Many people are content with a middle-class lifestyle. But are you really middle-class? You may think so, until you dig deeper.
Before we get ahead of ourselves, what does middle class even mean today? Pew Research Center defines middle class as an income that is two-thirds of the national median income.
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In the first quarter of 2024, the median weekly U.S. income was $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, you are technically considered a low-income household if you make less than $39,505. And if you make more than $118,456, you are upper class. With that in mind, here are some signs that you are no longer middle class, but have instead fallen into upper class territory.
1. Your income has doubled in recent years
Perhaps you’ve spent the last few years honing your skills, networking within your industry, and pursuing promotions. Many people have taken advantage of the stay-at-home orders that were put in place in 2020 and used that time to develop themselves professionally.
If your hard work has resulted in a significant salary increase, nearly doubling your income over the past few years, you may no longer be middle class.
2. Your only debt is a mortgage
Middle-income households often have to take on debt to meet their basic needs, especially in recent years given the impact of inflation. For example, 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 your only debt now is a mortgage and you can cover your expenses without putting part of your bills on a credit card, chances are you've outgrown the middle class.
3. You can save for your retirement every year
Vanguard reports that the average 401(k) participant will have contributed a “historically high” 7.4% of their salary to their account in 2023. If you can save a higher percentage of your income for retirement, you could be earning enough to climb out of the middle class.
With an average middle-class income, many workers struggle to fund a retirement plan, let alone save a higher percentage of their paycheck than the average worker.
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4. You have passive income
When it comes to income, it’s not just salary that we need to consider. Many people have external sources of income that they rely on, from rental properties to investment portfolios that pay regular dividends.
You may also have a CD portfolio that is earning you a lot of interest due to today's high interest rates.
If you earn a large passive income in addition to the salary your employer pays you, you may no longer be considered middle class.
5. You actively take steps to reduce your tax burden
Many people don’t think about taxes until it’s time to file their annual tax return. But if you take active steps — either on your own or with the help of an accountant — to reduce your tax burden, you may be able to earn enough to be well above the middle class.
Such tax-reducing strategies may include maximizing retirement savings, taking losses on investments to offset capital gains (and a portion of 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 thought you were. But remember that an upper-class income won’t help you if you don’t manage your money wisely. That’s why you shouldn’t commit to too many big expenses just because you can technically afford more.
Housing is the largest recurring expense for most Americans. Try to limit your housing costs to no more than 30% of your net income so that you never overextend yourself. You should also strive to live in an area where your income will stretch further — for example, a city where not only housing but also food and transportation are more affordable.
In Denver, for example, the median home value is $574,826, according to Zillow. That’s well above the national average of $363,438. So even if you earn an upper-class income, you might not feel that way if you choose to plant roots in a city where housing and other expenses are so inflated.
It can feel good to reach the point where you are no longer middle class, but it is important to put yourself in the right position so that your money can go as far as it can.
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This article provides information only and should not be taken as advice. It is provided without warranty of any kind.
