Reaching upper middle class status is no easy feat; holding onto it, however, is another story.
“Let’s face it: Keeping your finances in order isn’t as easy as it used to be. Inflation, taxes, and rising costs are eating away at your hard-earned income,” said James Francis, CEO of Paradigm Asset Management.
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If you’re an upper-middle-class family, you may not have a hard time, but staying ahead requires more than just a good salary.
“Over the years, I’ve seen what separates families that thrive from those that struggle,” Francis noted.
Here are key financial steps the upper middle class can take to protect their financial future.
Be Smart About Taxes
According to Francis, taxes are one of the biggest expenses for high earners, and many people pay a lot.
“Start by maximizing tax-advantaged accounts like 401(k) [plans], [individual retirement accounts] IRAs and [health savings accounts] HSAs. If you invest, consider tax-loss harvesting, which means selling assets that are taxed to offset taxable gains,” he explained.
“And don’t wait until tax season to strategize: Smart families make tax-advantaged investments all year long.”
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Invest Beyond Your 401(k)
“Your 401(k) alone won’t be enough,” said Francis. “Inflation can erode savings if you don’t diversify.”
He advised that a solid investment portfolio includes:
- Stocks (U.S. and international)
- Bonds, especially those protected by inflation
- Alternative assets (real estate, private equity)
“Markets have changed and what worked a few years ago may not work today,” Francis warned. He recommended regularly reviewing your investments and adjusting as needed.
Beware of Lifestyle Excesses
It’s easy to justify upgrading homes, cars and vacations when your income increases, but according to Francis, uncontrolled spending can sabotage your long-term security.
“Enjoy your success, but don’t let every increase turn into a bigger mortgage or a luxury purchase,” he said. “Families who stay ahead know when to call.”
Maintain a Larger Emergency Fund
Most advice recommends putting away three to six months of expenses, but for middle-class families with mortgages and higher education, Francis recommended aiming for 12 months of high-yield savings.
“A larger cash cushion means you can weather layoffs, medical issues or market downturns without dipping into investments,” he noted.
Plan for Rising Health Care Costs
“Health care isn’t getting any cheaper, and employer coverage won’t last forever,” Francis observed.
In other words, if you are eligible for a health savings account (HSA), use it: It offers a triple tax advantage.
“And don’t overlook long-term care insurance,” Francis warned. “Many families drain their savings for unanticipated assisted living costs.”
Be Strategic With Real Estate
“Your home is perhaps your greatest asset, but it is also a major expense,” said Francis.
Instead of constantly improving your home, he said to consider the following:
- Paying off your mortgage early (if it makes financial sense).
- Investing in rental properties that generate income.
- Moving to a less expensive area when the time is right.
- A bigger house is not always the smartest decision — be intentional.
Teach Your Children About Money
“One of the best financial decisions you can make? Teach your children how money works. Schools don’t do it, so it’s up to you,” Francis emphasized.
“Open them a deposit brokerage account. Tell them the power of compound interest. Let them make small financial mistakes now, so they don’t make big ones later.”
The Bottom Line
Making a lot of money is great, said Francis, but long-term success is based on smart money management.
“Strategic investing, tax planning, spending control, and financial literacy all play a role,” he noted. “You don’t need to improve your finances overnight; you just need to start somewhere. Small, regular changes today can make all the difference in the long run.”
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This article originally appeared on GOBankingRates.com: 7 Money Moves Upper-Middle-Class Families Should Make To Stay Ahead
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