The phrase “middle class” sure gets thrown around a lot. Last year’s presidential campaigns have most of us baffled, too – both Romney and Obama report that the income of the middle class hovers right around $250,000 a year. What country do they live in?
Depending on where you turn, you’ll find annual earnings figures from $25,000 to $100,000. So, who’s right?
Identifying what truly defines the middle class in American is rather difficult. It really all depends on where you live. For instance, if you live in Reading, Pennsylvania or Camden, New Jersey (both fierce competitors for the title of “poorest city in America”) you’ll live like a king on with a third of Romney and Obama’s middle class income.
If you live in San Diego, or New York City, though, you’ll find that it’s hard to get by even with a $50,000 salary. At $250,000 a year, you’ll get by well enough, but you certainly won’t be investing in property and breaking free of “wage slavery.”
So where do we draw the line? What should be considered middle class in America?
What Income is Considered Middle Class in Different Cities
Let’s turn to some common rules of thumb for those thinking about buying a home.
- Traditional suggestions indicate you can afford a home worth three times your annual salary
- CNN’s Money Blog says you can afford a home that has a value of 2.5 times your annual salary
- Various banks and national home buyer’s assistance programs will provide loans on home worth as much as three times the value of your annual salary.
Now, all of these program requirements and “rules of thumb” assume a sizable down payment (usually about 20%). Of course, the amount of money you’re able to save and put down will have a large impact on the cost of your monthly mortgage payment (and therefore, the home you can afford). But, for simplicities sake, we’ll just assume no money down.
So, what is the average price of real estate in various cities? We’ll examine five different cities with vastly different economies and populations:
- Camden, New Jersey – $55,000
- Reading, Pennsylvania – $116,000
- Alexandria, Virginia – $400,000
- San Diego, California – $367,500
- New York City – $1,025,000
This data comes from Trulia.com’s median sales price data for each city. It’s important to note that in all of these areas, there are different neighborhoods and homes that are both much more expensive, and much cheaper than those selling at the median price. But, since the median price is what most of the home’s in that region are going for, we’ll use that as our baseline.
What Salary is Considered Middle Class?
So, what does this mean for your earnings and how they correlate to the middle class? Well, in each of these areas, we’ll need to divide the median selling price of homes by three to determine what middle class would be.
- Camden, New Jersey Middle Class Salary – $18,333
- Reading, Pennsylvania Middle Class Salary – $38,666
- Alexandria, Virginia Middle Class Salary – $133,333
- San Diego, California Middle Class Salary – $122,500
- New York City Middle Class Salary – $341,666
But, take the standards of living into account, and you’ll get a very interesting picture. Give someone in Camden the middle class salary of someone living in Alexandria, and they’ll be living like a king. Give the Camden salary to someone living in San Diego, and you’ll leave them destitute.
So far, it’s proving to be rather difficult to determine the salary of a middle class wage earner. But, things are about to get a bit trickier. Don’t worry, though, because by the time you’ve finished reading this, you’ll have a really good idea of what defines the middle class.
Cost of Living Considerations
While it’s great to try and define the middle class by looking through the costs of home ownership, it really is more involved than that. Someone living in a million dollar home in New York City won’t be living a very luxurious life if she’s only earning $350,000 a year.
Most of her monthly earnings would be put towards the mortgage and insurance. Just about everything she buys or does will also cost a lot more than it would in Reading.
But, a person only earning $75,000 a year living in Reading would be a bit ahead of the game. He’ll be able to start saving towards retirement, and maybe even purchasing some investment properties. In short, he’ll have a lot of excess cash to throw around.
This is exactly what makes it so difficult to define middle class in America. There are just too many factors that differ from one location to another. So, the bigger question isn’t defining middle class in America. It’s defining middle class for you.
Your Own Definition
You live your life every single day. You know what kind of money you’re earning, and you (hopefully) know what kind of expenses you have. When you compare what you bring in to what you send out, how much is left over?
It’s important to figure this out, because it really does determine how an individual defines middle class. If you were to swap salaries between someone living in Camden with their middle class counterpart in Reading, they’ll feel like they just hit the jackpot. It would literally be equivalent to doubling their salary.
But that woman mentioned earlier, living in New York in a million dollar home with a $350,000 salary probably feels rather poor. She probably struggles to make ends meet and has very little left for retirement planning. She’s not breaking free of the 9-5 grind and securing an early retirement. She’s actually prolonging it.
“Middle class” is a phrase that virtually defies definition. It’s nearly impossible to pin it down, because there are far too many factors that contribute to what middle class means to different people. That’s why those of us who are living on a $50,000 salary scoff when we hear Romney or Obama mention that $250,000 defines middle class.
Sure, we could gather a bunch of numbers and simply average them out to determine the average earnings of a middle class American, but as you’ve seen – that just doesn’t paint the right picture.
So what is considered middle class in a broader, more generic sense of the phrase? Well, you should consider yourself middle class if you’re earning enough money to pay all of your bills, max out your 401k/IRA, and have a bit left over for some fun stuff – like going out to eat regularly, or taking vacations to exotic locations.
If you’re able to do all of that, and you still have some money left over for larger investments – such as rental properties (or anything else that allows you to start leveraging the income of others) – you’re probably more in-line with the upper class individuals in your area.
What’s important to take away from all of this, though, is that “middle class” isn’t something that we really should be concerned with. Instead, we should focus on moving closer to our own financial goals.