Many people are familiar with the middle class and upper class, but there is another category between these two layers called the upper middle class. How can one judge if they have entered the upper middle class based on their financial status? Here are eight key indicators to consider.
The middle class is typically viewed as having stable economic conditions, but the upper middle class often possesses higher net assets and stronger financial security, although they are not considered wealthy in the true sense.
As you increase your income and accumulate net assets, you may have already progressed from the middle class to the upper middle class. While there isn’t a one-size-fits-all definition and asset amounts can vary, there are key signs indicating that you have entered the upper middle class.
Gobankingrate introduces the definition of the upper middle class and highlights eight key signs that indicate you have joined this segment.
Both the middle class and upper middle class enjoy a higher standard of living, less financial pressure, and more financial freedom or stability. However, there are differences between these two segments.
Nicole Nicolet, founder of “Let’s Make Life Great,” explains, “The middle class can be defined as those who can afford a reasonable standard of living, including owning property, vacationing annually or biennially, and being able to support future investments (such as part of their children’s college education).”
“In most cases, they need to work until the expected retirement age, while the lifestyle of the upper middle class is slightly higher than that of the middle class,” she says.
The upper middle class typically enjoys more vacation time, minimal debt, and anticipates being able to lead a comfortable life post-retirement.
Certified Financial Planner (CFP) and founder of “Good Financial Cents,” Jeff Rose, adds, “According to data from the US Census Bureau, the middle class usually has stable income and some savings, with annual incomes ranging between $50,000 to $125,000.”
“The upper middle class may imply an income higher than the median middle-class income by 15% to 50% and have ample financial buffers; while the upper class usually refers to the top 1% to 3% income earners who possess significant wealth and investment income,” he explains.
Other sources define the upper middle class as those with high incomes who have not yet reached the threshold of being truly wealthy. Their net assets typically range from at least $500,000 to $2 million.
In addition to having high income and net assets, here are eight key indicators that suggest you have entered the upper middle class:
1. The middle class usually has disposable income, but the upper middle class, even after maxing out retirement account contributions and managing other major investments and expenses, still has surplus funds. With a more stable financial situation, they are more at ease with using these funds and face less pressure.
Rose states, “First off, you have room in your budget for leisure activities such as vacations and regular nights out. You not only save for retirement but also own various investment portfolios like stocks and rental properties.”
If you belong to the upper middle class, your disposable income is not just in cash, but also in diversified investment portfolios, such as stocks and rental properties, which can increase income and enhance financial security.
Even though the total net assets are spread across multiple assets, the sum is still significant.
“Nicolet notes, “One sign that you belong to the upper middle class is being able to pay off substantial investments like a mortgage a few years early without affecting your lifestyle.”
Another way to determine if you have entered the upper middle class is by looking at your residence. Rose believes that if “your home is located in a coveted zip code,” it indicates that you have joined the ranks of the upper middle class.
While the middle class may engage in keeping up with the Joneses, striving to match their neighbors in wealth or status, the upper middle class does not. They do not worry if their house is big enough or if their car is luxurious. Without stretching their financial capabilities excessively, they can afford many high-end products.
An essential indicator of being in the upper middle class is that you face almost no pressure when dealing with unexpected bills or expenditures. Rose states, “If unexpected bills come up, you can easily pay them off.”
Having a significantly increased disposable income and higher net assets usually means significant changes in lifestyle, but not suddenly living beyond your means.
Instead, it signifies that you can afford more than ever before, including things that were once considered luxury items or out of reach. This also means you can afford medical expenses, travel costs, and more expensive hobbies or interests.
“Nicolet says, “Being in the upper middle class means you can enjoy life almost without any restrictions. While not as wealthy as millionaires, you can absolutely enjoy most of life’s pleasures without limits.”
She adds, “Moreover, being in the upper middle class means you can easily afford more leisure spending, like a better home, a sports car, or even owning a small vacation home in a popular holiday destination.”
The cost of higher education is high, and many college attendees end up burdened with student loan debt. However, those in the upper middle class can afford the cost of their own or their children’s college education without taking on debt.
“Rose explains, “You can pursue better educational opportunities for your children (or yourself!) without worrying about the high costs. These minor financial advantages indicate that you have joined the upper middle class.”
Early retirement is a dream for many, but if you are struggling with debt or daily expenses, it may feel unattainable. For the upper middle class, factors like diversified investments, passive income, and overall financial security make early retirement less of a concern.
“In most cases, becoming part of the upper middle class also means you can retire early without worrying too much about future financial difficulties,” says Nicolet.
While those in the lower-middle class may rely on one source of income, wealthy individuals almost always have two or more income sources. These sources may include high-paying jobs, owning their own businesses, or passive income like investment dividends or rental property income.
The eight indicators of entering the upper middle class mentioned above are not absolute. Everyone’s situation is different, and class definitions vary widely. One person’s view of the upper middle class may be a level higher or lower than another person’s definition.