A middle class income is all you need to be happy. However, we are a society who always wants more. Even after we reach an arbitrary income level, we aren't satisfied for very long. This post will go through the various definitions of a middle-class income.
A big part of defining a middle-class income will depend on where you live, your lifestyle choices, and the size of your family. One person's middle class might be another person's champagne lifestyle!
We All Think We're Middle Class
I have a theory the majority of us, no matter how little or how much we make, consider ourselves part of the middle class. When I worked at McDonald's for $4 an hour, I was dirt poor, but considered myself middle class because both my parents had jobs. I also had a bicycle and a cozy home to come home to.
When I finally graduated from The College Of William & Maryand started making more money, I felt poor because all I did was work in expensive New York City!
For example, I shared a studio with a high school classmate for $2,100 a month and that was in 1999. It was the only way I could attempt to achieve financial independence on a modest income. Even though I worked at Goldman Sachs, I felt poor financially my first year.
It was only afterI moved to San Francisco did I feel I was part of the middle class again. Money was more plentiful, a starter home back then was “only” cost about $1,100,000. I also had more free time to explore.
I've experienced all three classes to varying degrees: poor, middle class, and rich. I believe there are wonderful merits to each of them.
From the poor Haitian immigrant who goes to college and becomes the first black female mayor in Utah, to the billionaire investor who gives 99% of his net worth to charity, everyone tends to come to center.
My favorite class is the middle class. But first, we must define what middle class means.
Middle Class Income Definitions
Here are the best definitions of a middle class income according to data and the government.
1) Standard Definition Of Middle Class
$25,000-$100,000 a year is what most would consider as a middle class income. The $75,000 spread accounts for the wide cost of living differential between places like New York City and Fargo, North Dakota.
Everybody who lives in NYC or San Francisco will tell you that earning $25,000 a year is poor. There's just no way to get ahead, support a family, and one day retire with that type of income.
If you're making $100,000 and live in Des Moines, Iowa, then you're living large. The last time I was there, I had a fantastic ribeye steak for $20 bucks and saw a 4 bedroom, 3 bathroom, 3,000 square feet houses go for $180,000. When the cost of an entire house is only 80% more than your annual income, you know you've got it made!
2) Republican DefinitionOf Middle Class
Ex-GOP presidential candidate Mitt Romney came out and said the middle class is “$200,000 and $250,000 or less.” The $200,000 refers to an individual, and $250,000 refers to a couple. Why $200,000 + $200,000 doesn't equal $400,000 still baffles me.
The government is sexist and it takes people to really care before math can change. There just aren’t enough individuals who earn $200,000 each and are married. Hence, the rest of us who are not affectedlet thissexism continue. Hence, the rest of us who are not affected will let sexism continue.
If you live in an expensive coastal city, $250,000 for a household isn't exactly rich since about $65,000 of your income goes towards taxes. You can afford a car, take a couple weeks of vacation a year, max out your 401K and send your two children to private school.
But if you ask any $250,000 a year couple whether they think they are rich, I'm sure most would privately tell you no. In 2024, it costs $1.8 million here in San Francisco to get a decent house in a decent neighborhood. That's 7.2X a $250,000 household salary.
Related: How To Make $200,000 A Year And Not Feel Rich
3) DemocratDefinition Of Middle Class
President Obama's middle class is also $250,000 per household or less. He just didn't say it. Instead, he says “the rich” are those who make $200,000 or more as individuals and $250,000 or more as households.
Strategically, this is a better way of getting more votes because there are mathematically less people to anger. If you say “the middle class is $250,000 or less,” you run the risk of angering a huge portion of the 95% of people who make much less because they might think you're out of touch with reality.
Interestingly, President Biden has raised his definition of the middle class. Biden promises to not raise taxes on anybody making less than $400,000. Hence, perhaps thanks to inflation, and definitely due to the desire for power, Biden's definition of middle class is any person or household making less than $400,000.
The Political Middle Class Definition Epiphany
Republicans and Democratshave the same definitions of what a Middle Class income is, but they say it differently. After all, to retain power, politicians must court the middle class the most.
In politics, you have to be careful with verbiage. Math always triumphs at the end. If you can get 50% of the 95% of the population who makes $200,000 or less in America to vote for you, it's much better than getting 100% of the 5% of the population who makes more than $200,000 on your side!
Thankfully, these power-hungry politicians on 1/2/2013 came to a Fiscal Cliff compromise and raised the definition of “rich” to now $400,000 for singles and $450,000 for couples. In 2023, there will be another Fiscal Cliff compromise given we're running up against the debt ceiling again.
Today, we've also abolished the marriage penalty tax for income earners up to about $500,000. This is huge progress. Hence, the definition of a middle class income is going higher and higher, just like our elevated inflation rates.
4) Student Loan Debt Forgiveness Definition Of Middle Class
On August 24, 2022, President Biden unveiled his student loan forgiveness plan. For individuals who earn less than $125,000, they are eligible for up to $10,000 in student loan forgiveness. The student loan forgiveness amount goes up to $20,000 for married households making up to $250,000!
Therefore, President Biden and his administration believes the definition of middle class is any individual making up to $125,000 or a household making up to $250,000. Earning more qualifies you for being rich, which President Biden can't be seen as helping.
Therefore, if you want to earn the ideal income to live a middle-class lifestyle and earn subsidies, make $124,999. $124,999 is a healthy middle-class income.
5) Financial Samurai Definition Of Middle Class Income
Finally, if you make within +/- 50% of your city's household income for your age, you are middle class. For example, the average household income in San Francisco is ~$100,000. Therefore, a person making $50,000 – $150,000 can comfortably consider himself or herself middle class.
You can also consider yourself middle class if you are renting or own + / – 50% of your city's median house price. Using San Francisco again, the median house costs $1.8 million. Therefore, if you are renting or own a property worth about $900,000 – $2,700,000, you are also considered middle class.
The cost of living in Des Moines, Iowa is obviously much lower, and incomes and home prices will adjust accordingly. Income is only one part of wealth. I highly recommend people focus more on building net worth over income.
Why Most Of Us Consider Ourselves Middle Class
Now that you know the various definitions of middle class and middle class income, let's discover why so many of us think we are middle class when we are not. With the wealth gap widening post-pandemic, many rich people are now learning how to convince people they are middle class as well!
1) We adapt very quickly.
Remember how fast the excitement went away after getting into college, getting a promotion, a holiday present or receiving a nice big raise? After about a couple months, we revert back to feeling like our old selves.
We could be very upbeat selves in general, but we no longer feel that high of a big win. I have a friend who makes a million dollars a year, but considers himself middle class. The reason why is his other friend makes tens of millions of dollars a year! The hedonic treadmill gets us all.
If you want to get rich, you might as well get really rich. If you do, you will gain even more privilege than you already have.
2) Nobody likes to feel inferior.
If we so happen to earn below the median household income of $75,000 in America, we should realize we are “below median” and perhaps “below average” in household income generation.
But, nobody likes to feel below average in anything which is why the term “lower class” sounds derogatory! Instead, we'll find a way to justify our below median income by saying we live great, happy lives, and are doing things we love to do.
We'll tell ourselves making less is a choice, that grades don't matter, and that money isn't everything. There are certainly truths to all these reasons. Happiness stays constant above a certain income range, so there's no reason to justify why we are poorer than average, but we curiously do.
3) We are scared of being harassed, bullied, and murdered.
The more you make above the median household income, the more you need to fear for your life. A lot of wealthy people cannot control the urge to splurge the more they make. It's just natural to buy fancier cars, wear nicer clothes, and live in bigger homes. You only live once is Gen Y love to say!
All is good until you realize there's a stranger standing in your living room with a butcher knife ready to splice open your guts unless you give him all your valuables. We are seeing an uprising by the people against anybody who has more.
We also see the government take away more of our income the more we tell them we make. By projecting we are middle class or pretending we are middle class when we are actually rich, we avoid the uprising! We'll also be able to deflect criticism and get to join in the hunt.
Stealth Wealth is the way of the future! If you are wealthy, your best to blend in with society not stand out. Since the pandemic began, the wealth gap has widened tremendously. As a result, it's better to keep a low profile and stay middle class. Don't stand out!
4) Nobody likes to feel persecuted by the government or the public
Finally, nobody likes to feel like a bad person for making more money than average or having more money than average. You can see plenty of people criticize my household budget after revealing I am no longer financially independent based on my stringent FIRE rule.
If you make above a certain middle-class income, then the government will raise your taxes. Further, politicians and the media, will likely bad mouth the rich for being greedy and “not paying their fair share.”
Therefore, the rich have learned how to carefully convince the public they are middle class. This way, they get to more easily be a part of the best class in the world.
* The above chart is my calculation for the average net worth of the above average person. I use Empower's free financial software to methodically track my net worth. I also use the app to run my investment portfolios at least twice a year.
Personal Capital also has a great Retirement Calculator. You can run your numbers to see whether you are on course. The above average person takes action and leverages free technology to his or her advantage.
Middle Class Is A Wonderful Class
I've been rich and I've been poor and I will unequivocally tell you that being right in the middle is wonderful. Earning a middle-class income will provide for a comfortable life in any developed country. A middle-class income is also the best income in my opinion.
When I was poor, I was insecure about my future. I wondered whether I'd ever be able to earn enough to buy a home and raise a family. I worried I'd amount to nothing in my parents' eyes after spending so many years in school.
Envy, a feeling I despise often entered my body as I saw friends take wonderful vacations and drive new cars. Why them, not me? Protesting big corporations and those who have more made me feel better.
When I was rich, I wondered whether I really was as evil as people painted out rich people out to be. Self-doubt began entering my mind as I questioned whether I really deserved to make what I was making.
There is so much poverty in the world, I began to feel guilty about my wealth. As a result, I worked harder by getting into work earlier and leaving later. I then spent hours at night working on my online endeavors, so that one day I wouldno longer have to work and return to the middle.
Now that I'm back in the middle in “fake retirement,” life is more carefree. I know politicians are now more on my side because they need the middle class vote to remain in power. I no longer fear being ostracized by others for earning an above average wage because I am average.
There is also less insecurity about my future because I have a house, enough clothes, a reliable car to get me around, and an affordable life insurance policy to protect my children.
I now spend time connecting with others online through my sites, sharing my knowledge and learning what I can from all of you. There's no need for me to fill Financial Samurai up with sponsored posts and affiliate advertisem*nts.
Middle Class Is A State Of Mind
The income definition of middle class is whatever we want to project! We work hard to provide for ourselves and our families. Saving money is part of our DNA.
We realize the importance of community and rely on each other to flourish. Don't let anybody ever tell you that being average is not good enough. Being middle class is what makes all our countries great! And feeling rich is often a state of mind.
Finally, one of the best ways to get ahead is tostart a business if you believe in your abilities. There's nothing better than being your own boss and seeing maximum correlation with effort and reward.
Not a day goes by where I don't give thanks for starting Financial Samurai in 2009. Start something special on the side while you have a job, and work on it until it gains traction. You might surprise yourself and reach a new class!
And if bing middle class isn't good enough for you, then shoot to be upper middle class! That's not a bad place to be either. Just make sure your household earns less than $400,000. This way, you don't have to pay more income taxes under Joe Biden.
Surviving off $400,000 in an expensive city with kids may already be tough enough. Once you add paying more taxes, you might as well downgrade yourself back to the middle class! There's really no point working so hard if you're not happy. Never forget that money is a means to an end.
Achieve Financial Freedom Through Real Estate
If you secretly want to rise above the middle class, you need to invest consistently and aggressively.
Real estate is my favorite asset class to build wealth. It is a tangible asset that is less volatile, provides utility, and generates income. With elevated inflation, real estate benefits from higher rents and property prices. Further, the cost of debt gets whittled down while asset values get a nice tailwind.
In 2016, I starteddiversifying into heartland real estateto take advantage of lower valuations and higher cap rates. I did so by investing $954,000 with real estate crowdfunding platforms. I believe there will be a “spreading out” of America thanks to technology.
Best PrivateRealEstateInvesting Platforms
Fundrise: A way for all investors to diversify intorealestatethrough private funds with just $10. Fundrise has been around since 2012 and manages over $3.3 billion for 500,000+ investors.
Therealestateplatform invests primarily in residential and industrial properties in the Sunbelt, where valuations are cheaper and yields are higher. The spreading out of America is a long-term demographic trend. For most people, investing in a diversified fund is the way to go.
CrowdStreet: A way for accredited investors to invest in individualrealestateopportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. These cities also have higher growth potential due to job growth and demographic trends.
If you are arealestateenthusiast with more time, you can build your own diversifiedrealestateportfolio with CrowdStreet.However, before investing in each deal, make sure to do extensive due diligence on each sponsor. Understanding each sponsor's track record and experience is vital.
Stay On Top Of Your Money
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The savvy middle class track their money carefully so it can be optimized.
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