Imagine life five years from now. Technology has changed, but so has your spending. As inflation and other economic realities continue to unfold, many middle-class households will have to reevaluate spending habits and make tough decisions on where to cut back.
With rising costs and stagnant wages, this reality is already slowly unfolding. From everyday essentials to occasional indulgences, here are a few items the middle class will likely cut back on in a few years.
1. Unpaid Sick Days
Most can relate to waking up and spontaneously deciding to take off work for their mental health. Even if unpaid, taking off work feels necessary during these moments to mentally take a break from your workload.
However, this may no longer be a smart move with rising home prices. Home prices have risen 48.5% over the past decade and will likely continue this trend in the next few years. Many will need the extra cash they normally relinquish on unpaid sick days.
2. Emergency Funds
A general rule of thumb is to have three to six months’ savings to cover expenses. However, if prices continue to rise, so will the amount you need for savings. Rising prices eliminate the ability to save more money, so if you’re not earning more each year, you’ll be falling more behind with your emergency funds. Many will thus be forced to cut back on how much they save each month to cover rising expenses.
3. Higher Education
Most can agree that college is no longer seen as a surefire way to be financially successful. On average, college costs $20,000 to $40,000 per year, depending on the school and whether students are in-state or out-of-state. With prices rising 3% to 5% annually, this will become unaffordable to many middle-class families.
It may be smart for kids to attend a community college for two years or choose a different career path. For many careers requiring coding, for example, most of the material can be learned online.
4. Retirement
Many middle-class families will be forced to postpone their retirement to afford living costs. The amount you need for your retirement varies for everyone, but a rule of thumb is to multiply your annual income by 75% to 80%. This method assumes that one will have lower expenses. However, to cover rising costs, middle-class families need to take into account their full income to cover rising prices.
5. Homeownership
Currently, mortgage rates are at 7%. It’s no secret that it’s harder than ever for most of the middle class to purchase a home without high mortgage payments. Consider the fact that in popular states like New York, the average home price is $494,000. This translates to a mortgage payment of roughly $3,300 per month. In five years, middle-class families can only expect this amount to go up.
6. Kids
Expect to spend over $200,000 raising kids until they are 18, according to LendingTree. With inflation, you can expect this cost to continue to rise and force many to delay their plans to have kids. Some may be forced not to have kids or struggle financially, living paycheck-to-paycheck.
Based on the average cost of raising a child, you’ll spend $1,000 to $2,000 per month. Consider planning ahead and saving money to cover this expense.
7. Pets
Pets are often adopted at no cost. However, anticipate spending $1,000 to $2,000 annually if you have a pet, which will only rise with inflation. The items you purchase for your furry friends feel like a small cost compared to the love and joy they bring. But in a few years, the middle class will think twice about adopting a pet, as the costs will be higher, especially when it comes time to go to the vet.
8. Dental Costs
On average, Americans spend a few hundred dollars annually on dental care. With inflation, it will be harder for many to afford. Although most people aren’t excited to visit the dentist, proper dental care is necessary to avoid health issues. Careful budgeting and building multiple income streams will be required to afford dental care in a few years. Otherwise, dropping this expense will cost you more in the future.
9. New Cars
Like everything else, car prices will also rise in the next five years. Expect to pay over $15,000 for a used vehicle, then double this cost for a new one. If interest rates stay high, owning a car may not be possible for some. With remote work becoming more popular, commuting to work may not be an issue, but traveling for everyday errands may be more challenging.
10. Extended Family Trips
It’s safe to assume that with rising prices, many will be forced to pass on family trips to cover their everyday expenses. The average trip cost for one person is well over $1,000 and quickly multiplies when you’re traveling with family. Rising prices will force many to work overtime or be unable to afford family trips.
11. Healthcare
Many people already spend hundreds of dollars each month on health insurance. Employer-sponsored insurance often costs up to $150 per month. Those shopping for independent health coverage should expect to pay over $400 monthly.
Like all items on this list, health coverage costs more each year. Some families will need to reduce their current coverage and opt for a more affordable option.
12. Safe Investments
Historically, banks have paid little interest for the money you leave in a savings account. With soaring inflation these past few years, you’re losing money with safe investments. Generally, you want to keep some cash in your savings account to pay for everyday purchases and for unexpected expenses.
However, with the current pace of inflation, it’s best to invest your money elsewhere. There’s no one-size-fits-all solution, but stocks, crypto, and your own business are better bets than money guaranteed to lose value each year.