2022 has had many challenges, and now we have a new one to contend with: Prices on practically everything is going up. Gas, food, rent and practically everything you can think of cost more than they did this time last year.
In other words, inflation is here and it might be with us for a while.
But here are a couple questions for the investors out there:
- Question #1: If you only have one source of income, how will you continue to invest in stocks or crypto?
- Question #2: If you have to spend more on food, utilities or other necessities, how much of an impact will that have on your investing?
These are important questions that many people might have overlooked. These are also top reasons the middle class gets squeezed.
What is The “Middle Class Squeeze?“
The middle class squeeze can be defined as follows:
The middle-class squeeze refers to negative trends in the standard of living and other conditions of the middle class of the population. Increases in wages fail to keep up with inflation for middle-income earners, while at the same time, the phenomenon fails to have a similar effect on the top wage earners.See the full definition HERE.
There are 2 key reasons why the middle class is getting squeezed: inflation and taxes:
1. Rising prices/inflation. As prices rise on goods and services, the middle class must adjust their budgets accordingly. In most instances, this is because they only have one primary source of income, which is earned income. Wealthy people, on the other hand, own businesses and/or have multiple streams of income. In other words, they have more control over how much money they make. For more information beating inflation, read a previous post HERE.
2. Taxes. This follows along with rising prices: when taxes increase, budgets must be adjusted. Less money is available to purchase various items, which can slowly erode at a family’s standard of living. Another issue with taxes is the potential for increased income taxes. What many may not know is earned income (the most common type of income) is charged the highest tax rate compared to the other types of income (passive income and capital gains). Wealthy individuals may pay less in taxes because their income is not received from working a job, which is earned income. Instead, they receive income from passive investments.
For the middle class, everything hinges on one paycheck, and if they are married, 2 paychecks. Mortgage, insurance, food, utilities, etc. are all paid with one source of income. That paycheck is a constant amount: it doesn’t increase as the cost of living rises. Getting raises isn’t always guaranteed, and layoffs can happen at any time. In addition, finding a job that pays a reasonable salary can be difficult as well.
These factors can dramatically affect a person’s ability to invest.
Plan of Action
The key is to create multiple streams of income. This is often accomplished by creating some type of business or owning a revenue generating asset. As inflation picks up, it’s critical we keep accumulating assets that perform well during times of inflation. this is best accomplished by having multiple streams of passive income.
By creating multiple streams of income, you can better withstand the effects of inflation on the economy. Another benefit for those with businesses is the ability to adjust your prices to keep up with inflation.
Many experts believe we will continue to see inflation well into 2022. The key is to create additional forms of income streams. Here are some top ways to inflation-proof your life and avoid the middle class squeeze:
- Buy gold and silver
- Sell products online
- Monetize a blog or website
- Start a drop-shipping company
- Own rental property
- Invest in dividend paying stocks
- Alternative investments: fine art, vintage cars, etc.
The time is now to protect yourself from the effects of inflation. Doing so will not only enable you to continue investing, but avoid the middle class squeeze. Pick up a copy of our book Invest For Success: Millionaire Wealth Strategies Not Taught in School today. Available in paperback, eBook and audible formats. This information isn’t taught in school, but is important for children to learn as well. Order a copy of our book Planting Seeds: The Children’s Guide to Entrepreneurship. today.
We have online classes as well. Register for our course on Udemy: Tired of the 9-5? How to Retire Early With Passive Income.