The American middle class is one of the greatest socio-economic success stories in world history. While middle-income households haven’t yet achieved the security and extravagance of the rich, they’re free from the grinding trauma of poverty.
Between the vast middle class and the aristocracy is a buffer caste known as the upper-middle class. Barring a windfall, middle-class Americans who aspire to be wealthy will have to make a pit stop there on their way to joining the 1%.
But what is the upper-middle class, and how can average earners get there from where they are today?
Middle to Upper-Middle — How Far Is the Leap?
According to Pew Charitable Trusts, the middle class shrunk from 61% of households in 1971 to 50% in 2021 as wages soared for the rich and stagnated for everyone else.
The Pew Research Center defines middle-class households as those with incomes between two-thirds and double the national median income.
U.S. Census Bureau data shows the national median household income is just shy of $75,000, which means those who earn between $50,000 and $150,000 can count themselves among the middle class.
But a $100,000 gap is too broad a spectrum, and it doesn’t account for dramatic differences in regional median incomes. According to a recent Motley Fool analysis, the following income levels mark the three brackets within the middle class:
- Lower-middle class: The 20th to 40th percentile of household income, between $28,008 and $55,000.
- Middle class: The 40th to 60th percentile of household income, between $55,001 to $89,744.
- Upper-middle class: The 60th to 80th percentile, between $89,745 and $149,131.
That analysis and Pew’s put the goal line at about $150,000 for anyone aspiring to upper-middle-class comfort. Here’s how to get there.
Those already earning six figures, but less than $150,000, might be able to make up the difference by boosting their savings and reducing their spending.
“There’s an old saying that rich people spend their money and wealthy people save their wealth,” said Danielle Lucht, owner of Everwell Financial. “For the first time in over a decade, we have great savings rates at banks, where people can earn 5% on savings accounts. They won’t stay this high forever, so enjoy them while you can. Savings rates for long-term wealth building need to be between 10%-15%. This includes what you save into your 401(k) plans and what you should be saving into investment accounts and emergency funds at the bank.”
Lucht also reiterated standard personal finance advice about reducing spending — eliminating unused subscriptions, canceling services with fees, etc. But unless you’re already close to the $150,000 mark, cutting out Hulu and Starbucks isn’t going to get you there.
If your paycheck falls too short of $150,000 for budgetary belt-tightening to pick up the slack, you’ll have to earn your way into the on-deck circle for the rich.
“Moving into the upper-middle class comes down to earning significantly more income,” said Laura Adams, MBA, an award-winning personal finance author and expert with Finder. “You might do that by returning to school for an advanced degree in a lucrative field, starting a business, or buying a company that’s already profitable.”
Some will be able to earn degrees or change careers to land a position that pays the big bucks needed to reach the finish line, but most will not. They’ll have to generate the extra income independently, as Zippia says 88% of millionaires have done through entrepreneurialism.
Remove Your Income Ceiling By Building a Business
Syed Lateef, a Chicago-based finance expert and business coach, clawed and scratched his way into the middle class, upper-middle class and beyond. What started as a side hustle in 2017 evolved into a short-term rental and hotel services company that now operates nearly 300 units. His Airbnb business earned over $10.7 million until it surpassed $11 million in the fourth quarter of 2023.
“I’ve always shared my story about how I started with a regular 9-to-5 finance job but had to become an entrepreneur by side hustling while still working full-time because my earnings weren’t enough,” said Lateef. “Embrace entrepreneurship. Starting a business is the key to moving up the class ladder, and my experience supports this. When you run a business, you control your financial future, allowing for more significant income potential compared to a salaried job. I moved from a paycheck-to-paycheck existence in a standard corporate finance job to creating my own Airbnb business. This shift not only changed my income but catapulted me into the upper class, making millions each year.”
Launching a profitable side hustle when you’re already working full-time is no small undertaking.
“Finding free time can be hard, especially for working on side projects,” said Lateef. “However, if you aim for upper-middle-class success, you need to dedicate time to developing your skills. More skills mean a higher chance of success.”
But skills are meaningless without the dedication needed to put them to good use.
“Reduce time spent on distractions and focus more on learning and creating,” said Lateef. “When I started my Airbnb business, it was tough because I was learning everything from the ground up. I devoted time to understanding the industry, networking, mastering brand management, negotiating contracts, and developing leadership skills.”
When an employer pays you, it’s easy to do only what’s sufficient to keep collecting a check, but when you become your own income source, good enough is no longer good enough.
“Your life is essentially a reflection of your own standards,” said Lateef. “If you accept mediocrity, that’s what you get. Many people are okay with average — settling for less in relationships, income, and health. They often feel exhausted, unappreciated and uninspired. But those who are in the upper-middle class don’t settle for mediocrity. They take charge of their life, refusing to let circumstances control them. If you’re seeking different outcomes, you need to change your approach. Start treating yourself like a professional and see the high-level results unfold.”
Just as everyone won’t be able to land a job that pays $150,000, not everyone will be able to launch a successful business or real estate venture — but they can ride the coattails of those who already have by investing in properties they don’t have to own or manage.
“Start simple with small-dollar real estate crowdfunding platforms like Groundfloor, Concreit, Ark7, and Fundrise,” said real estate investor Brian Davis, founder of SparkRental. “These could include funds or notes or funding individual loans. Many of these allow automated investing as well. When you’re ready to start targeting 15-25% returns instead of 6-12% returns, learn how to invest in private equity real estate syndications.”
Davis said most syndicates require a minimum investment of $50,000-$100,000, but that investment clubs like his at SparkRental allow investors to pool funds with minimum buy-ins of as little as $5,000.
While real estate is one of the most common paths to wealth, there are plenty of other profitable business models. If you want to own a business, but don’t have the time, skills, ideas or drive to launch one yourself, you can buy a brick-and-mortar or online business that’s already established and profitable on sites like BizBuySell, Flippa, Empire Flippers and BusinessForSale.
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This article originally appeared on GOBankingRates.com: 4 Ways To Reach the Upper Middle Class, According to Money Experts
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