We may be well into 2023 now, but millions of Americans are still reeling from the financial strain of 2022. And that may be because many of the causes that made last year so difficult – stubborn inflation, sky-high interest rates and supply chain disruptions – are still hanging over our heads.
But once you factor in ever-increasing consumer debt, you have the makings of a class breakdown, with many Americans poised to lose a race or even two in status.
So where do you stand in terms of lower, middle or upper class? Here’s what we found, plus three ways to prepare yourself to climb even higher.
Lower, middle and upper class income
According to the US Census Bureau, the median annual income of Americans in 2021 was $70,784. How that breaks down in terms of class strata can get confusing: Living on $70,000 in rural Montana is very different from living in downtown Manhattan: location, location, allocation, you might say.
Still, the Pew Research Center has done a commendable job of turning census data into meaningful benchmarks. In a 2022 report, they found that the median middle-class income households in 2020 was $90,131, up 50% from $59,934 in 1970, measured in 2020 dollars.
Using 2018 figures, Pew defined the 2020 class income distribution (based on three-person households and adjusted for the cost of living in a metropolitan area) as follows:
Low-income households had incomes below $48,500;
Higher-income households had incomes above $145,500;
Middle-income households fell in a range between these two figures.
But the report also pointed out that geography plays an important role in where you fall on the scale. Geographically, Jackson, Tennessee is 19% cheaper than the national average, while San Francisco-Oakland-Hayward is almost 32% more expensive.
You might wonder where you fall and if so, you’re in luck. The Pew 2020 report contains a calculator that helps you determine your class strata. All you have to do is enter your state, metro area, pre-tax household income, and number of family members.
Keep in mind that the data is from 2018, but it’s a great starting point to give you an idea of where you are and how far you need to go before you hit the next rung. Here are some tips to speed up this process.
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Invest in yourself
To be clear, “investing in yourself” means taking steps to develop your skills and your literal value in the job market, or your ascendant position as an entrepreneur. Advanced degrees and specialized training will prepare you for the jump.
A Georgetown University study found that bachelor’s degree holders earned an average of 31% more over their lifetime – a total of $2.8 million on average – compared to those with a bachelor’s degree. associate’s degree, and 84% more than those with a high school diploma. diploma.
The decision to seek out in-demand skills can increase your earning potential even faster and increase your wealth in the process.
Build a budget
Of course, college, graduate school, or advanced training requires money. This is where it helps to leverage expenses alongside income – this is where budgeting comes in. This is more crucial than ever in our post-pandemic world.
Ramsey Solutions found in its 2023 State of Personal Finances Report that the number of Americans who reported having difficulty paying their bills increased by 42% over the past two years, while more than one American out of three who earn more than $100,000 a year live on paycheck.
The budgeting process doesn’t have to be complicated; it’s often more psychologically taxing than anything else. Learning that you eat out twice a week or have expensive memberships that you haven’t used in years can leave you vulnerable.
The idea here is to keep your larger goals in mind. Stay stubbornly focused on them instead of fighting yourself. After all, cutting expenses is the real equivalent of getting a huge raise or finding “found money”.
Diversify your investments
Again, Americans face a host of psychological hurdles here. Following the headlines about a successful stock (and experiencing FOMO) has more in common with playing Powerball than building a powerful portfolio. For this, diversification is crucial.
Prefer to find and invest in the next Amazon? Throw it all in cryptocurrency? Keep in mind that the media and your boastful buddies love to share success stories. But diversification and playing long – which also employs a buy-and-hold strategy – have made billionaires Warren Buffett, Charlie Munger and Charles Brandes, to name a few investment titans.
Growth stocks like Tesla and Amazon have their place in a diversified portfolio, but the idea is to balance them with more conservative investments, including bonds and established companies that generate steady gains and dividends. A mix of conservative stocks, growth stocks, bonds, and real estate will generally provide a safer way to reach your long-term wealth goals. Exchange-traded funds (which peg their value to the S&P 500, for example) are also a great idea as long as they contain a ready-made basket of investments.
No matter what class you’re in or looking for, keep in mind other investments that enrich over time: family ties, quality hobbies, relationships, and passion projects, among others. To borrow from the late Stephen Covey, make sure that when you climb the ladder to success, it’s leaning against the right wall.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.