Don’t Make 2023 a Could of . . . Would of . . . Should of . . . Year!

As I read the news headlines each day, I’m noticing a common theme lately. One that suggests that our current economic climate is impacting the middle class much more than the wealthy or those less fortunate. The articles cite examples, such as smaller paycheck increases and the rising costs of items that middle class consumers purchase the most. And the middle class is much bigger than you might think.

Get this, according to the Rand Corporation, nearly everyone in the United States considers themselves to be middle class! Doctors and lawyers believe they are middle-class, as do welders and waiters. And a Pew Study found that only 10 percent of Americans said they considered themselves lower-class and just 1 percent thought they were upper-class₁. And while low-income households start from lower base income and assets than do middle- or high-income households, they haven’t been hit as hard in our current economic climate.

The Pew Research Center defines the middle class as households that earn between two-thirds and double the median U.S. household income, which was $65,000 in 2021, according to the U.S. Census Bureau. Using Pew’s yardstick, middle income is made up of people who make between $43,350 and $130,000₂.

That’s a pretty large income range, which explains why so many Americans fall into this category. We could dig deeper and discuss the levels within middle class, such as upper- and lower- middle class – but the point is, this large group of Americans is struggling more economically right now. This week with our time together, let’s look at what this means – and what you can do to better protect your own finances.

According to the Congressional Budget Office (CBO), many low-income households have benefitted from exceptionally low unemployment rates, have found jobs and have experienced wage increases- which have increased their household income. Many were also bolstered by federal payments during the pandemic.

At the same time, while high end households have seen big losses in stock and bond markets, in many cases their income and savings were large enough that they were able to keep spending aggressively. But the middle has been in a vise. Purchasing power from paychecks fell 2.9% for middle-income households in 2022 compared with 2021, while rising 1.5% for the bottom fifth of households and 1.1% for the top. And a growing number of middle-income households say they are having more trouble making ends meet₃.

For example, many middle-class renters and student borrowers got payment deferrals during the pandemic, while many households benefited from federal relief checks. But that aid is winding down. Middle-income households were especially exposed in the past two years, in part because the goods and services they tended to purchase—such as cars and gasoline—rose most in price. This makes sense when you consider that when asked for the source of financial problems, middle-income households were most likely to cite inflation₄.

When they experience financial stress like today, consumers are likely to cut back on purchases. Many middle-income households also adjust their spending habits: using the $10 Planet Fitness membership instead of higher end gyms, buying drug store brand cosmetics instead of high-end brands, and forgoing some purchases that they don’t consider a true “need”.

The good news is that inflation appears to be slowing and if this continues in 2023, some of this pressure might dissipate. For instance, in November 2022, the consumer-price index was up 7.1% from a year earlier, compared with a 9% increase in June. Gasoline prices have fallen in recent months, though groceries are still rising at a fast clip. Prices for household items including furniture and appliances, in addition to new and used cars, have also shown signs of easing.

The cost of inflation relief, however, is projected to be a slower growing economy and higher unemployment. Federal officials project the jobless rate will rise from 3.7% in November to 4.6% by the end of 2023. Some private economists predict a potential recession, with unemployment even higher than Federal officials foresee₅.

So with this mixed bag of predictions for 2023, how can you navigate your own finances this year and minimize the pain? As I frequently say, it starts with a plan . . . a system. It’s essential to develop a financial system, one that includes a budget to track your expenses against your income. This may sound fairly elementary but you would be surprised how many people I speak with regularly who don’t have a budget. A reasonable budget can help to classify your wants vs your needs, and where you may be able to make cuts when money is tight.

Your system should account for both short-term and long-term goals and objectives. While you need to manage your budget for immediate needs, it’s crucial that you don’t lose sight of your long-term needs as well. For example, a balanced budget that cuts out retirement plan funding to make ends meet is flawed. You’re better off finding ways to cut everyday expenses where you can to continue saving for retirement.

And your system should include also a downside risk mitigation system that uses quantatitive data that helps to anticipate any type of market and has triggers to help ensure a market crash doesn’t decimate your portfolio. And with the unstable markets we’re seeing today, you might consider employing active money management strategies. Strategic and tactical asset management are well-suited for volatile markets and can allow for intervention and changes to your holdings, perhaps even to cash, as market conditions dictate.

Don’t make 2023 one of those ‘Could of . . . Would of . . . Should of’ kind of years, take action! Folks, with a little foresight and planning you can ease the middle-class curse and set yourself up for long-term success.

So as always – be vigilant and stay alert, because you deserve more!
Have a great week.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA. Insurance offered through its affiliate, CutterInsure, Inc.
We do not offer tax or legal advice. Jeff can be reached at This information is intended to provide general information. It is not intended to offer or deliver investment advice in any way. Information regarding investment services is provided solely to gain a better understanding of the subject of the article. Different types of investments involve varying degrees of risk, including the potential for loss. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. Market data and other cited or linked-to content is based on generally available information and is believed to be reliable. Cutter Financial does not guarantee the performance of any investment or the accuracy of the information contained in this article. Cutter Financial will provide all prospective clients with a copy of Cutter Financial’s Form ADV 2A, Appendix 1, applicable Form ADV 2Bs and Form CRS as well as the firm privacy policy. Please contact us to request a free copy via .pdf or hardcopy. 1. 2. 3. 4. Ibid 5. Ibid