Determining whether you’re rich or middle class can be tricky.
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It’s not all about how much you earn in a given month or year, though you can learn a lot by looking at your paycheck. Instead, it’s more about your net worth and the way you use the money you have.
Here are several signs that you’re rich vs. middle class.
You Earn Well Above the Median
According to Pew Research Center, you’re in the middle class if you earn between two-thirds and double the median household income in the U.S. The median household income was $74,580 at last census. This means you could be in the middle class if you earn between $49,968 and $149,160 a year.
Pew Research Center also found that the median middle-class household income was $90,131 in 2020 — the most recent data available. This means that half of all middle-class individuals earn less than this, while half earn more.
By contrast, the median income for the upper class is $219,572 a year.
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Your Paycheck Is High Relative to Your Peers
In both cases — middle class and rich — your paycheck might be higher than your peers. But you’re likely rich if you earn significantly more money for your area and can handle far more than basic needs.
“A general definition of rich people is those who earn more than their peers, but depending on the location, lifestyle and circumstances, there is a huge gap of what is considered rich and what is not,” said Erika Kullberg, founder of Erika.com, and an attorney and personal finance expert.
“For the middle class people, moderate income is expected [to be] enough to cover basic needs and utilities and can put money aside for the future but limited for recreational purposes,” Kullberg continued. The rich, meanwhile, are more likely to go with things like luxury vehicles, higher-end vacations and other experiences because they can afford them without any issues.
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It’s More About Net Worth Than Your Paycheck
Perhaps a more accurate indicator of whether you’re rich or middle class depends on your net worth.
“The rich typically have high net worth — they are very wealthy in that they own significant assets in the form of investment portfolios, real estate, businesses and so on,” said Kullberg. “The middle class, too, may have a positive net worth; that is, they generally own more than they owe.”
Here are some general figures to use as a guide when determining where your net worth puts you:
- High-net-worth individuals have liquid assets between $1 million and $5 million.
- Very-high-net-worth individuals have liquid assets between $5 million and $30 million.
- Ultra-high-net-worth individuals own $30+ million in liquid assets.
Joe Torre, an investment counselor with RealWealth, added, “Below HNWI is mass affluent at $100K to $1M in liquid assets, and that would be like your middle class designation.”
Your Reliance on Debt Is Minimal
When you’re in the middle class, you’re more likely to rely on some forms of debt to fund your lifestyle. This could be an auto loan or a mortgage loan, for example. Or it could be student loans for your kids. You might also use credit cards to cover certain expenses — like a family vacation.
“The rich are likely to have a more strategic approach to debt, using it to leverage investments rather than for consumption,” said True Tamplin, founder of Finance Strategists. “Moreover, the wealthy have the means to settle debts without significantly impacting their lifestyle or savings.”
Your Choices Aren’t Based on Cost
How you allocate your paycheck each month is another major indicator of whether you’re rich or middle class.
“The affluent typically have a tendency to lead an extravagant life filled with designer goods, luxury travel, and high-end experiences. They might live in expensive neighborhoods, drive luxury vehicles, and dine in upscale restaurants,” said Kullberg.
“The middle class is often more frugal in their choices, seeking financial stability through careful expenditures,” she continued. “They might live in middle-income neighborhoods, drive reliable and affordable vehicles, and shop with value in mind.”
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You’ve Got Financial Emergencies Covered
Both middle class and rich individuals can generally cover financial emergencies, but if you earn enough — or have enough set aside — to cover anything that comes your way, you’ve likely crossed the threshold.
“For the affluent, an unexpected financial setback or an emergency is less likely to alter their standard of living, thanks to substantial savings, emergency funds, and a wider safety net,” said Tamplin. “The middle class might experience considerable strain from unexpected expenses, often leading to increased debt or depletion of savings.”
You Have Robust Investments and Multiple Income Sources
According to Thomas Brock, CFA, CPA, and expert contributor at Annuity.org, you’re likely rich if you have a taxable investment portfolio — excluding your retirement accounts — and you have business interests that generate enough passive income to sustain your lifestyle without needing an income.
Kullberg added, “The rich have robust financial capital, typically with large cash reserves, investments and insurance coverage, which enables their portfolios to withstand shocks, including economic ones, and unexpected expenses. They can also rely on multiple income streams and other resources giving financial buffers and assurance.”
In comparison, middle class individuals may not have quite as much financial stability or multiple income sources.
Your Family Is Financially Set
While middle class individuals tend to have extra money for impulse buys and unexpected expenses, they might not be set for life. To be considered rich, Brock suggested that you should have a retirement nest egg that, by the time you retire, will easily cover your family’s financial needs for the rest of your lives.
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This article originally appeared on GOBankingRates.com: Are You Rich or Middle Class? 8 Ways To Tell That Go Beyond Your Paycheck
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
