In 2023, about 11% of Americans officially lived in poverty, according to the U.S. Census Bureau. Even more struggle financially, though — and the share may be higher than you think.
Many of the headline economic stats you see are based on “survival indexes,” says Gene Ludwig, founder of the Ludwig Institute for Shared Economic Prosperity, and don’t reflect Americans’ full financial picture.
“What people are thinking about — a real shared prosperity — is not, ‘I can survive,’ but, ‘What does it take to live a middle-class life?'” he says. “‘What does it take to be on the first rung, at least, of the American dream?'”
To that end, LISEP developed a “Minimal Quality of Life Index,” which takes into account not only essentials, such as food and shelter, but also the costs living a fulfilling life with a chance at upward mobility. Food costs in the model, for example, include occasional trips to casual restaurants as well as the cost of hosting an annual holiday meal. The index factors in basic leisure costs, such as cable and streaming subscriptions, and trips to the six movies and two MLB games per year in the cheap seats.
According to LISEP’s analysis, most Americans don’t meet that standard. In 2023, the bottom 60% of households by income fell well short of the threshold for a minimal quality of life.
That’s largely because wages have failed to keep up with rising costs, the researchers say. Medical premiums rose 301% from 2001 to 2023, they note, while travel expenses were up 170%. Rent grew by 131%. The cost of raising children, which includes saving for higher education, by LISEP’s estimates, grew by 107%.
With wages failing to keep pace, LISEP finds that consumers’ real spending power decreased by 4%, on average, over that period.
Funding the American Dream
Americans who fall short of the minimal quality of life costs may sink into debt or have to forego important financial planning steps, such as saving for college or investing for retirement, to afford modest discretionary expenses such as a gym membership or an occasional vacation.
For families looking to get on the path to upward mobility, “it is hard to give advice without being patronizing,” says Kevin Brady, a certified financial planner with Wealthspire Advisors. If your budget is stretched thin and you have mouths to feed, there’s only so much financial maneuvering that can help.
That said, there are a couple key things you can do to lower your living costs and help you put more money toward your goals.
1. Focus on the ‘big three’ expenses
You may feel guilty about spending on some of the things that bring you or your family joy, but those small luxuries likely don’t break your budget.
“I get tired of the ‘Stop your Starbucks latte habit’ [advice], because in reality it’s not people’s fault,” says Laura Lynch, a CFP and founder of The Tiny House Adviser. “The structures around us have created an expectation of a lifestyle that is increasingly becoming unreachable for folks.”
The structures around us have created an expectation of a lifestyle that is increasingly becoming unreachable for folks.
Laura Lynch
CFP and founder of The Tiny House Adviser
You’re better off focusing on the major tentpoles of your budget, experts say: Housing, transportation and food costs.
Marcos Segrera, a CFP and principal at Evensky & Katz/Foldes Wealth Management, calls these the “Big Three,” and attacking them may involve some creativity. “This might mean refinancing a mortgage, choosing a more fuel-efficient or used car, or embracing meal planning to cut down on food waste and expensive takeout,” he says.
You may want to consider outside-the box solutions to lowering your housing costs, says Lynch. “Co-housing, tiny homes, [accessory dwelling units], multi-generational ownership are all ways to share expenses, resources and create wealth,” she says.
2. Look to boost your income
It’s easier to fund your financial goals — paying down debt, building an emergency fund, investing for the future — if there is more money to go around. So “one other piece of advice I have here is to not just focus on expenses, but think more about growing your income however possible,” says Brady. “Again, it is easy to say but harder to do this.”
Boosting your income may mean asking for a raise or finding a different job altogether. Workers who switched companies in May earned an average pay bump of 7%, according to data from ADP.
It may make sense to look for inexpensive ways to increase your workplace skills or to familiarize yourself with emerging technologies, such as AI, Brady says. You may even think about picking up a side hustle.
You may find it less difficult, in the end, to bring in more money than to cut back on what you provide for the people you love. “Look at both sides, not just spending,” says Brady. “Because with a young family, that might be hard to change.”
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