While the exact threshold fluctuates based on factors such as local cost of living and inflation, those in the upper middle class typically have an estimated household income of $150,000 to $250,000. This income level is much higher than what the average American makes. According to U.S. Census data, the real median household income was $74,580 in 2022.
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However, with their above-average earnings, do upper-middle-class professionals manage their finances differently or are they also living paycheck to paycheck like nearly 50% of Americans? Let’s get a first-person perspective.
What Finances Look Like for Someone in the Upper Middle Class
“Even though I make $250,000 annually, I still find it’s best to keep things simple. I don’t go for fancy financial schemes. It’s all about knowing what’s coming in, what’s going out, and making sure there’s always enough tucked away for a rainy day,” said Bryan Clayton, CEO of GreenPal.
Here’s what his finances look like:
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Investment Strategies: “Here’s my go-to move: buy a single-family investment property each year, aggressively pay down the debt, rent it out, and repeat. No overthinking, no jumping from one strategy to another. Consistency is key,” said Clayton. Of course, buying a single-family investment property may not be doable for everyone, but you can still adapt Clayton’s philosophy to your own circumstances and establish a routine that aligns with your financial capacity and investment goals. This might involve regularly setting aside a portion of your income for investment purposes, whether it’s in real estate, stocks or other avenues.
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Monthly Budget and Savings: “My monthly budget is pretty disciplined. I’m not one to splurge on unnecessary stuff. Most of my income goes into savings and investments. It’s all about building that long-term wealth, not just living it up today,” he explained. So, despite making well above the national median wage, Clayton doesn’t overspend. Instead, his financial philosophy revolves around maintaining a disciplined monthly budget and avoiding unnecessary costs.
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Financial Challenges: “One challenge I experience as someone in the upper middle class is not getting caught up in lifestyle inflation,” admitted Clayton. Lifestyle inflation, also known as lifestyle creep, refers to the gradual increase in a person’s spending and lifestyle as their income rises. What has helped Clayton navigate this challenge is staying grounded. “I try to remember my roots and focus on growing my wealth, not just showing it off,” he said.
As someone in the upper middle class, Clayton has learned to preserve and maximize his wealth by focusing on budgeting, investing, staying consistent with his financial strategies and not blindly following trends. “Remember, the goal is long-term financial security, not just short-term gains. It’s not about being flashy. It’s about being smart and steady with your money,” he said.
Read More: 7 Ways the Upper Middle Class Can Become Rich in 2024
How To Manage Money as an Upper-Middle-Class Professional
While there’s no one-size-fits-all approach to managing your finances in the upper middle class, the following strategies could help you gain greater control over your financial life and make the most of your six-figure income.
Track Your Spending
Regardless of your income level, being mindful of how much money is going in and out of your bank account each month is a valuable habit to have. By regularly reviewing your bank statements or using a budgeting app like Mint to track your spending, you can identify toxic spending patterns, pinpoint areas for potential savings, and make informed decisions about budget allocations.
If you realize you’re splurging most of your income on unnecessary expenses, it’s time to create a budget. Many financial experts recommend using the 50/30/20 budget, which divides your income into three categories: 50% for needs, 30% for wants, and 20% for savings.
So, if you’re making $10,000 monthly, $5,000 should go towards necessities like housing and transportation, $3,000 could go towards clothing, travel expenses, dining out, etc., and 20% should go towards retirement, emergency funds, or other savings.
Explore Different Ways To Maximize Your Wealth
With inflation and economic fluctuations, it’s more important than ever to preserve and maximize your wealth by either generating passive income, building a well-diversified investment portfolio, or exploring other ways to make your money work for you.
For example, even though Codrin Arsene — an upper-middle-class professional who works as Fractional CMO at Digital Authority Partners — doesn’t have a background in real estate, he took the time to learn about it and started buying, renovating, and holding multi-family properties after discovering that the multi-family market has stayed somewhat consistent even after interest rates went up at the beginning of 2022.
“I’ve now purchased multiple 3 to 4-unit buildings in Lakeview, Chicago. Though this investment was time- and capital-intensive, it generated a much bigger return than anticipated. After remodeling the first building in 2022, the re-appraisal came $600,000 over purchase price with only $200,000 in investment on my side (in addition to the 20% down payment),” he said.
Last year, he purchased a building at $500,000 under market value, and now it’s up $1 million with just $450,000 put in. Across both buildings, he generated almost $1 million in additional net worth.
Meet With a Financial Planner To Map Out Your Future
With a growing income often comes growing complexity, and financial planners are experts at untangling those knots. If you need help optimizing your investments, handling taxes or plotting the perfect retirement route, a financial planner could work with you to come up with the best course of action for your unique financial situation.
Just know that meeting with a financial advisor can come with an additional cost, so it is not something you have to do. However, having them by your side can be beneficial if you’re feeling stuck or unsure about how to reach your financial goals.
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This article originally appeared on GOBankingRates.com: I’m Part of the Upper Middle Class: Here’s What My Finances Look Like
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