Financial Tips for Middle Earners

A group of people who are frequently overlooked when it comes to financial tips and guidance are those who fall into the “middle earner” bracket. Middle earners are neither the highest paid, lowest paid, or the poor and, according to the Organisation for Economic Co-operation and Development (“OECD”) around 60% of workers across Europe fall into this category.

“How much” someone must earn to be considered a middle earner is rather difficult to nail down. Wages vary from country to country, and region to region but for the purpose of this article we are considering those who earn between €50-€60,000 a year as the “average” middle earner, although what we have to say is likely to be relevant to those earning between €40,000-€100,000 a year.

Being a middle earner should mean earning enough money each month to live “comfortably”, especially compared to those who are poor or on lower incomes. Middle earners should be less likely to have day-to-day concerns about money, may have their own home, have money left each month after essential bills are paid, may have savings, and are likely to have greater flexibility about what they do or don’t spend their money on. Middle earners are also more likely to have better access to credit than low earners, be it in the form of credit cards, loans, car finance or a mortgage.

Alarmingly though, the OECD estimates that around 75% of middle earning households still struggle financially each month. Here we look at why that might be and provide some tips and guidance to middle earners to help ensure they don’t find themselves in that situation.

Why do middle earners still struggle financially?

1. One part of the answer is that being a middle earner often means a higher cost of living. Whilst a salary of €50-€60,000 a year would be considered a good income by many, often the area where you can earn a middle earner salary is likely to be more expensive to rent or buy a property, meaning a higher cost-of-living. If you have children, earning a middle earner’s salary may also preclude you from childcare funding. The places you shop, and the things you do for leisure are also likely to be more expensive. When coupled with lifestyle choices which we feel we can warrant because of our middle earner status, for example no longer buying groceries from a budget store, buying lunch at work each day, or driving a certain make of car, it’s easy to see how being a middle earner can result in a higher cost of living.
2. Debt also pays its part. Being a middle earner opens doors to borrowing as affordability is a key factor in a lenders decision as to whether they will lend to someone or not. Someone earning €50-€60,000 a year will have greater access to borrowing than someone on a low income. Whether it is car finance, the latest mobile phone, a mortgage to buy a new home, or a credit card to pay for holidays, credit enables, and often encourages us into a buy now, pay later mindset. Credit and debt can be hugely useful in helping us have the lifestyle we want and feel we deserve, but debt always has to be paid back, which eats into our income, no matter how much we earn.
3. For low earners, every Euro can matter. Money can be a constant concern and daily focus, in order to ensure the bills are paid and there is food on the table. Spending on non-essential things is often limited and scarcity of money brings with it a necessary control and restraint over what is spent. When we become middle earners, this focus and control can be lost, because we have a healthy salary coming in each month. Watching the Euros and Cents seems far less necessary but small sums of non-essential, casual, spending soon add up. A €2.00 coffee each day on the way to work is €500 a year, €5.00 for lunch each day is another €1,250. A €50 night out each week is €2,500 a year, upgrading to the latest mobile phone another €500 a year. All very affordable in themselves as a middle earner, but very soon you can find that a considerable proportion of your salary disappears each month without much consideration as money isn’t something you feel you need to worry about.

The thing about being a middle earner is that money should become less of a day-to-day issue. However, all of these factors can, and do, result in middle earners still struggling financially each month.

So, what can a middle earner do to ensure their finances don’t become an issue?

1. Remember the basics and budget. Just because you have a good income, it doesn’t mean that your pot of money is limitless. Work out how much money you have coming in each month, what money you must spend on essentials (such as a mortgage/rent, utilities, food and debt repayments) and how much is left to spend on other things (your discretionary spending). If your outgoings exceed your income, then make changes to your spending habits by cutting costs and removing unnecessary spending. Always try to build into your budget a buffer to pay for the unexpected and one-off costs that happen through the year.
2. Save for the unexpected. Build into your budget an element of saving so that you build up an “emergency fund”. Whilst a credit card can be useful to see you through a tricky time when, for example, your washing machine needs replacing, having money put aside for such events is far better as borrowing needs to be paid back and puts additional pressure on finances.
3. Save for the expected. Build into your budget an element of saving for the things you plan to do in the future, be it a holiday, new car or moving home. Many countries provide tax efficient ways to save which can help boost your savings in the long term. Also, ensure you build into your budget funding for the very long term in the form of saving for children’s education and your retirement. They may be things that are a long way off, but the sooner you start saving, the quicker the savings will build into meaningful amounts.
4. Manage Debt. Being a middle earner can make it easier to get into debt, so manage credit carefully to ensure you can afford the repayments. Credit is seldom free and the longer you have it, the more it will cost you, so look to repay debt as quickly as possible, as it will save you money in the long term. If you have a mortgage, ensure you “shop around” to find the best deal possible and if you have no other debts and are able to “overpay” your mortgage each month, do so as it can save considerable amounts in interest and speed up repayment times.
5. Look at the benefits your employer offers. In some countries, employees can sacrifice part of their salary in return for non-cash benefits, which reduces the amount of tax they pay. Speak to your employer to see if such a scheme exists and, if benefits are provided which you’d otherwise be paying for, it could help you save money each month.
6. Get advice. Unlike “high earners” and the wealthy, who may have people advising them on how to limit the tax they pay and helping to preserve and grow their wealth, middle earner’s finances can seem fairly simple. However, that does not mean that you won’t benefit from financial advice, especially when it comes to things such as retirement planning or investing money for the future. If there are things you are unclear about, consider seeking professional advice. Also, if you are one of the 75% of middle earning households that are struggling financially each month and you are unsure how to remedy the situation, there are confidential, free, and impartial services available, usually through charities, to help you get things back on track. A quick internet search for debt charities should get you started on where to get help.