Two weeks ago, I wrote an article about the ridiculous expectations of the middle class. It featured the story of a Louisiana family of four that was earning over $100,000 but complained that it couldn't save a dime for retirement.
That was due, in large part, to the family's outlandish spending. They had four cars and a motorcycle, a sky-high grocery bill, and unnecessarily expensive phone plans. The wife said their situation was indicative of the fact that "the 'middle class' is being killed."
While many people thought this family needed a reality check, several others said that blaming the middle class for the increasingly uneven distribution of wealth in America was unfair -- and they definitely have a point.
Income inequality in America
Ever since Occupy Wall Street coined the "We are the 99%" slogan, many Americans have been hyperaware of the growing chasm between the ultrarich and everyone else. As might be expected, that has given rise to endless debates about our values, the virtues of capitalism, and the role government should play in the redistribution of wealth.
I'm not here to debate those points. I simply want to point out two things: Inequality is becoming more prevalent, and it has measurable effects on our happiness.
One popular measure of inequality is called the Gini Coefficient. In the most basic sense, a coefficient of 1 means absolute inequality, while 0 indicates absolute equality.
University of Oregon student John Voorheis created a fascinating visual of income inequality over time in America. For this visual, the green states represent more inequality, while the red states represent less inequality. Click on the image to see the changing landscape over time.
That inequality has real consequences. Taking the U.S. Census Bureau's Gini coefficients for every state -- as recorded in 2010 -- and cross-referencing the results of the 2011 Gallup-Healthways Well-Being Index, we certainly see a trend: More equal states have higher levels of well-being, while states with more inequality have lower levels of well-being.
But here's the problem with these numbers. When I calculate them, inequality itself only accounts for about 22% of the variance in well-being. In other words, inequality does have an effect on well-being, but it is just one of many variables.
Focusing on what we can control
We here at The Motley Fool have one primary goal: to help the world invest better. While we'd love to make that happen overnight, it is up to each and every individual to make the best decisions with their own money.
That's why, when considering huge topics like inequality, happiness, and retirement planning, I like to refer back to one of the best drawings by well-known financial planner Carl Richards.
Source: Carl Richards, The Behavior Gap.
We will always have huge societal issues that no individual can have control over. Of course, we do have some say in how wealth is distributed -- through voting, social and political activism, volunteering, charitable donations, and, sometime, our chosen profession.
But if we throw our arms up and say "the middle class is getting crushed" without ever taking a step back and looking at what we -- on an individual level -- can do to improve our own situation, we are feigning helplessness when we should be celebrating our ability to empower ourselves.
I have yet to find a more effective way of doing this than by going through the soul-searching process of finding out where our "Enough" level is. More times than not, I think many of us are surprised by how much more we actually have than we need.
Of course, this won't always be the case -- but that shouldn't stop us from finding out where our boundaries are. By doing so, we're devoting our time toward things we can control and things that matter. When it comes to our finances in general, and retirement planning specifically, that's the critical overlap where we find empowerment.
What you have control over
It would be impossible to lay out everything you have total financial control over in one article. But a good place to start might be an earlier article I wrote on how the "middle-class mind-set" often leads us to believe we need things that we can actually choose not to have -- and still end up leading rich, happy, full lives.
Among the ways to adjust your mind-set, as listed in the article:
- Don't buy "all the house you can afford." Buy what you need and nothing more.
- Don't increase your spending just because you get a raise. Invest that extra money instead.
- Figure out what material things you absolutely need to be happy, and cut everything else out.
- Remember that you can choose where to live and that cutting down on your work commute can be very good for your heart, head, and wallet.
- Help save for your child's education, but don't go broke doing it. There are lots of creative ways to go to college for less than you think.
I encourage everyone -- those concerned about pressures on the middle class and those focused on other things -- to set aside some time to figure out where their own "Enough" level is and make adjustments to their spending as a result. Over the long run, it could make all the difference.
