How to Get Into the Upper Middle Class
Audio Brief
Show transcript
This episode examines the income required for an upper-middle-class lifestyle in 2020s America, breaking down costs, necessary gross income across varying cost-of-living areas, and relevant career paths.
There are three key takeaways from this analysis. First, achieving an upper-middle-class lifestyle on an income under $200,000 mandates living in a low-cost-of-living area. Second, individuals and households should target an income placing them in the top 10 to 15 percent of US earners. Third, strategically renting in high-cost-of-living areas can offer significant investment opportunities compared to homeownership, potentially achieving the desired lifestyle on a lower gross income.
The upper-middle-class lifestyle, characterized by a six-figure retirement, debt-free college for two children, a nice home, and annual vacations, requires a net worth of $3-5 million. To achieve this, a gross income of roughly $220,000 is needed in low-cost-of-living areas. This rises to approximately $325,000 in mid-cost areas and a substantial $650,000 in high-cost regions. Geographic location is the single most significant factor in determining the necessary income.
Achieving these income thresholds places households in the upper echelons of US earners. A $250,000 household income falls within the top 10 percent, while $500,000 is in the top 2.5 percent.
Career paths vary significantly by location. In low-cost areas, many professional jobs like engineering, sales, or specialized trades can suffice. In high-cost areas, reaching senior executive levels, becoming a partner, a specialized doctor, or a successful entrepreneur is typically required.
Housing costs are a primary driver of the income disparity. In high-cost-of-living areas, housing alone can demand nearly triple the gross income compared to low-cost regions for a comparable standard. By choosing to rent rather than buy in such expensive markets, individuals can free up capital that would otherwise be tied up in a mortgage. This capital can then be strategically invested, building wealth and potentially enabling the upper-middle-class lifestyle even with a lower gross income than owning would require.
Understanding these financial realities and strategic considerations is essential for planning an upper-middle-class life in today's economy.
Episode Overview
- Analyzes the income required to achieve an upper-middle-class lifestyle in 2020s America.
- Breaks down the costs and necessary gross income across low, medium, and high cost-of-living areas.
- Discusses the specific career paths and professional levels needed to reach these income thresholds.
- Examines US income percentiles to contextualize how attainable these goals are for the average person.
Key Concepts
- Defining the Upper-Middle-Class (UMC) Lifestyle: Characterized by a six-figure retirement, sending two kids to college debt-free, owning a nice home, annual vacations, and quality cars, requiring a net worth of approximately $3-5 million.
- Breakeven Income Analysis: The episode provides specific gross income targets needed to support a UMC lifestyle in different regions: ~$220k for low-cost-of-living (Low-COL), ~$325k for mid-COL, and ~$650k for high-COL areas.
- Cost of Living (COL) Impact: Geographic location is the single most significant factor. Housing costs in high-COL areas can require nearly triple the gross income of low-COL areas to maintain the same standard of living.
- Income Percentiles: Achieving a UMC income places individuals and households in the upper percentiles of earners in the USA. For example, a $250k household income is in the top 10%, and a $500k household income is in the top 2.5%.
- Career Paths to UMC: The required career level depends on the COL. In low-COL areas, many professional jobs (engineering, sales, specialized trades) can suffice. In high-COL areas, it requires reaching senior executive levels, becoming a partner at a firm, being a specialized doctor/surgeon, or successful entrepreneurship.
Quotes
- At 0:27 - "Look, Nick, I'm not trying to swing for the fences and start a business to get me to $20 million in counter-elite territory. I just want to make enough money to live a good life." - The speaker frames the central question of the episode by quoting a common viewer sentiment.
- At 4:47 - "In a middle cost of living city where housing costs are a little bit higher, you're going to also need to have and save for a higher retirement." - Explaining how rising housing costs in mid-tier cities directly impact the amount needed for retirement savings, increasing the overall required gross income.
- At 7:14 - "Now that we have what money income levels you need to get there... how realistic is to get to these income levels?" - The speaker transitions from defining the financial targets to discussing the practical career strategies required to meet them.
Takeaways
- Match your location to your income potential; if your peak earning potential is under $200k, you must live in a low-cost-of-living area to achieve an upper-middle-class lifestyle.
- Aim to perform at a level that places your household in the top 10-15% of income earners in the United States, as this is the threshold for the lifestyle discussed.
- Consider renting strategically in high-cost-of-living areas, as the savings compared to a mortgage can be invested to build wealth and potentially achieve the same lifestyle on a lower gross income.
