000 more annually just for the basics.

“This is the point where I would assume many middle-class families are going to see finances getting a bit tighter, to the point they are noticeably struggling,” he said. “However, I do think this depends on how much you are making. If you are more toward the range of upper middle class, then spending more due to inflation might simply drop you down more toward the average.”

Learn More: 7 Ways the Upper Middle Class Can Become Rich in 2024

Reduced Savings and Investments

Feniak also said repercussions like reduced savings and shuttered investments are other potential indicators of an altered financial status.

If you’re unable to consistently stash money away or find that your emergency fund is dwindling, that is a clear sign you’re being bumped from the security of the middle class.

“Inadequate emergency savings can be a major sign, too,” he said. “If a family finds their savings depleting or insufficient for emergencies due to rising costs, it signals economic downgrading.”

Increased Dependency on Credit Cards

Another indicator, according to experts, is an increased dependency on credit to handle rising expenses.

Feniak said this might also be seen as a shift away from middle-class financial health.

“The need for increased debt is another red flag,” he said. “If a family relies more heavily on credit cards for daily expenses, or if loan repayments consume significant chunks of their income, they’re feeling the pinch of inflation.”

Decrease in Discretionary Spending

Inflation erodes the purchasing power of income and can potentially downsize a family from middle-class status, Feniak said. Most notably, he said, a significant drop in the standard of living is a primary sign.

According to David L. Blain, CFA, founder and CEO of BlueSky Wealth Advisors, one of the tangible signs that a family is being moved out of the middle class by inflation is when discretionary spending dramatically decreases.

“For example,” Blain said, “if a family once comfortably enjoyed regular dining out, annual vacations or elective home improvements but now reallocates those funds just to cover essentials like groceries, utilities and transportation, it’s a clear signal.

“In my practice, we’ve seen clients needing to reprioritize almost every aspect of their spending, reflecting broader economic trends and the direct impacts of inflation on what was considered a comfortable middle-class lifestyle.”

Drastic Budget Changes

“The key signs of a family being downsized from middle-class status hinge on their reduced ability to save, invest and even maintain the lifestyle they previously could afford,” said David Brillant, tax, trust and estate lawyer at Brillant Law Firm.

“This is especially clear when we compare their pre-inflation budget allocations to current ones,” Brillant explained.

“Families finding themselves allocating a significantly larger percentage of their income towards basic necessities — sacrificing savings, education funds for their children, leisure and healthcare — indicate a shift away from middle-class stature.”

According to Brillant, navigating these economic changes requires strategic planning and adapting to the new financial landscape.

“My work includes advising families on optimizing their financial and legal strategies to protect their assets against such economic shifts,” he explained.

“The objective is to safeguard what they’ve worked hard to earn and ensure their financial stability despite external economic pressures.”

No Longer Affording Insurance Premiums

Griff Harris, certified insurance counselor and owner of Griffith E. Harris Insurance Services, has seen this shift in his own work with clients.

“One poignant example involves a family who, due to inflation, found their homeowners and car insurance premiums consuming a more significant portion of their budget, squeezing their finances more tightly than ever before,” Harris said.

He said this scenario reflects a disturbing trend where insurance, once a readily manageable expense for the middle class, becomes a significant financial burden.

“To address these challenges, we work on tailoring insurance programs that not only offer protection but also consider the client’s financial capacity, which has been notably strained by inflation.”

The key indicators that a family might be moving away from their middle-class status due to inflation, Harris explained, include revisiting insurance coverages not just for cost savings but out of necessity to reallocate funds to cover basics, such as housing, food and education.

“When families increasingly prioritize essential expenses and cut back on what were once standard protections, it’s a clear sign of financial downsizing.”

Harris said this shift underscores the importance of flexible, responsive insurance services that adapt to economic realities, offering a safety net that aligns with each family’s unique financial situation.

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This article originally appeared on GOBankingRates.com: 6 Signs Inflation Has Bumped You From the Middle Class

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