Have you ever read an article that gives money saving tips that you just couldn't relate to? Perhaps it's giving advice on building your retirement account when you're having a difficult time paying your bills. Or, the writer states that you can save $50 a month on your grocery bill when you really need to know about investing in antiques. The reason for this is that financial advice is dependent upon your income bracket. What works for someone living alone and making $15,000 a year is very different than what works for a family of four making a combined income of $150,000.
While each individual's financial goals and needs are unique, there are some common pieces of advice that apply to each segment of the financial spectrum:
Low: Up to $22,000
The poverty line for a family of four is just north of $22,000. An income under this level makes paying for basic living expenses difficult and saving is practically impossible. The main goal for this income bracket is to protect what little income there is. When bills have to get shuffled around and you are living paycheck-to-paycheck, it is easy to be at the mercy of banks and other financial service providers and their fees. Running a bank account into an overdraft can cost up to $40 for each transaction. Credit card rates can be increased for future purchases if you pay late or below the minimum required payment. If you use services, such as check cashing or debit card loading, you can be subject to substantial charges and fees.
The most important tip for this income level is to manage every penny. Know what is coming in and going out and plan for upcoming expenses. This will help minimize overdraft and other fees. While it may be overwhelming to think about saving the recommended three to six months' worth of expenses as an emergency fund, start small and work towards saving $200, then boost it to $500. Having even a tiny emergency fund can get you through unforeseen repair bills or other unexpected cash outflows.
Middle: $22,001 to $60,000
For those in the middle income bracket, building assets becomes an important goal. Day-to-day bills are covered and saving becomes a priority for housing, children's education and retirement. There are two ways to build your net assets: pay down debt and tuck money away. Review your liabilities, including mortgage, personal loans, credit cards, auto loans and other forms of debt. Have a plan to pay each one down in a reasonable amount of time. Talk with your lenders about reducing interest rates or refinancing if necessary. At the same time, you need to start looking to the future and saving for your retirement. If your employer has a 401(k) matching plan, consider making the maximum contributions to at least obtain the full match. If your employer does not have a 401(k) plan or you are self-employed, set up an IRA account and make regular contributions, no matter how small.
High: $60,001 Plus
Those who make over $60,000 per year are more likely to own a home and be working towards maximizing retirement savings. The main goal in this bracket is to preserve the growing assets and ensure that they continue to grow. The first step is to ensure that you have adequate insurance, including life, health, liability and property insurance. Without it, assets can evaporate and leave you vulnerable. Your savings plan may be more elaborate than just a 401(k) at this point, and it's wise to look into hiring an independent investment advisor and CPA. Utilizing professional advice can help you ensure that your assets are safe and productive.
The Bottom Line
Financial advice changes depending on what stage of your life you are in and your income level. Focusing on what goals are important to you will help steer you towards the right information.