It can be difficult to determine whether you are rich or middle class. You can tell a lot by looking at your pay stub, but it's not all about how much you make in a given month or year. Rather, it's about your net worth and how you spend the money you have.
Be careful: 10 expenses most likely to drain your checking account each month
Try this: One smart way to grow your retirement savings in 2024
Here are some signs that tell you whether you are rich or middle class.
Have an income well above the median
According to the Pew Research Center, you are in the middle class if you earn between two-thirds and twice the median household income in the United States. Median household income at the last census was $74,580. This means that if he earns between $49,968 and $149,160 a year, he could be in the middle class.
Pew Research Center also found that the median middle-class household income in 2020 was $90,131. This is the latest data available. This means that half of the entire middle class earns less than this, while half earn more.
In contrast, the median income for the upper class is $219,572 per year.
Read next: I'm a real estate agent: 5 cities with the best deals on housing in 2024
Trending now: In 10 years, you won't be able to afford a home in these zip codes.
sponsor: Does credit card debt keep you up at night? See if you can reduce your debt in 3 steps
your salary is high compared to your colleagues
In either case, whether you're middle class or wealthy, your salary may be higher than your colleagues. But if you can make more money in your area and take care of far more than your basic needs, you're probably wealthy.
Erika Kullberg, founder of Erika, said: “The general definition of a wealthy person is someone who earns more than others, but depending on location, lifestyle, and circumstances, who is considered wealthy can be different. There is a big difference between those who don't.” com, lawyers and personal finance experts.
“Middle-class people are expected to have a moderate income.” [to be] It's enough to cover basic needs and utilities, and you can save money for the future, but it's limited for recreational purposes,” Kullberg continued. On the other hand, wealthy people tend to prefer things like luxury cars, luxury vacations, and other experiences because they can easily afford them.
For you: An income of $150,000 equates to “lower middle class” in these expensive cities
Net worth is more important than salary
Perhaps a more accurate indicator of whether you are rich or middle class depends on your net worth.
“High-net-worth individuals typically have a high net worth. They are very wealthy in that they own significant assets in the form of investment portfolios, real estate, businesses, etc.,” Kullberg said. “The middle class may also have positive net worth, meaning they typically own more than they owe.”
Here are some general numbers you can use as a guide in determining where your net worth stands.
-
Wealthy people have liquid assets of $1 million to $5 million.
-
The ultra-high-net-worth individuals have liquid assets of $5 million to $30 million.
-
The ultra-high net worth owns $30 million or more in liquid assets.
Joe Torre, an investment counselor at Real Wealth, added, “The sub-high-net-worth segment is those with liquid assets of between $100,000 and $1 million, which is what we would call the middle class.''
Dependence on debt is minimal
As you move into the middle class, you are more likely to rely on some form of debt to finance your lifestyle. This could be, for example, a car loan or a home loan. Or maybe student loans for your kids. You may also use your credit card to cover certain expenses, such as a family vacation.
“Wealthy individuals are likely to take a more strategic approach to debt, using it for investment rather than consumption,” said True Tamplin, founder of Finance Strategist. “Furthermore, wealthy people have the means to resolve debt without significantly impacting their lifestyle or savings.”
Choice is not based on cost
How you allocate your monthly paycheck is another major indicator of whether you're rich or middle class.
“Wealthy people typically tend to live lavish lives filled with designer products, luxury travel, and high-end experiences. They may live in upscale neighborhoods, drive luxury cars, and dine at upscale restaurants. ''Kulberg said.
“The middle class often makes more frugal choices and seeks financial security through prudent spending,” she continued. “They may live in middle-income neighborhoods, drive reliable and affordable cars, and shop with value in mind.”
Learn more: What household income will be considered upper middle class in five years?
Financial emergencies are covered
Both the middle class and the wealthy can generally cover financial emergencies, but if you have enough income or enough savings to cover a rainy day, you can go beyond that threshold. may be.
“For wealthy people, large savings, emergency funds, and a broader safety net make it less likely that unexpected financial setbacks or emergencies will change their standard of living,” Tamplin said. “The middle class can experience a significant burden of unexpected expenses, which can often lead to increased debt and decreased savings.”
Has strong investments and multiple income streams
According to Thomas Brock, CFA, CPA, Professional Contributor for Annuity.org, a business that has a taxable investment portfolio excluding retirement accounts and generates enough passive income to support a lifestyle without pay. If you have the above benefits, you are probably considered wealthy. Income is required.
Kullberg added, “High-net-worth individuals typically have strong financial capital, including large cash reserves, investments, and insurance coverage, which protects their portfolios from economic shocks and unexpected expenses.” They can withstand shocks that include.'' They can also rely on multiple sources of income and other resources to provide financial buffers and security. ”
In comparison, middle-class individuals may not be as financially stable or have multiple sources of income.
your family is financially stable
Middle-class people tend to have extra money for impulse purchases and unexpected expenses, but it may not be stable over a lifetime. Block suggested that to be considered wealthy, one should have a retirement nest egg that can easily cover the financial needs of one's family for the rest of one's life by the time one retires.
GOBankingRates Details
This article originally appeared on GOBankingRates.com: Are you rich or middle class? 8 ways to show you're more than just a paycheck
