Definitions Of A Middle Class Income: Do You Consider Yourself 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 $3.75 an hour, I was dirt poor, but considered myself middle class because both my parents had jobs and I had a bicycle and a cozy home to come home to.

When I finally graduated from college and 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 only until I moved to San Francisco did I feel I was part of the middle class again. Money was more plentiful, a starter home “only” cost about $1,500,000, and I had more free time to explore.

I’ve experienced all three classes to varying degrees and 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.

DEFINITIONS OF A MIDDLE CLASS INCOME

Standard Definition: $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 $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 $150,000. When the cost of an entire house is only 50% more than your annual income, you know you’ve got it made!

Mitt Romney’s Middle Class: Mitt Romney recently 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. But as you know, 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 get married. 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. It costs $1.5 million here in San Francisco to get a decent house in a decent neighborhood. That’s 6X a $250,000 household salary.

President Obama’s Middle Class: Obama’s middle class is also $250,000 per household or less. He just doesn’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.

Mitt and Barack have the same definitions of what a Middle Class income is, but they say it differently. 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 bozos 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.

Financial Samurai Definition Of Middle Class: 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 $80,000. A person making $40,000 – $120,000 can comfortably consider himself or herself middle class. The cost of living in Des Moines, Iowa is obviously much lower, and the incomes will adjust accordingly. Income is only one part of wealth. I highly recommend people focus more on building net worth over income.

WHY WE CONSIDER OURSELVES MIDDLE CLASS

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 because his other friend makes tens of millions of dollars a year! The hedonic treadmill gets us all.

2) Nobody likes to feel inferior. If we so happen to earn below the median household income of $55,000 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 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, we avoid the uprising, deflect criticism, and get to join in the hunt.

The Average Net Worth For The Above Average Person by Financial Samurai

* The above chart is my calculation for the average net worth of the above average person. The above average person methodically tracks his or her net worth, rebalances their investment portfolios, maxes out their 401ks and IRAs, saves even more of their after-tax income, and has a strong money mindset.

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. 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 could no longer have to work and return to the middle.

Now that I’m back in the middle in “retirement,” life is more carefree. I know politicians are now 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 less insecurity about my future because I have a house, some clothes, and a beat up car named Moose to get me around. I now spend time connecting with others online through my sites, sharing my knowledge and learning what I can from all of you.

The income definition of middle class is whatever we want to project! We work hard to provide for ourselves and our families. We take action to save money where we can. 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!

Recommended Actions For Increasing Your Wealth

1) Manage Your Finances In One Place: The best way to increase your wealth is to track your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 28 different accounts (brokerage, multiple banks, 401K, etc) to track my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing and how my net worth is progressing.

One of the best features is the 401K Fee Analyzer which has allowed me to save over $1,700 a year in portfolio fees. They also have a free Investment Checkup tool which analyzes your various investment portfolios for risk. There is no better free online tool I’ve found that has helped me manage my wealth. Ever since aggregating my accounts in 2012 I’ve seen my net worth sky rocket. It only takes a minute to sign up.

2) Check Your Credit Score: Everybody needs to check their credit score once a year given the risk of identity theft and a finding that 30% of credit reports are wrong! For over a year, I thought I had a 790ish credit score until my mortgage refinance bank on day 80 told me they could not proceed due to a $8 late payment by my tenants from two years ago. Thanks to the late payment, my credit score was hit by 110 points to 680 and I could not get the lowest rate. I had to spend an extra 10 days fixing my score by contacting the utility company to write a “Clear Credit Letter” to get the bank to follow through. Check your credit score for free at GoFreeCredit.com to protect yourself. A credit score is important for potential job opportunities and getting the best rates on mortgage loans, car loans, and credit card loans. It’s all about lowering expenses.

Completed updated on 11/25/2014

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. K quick says

    I would not want to be considered in your category, I earn 39,000 and support my husband, we save money every way we can. Coupons, sales,etc. it’s not easy, but we do it. God willing.
    I couldn’t imagine 100,000. I do not consider our family middle class. The median annual earnings have gone down in the past years, yet the cost of living increases. Unrealistic label.

  2. TBone says

    At 250k here in Houston, I consider my household lower middle class. I can buy a normal car, normal house, and save enough to put my child through college and retire. To be wealthy, in my opinion, is not living paycheck to paycheck or having a job that owns you. If you wake up unemployed one morning and your not sick to your stomach, you’re wealthy.

  3. Rick says

    Tbone i like your last sentence. (i still make 200k less than you but still lol) More people need to realize that. I am the one who really does care. The wealthy do not realize how much they our hurting this nation and world. But if you wake up unemployed you still need to do what you need to do to contribute to society. There are to many people out there that dont care about society or other people. We need to put that care back in thier hearts. There are so many hard working americans struggling so hard to get by anymore it hurts to see. We need to show the wealthy what it is to have a good heart and show them how much they are hurting good hard working men and women. Why is everything so unbalanced? To me there should be no classes. We are all one in the same right? Why should it matter how smart you are or what your capabilities are as long as you are putting foth the effort that should be all that matters.

    • C.R. Visnesky says

      The wealthy have no heart, they HURT people?? are you kidding??..when did a broke person ever hire you? you say everyone should work hard, so you should AIM your anger at the welfare skunks, the 50% who pay NO taxes, yet get many benefits thanks to rich people who pay taxes so the gov. can turn around and provide food and shelter to the people who do not contribute at all…I’m not talking disabled, ill, mental, and broke moms whose baby daddy ran off…I live in a town where all there are are welfare takers, and gov. service jobs to help them get benefits. When a1 19 yr old turns a temporary injury into a lifetime of dole, free food, takes $1000 ambulance ride, free- to get to hospital 3 miles away–for free care on MediCal– and at 50 is dealing pot for more” income”, with the gov. paying $600 of his $750 apt. rent…. yeah, go yell at him..one of thousands who work the system, and NEVER give back.

      we have gone from a nation of people who wanted to achieve, do something contribute in their life, to hounding and blaming anyone who DID make a success. What you want is Communism… where everyone is lazy cause no one is responsible…try that.

      • Annie says

        C.R. not sure if you work in corporate America but when you have a CEO that makes 1.8 million in salary and gets a 11.8 million as a bonus, but they tell you that you can’t get a 1% salary raise because there is no money you understand what Rick is talking about. Companies create jobs but they are abusing us. Today you need to be available 24 hrs 7 days a week. There is no longer 9 to 5, you need to do the same job that 10 years ago it was done by 10 people. That is my example, yes I make 100k and so my husband and we have a nice living BUT I have not have a raise in 7 years because the company has no money but all the top executives get millions in bonuses and the company is not in good shape. That is reality.

  4. Matt beatt says

    I would say that 100 to 250k a year would be middle class, but what about people with 3 kids working 2 to 3 jobs and making only 40k a year. they are still considered middle class and have a slim chance to none of getting any government help yet they cant afford their house payments, utilities, food or even clothes for their children. i think its ridiculous that they can consider someone like that middle class when you look at the difference in living compared to someone who makes over 75k a year.

  5. Joe Schmo says

    There are only three classes: The underclass – those who are long term unemployed or unable / do not want to work and who survive on charity or crime. The working class – those who, irrespective of income size are only a pay check away from humility ( in other words if they lost their jobs for any length of time would lose their homes) and the ruling class – those who own and control the means of production and who mostly live off the backs of that huge group of working people and their blood, sweat, tears and taxes. Middle class = Working Class.

    • peoplearestupid says

      Everyone complains about the higher class because they’re making money. You go start a business, put everything you own into it, be held liable for EVERYTHING that business does, and be motivated/smart enough to turn it into a powerhouse. You’re just another person complaining about what others have and say they are “living off the backs of that huge group of working people and their blood, sweat, tears and taxes.” -Envy and a lack of motivation. Those people are not slaves! They accepted a job for an agreed upon salary/ hourly rate. Nothing is forcing them to stay! They have NO liability if something goes wrong. Do you know how many companies fail in the first year? 50%! Meaning that 50% are either filing for bankruptcy or are in huge debt. That risk is why they get paid more. If you are working at a company and it goes under you still receive unemployment till your next job and a glowing recommendation, so yes, you are paid what you deserve if you disagree go find someone who will pay you more or get off your lazy bum and start something.

      • Annie says

        What you said is true to an extend. The problem is that in the past years the owners of the companies are crushing the employees, that didn’t happen before. My father for example has a factory and pays twice salaries as other companies, however the other “owners” are upset with him because he is making people in their companies ask for more money. But the salary that my dad gives is what it is fair, he doesn’t need to be insane rich and he cares for his employees, if they are happy they are loyal and they work harder. That is what is missing now, people like my dad. Everybody wants to pay the minimum and get the most of them. I work in corporate America in software and we do get higher salaries that everybody else, however what I hear from my managers every meeting is “Do more with Less”, Do more work, produce more with less people and less resources. Then they tell you “you are lucky to have a job”. Some people actually believe that and do not complain when they have get raises in 6 or 7 years and then they get a 1%. On top of that we now have to be available 24/7. Have you ask yourself why there are less jobs now? because we are forced to work longer hours hence no need to hire another person to share the work, and it is our fault because due to the fear to lose our jobs, we have accepted that.

    • brad says

      and it also depends on your out come. income and out come. my advise is this find the cheapest but livable house out their and by it threw a mortgage payment. most individual worker’s earn 600 bucks a week after taxes that is 2400 each month. 25% of college graduates earn less than 30k per year. and they still have student debt. hire individual contractors to fix house hold repairs. you do not need a big house in a fancy neighborhood. i live in Cincinnati Ohio. i earn 34200 each year. about 2850 each month i do fine. i live in a house i am only renting. yes you can rent a house also. plenty of decent houses in lower meddle class areas. use the internet to help find a house or an apartment for rent. plenty of decent homes out their for a decent price. the more you pay does not always mean better. banks do lie. America has a lot of false information in the schools, churches, news. also home buyers need to under stand finances better. buy a crappy house you can fix it up over your life time. many people make it harder on their self’s for not looking into things.

  6. Dan says

    I follow the Marxist definition. If you depend on your labor to maintain your household and would lose everything if you lost your job you are working class, ie: proletariat. If you get enough steady income to live a comfortable life from a business, such as rental property, personally owned small manufacturing business or retail store, or even a portfolio of stable reliable investment securities then you are lower middle class, ie: petty bourgeoisie. Owning a factory that employs hundreds of workers, or a major service company makes you mid-middle class, ie: mid bourgeoise. The filthy rich billionaires who influence politics are the top of the bourgeoisie pile, the haute bourgeoise. Most Americans who claim to be middle class are really working class wage slaves.

  7. FreshOutOfCollege says

    I think it may have something to do with age as well. I am a single 22 year old female who just graduated college. I consider myself middle class because I got a job out of college, pay for my own apartment, pay all of my utilities and bills which also include student loans. I can’t afford to buy a house yet because I don’t have enough of a down payment saved but having only been working for 7 months in the state of Massachusetts, I think my $50,000 salary isn’t terrible for someone in my position. So while I can’t afford a house, and my savings account isn’t too big right now, I still would say at this point in my life, I am doing pretty well financially.

    • says

      I agree with you completely. Only 35% of Americans hold college degrees, so you actually might have “upper class potential” and are at least middle class for now. What you do from here on out is up to you and destiny. Good luck!

  8. Sharoom Aya says

    I totally agree with you on the “upper-lower class”. I am a freelance journalist and my husband is a legal office secretary. We pull in a combined $52,000/year but have 2 kids and live in the Chicago suburbs. My friends say we are upper-lower class bordering on lower-middle class, but we don’t live below the poverty line, so we’re lower class but not poor.

  9. micklaslavic says

    Yearly income is fleeting. Wealth is not determined by what you earn. It certainly helps to have a steady income to build wealth. Wealth is determined but what you save. My neighbor has two german cars and spends alot of time and money enjoying life today. I have two Chevys and would rather not go in debt or have my neighbors pay for my kids college. I save in other words. My 30 to 40 aged neighors live for today It appears, and vote for those that indirectly and directly at times promise the patriotic spenders they’ll be rewarded with the assets of savers as long as they support the correct politicians. They have had all the opportunity that all Americans truly have regardless of what leftists blather but choices are only something a saver need worry about. After all like the bank robbers those that have the character flaw that demands living for the day know to get money take it from the prudent savers. So vote correctly and sleep well knowing someone else actually sacrificed to aquire a nest egg….for there own family not some democrats pet constituency…..I wonder how many pro marxist have lost any family or friends to to those delightful animals they are so proud of.

  10. jon says

    Mick just because someone buys German cars and lives high on the hog doesn’t mean they are over financed. I drive a nice BMW, rock a Rolex, have a decent paying job in engineering and have no debt. I save for everything and buy it outright. I worked hard to get a full ride in college and never took a penny from my parents so I am in fact self made. When I graduated high school I had managed to have saved over 50k. Just busting my ass off being a cheap ass and investing the money. But I finally came to realize what’s the point of having money and working hard to not enjoy it? So I started buying expensive toys eat out 15+ times a week but it doesn’t hurt me. I live mostly off investment income and that was all self made. So at at 21 (in grad school) live quite well. It was because of my decisions though and I still live within means. I save 70% of my paychecks and everything. So sure I could get a chevy and save a few bucks and have even more money but what’s the point? I’m already on track to be a millionaire before 30 so why not enjoy life too? Tips for people – live withinsyour Means and attend anaffordableyuniversity. Also choose a degree that pays if you want that. I chose engineering (it pays a lot, and choose something that will open doors and that you will love). Money is important but not everything!

    • Mike says

      I know that Sam has expressed some distaste towards the ‘YOLO’ mentality that has been cropping up of late, but I think you make a fair point about the need to enjoy what you have as long as it’s not excessive. I spent my 20s just saving money (with a few indulgences here and there), and I could have continued that trend indefinitely (I like nice things, but am quite indifferent to the prospect of downgrading). But eventually, wealth just becomes a number on a piece of paper, and there’s no point in saving for a rainy day that may never arrive. I’ll buy a nice car or a nice watch, and don’t feel the need to lie about them if people ask. I earned them because I worked hard for them.

    • Jose says

      Props my man. I just turned 21 & i am very jealous of your lifestyle.
      I am currently working on my degree in Finance/ Financial Services
      do you have any additional tips?

  11. Sasha Steele says

    I have lived in NYC, the Hamptons, college in the midwest, CT Greenwich, Northern NJ, the shore, outside of Atlanta, Northern Florida, Ponte Vedra.
    Everything is relative. Whats rich to one is not rich to another- If your in debt up to your eyeballs with all the stuff, the bling, the clothes the things, vacations and kids, sports and activities then
    what is it all about? Your a broke middle class worker Beeee trying to keep up with the Joneses

    I have seen the millions a few billions being in NYC. I have see the upper class, the middle class the lower class. Education is key. Debt free is key. and teaching your children finance early in life.
    With kids that have $500.00 phones from poor to rich. phone bills that are as much as a paycheck at 10.00 an hour. The world has their priorities mixed up.

    Rich- is your health, Rich is taking care of needs not wants. Rich is a healthy loving mind. Rich is free of major debt. Rich is the things you cannot buy. Education is key. Hard work is key.
    and being frugal helps.

    Kids are expensive . No doubt about it. It all depends where you live. Taxes are key.
    Wait till everyone sees what there taxes are this year with our friend Obama. Even those making less than 18,000 a year will pay taxes. For all those people dumb enough to sign up for obama care well……. Now he has all your info connected with health care and taxes.
    You think its going to be free? think again. No doctors long waits and a death wish.

    We are a family of 5 our health insurance with no issues no drugs, no medications. Is 1250 a month with 6350 and 12000 deductible. Insane.

    Get ready America. If your not healthy, young or rich you will probably die a whole lot sooner as prices move up come November 15.

    Work for your health.

    Thats where the middle class is headed. Paying for the poor.

    Good luck to all of us as the rich pay 40% in taxes.

    Ciou

  12. Emma says

    As a 33 year old single woman in the Boston suburbs I make 70K and consider myself middle class. Yes, I invest in my 401K, have a nice place to live (rent, cannot afford to own in this market) and decent car but I am, and always will be, a few paychecks away from being homeless unless I were to cash out my 401K. I shop at Market Basket, look for sales and try to live BELOW my means…that is key.

  13. kaileekatelaine@outlook.com says

    Haha… well in sociology there’s two theories about the existence of poverty and other classes.
    the functionlist theory
    Some jobs require more work, education or have more importance therefore should have greater rewards.
    and the conflict theory.
    Basically the bigger cooperations get rich off the little people and control them. Ect ect Karl Marx stuff..

    However.. I doubt anyone posting on this is in the upper upper class such as people with “old money” and many Generations of wealth like the Rockafellers ect.
    Idk I’m in college still only took an into to sociology… and learned about this… I just took an exam over it 2 weeks ago… I just remembered and it’s almost christmas and I do not want to end up writing another essay about social stratifcaton . Lol merry xmas.

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