How to Stay Ahead as the Middle Class Shrinks

Hey there, real quick before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience. Live it is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, grab your spot here by going to moneymachinelive.com and I'll see you in the free training. What if I told you that the middle class, the foundation of financial security for millions, is disappearing faster than ever? Listen, if you're feeling the squeeze of rising costs, stagnant wages, uncertainty about your financial future, you're not alone. The middle class is shrinking. It's leaving many people worried about how to keep up, or worse, how to avoid falling behind. But here's the good news. You don't have to be a victim of these changes. And you can protect yourself. You can protect your family, you can protect your financial future.

A lot of people talking about the middle class is shrinking faster than ever. Rising costs and stagnant wages and economic uncertainty are putting financial freedom out of reach for millions of. But here's the thing. It doesn't need to be that way. You can take control. You can protect yourself and thrive, even in a shifting economy. In this video, I'll show you how to stay ahead, navigate the emotional challenges, and build a secure financial future even if the middle class continues to shrink. Okay, but let's, let's dive in. What does it mean? First, that the middle class is shrinking. The middle class itself represents households with enough income for a comfortable standard of living. They have home ownership, they have some savings, they've got education, they've got discretionary spending. But the collapse of it refers to fewer and fewer people having that standard of living due to primarily economic pressures. And statistics show this out. You know, and in the 1970s, 61% of Americans were considered middle class. By 2021, it was about 50% in the median household income. The. The growth of that lagged way behind inflation and cost of living. And it did that for decades. So when we start to understand that there's some specific causes that have come into play that created this situation. And there's some things that you can do to protect yourself. I'm going to take you through step by step by step on all of them. Okay? But let's look at the causes first. And the first is this is stagnant wages. Wages have not kept up with inflation or productivity. If you look at it, since 1979, worker productivity has increased 60% according the Economic Policy Institute. So their productivity increased 60%, but wages for the same time period only grew 17%. Okay, so there's this disparity between output, value, productivity and compensation. And so there's this element of stagnant wages that comes into play. Well, couple that with the rising costs of living, housing, health care, education, they're all outpacing income. The average home prices in 2023 was 118% higher than the home prices in 2000. So literally double. Yet the income for that same period grew far, far less than 118%. So cost of living, stagnant wages. But then you have this advent of technology and automation. And so when technology started to come in, and now AI and automation, there's a, a, a slice of middle skill jobs, manufacturing, admin, things like that that are being replaced. They're being outsourced, they're being automated, their AI is going to replace some of it. And so, so there's this layer, if you will, that starts to get removed and, and we start to lose that, that wage base. Okay, that leads to another piece of this and that is the debt and the financial strain. So in order to survive what ends up happening because costs are up and wages are down and, and things like that, you have a rising reliance on credit cards. Credit cards, student loans, consumer debt are at pretty much all time highs. And you're in all time highs at a time where we've had higher interest rates and everything, which, which is a ripple effect because it doesn't give room for emergencies. In fact, 60% of Americans are living paycheck to paycheck. And many of them have said that if they had an unexpected $1,000 expense, they could not pay for it without going into debt. This has created this, this separation, if you will, some wealth inequality, if you will, where the wealth is concentrated in the top 1% earners versus distributed. And so we need to start to understand this. But a lot of that stuff we don't have direct control over. But there are some things that we do have direct control over. And when we understand how these factors will impact our finances, then we can understand the steps to take to protect ourselves. And so when you look at all these factors, you know what is happening to your finances in the process? Well, first things first, reduced savings and reduced retirement funds. So the stagnant incomes, the rising costs have put up, put people In a position where they can't put as much money away. In fact, in my book building your money Machine, I talk about it in chapter 12 that I want you to start putting away 20 to 25% of your income to set yourself up to build that, that money machine in a way that you will have the freedom, a life of choice, if you will, in doing that. But in this situation, it becomes a bit more challenging to do that because we don't have the margin, we don't have the, the, the room in, in our budgets, in our plans, in our finances to do that. So what ends up happening is that you don't have emergency funds, you don't have the ability to, to put money away for retirement, and your investments become harder and harder. And so this is one of the effects of it. Now, we're going to counteract it in a moment, but I want us to understand how this is showing up in our lives. Well, on top of that, it increases the debt burden. In order to maintain our standard of living, in order to maintain our current living structure, in order to stay in place, we're relying on credit cards, we're relying on loans, we're relying on lines of credit and helocs and, and that kind of thing. Well, and remember, I say that not all debt is the devil, but all debt has two personality traits, whether it's productive debt or destructive debt. They both have the same personality traits. They both cost. There's an interest cost, and that interest cost is higher today than it was in the past. And they both stress, they create financial stress on your finances, but also in your, in your relationships, in your life. There's this, this angst and this stress that's in place. And so the burden of debt starts to impact our health, our relationships, our productivity, our focus, all of that. Okay, now I know this is sounding like, oh, it's doomsday. Doomsday. Bear with me. I want to take you through all of how this might be showing up in your life. And then I'm going to break down how to, how to navigate it. The next piece that, how this shows up is it limits your opportunities for generational wealth. If we don't have the disposable income for investing, for home ownership, for education, for wealth transfer, for building that money machine, then our ability to set up the next generation becomes increasingly limited. Now, I'm really clear in my book, in the last chapters of my book, that we don't just pass on wealth. You never pass on assets without passing on skill sets. So I need you to skill up so you can manage and master the money. That's why I do the show, that's why I do my speaking and my training and the courses and, and the mentoring that I do and, and the book. Because I need you to skill up so you can skill up the generations below. Because if we skill up the generations below while we're growing, we start to solve some of these problems because we come to the, we come, come to the problem a lot smarter, a lot, a lot better equipped. Okay. Now it creates the, the, the next piece of how this shows up is it creates a vulnerability to economic shocks. If I don't have the margin, if I don't have the emergency funds, if I don't have the investments and all of a sudden there's a recession or job losses or a medical emergency like I, I went through, it literally can push a middle class household from where they were into poverty because they don't have the safety nets, they don't have the savings, they don't have that. And this is the kind of thing that drives me crazy because that's what I'm trying to solve. That's why I do what I do in this, in this season of service of what, what I'm doing. And ultimately it leads to a decreased quality of life. You have less access to health care, housing, education and experiences to create that fulfilling life. So all of these things are negative factors that I think we need to navigate. Now. There are steps I'm going to take you through, eight steps on how to deal with this. But the other side of dealing with this is, is realizing that there's an emotional, psychological impact to this too. The level of stress and anxiety and feelings of unhappiness or helplessness come into play. You also start to question your identity. I know when I lost one third of everything I owned in that Ponzi scheme, there was a crisis of identity. What am I worth? What's my worth? Am I good at doing what I do? And maybe you feel that way and you're comparing yourself to the Joneses and you're seeing things on social media and it just doesn't feel good. Okay? And that puts you into this cycle of emotion and psychological impacts that it's detrimental. And so here's the thing. Let's talk about how to master this and how to get ahead of it, because you can, and there are steps to do this. I'm going to jump to the iPad, but I think that we can start to understand how to navigate this. And the first Step is this, number one, is to master financial literacy. In other words, get educated as to how things work.

This is going to give you clarity. This is going to give you the ability to understand some things in a way that.

You can then navigate. And you don't get panicked. Look, in recent weeks, we had an 1100 point drop in the stock market. It freaked people out. And I saw the fear and I jumped on live and tried to, to get people to understand. When you understand how stock markets work, when you understand how investments work, when you understand how money works, when you understand how these things work, you don't get taken by surprise. But we don't talk about it, we don't. We don't get educated about it. We don't. We're not supposed to because money's taboo, okay? But what I want you to do is I want you to get clear. I want you to get educated, I want you to get equipped. I don't need you to be some sophisticated financial analyst. Just need you to understand the fundamentals, just the basics. It's why the show is here. It's why I do. What I do is if I can equip you, if I can educate you, I can empower you to take control, okay? With some simple things, okay? So the first step is to master your financial literacy to get really clear. And this will include getting clear on your vision for your life, what you want, and a plan to make it happen. I call it a cash resource plan, where you know exactly what's coming in, you know exactly what's going out, you know exactly what you own, and you know exactly what you owe, and you know how these pieces are working together to not just exist, but to actually move you closer and closer to your dream. Now, that may take a little bit of time because you haven't done it before. So the steps here really are to make sure that you're, you're getting educated. Spend 20 minutes, 30 minutes a week on financial matters to educate yourself, whether it's reading my book, whether it's listening to my, my shows. I'm doing two shows a week, plus I do some lives, okay? Asking questions, maybe taking some courses. I have investing courses, different things, but increase your financial literacy. It will pay dividends for many, many years, for the rest of your life, okay? So step one is, is to take responsibility and to increase your, your financial literacy. Step two, we need oxygen, we need breathing room. So I need you to build what people call an emergency fund. I call it a peace of mind fund, okay? A lot of people will say three to six months. I have done episodes on this. Three to six months is not enough. We need nine to 18 months depending on your in circumstances, okay? That's the, the range. You could be at nine months. You could be at six months depending on your situation. But, but by and large I think nine months is the minimum and everything. And when you look at it and say 40% of the people out there can't handle a $400 emergency according to the Federal Reserve, this is imperative because, because this is the thing that's going to keep you from going into the ditch. When I talk about in chapter 12 of my book in the Wealth Priority letter, you to build that comfort fund first before we even do the peace of mind fund, fifteen hundred dollars or one month's expenses, I just want you to have oxygen. I just want to know that if something happens, the $400 expense, the thousand dollar transmission, the, the mainline pipe that broke, okay, you don't have to go into debt now. It's going to take a little bit of discipline to put money away. It might take getting rid of some things, it might take putting, getting a side gig in place, but getting that emergency fund is going to give you the peace of mind. It's why I call it a peace of mind. But that is going to give you the latitude to breathe if something unplanned happens. So that's step two. Step three. Step three is, is really about I need you to diversify your income. Now we talk about diversification a lot in the, in the construct of investing because it reduces risk. And in the industrial age, when we started, you know, going through all this, we worked for one company for decades, for all our life, 40, 50, 60 years. And then you retire and then you'd get a pension and that was it. It's not like that anymore. Unfortunately, pensions are few and far between, okay? They just, they don't exist because they become too costly and aren't providing unless you're government or military for the most part. And so you have to create your own pension, but you also have to create your own stability. And one of the things to do is to make sure that you have multiple income streams. Multiple income streams is no longer a luxury. I think it's a requirement. Now what I am not telling you to do is to go out and work 12 jobs, okay? Because that doesn't give you a life that is meaningful and fulfilling. It gives you a life that's freaking exhausting. But let's make sure that you are extracting all the value from your skill set. In other words, the value you give to the world is the value you get compensated for. Let's make sure that you've got the skills to get paid what you're worth and that you are properly negotiating your, your fees, properly negotiating your salaries to make sure that that happens. But then also we don't make it so we're dependent on that. If you have the main job, you might have a side hustle or you might do freelancing, something to supplement it. And so a side hustle, freelancing, getting, investing into things like.

Rental paying assets or dividend paying stocks, digital products, royalties, those kinds of things can create.

Additional income streams with a little less effort. I call it, instead of passive income, I call it leveraged income because it doesn't take as much effort. What we're trying to do here, and the whole idea behind the money machine is to separate your earnings from the efforts to earn it. The more separation there is from efforts and earnings, the freer you are. And part of that will be having multiple streams of income. I literally shut down one stream of income literally two weeks before filming. Two weeks.

Does it affect me? Yeah, it does. Is it going to impact me? No, it won't because I have multiple streams and I'm okay with that. And so that's what I want for you. We diversify investments to reduce risk. We need to diversify income streams to reduce risk. Okay. So we're not dependent on a single source of income. This is the long game. It's going to take a little while. It doesn't happen overnight yet. One income stream running efficiently, effectively and flowing, then go to the next. All right, leads me to step number four. Step number four is invest in, in long term wealth building assets. We tend to right now have a consumer type of perspective. Enjoy your life now. I, I'm all for that, but I'm not all for enjoying your life now. You only live once and forsaken the future. And I'll deal with the future when I get there because your alternatives in the future aren't good. Okay. So I want you to make sure that you're following the wealth priority ladder or some process that gets you to start investing long term growth. So that's going to be, you know, stocks, it's going to be index funds, it's going to be ETFs, it's going to be real estate, it's your retirement accounts, the 401k, the Roth, the IRA, the cash balance plans, the SEP, all those things. Because the Sooner I get that money working for me, the, the more it will grow, the more time we'll do the heavy lifting. At 20 years old, every dollar you put away will turn into 88. If you wait five years, okay, five years, 20 to 25, that cuts in half. It's now 44 and it keeps reducing. I need you in the game.

I don't care how much it is. I just need you to exercise the muscle. I just need you to get in the game and start investing for the long term. Especially if you work for an employer that has a 401k and they are matching, they are giving you free money. You absolutely have to get the free money. Because if you put in a thousand and they're going to match a thousand, you just made 100% on your money. Sure, you can't take it out until retirement age, but then at retirement age, it's grown, you know, 50, 60 times. If it's invested right, that's going to give you the peace of mind in the future. We have to take care of today and the future at the same time. So step four is invest in long term assets. Step five. This is the challenge. Part of the challenging one is to avoid lifestyle creep or inflation. However. However you want to want to call it. Here's what happens. Your income goes up, your spending goes up, your lifestyle goes up at the same level as your income or even more because you can afford it, but you're not increasing your financial future at the same time. So don't upgrade your lifestyle at the same rate. Okay, Watch lifestyle creep. This is why I think it's important when you first start down this financial journey at the outset to sit back and say, what do I want for my life?

Being introspective, reflective and being very specific about you. What's important to you, not what you see everyone else doing, not, not what your neighbor's doing, not what your siblings are doing, not what your parents expect of you, not what your degree expects of you, but you. How do you want to live your life? And if you have a spouse or a significant other, how do you want to live your lives together? We start always with the vision. The vision will define the plan. The plan will determine the strategy. The strategy will set the tactics. The tactics will give you the actions. That's the process.

If we don't do it that way, we end up creating something that's based on someone else's vision.

And so by having a vision of what it is you want and a plan to fulfill the vision, you avoid Lifestyle inflation, lifestyle creep. Because you sit back and go, huh? It doesn't kill the vision.

The question is, does this spending or does this change in my lifestyle move me closer to the vision for my life? If the answer is no, then why am I doing it?

So avoid lifestyle inflation or creep. Number six is to learn and skill up when it comes to technology and stuff. So. So when it comes to what's going on, we can't rest on our laurels. We can't just sit back and say, this is the way it's always been done. I'm not going to change. Remember, we like it or not, we live in a value exchange economy. In other words, someone pays you for the perceived value they receive from you, whether it's in the form of wages, whether it's in the form of fees, whether it's in the form of compensation.

And so the more valuable the skills are that you have, and the more skills you have, the more you get paid. That's just the economics of it. And it's. And so it becomes important as you set goals for your life, to set goals for your development, for your skills to stay relevant, to stay important, to stay valuable. Because as my skills grow.

So does my ability to future proof my finances in the future. Because I grow, my capabilities grow. Okay, now this is a confession. There was a time where I had partners and we're talking like in the 90s. It was the fledgling.

Time for the Internet. And they came to me and said, hey, Mel.

We should get a website for our firm. And I go, oh, this Internet thing is a fad.

Oh, man. I was blind to it way back when. I'm embarrassed to say it, but I literally said, the Internet's a fad. Okay, it's not a fad. It ain't going anywhere. But my point is this. Stay on the forefront of skills. Stay on the forefront of growth. Stay on the forefront. And there's. There's two things that come out of this. One, you will be more valuable and get paid more. Well, there's three things. Two, you will future proof your finances because you are skilled. And three.

You feel better because you are growing at the same time. Okay? So always, always learn, grow and skill up. Okay? Number seven. All right, this is, this is cool. So number seven, I want you to redefine success. Redefine success. Here's, here's what, what I want you to look at is how are you defining success financially? Is it stuff? Is it the big homes, the boats, the planes, the automobiles? Is it stuff? Or is it experiences. Is it relationships? Is it security? Is it the softer things that actually stay with you and are meaningful? And so I want you to be really, really clear on how you're defining success and.

Whose success you're defining. Make sure it's you, okay? And there's a handful of things in our lives that we look at and say that's success for Stephanie and I. You know, it's health, it's our travel, it's our, our grandkids, our puppies. It, it. We love where we live, but that's not the success that really gives us the fulfillment. We're on the beach, it's great. We, fine, but take that away and give us the ourselves, our travel, our experiences, our grandkids, our dogs. That's success for us. The lack of stress, our flexibility, that's success for us. What is it for you? And it's personal. It's personal. This is the personal part of personal finance. So I get it. Okay. And then the last step here that I think we need to do to, to do this is, is get, you know, reduce or my reliance on debt. Eliminate debt. Get rid of the high interest debt. Credit cards. Do not use destructive debt. Do not use it for consumables. Debt is good if it is for productive uses. In other words, using debt to increase my cash flow, increase my wealth by acquiring assets that increase my cash flow is productive debt. But using debt to increase my lifestyle, to afford things that I cannot afford and put them on a payment plan, that is not good debt. We do not carry balances. We do not use debt for that. Get out of debt. If you need to get out of debt and get on a debt payment plan, this is the time to do it. Because if things shrink or you start to have challenges not having debt, the albatross of debt on your, on your shoulders will be, will be releasing for you. You won't have, you won't have the pressure that a lot of people will have. If you're not sure how to do it, go to melabraham.com forward slash, no debt. Short trainings for free. Get my debt breakthrough calculator. Put your debt in there, put your payments in there. Get on a debt payment plan and get it dialed in. Get it taken care of. So those are the eight steps that I would, I would look at now. There are a couple things that I don't want to ignore that come along with this and that is when you're trying to navigate this, there is a, there is a psychological game that's going on. There is, there is going to be emotions that come into play because if there's financial stress, it raises emotions. When we take an emotional decision around our finances, it's usually a bad one. So when you start to feel like maybe I'm not as good as someone else, or though the middle class is shrinking or I'm losing ground or all that stuff that plays havoc on your psyche, on your emotions, there's a couple things I want you to focus in on to help you navigate the emotional side of a journey. And the first thing is this. Focus on what you can control. There is so much in the economy that I can't control. I don't know whether the stock market's going to go up, I don't control it. I can't control whether the Fed's going to drop rates or increase rates. I can't control inflation, I can't control any of that stuff. So why allow it.

To stress me out? So I have to look at what can I control? I can control my actions, I can control my vision, I can control my plan, I control my priorities, I can control my behaviors, I can control my, my habits. All that drives my financial machine. So I look at it and say, can I control it? No. Great. What can I control that can impact that and focus on that. So if you start to feel the stress of things you can't control, you've got to start to shift and say what can, what can I control here?

Number two from an emotional or mindset kind of thing is I want you to start to shift, as hard as it might be, is to shift to an abundance mindset. In other words, we have to start to replace scarcity thinking. When we hear ourselves saying to ourselves, I don't have enough, I don't have enough. We need to start to shift it to.

To more productive, growth oriented questions. How can I make this work? How can I earn more? How can I build more security? So it, it presumes a res. A solution on the other side of that question, but it presumes growth, it doesn't presume stagnation. And so we need to start to shift to a growth type of mindset. And I'm not trying to be Pollyanna, I'm just trying to be real and say the, the problem will not be solved with a statement of I don't know, have enough, I don't have enough. The problem will only start to be solved when we ask growth oriented questions like how can I earn more, how can I make more, how can I do this. How can I sell that? Because it forces you to find a solution.

Okay, so number two is shifting to a, a growth oriented mindset. Number three, and this is huge. Okay, Practice gratitude. Every morning I take a walk. I do a four mile walk with my dogs on the beach. Part of it is the exercise. Part of it is tire the dogs out. The other part of it is for me to do daily gratitude. What am I grateful? Watching the sunrise, hearing the waves, looking at the dogs, looking at that freedom. What am I grateful? Because having a daily gratitude practice shifts your focus from lack to.

What should be appreciated. It allows you to find the goodness and the growth in the journey. Even though there might be some not so good parts of it, that's okay. But we have to find gratitude with what we have. Otherwise we focus on what we don't have and it just brings us down more. And then the last thing I think is this from a mindset standpoint, lean on community. You're not.

Meant to do this alone.

Surround yourself with positive, supportive people that focus on growth. Surround yourself with people you trust. Surround yourself with people that can inform you, help you and, and give you perspective.

What you listen to, what you read, what you watch, all of that create a community around you that can support you when you need the support, that can kick you in the behind when you need the kick in the behind, that can give you a hand to help you up when you need that. That's the game you're playing. That's how to stay ahead of a shrinking middle class. Now, I don't know if it'll continue to shrink. Hopefully it doesn't. Hopefully things moderate. But the fact is this, you don't have to shrink with it. By building clarity, by creating multiple streams of income, by shifting your mindset, you can protect yourself. You can be in control of the things that you can control, and you can set your family and your future up the proper way for the long term. Okay, listen. I'm not saying that this is an easy journey, no matter where you're at, age, stage or circumstance, but it is a simple one. Because there's simple principles that when we follow, we get certain results. It's a formula.

Now, like I said, may not be easy because of your situation, but just because it's difficult doesn't make it impossible. I'm here for you. I'm part of your community. All right? Lean on me. Let's do this thing together. Let's make sure that we don't get caught in all the negative pessimism. All the stuff that's going on and we focus on what we need to do and what you need to do, particularly in your life life, to take control, to have control, to build control and to build the life that you deserve, that you're entitled to make it happen. All right, listen, if you found this video helpful, I hope that you did. I hope you found it valuable. I'd love to hear from you. Let me know. Let me know in the comments. Let me know if you have questions. Share the video subscribe, comment Let me know what's up. Let me know if you have other things that you want me to talk about to help guide you on this path to financial freedom. Listen, I'm on crusade to light the path to financial freedom for a million families. I want one of them to be you. And the reason is that I believe financial freedoms are birthright. We just grew up in a world where no one wanted to talk about it. Money's a tool, but money is a tool for you to live your life, a life of choice. And so it is about.

Really your freedom, your security and a life of choice, not the money in the bank. So you can build that. You can do it no matter where you're starting. And you don't have to do it alone, right? So until I get a chance to see you on the road to your financial freedom, as I always say, always, always strive.

Thank you for listening to the Affluent Entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the Affluent Entrepreneur Facebook group now by going to melabraham.com group and I'll see you there.

And that's it for this episode of Building your Money Machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you'd do me a favor, go to Apple, Apple Podcasts, or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright, and I want to help each and every one of you claim it. Thanks so much.