Are You Part of the Upper-Middle Class Living Paycheck to Paycheck?

November 29, 2018

There is a lot of reporting on Americans living paycheck to paycheck, however it is surprising that 25% of American families making $150,000 or more a year are living paycheck to paycheck, with 23% reporting having less than $1000 set aside in an emergency fund. It is even worse when accounting for the general population: in 2016, 69% of Americans had less than $1,000 in savings. Sadly, one third of American households do not have any money saved for retirement.


On a different note, the top 1% have at least $1.08 million set aside for retirement. High-income families are 10 times as likely to have retirement savings. However, it is striking that those who consider themselves middle class (70% of Americans consider themselves to be middle class, listing incomes from $50,000 to $200,000 a year) are not as financially secure.


There could be a multitude of reasons why such a large percentage of the upper middle class are living paycheck to paycheck, many of them highly publicized: debt that is mortgage-related and increasingly student loan-related, credit card debt (which accounts for $1 trillion of the total debt in the U.S.), high housing demand which pushes up rent prices and housing prices, the increasing high cost of living in major cities, transportation, and other costs that have outpaced the general rate of inflation, such as health care and childcare.


It is vital for long-term financial health to find ways to break the cycle of living paycheck to paycheck. To use a sports analogy, you are already playing good offense (earning an above average income).  However, employing a great defense needs to be your stronger focus (controlling/reducing expenses and eliminating debt). This could be sending children to public school instead of private school, opting for community and in-state college, eating out for meals less, taking less vacation (domestic and international), limiting the entertainment budget, etc.


It is very important for those in the upper-middle class to realize that even though they make a considerable amount compared to the average American, they still need to reign in expenses and set realistic expectations for what their income can actually cover (without taking on credit card debt). The Millionaire Next Door and The Millionaire Mind authored by Thomas Stanley compiled such nuggets of wisdom such as buying a used car, as a new car’s value depreciates significantly the moment it is driven off the dealership lot. “Status” purchases such as luxury good items should be severely limited--always buying the latest designer purse can wreak havoc on a reasonable budget and create credit card debt, which should be avoided.

If you have any questions about how best to plan financially given your income and situation, please contact us at invest@taberasset.net or call 515-557-1860. We offer fiduciary based financial planning and investment management services in our Des Moines, Iowa office to clients across the U.S.

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