Many people are content with living a middle class lifestyle. But are you really middle class? You might think you are, until you dig deeper.
Before we get ahead of ourselves, what does middle class even mean these days, anyway? Pew Research Center defines middle class as having an income that’s two-thirds to double the national median income.
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During the first quarter of 2024, median weekly U.S. earnings were $1,139, according to the Bureau of Labor Statistics. That puts the median annual wage at $59,228 if we assume a 52-week work year.
According to this formula, if you earn less than $39,505, you’re technically considered a lower-income household. And if you earn more than $118,456, you’re upper class. With that in mind, here are some signs that you’re no longer a member of the middle class, but rather, have landed in upper class territory.
1. Your income has doubled in the past few years
Perhaps you’ve spent the past few years boosting your skills, networking within your industry, and chasing promotions. A lot of people took advantage of the stay-at-home mandates issued in 2020 and used that time to develop themselves professionally.
If your hard work has resulted in a notable pay boost, to the point where your income has virtually doubled in the past few years, then it may be the case that you’re now beyond middle class.
2. Your only debt is a mortgage
Middle-income households often have to take on debt to cover their basic needs — especially in recent years, given the impact of inflation. Case in point: Between the end of 2022 and 2023, U.S. credit card balances rose from $931 billion to $1.05 trillion, according to TransUnion.
But if the only debt you’re carrying now is a mortgage and you can cover your expenses without having to charge a portion of your bills on a credit card, then it may be you’ve moved beyond the middle class.
3. You’re able to save for retirement each year
Vanguard reports that as of 2023, the average 401(k) participant contributed a “historic high” of 7.4% of their salary to their account. If you’re able to save a larger percentage of your income for retirement, then it may be that you’re earning enough to move beyond the middle class.
On an average middle-class income, many workers struggle to fund a retirement plan to begin with, let alone save a higher percentage of their salary than the typical worker.
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4. You have passive income
When we talk about income, it’s not just salary to take into account. Many people have outside income sources they can rely on, from rental properties to investment portfolios that pay regular dividends.
You may also have a CD portfolio paying you a lot of interest in light of today’s strong rates.
If you earn a large amount of passive income on top of the wages your employer pays you, it may be that you’re no longer middle class.
5. You’re actively taking steps to reduce your tax burden
Many people don’t think about taxes until the time comes to file their yearly return. But if you’re actively taking steps — either on your own or with the help of an accountant — to lower your tax burden, then it may be that your income is high enough to go beyond the middle class.
These tax-reducing strategies may include maxing out retirement plans, taking losses on investments to offset capital gains (and some ordinary income), and increasing charitable contributions.
So you’re no longer middle class. Now what?
So there you have it. You may no longer be a middle-class worker even if you assumed you were. But remember, having an upper-class income won’t help you if you don’t manage your money wisely. To that end, don’t commit yourself to too many large expenses just because you can technically afford more.
Housing is most Americans’ largest recurring expense. Aim to keep your housing costs to no more than 30% of your take-home pay so you’re never overextended. You should also aim to live in an area where your income can go further — for example, a city where not just housing, but food and transportation are more affordable.
In Denver, for example, the average home value is $574,826, according to Zillow. That’s well beyond the national average of $363,438. So even if you earn an upper-class income, you may not feel like you do if you choose to plant roots in a city where housing and other expenses are so inflated.
It may feel good to reach the point where you’re no longer middle class. But it’s important to put yourself in the right setting so your money can go as far as possible.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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