Is the Middle Class Getting Squeezed? Wages vs. the Cost of Living

Is the middle class really getting squeezed, or is that just a headline? In this episode, Ryan looks at what has actually happened to middle-class buying power over the past few decades and why housing has become the single biggest pressure on most family budgets.

He and Aaron separate the real strain from the noise, including why your personal inflation rate can look very different from the number you see on the news. The goal here is perspective, not panic. Understanding where the squeeze is real, and where it is overstated, helps you focus your budget and your plan on the things that actually move the needle for your household.

Find "Your Fiscal Physical" the book on Amazon

If you have suggestions or feedback, please email us at: Podcast@AlchemyWealth.com

And, as always, Stay the Course!

Transcript

Welcome And The Big Question

SPEAKER_00 0:05

Jordan State Week is with the channel with the founder of Alchemy Wealth Management and author of your physical festival. Ryan Nelson, tune in to gain valuable insights and practical films as we simplify complex financial concepts into digestible lessons. From budgeting to retirement planning, this podcast is your go-to resource for mastering financial literacy.

Aaron Hoisington 0:33

Welcome everybody. This week's episode of the Fiscal Physical Podcast. My name is Aaron. I am here with Ryan Nelson, founder of Alchemy Wealth Management, my podcast co-host, uh, and uh good pal. Uh Ryan, how are you doing today? I'm doing well. How are you doing? I'm doing solid. Appreciate it, man. I'm uh ready to dive into this week, getting getting nice and fiscally fit over here. And uh um let's just jump right into it today. So uh um, you know, Ryan, today I'm looking to break

What “Middle Class” Even Means

Aaron Hoisington 1:00

down this topic. Um it involves the middle class. And uh uh, you know, as I was putting together this topic and this uh this outline, I was like, you know, we're gonna cover middle class, wage growth, cost of living. All these things sound pretty fun and exciting and such, but um, you know, I I got to thinking that I'm not exactly sure what constitutes the middle class, first off. So I kind of second guessed my uh um, you know, my my thought process on it. But um, I was actually how this kind of came up is I was listening to another podcast and it was talking about or I think it was the news maybe talking about is the middle class getting squeezed out? And I was like, I don't know, are they? Let me ask uh let me ask the smartest uh financial guy that I know here. So um I'm hoping today you can kind of give like a you know a breakdown, maybe your honest opinion on this topic about like you know, exploring like wage growth versus the cost of living, and then like kind of tying in like what the middle class is and and is this squeeze real? Is it is it made up? Uh, you know, so uh hopefully that paints a little bit of a picture of what I'm looking to capture today.

Ryan Nelson 2:03

Sure, yeah, let's do it.

Aaron Hoisington 2:04

All right.

Ryan Nelson 2:05

So, yeah, I mean, as far as what the middle class is, I don't know. I think there's probably different definitions. I don't know that I've ever heard like just a single definitive definition of what the middle class is. Um definitely you'll hear people people talk about like the middle class going away. And I think on a previous episode we talked a little bit about like a K-shaped economy where the rich get richer and the poor get poorer, almost so to speak. Um, and uh they're they're seemingly if you look at the data that there's there does seem to be some dispersion there. Um, like from a you know, from just a pure statistic standpoint, like there's always got to be somebody in the middle. Like if there's somebody who's like the richest person on earth and somebody who's the poorest person on earth, like all of us are in the middle somewhere. Yeah. Um yeah, I don't know. I don't like I said, I don't know that there is a a great definition of the middle class. Um, I think most sort of most of the population kind of considers themselves to be the middle class. I think so too, yeah. Um but uh anyways, you know, a lot of people do talk about like the middle class going away, or and I think that's what you mean when you say it getting squeezed. Um, but so I I would say

Purchasing Power And Inflation Basics

Ryan Nelson 3:10

like that is, I think in a lot of ways true. Oh it's it's not like a hopeless scenario, like maybe uh you know, the news broadcast you were listening to or something might have painted it out to be. Um but the real like issue here is purchasing power. And so purchasing power is effectively how much you can buy with the money that you have. So your income could be rising. So if I was a middle class employee, um, which I guess I am, you know, and let's say I'm getting like two percent raises every year, so my income is going up every year. Um, but if the cost of goods around me are also going up and going up at a faster rate, so if that'd be inflation, if inflation is inflating faster than my raises are raising, then my purchasing power could decline. So if I had, you know, for easy math, if it if if I made $100,000, um, but you know, um it only costs me $50,000 to buy all my necessities, then I'd be in a pretty darn good spot, right? I'd have a lot of money to save and do whatever I want with. Um now if I get a 2% raise, I go to $102, $102,000. But if the cost of all the goods continue to grow at a much faster rate, so it goes to 60, 70, 80, 90, you can see you actually get to a point where eventually I once was making 100,000, only cost me 50,000 to live live. Maybe 10 years down the road, maybe I'm making 120,000 or something, but now it's costing me $110,000 to live or something, right? And uh so you can see how it starts getting kind of squeezed out there, and I think that's what most people are refer to. Um when we're looking at those costs of goods that are going up or inflating. We've talked a little bit about the some of this on different episodes, but I think it's primarily going to be like housing, food, insurance, healthcare, um, transportation, cars, stuff like that. Um, and so yeah, that that's the um I I guess that's sort of the logistics of what is happening is just there's a pop percentage of the population whose wages aren't growing as fast as um their expenses are growing. So maybe I'll pause there for a second.

Aaron Hoisington 5:16

Yeah, no, I think that that really kind of kind of paints the picture. It's almost like, hey, like I'm I'm I'm making more money than maybe I did, you know, three years ago, but I feel like I I the cost cost of living, frankly, has just gone up and just surpassed like the growth of like what I've gotten. So it's almost like you know, you in my mind I'm like, oh yeah, as long as I like make more money, I should be good. But if the stuff that I want to do or the stuff that I have been doing continues to rise, like then it's like, oh, like it's it's just it is squeeze, it's financially squeezing me, if you will, there. So um yeah, no, that makes sense for sure.

Ryan Nelson 5:50

And you can imagine then the like negative impact of high inflation rates there. Um if if inflation is at really high rates, it's gonna might it's gonna be hard for you to keep your income growing at that same level, and then that's what sort of leads to that squeeze. Um, one of the points, again, I know we've mentioned it in previous episodes a few times, but lower inflation rates does not mean lower prices. Right.

Aaron Hoisington 6:11

Very I I honestly thought I didn't know that. Yeah. Before that episode, I was like, ah, okay.

Ryan Nelson 6:19

Right. And I think most people are in that same boat. But so like if we get inflation rates at or even if inflation rates were at incredibly low rates, like some of the lowest rates in all of history, it doesn't mean that prices are declining. It actually means prices are still going up, but going up at a slower rate, right? So inflation is like a positive inflation rate is the act of prices increasing. Um, a s a smaller positive number is they're growing at a slower rate, a bigger positive number is they're growing at a faster rate. So really, um, you know, anytime we're seeing inflation, um, you know, if if if you're used to spending $50,000 a year on your expenses, it's probably not going to drop to 40 or 30, right? Right. It's probably gonna keep going up from 50 just if inflation slows down or gets goes to a smaller number, it'll probably start growing from 50 at a slower rate. And so that's something I think to just always remind ourselves of. Because I like you said, I think it is kind of counterintuitive. Most of the time you know, we see these gas prices go up or something, and then we we look forward to the day when they'll go back to where they were before. Um, and you know, gas is pretty volatile, so maybe that will, but like if you're looking at like a gallon of milk, it's like, oh man, gallon of milk costs so much more than it did, you know, two years ago. Um, I can't wait till it costs what it did two years ago again. Well, it probably will never cost what it did two years ago, right? But hopefully it starts growing at a slower rate than maybe it increased at over the last two years, right? Yeah. Um, so that's just something to think around inflation.

Wage Growth Meets Housing Reality

Ryan Nelson 7:45

And then um, and then when it comes to the wage growth, so again, I think there's kind of two things here that I envision, right? There's the wage growth and the inflation. And as long as inflation is growing faster than wage growth, that's where you're getting that squeeze. Um so we talked a little bit about inflation, then wage growth is interesting um because not all you know, not all people or industries, right? Some individuals in the middle class, their wages might be growing depending on their profession at a faster rate than inflation. And there could be somebody else in the middle class whose wages are growing at a slower rate than inflation, right? Um, so obviously, like with all things, it's just not always that straightforward or simple. And there's it's not like the quote unquote middle class is just going away overnight, like some people in the world in the middle class are probably doing very well, and some people in the middle class are getting squeezed a little more. Um, and that of course depends on um, you know, their things like their profession and their um the how capable their job is of experiencing wage growths um as well as their lifestyle decisions and big piece of it, how they're able to manage the inflation. And we talked in one of the previous episodes about like how almost everybody could have their own inflation number. Remember talking about that? And uh it is interesting, like you know, the housing again, housing is a most people's biggest expense. Um there could be somebody who um let's say somebody bought their house 15 years ago, got in at, you know, if they have a 2.75% more uh interest rate and they bought their house 15 years ago, and then the neighbor next to them is renting their house, um, you know, you could imagine those two people could have the same profession, um, but the different lifestyle choices lead to different housing costs, and one dur during different market scenarios, one different people might be kind of in a better position at different times depending on the current market scenarios. Um, but that their lifestyle choices impact their um like inflation numbers and their expenses, if that makes sense.

Aaron Hoisington 9:49

Yep, absolutely. No, I and I think housing is is is one of the biggest ones. I feel like you you hear about or you think about like I think about like you know, the the I have friends who are buying their first house right now, and it's like holy smokes, like what you know, I I bought my house that I'm in right now like four years ago, and even that like difference from like then to now, you can kind of see just like whoa, like uh you know, just what does a per what is one percent higher interest rates do for like a monthly payment? So it's like you can really see the difference on on those different areas of like, oh, if those costs are going up, like maybe I make the same amount of money as like you mentioned my neighbor, but their mortgage is a thousand dollars more, for example.

Ryan Nelson 10:30

And so that itself can they might have the same house model as you exactly might be the the exact same, right? And that could be a result of them buying before you or a result of them buying after you, just depending on what market rates were at the time they bought and what they were at the time that you bought. Definitely. Um yeah, so uh ultimately at the end of the day, it's like, hey, is the middle class going away? Um, I don't know that it's going away. That sounds like a bit exaggerated. Um, is it shrinking potentially? Is it is is there is there like an economic um story there that's worth thinking about? I think so. I think there's um some interesting ideas where um yeah, there is a percentage of the population whose

How To Fight The Squeeze

Ryan Nelson 11:10

income is not increasing as fast as the cost of living is increasing, and that is worth um, I think putting some thought into and thinking about. And you know, I think the the reality is um those people, you know, I don't think we should paint them into this picture of like being hopeless or helpless. Like they have control, they can control both they have over both their wages and their cost of goods. They don't have a hundred percent control over everything in both of those buckets, but they do choose if they're actively pursuing a new job, right? Like there's certain things and actions that they can take to potentially help increase their income. Um, and like if it like for instance, if somebody's saying, Man, I just don't make enough money, but they also haven't put in a uh job application or haven't to improve, try to improve themselves, it's like, well, okay, like you have to like also if you know the the new higher paying job isn't just gonna fall into your lap, you got to put effort in to try to get that job, right? And then the flip side is like, hey, if if things are costing more, it's like have you looked at your budget? Are there things in your budget that you could cut out? Um and or just just make sure that your spending is aligned with your values.

Aaron Hoisington 12:22

Yeah, that or I think it also goes into, I mean, maybe a little off top, but kind of in the same realm of like, you know, say you have a car payment or something like that, and you're like, wow, like, you know, I have this $500 a month car payment, like, but I've only like, you know, I only have you know $15,000 left on it. Do you really focus that year to get that paid off? Or like and you take that expense, what's that's expenditure? Maybe you get a big bonus at work and you're like, hey, what do I do with this? Try to maybe cut out some of those expenses if you want more liquidity with it too. So like figuring out, like, like you mentioned, just balancing your budget on like, oh, you know what, I actually am spending, you know, $200 a month on subscription services. Like, right, do I need all of these kind of pieces of it? And like you can also like kind of balance that a little bit better if it is squeezing you, if you will. For sure.

Ryan Nelson 13:07

And we've talked in the past about how budgeting is tough, and like the I don't know that the data really supports like having an active ongoing budget as being extraordinarily useful, but what is useful is being aware of your spending, knowing where you spend it, and that can be extremely useful, and almost doing a retroactive budget can be valuable and going back and looking and seeing where is the majority of my money going. And typically it's gonna be going to a few of the big items housing, transportation, food, um, and then evaluating that, right? And so typically the small things like buying a coffee is not where all your money's going, right? The five dollar coffee is not really what's like bankrupting you, it's the the the $4,000 mortgage, right? Sure. Um, but at the same time, I don't want to just like everybody's financial situation is unique. So when you pull this up for yourself and you look and you say, Oh, well, I don't get a eight five dollar coffee, I have a ten dollar coffee, and I get sometimes two a day, so I'm getting eight of these a week. Yeah, it's like I'm spending eighty dollars a week. You start looking, you're like, oh no, yeah, wow. I actually do spend more on coffee than I do on food. Well, then yeah, for you, the coffee is the right like so it would just be be aware of what your expenses are. And there's a lot of cool budgeting tools out there where you could get a grasp of kind of where all your money is being spent, and then you can focus on the big items. For some people, it might be coffee, right? For most people, it's probably transportation, housing, food. Um, so yeah, I think that'd be a good way if you if you're feeling that pinch, I would say that'd be a way to sort of attack it from the expense side. Um, and then, you know, yeah, putting out uh applications, asking your job for a rate, asking your boss for like what you know, going to your boss and having a conversation. What would I need to do to get a promotion to the next level? Like, what do you need to see from me? What do I need to take on more responsibilities or a new task or what deliverables or metrics could I accomplish to prove to you that I'm worth you know more? Um, and those would be the types of actions to take from the wages side to to attack this from both angles.

Aaron Hoisington 15:05

Sure. No, I think that that uh that makes sense for sure. And I think that honestly, with with kind of anything, I feel like with with if you plan for it or you can like see it, like if you have that smart planning piece of it, like it really kind of helps eliminate maybe some of that squeeze you might feel. It's like, hey, or like you think about like uh uh you know people who are getting ready to retire, for example. It's like, oh, like you know, if I have if you know, we plan for different scenarios, we've diversified or whatever, like um, we're gonna be okay when it comes to that. It's like it's when things get you know really expensive, and quote unquote really expensive, like and you don't have a plan for it, I think that's where like not only the financial, but it's also like the emotional stress. We've talked about like what money does, like sure and and can play on it too. So it's it's an interesting kind of topic about like what that squeeze or what that wage growth actually, you know, actually happens with it, I suppose. So um I guess that like as we you know kind of start to wrap this one up, but like what what would you say like is like one of the main takeaways? Is is it as scary as maybe I heard on that podcast, or is it like Yeah, I don't think it I don't think it should necessarily be scary, but I mean it is a real thing.

Ryan Nelson 16:10

Uh and so if you're feeling squeezed, um know that yeah, it makes sense. It's it's probably a result of your expenses increasing at a faster rate than your um income. And I think you can tackle it from two to the both sides. So yeah, work on exploring opportunities to increase your income and also at the same time um you know dive into your expenses and see, you know, what opportunities do you have on the expense side to to maybe reduce some of those. And I think the reality is if you tackle it from both ends, um, it doesn't necessarily need to be something that's super scary. Um, and and yeah, you can come out of it probably no no problem.

Aaron Hoisington 16:44

Awesome. I like it, man. That was that was good. Any other uh final thoughts on this uh here topic before we uh it sounds good to me. Awesome. Well, appreciate it, Ryan. And uh everybody, hopefully you guys will hang tight with this. We'll be uh right back on the other side of

Quick Break And Topic Switch

Aaron Hoisington 16:58

this.

SPEAKER_00 16:58

And now to put the personal in personal finance.

Time Travel Choices For 24 Hours

Aaron Hoisington 17:05

Welcome back, everybody, this side of the fiscal physical podcast. This is still Aaron. I'm still here with Ryan. And uh Ryan, we got a got a question here for you. Uh revol it revolves around uh time traveling. So uh keep that in mind as uh hopefully that perks up all the uh the listeners there. Um hopefully it's something you guys do regularly. Um at least think about here. So my question to you, Ryan, if you could go back to any decade or any if you have a specific year um for just 24 hours, so you get to travel back for 24 hours and then you get to come back to today's day and age, where would you pick to go?

Ryan Nelson 17:40

Yeah, so so originally I I saw this as like the any decade. Sure, sure. Any decade and uh it will for for the decade, not just for 24 hours. Oh and uh during during the 50s the stock market went up like six X basically. Nice, so it's so typically the stock market would go up like two X, sure, right? Um, you know, so whatever a hundred grand would turn into two hundred grand or a million into two million. Um during the fifties it went up like six X. So that was a a heck of a time to be investing. Yeah. Um but for a a particular date, uh do you know what happened on July 20th, 1969?

Aaron Hoisington 18:13

Uh no.

Ryan Nelson 18:16

Yeah, why would you? Yeah, yeah. Uh that was the day that uh we landed on the moon, I think. Oh, okay. Uh nice. We should check that. But uh I you know that was like the very first thing that came to mind for some reason. That's like uh yeah, uh obviously a monumental event in history. Um but I was thinking a little more about it. I think my like official answer answer will be it'd be cool to go back to like ancient Greece and see the very first Olympic Games. Uh I love watching the Olympics, but like that would be just cool because you're you know, if you go back to like the 70s in the US, it's like it's definitely different, sure. But how different? Like you go back to like ancient Greece, it's like you get 24 hours there, it's like a completely different culture, like a completely different continent. Like you're just like being immersed to so much different stuff. Yeah. Um, yeah, uh, I'll say the first uh the first Olympics. That's a good one. I don't even know if it took place over one day, but I'm sure you could catch some events. The opening ceremonies.

Aaron Hoisington 19:15

What about you? No, that's a that's a good one. That really got me got me thinking about that. Um, I suppose like, you know, I don't know if I have like a specific date that I'd I'd I'd want to go back to, like one specific date, but I think like I would I'm really curious, like uh people talk about like the um you know the 70s, 80s, 90s. I I'd like to go back to a time just for 24 hours just to see how things I'll just choose the 80s, uh sometime in the 80s, 1985, I don't know. Um when like we didn't have like all the technology we have now and just kind of see I'm only there for 24 hours. Like, what was it like like not being able to how'd you get anywhere? Yeah, exactly. How could you get or do anything? Kind of piece of it. Like, you know, what was your you know, you go to your job and you're what are you using? An abacus to count the beans? Like, I don't know. Like, what are we working with here? Like, I'm just purely fascinated by that. And like, what were the you know, what did the food taste like? Was it like less processed? Is it was it, you know, what just all those different things about like you know, it's nowhere that was like, you know, I guess too far back, I suppose. Like, but so I'm like, all right, cool, we're still good. But um, you know, something in the 80s, I think it'd be just kind of cool to see compare it to like is it in reality? I'm like, oh, that's not that long ago. It's like 40 something years at this point. So just to see where we've come in like 40 years, I think would be really interesting to me to see the the leaps and bounds and and maybe like what hasn't changed at the same time. Like um, I was listening to another uh different podcast and they talked about like how like uh it mentioned like there's a I can't it's I can't remember what the word is, they made up a word for it, but it was like how like we're like constantly like reinventing things and they're like getting worse with it, like like uh like automated like hand like soap dispensers. Like they got in the this podcast got into it about like how you know what was wrong with just like clicking the soap before. Sure. Why did we have to make this automated? Like kind of piece of you still have to fill it up and like uh um so I'd be curious to see like what's what would be the same technology that we still use maybe today, you know, 40 something years later. Yeah, and like what did what what peaked and what like was like wow, why were we doing that? So um something along those lines I think would be pretty cool just to go back and see.

Ryan Nelson 21:29

It is interesting. I think uh if you've grown up with a technology for your whole life, you like really truly can't envision a world without it. So like electricity, like uh or or like a light bulb, like it's it's I I'm assuming most of our listeners can't really truly envision a world without like light bulbs, but like it's not that long, you know. In the grand scheme of things, that's only two hundred years ago. Sure. I was talking about going back two thousand years. Um you imagine like if From the these first Olympic games that I was talking about, I don't know when those were, but like call it 2000-ish years ago, I don't know. Um then you know, even that over the last two thousand years, one thousand eight hundred of them have been without light bulbs. Only the last two hundred have been with light bulbs. Like, you know, it's it's like, but but I literally can't really even envision a world without them because it's so integral in our everyday what we do now. Yeah, so yeah, definitely would be interesting to as you continue to go back further and further and remove yourself from more and more technology to just to to familiarize yourself with what life was like at

Listener Challenge And How To Reach Us

Ryan Nelson 22:35

that time.

Aaron Hoisington 22:35

Absolutely. So awesome. Well, I challenge the listeners out there, let us know. Like, when would you guys go back? You got 24 hours, go back, experience something, uh let us know. And if you guys have any uh podcast topics you want us to cover as well, please let us know. We'd be happy to do so. And uh uh with that, Ryan, I'll uh turn it over to you, my man. As always, stay the course.

SPEAKER_00 22:54

Thank you for joining us for the Fiscal Physical Podcast. Until next time, happy listening. And as always, stay the course. If you have a question or topic suggestions, please email us at podcast at alchemywealth.com. If you enjoyed today's discussion, subscribe to the podcast to ensure you never miss an episode and consider leaving us a rating and review on your favorite platform. This helps other listeners like you find the show. For more resources, you can visit Alchemy Wealth Management's website at www.alchemywealth.com or find your fiscal physical the book on Amazon. We'd be remiss if we didn't mention that personal finance is just that. Personal. Please don't take anything we say as advice. The preceding content is for informational and entertainment purposes only. It's not an offer or a solicitation, nor should it be construed or relied upon for tax, legal, or investment advice. It doesn't consider your personal financial situation or objectives and may not be suitable for you.