S/O What is middle class?

[erc]

Says middle for us. When I put in our demographics below, it said people with our education in our age and race groups were 58% in upper income tier. We're doing something wrong.

Same here. But then I knew we were doing something wrong.

But I grew up in poverty, so living an upper-middle class life seems like luxury to me. Plus I wouldn't want the burden of having to live the upper-class lifestyle.

 

[Liberty Belle]

It says that I am upper class, but I will tell you that is not how I feel. If anything, I would argue that we are maybe upper middle class at best. We are also just at the start of building our family, so when you put us as a family of 4, rather than 2, we fall into the middle class. Right now a lot of our take-home pay has been going towards accelerating our debts and increasing our savings. We make a good combined salary, but we are putting a lot of money each month toward extra payments on our mortgage and car loans, plus lots of money going towards savings each month like our emergency fund, baby expenses and retirement savings. This is easier I guess because it is just the two of us right now, but baby will be here in October and the ultimate goal will be 2 kids.

DH and I are currently working out how we will find enough money in our budget to pay for child care next year. And we just talked this morning about where we might find money to put away towards college savings too, though that might be hard for the first few years of baby's life. We don't live any kind of lavish life style. We do have a nice home, but it was a pretty modest price compared to homes in many areas of the country (and Michigan had a very down market in 2012 when I purchased). We rarely eat out. We vacation once per year for a week and nothing extravagant. We don't spend much on gadgets or hobbies. I guess we are more focused on building wealth now so we worry less later, but that means we are living a very middle class lifestyle even if Pew thinks we are upper class.

I agree with @havaneselover about wealth playing a part which the tool doesn't take into account. If someone has a big inheritance or trust fund, that would make a big difference in wealth that isn't necessarily translated into salary. Salary isn't everything and how you use your salary will have a big impact on the lifestyle that you lead. You can make a lot of money, but spend it all and not build any wealth. If you have ever read, "The Millionaire Next Door," you know that a large percentage of those with substantial wealth are people with middle and upper middle class salaries, but frugal spending habits. They have modest homes, drive nice but not luxury cars (often times used), maintain a regular family budget and save 20+ percent of their annual income. That is the model we have been trying to emulate. By living far below our means, I believe we will be able to fulfill our greatest desires, including funding college for our kids and having a comfortable retirement.

Well, I'm middle class, according to the calculator and we barely have savings, cannot do extra payments, cannot afford brand new cars, our home is average (and average home price here), we haven't been on a vacation in two years and before that it was 4 years since we'd gone on one.

So, it might not seem like you're upper class, but clearly you're in a different class than I.

 

[Happyinwonerland]

It says we are upper class. It sure doesn't feel like it! We live in a house that costs equal to one years' income and drive toyotas. Student loans and medical bills, and paying for DH's grad school, make it feel like we are barely squeezing by in a lcola.

 

[Liberty Belle]

Easily...not really. The old adage was to never buy a house worth more than 3x-4x your salary. That would make $510K-$680K the range for that person to buy a house, so they probably would be pretty stretched trying to buy a house like yours.

I can't imagine. Our's was not even 2x our salary (though it was close) and we struggle at times.

 

[ellie05]

Says middle for us. When I put in our demographics below, it said people with our education in our age and race groups were 58% in upper income tier. We're doing something wrong.

I didn't even know that feature was there! It says we are the top 5% Of our demographics of course in a few months it is our birthday and it goes down up to 10%.

The ranges are so big that I think this hard to really group so many people together.

@perditax I think there are huge ranges in the every class. On the upper from a family that is in the lower end of 6 figures (upper middle class) vs. someone that makes millions a year according to that website they are all grouped together. I tried our income and I tried 20 million a year same answer obviously very different ranges of income, affordability and style of living. The Gilmores would be in the very top of that and really not comparable.

 

[Jen and Ashwin]

Well, I'm middle class, according to the calculator and we barely have savings, cannot do extra payments, cannot afford brand new cars, our home is average (and average home price here), we haven't been on a vacation in two years and before that it was 4 years since we'd gone on one.

So, it might not seem like you're upper class, but clearly you're in a different class than I.

This seems a bit aggressive to me. Should I be shamed we are very actively making many sacrifices in our lives in order to make those extra payments towards our home, cars and retirement so that we can feel more financial independence later? My post said that we are living on a very middle class budget (currently spending $3200 a month and putting the rest into extra debt payments and savings). The calculator says I am upper class and I didn't dispute that. I said that isn't how I felt, since living on that kind of budget does not make me feel very upper class. But I know that it will be worth it in the long run.

I could spend more of my money on stuff, I guess. But then I would be in a position to not build financial security. And I bet there are things that many, many people that make much less money than me do actually spend their money on that we do not. I make my own choices about how we spend our income, just as you do for your income.

 

[TwoMisfits]

This seems a bit aggressive to me. Should I be shamed we are very actively making many sacrifices in our lives in order to make those extra payments towards our home, cars and retirement so that we can feel more financial independence later? My post said that we are living on a very middle class budget (currently spending $3200 a month and putting the rest into extra debt payments and savings). The calculator says I am upper class and I didn't dispute that. I said that isn't how I felt, since living on that kind of budget does not make me feel very upper class. But I know that it will be worth it in the long run.

I could spend more of my money on stuff, I guess. But then I would be in a position to not build financial security. And I bet there are things that many, many people that make much less money than me do actually spend their money on that we do not. I make my own choices about how we spend our income, just as you do for your income.

I don't think OP was shaming you. I think she was just pointing out that the ability to save live a demon is an option she would like to have. Normally, the biggest differences between the middle class and the lower upper class (not the 1%s, but the professional lower upper class - yes, these words together make sense to me is the ability to have options to spend and save. In the middle class, to save like a demon would necessitate actually giving up some more basic needs (which is not advised for one's long term health - for example, the middle class could eat ramen every day to put money in savings, but that's a bad idea), while to do the same push for savings in the upper class would just involve giving up more basic wants (like restaurant eating, vacations, kid activities, etc)...

The closer your middle income is to the lowest income level, the more impossible this saving/spending trade-off becomes...the closer your middle income is to the uppermost level, the more possible it becomes...and don't forget, all 3 of these levels have people at the higher, middle, and lower ends of the level.

There's nothing wrong with being in the upper class - I'd personally love to be there...I don't begrudge anyone who has that kind of income or anyone who makes less, since the value of a person is in who they are and how they act, not how much money they have.

 

[Jen and Ashwin]

I don't think OP was shaming you. I think she was just pointing out that the ability to save live a demon is an option she would like to have. Normally, the biggest differences between the middle class and the lower upper class (not the 1%s, but the professional lower upper class - yes, these words together make sense to me is the ability to have options to spend and save. In the middle class, to save like a demon would necessitate actually giving up some more basic needs (which is not advised for one's long term health - for example, the middle class could eat ramen every day to put money in savings, but that's a bad idea), while to do the same push for savings in the upper class would just involve giving up more basic wants (like restaurant eating, vacations, kid activities, etc)...

The closer your middle income is to the lowest income level, the more impossible this saving/spending trade-off becomes...the closer your middle income is to the uppermost level, the more possible it becomes...and don't forget, all 3 of these levels have people at the higher, middle, and lower ends of the level.

There's nothing wrong with being in the upper class - I'd personally love to be there...I don't begrudge anyone who has that kind of income or anyone who makes less, since the value of a person is in who they are and how they act, not how much money they have.

And I understand this reality, but we all make choices. When I first started working, I made $40,000 a year pre-tax. I saved $40,000 over two years towards my house down payment so that I could put down 20% and avoid. I was able to accomplish a 50% savings rate even with a much lower income. We all make choices about how we spend and save. It is admittedly easier now that my income is much higher, but even a higher income hasn't made life feel carefree. I think that is the misconception that many people have. If you just made more money, everything would be alright. The reality is that most people would have to make a very, very high salary to reach the point where they felt money was no longer a concern. That doesn't describe most people that fall within that website's definition of the upper class.

 

[Mackenzie Click-Mickelson]

And I understand this reality, but we all make choices. When I first started working, I made $40,000 a year pre-tax. I saved $40,000 over two years towards my house down payment so that I could put down 20% and avoid. I was able to accomplish a 50% savings rate even with a much lower income. We all make choices about how we spend and save. It is admittedly easier now that my income is much higher, but even a higher income hasn't made life feel carefree. I think that is the misconception that many people have. If you just made more money, everything would be alright. The reality is that most people would have to make a very, very high salary to reach the point where they felt money was no longer a concern. That doesn't describe most people that fall within that website's definition of the upper class.

Our financial advisor say 20% is fairly old school nowadays.

You have to look at your current situation to see if it is feasible to wait years in order to put 20% down. This is especially true for those who are renting. Our rent in 1 year when we lived in a rental house was $16,200 per year not including utility costs (granted renters insurance would significantly less than what homeowners insurance would be but still). So I could spend over $16,000 on renting a home where I'm not doing a whole lot for myself credit-wise or I could look into getting a home. Granted that was in a rental house versus an apartment but in an apartment the yearly rent would have been at least $8,500 (not including utility costs).

We put 5% down. In our neighborhood the norm from builders (as it is a new construction..oldest part is around 15-16 years) is 10% but they are more than willing to allow you to put 5% down. We didn't have a home sale to boost us either. Our neighborhood by the way has homes for sale in the mid-upper $300,000 to actually over $800,000 (though the upper range is usually $600,000+) so it's a nice neighborhood. I only mention that because even in a nice neighborhood they aren't expecting 20% down.

YMMV of course.

 

[ellie05]

And I understand this reality, but we all make choices. When I first started working, I made $40,000 a year pre-tax. I saved $40,000 over two years towards my house down payment so that I could put down 20% and avoid. I was able to accomplish a 50% savings rate even with a much lower income. We all make choices about how we spend and save. It is admittedly easier now that my income is much higher, but even a higher income hasn't made life feel carefree. I think that is the misconception that many people have. If you just made more money, everything would be alright. The reality is that most people would have to make a very, very high salary to reach the point where they felt money was no longer a concern. That doesn't describe most people that fall within that website's definition of the upper class.

Am I missing something? I don't see any descriptions for each class in the website . I am also not sure when upper middle class didn't have to worry about money at all.

 

[erc]

Our financial advisor say 20% is fairly old school nowadays.

Your credit score will allow you to borrow with less, but you will still be paying PMI. My first house was no money down because I used a VA loan. I was fortunate to buy in 1997 as my house doubled in value over the next 6 years so I easily had a ton of equity very quickly. People that bought 10 years later have seen the opposite. And equity is slow to build in real estate now, as long as lenders don't get crazy again and start offering interest only loans, and approvals without proof of income.

So really 20% should be a goal even if they lend at 10%. And if homes are so expensive that 20% is hard to save, it is probably not a good place to buy. IMO.

 

[Mackenzie Click-Mickelson]

Your credit score will allow you to borrow with less, but you will still be paying PMI. My first house was no money down because I used a VA loan. I was fortunate to buy in 1997 as my house doubled in value over the next 6 years so I easily had a ton of equity very quickly. People that bought 10 years later have seen the opposite. And equity is slow to build in real estate now, as long as lenders don't get crazy again and start offering interest only loans, and approvals without proof of income.

So really 20% should be a goal even if they lend at 10%. And if homes are so expensive that 20% is hard to save, it is probably not a good place to buy. IMO.

Sorry but you don't really get to tell me that if saving for 20% is hard it's not a good place to buy for. That is rather rude tbh even if you say it's in your opinion. You are not my fiancial advisor. It was the builder who had the sayso on how little % they would accept;we had our house built. The mortgage company just needed approval from the real estate company representing the neighborhood and the builder's approval. Sooooooooo many people put 10% or less down here. Our builder even let us put half down and then pay half again in 4 months time not because of our individual situation but just because that's how they operate. FTR we didn't get a house as expensive as we were approved for.

Our friends put 3.5% down...you want to tell them it's not a good place to buy too? And thier house is less than half the price of ours.

Maybe we're just coming at it from different age groups/different experiences/different areas.

I won't have any problem building equity in our house.

The point the financial advisor was making is the old way of looking at save save save save save for years years years for that coveted 20% is old advice. YMMV of course.

ETA: a $160,000 house, which is what our rental house was priced at, would have been $32,000 at 20%. It's not all that often that someone has $32,000 in CASH to put down on a house especially a first time home buyer.

 

[erc]

Sorry but you don't really get to tell me that if saving for 20% is hard it's not a good place to buy for. That is rather rude tbh even if you say it's in your opinion. You are not my fiancial advisor.

Sorry, I always seem to offend accidentally on the Budget Board. What I really meant to say was if a home is so expensive that it would be hard for me to save a 20% downpayment, then it would not be a good place for me to buy.

And this part I am not directing at any individual, but I would remind the newer generations just getting into real estate, that the reason the housing and financial markets collapsed in 2008 was because of too much easy credit for mortgages. And a lot of that meant, no or little money down so that it was really easy to just walk away from a mortgage when they suddenly owed more than a home was worth. We as a nation were all hurt by easy credit.

 

[TwoMisfits]

Sorry but you don't really get to tell me that if saving for 20% is hard it's not a good place to buy for. That is rather rude tbh even if you say it's in your opinion. You are not my fiancial advisor. It was the builder who had the sayso on how little % they would accept;we had our house built. The mortgage company just needed approval from the real estate company representing the neighborhood and the builder's approval. Sooooooooo many people put 10% or less down here. Our builder even let us put half down and then pay half again in 4 months time not because of our individual situation but just because that's how they operate. FTR we didn't get a house as expensive as we were approved for.

Our friends put 3.5% down...you want to tell them it's not a good place to buy too? And thier house is less than half the price of ours.

Maybe we're just coming at it from different age groups/different experiences/different areas.

I won't have any problem building equity in our house.

The point the financial advisor was making is the old way of looking at save save save save save for years years years for that coveted 20% is old advice. YMMV of course.

ETA: a $160,000 house, which is what our rental house was priced at, would have been $32,000 at 20%. It's not all that often that someone has $32,000 in CASH to put down on a house especially a first time home buyer.

Again, I don't think the OP was pointing at anyone. They were just making a good point. The reason putting 20% down is a good idea (if at all possible) is that housing prices don't always appreciate. If the house you bought depreciates (which happened to a LOT of people in 2006-2008), you become trapped by your house. If you lose your job, get a pay cut, or want to seek a positive transfer to a new job, you can't (or you can't easily), b/c you can't take the loss that selling your house will cause you. But if any of these things happen (especially the lost job or pay cut), you also can't make your mortgage payment, and the whole thing becomes like a noose around your neck, slowly squeezing your savings and finances to ruin.

With 20% down, you normally have enough equity that you can weather that type of downtown on housing prices and still sell without bringing extra $ to the table. I know on my 1st house (a VA loan, so we did not have 20% down), we had to sell when my husband decided to get a new job 5 states over only 18 months after we owned it. The job was too good not to take, but by taking it, we had to eat 6 months of double house payments (our mortgage payment and our rental in our new place - we couldn't hope to buy with the assets we had then b/c we were still very early in our careers) AND we took a $12K loss (had to bring that much cash to the sales table on a house only worth $130K), b/c the house did not appreciate in 18 months and those were our closing costs (for taxes/fees/realtors). That took a few YEARS to overcome...and we couldn't buy again for 3 years, even though my spouse had a much higher salary b/c we had to recoup our savings losses 1st.

This situation was a major reason the housing market collapsed 10 years ago...once depreciation and job losses happened, the housing market disaster snowballed and a lot of folks got financially ruined. It's no fun to decide whether bankruptcy or depleted retirement accounts are a better idea...

 

[runwad]

If you don't learn from history, you're bound to repeat it.

 

[QVCshopper]

Every time I see these survey type things, I think it's not looking at the whole picture. For our area (near Philly) we'd have to make $175K to be upper class. We are well short of that, over 1/3 less, for five people. But, like Jen and Ashwin above, we saved like crazy when we were younger and set ourselves for living a rather relaxed financial life now that we are in our early 40s. I save 50% of my income right off the bat, my hubby saves a large amount as well, about the max allowed into his 401K. We put away $300 into college accounts every month for our 3 kids, too. Our new mortgage is really low, and we hope to pay it off before our oldest goes to college (we had already paid off our mortgage on our old house and rolled it into the new one). BUT, we live FAR below our means. I'm a bit ridiculous when it comes to saving, and in many ways I think how much you save vs how much you make is what's really important.

 

[Mackenzie Click-Mickelson]

Sorry, I always seem to offend accidentally on the Budget Board. What I really meant to say was if a home is so expensive that it would be hard for me to save a 20% downpayment, then it would not be a good place for me to buy.

And this part I am not directing at any individual, but I would remind the newer generations just getting into real estate, that the reason the housing and financial markets collapsed in 2008 was because of too much easy credit for mortgages. And a lot of that meant, no or little money down so that it was really easy to just walk away from a mortgage when they suddenly owed more than a home was worth. We as a nation were all hurt by easy credit.

I don't think you were trying to offend me it just came off that way.

When you say "And if homes are so expensive that 20% is hard to save, it is probably not a good place to buy. IMO." it's not really coming off that you personally would feel uncomfortable buying in a market like that. Do you consider a $160,000 as expensive? Like I mentioned 20% would be $32,000. Do you have that money right now without adding any additional burden to your expenses and without any debt to put down on a house? And like I mentioned that was just what our rental house was on sale for (which matched what other homes in that neighborhood were going for).

FWIW zillow has the median list price in my city as just over $301,000. So if basing on the median list price 20% would be over $60,000.

Trust me I know why the housing market crashed. That is a major reason we went to working with a financial advisor. He had been with us for 2 years prior to us looking at buying a house.

In our case we could sell our house for at least $35,000 more than what we paid for it (which was nearly 2 1/2 years ago). Our particular neighborhood won't go down in value for quite some time though yes nothing is a guarantee and one should always be cautious of that.

 

[Mackenzie Click-Mickelson]

Again, I don't think the OP was pointing at anyone. They were just making a good point. The reason putting 20% down is a good idea (if at all possible) is that housing prices don't always appreciate. If the house you bought depreciates (which happened to a LOT of people in 2006-2008), you become trapped by your house. If you lose your job, get a pay cut, or want to seek a positive transfer to a new job, you can't (or you can't easily), b/c you can't take the loss that selling your house will cause you. But if any of these things happen (especially the lost job or pay cut), you also can't make your mortgage payment, and the whole thing becomes like a noose around your neck, slowly squeezing your savings and finances to ruin.

With 20% down, you normally have enough equity that you can weather that type of downtown on housing prices and still sell without bringing extra $ to the table. I know on my 1st house (a VA loan, so we did not have 20% down), we had to sell when my husband decided to get a new job 5 states over only 18 months after we owned it. The job was too good not to take, but by taking it, we had to eat 6 months of double house payments (our mortgage payment and our rental in our new place - we couldn't hope to buy with the assets we had then b/c we were still very early in our careers) AND we took a $12K loss (had to bring that much cash to the sales table on a house only worth $130K), b/c the house did not appreciate in 18 months and those were our closing costs (for taxes/fees/realtors). That took a few YEARS to overcome...and we couldn't buy again for 3 years, even though my spouse had a much higher salary b/c we had to recoup our savings losses 1st.

This situation was a major reason the housing market collapsed 10 years ago...once depreciation and job losses happened, the housing market disaster snowballed and a lot of folks got financially ruined. It's no fun to decide whether bankruptcy or depleted retirement accounts are a better idea...

Of course 20% is a good idea but it used to be stressed so much you need to save save save for years so you can get that 20% but that idealogy has shifted. I was never negating that 20% is a good idea if you can swing it.

As mentioned in my above post my house is already worth more than I paid and should continue to increase in value...at least to a certain point. Sure when my house is 10 years old for example but there are homes that are only 6 or 7 years old that could affect the value. If we had to right now sell we would make a profit on our home, that is a benefit of living in the neighborhood that we live in..new homes combined with an elementary, middle and a new high school make it very desirable. In 2016 the average days on the market for my neighborhood was 41 days, in 2015 it was 52 days.

When we started the process it was Jan 2014 and our credit was checked...every month until we closed on our house in September 2014, when our credit was again checked, we had to send the mortgage company bank statements, pay stubs, and 401k statements. They were not going to just give us the house. We were also under strict orders not to buy big things like furniture or whatnot that could impact our credit score and overall monies available.

FWIW I'm sorry though you had to go through all that I don't think anyone truly wants to go through with that. The point that we can all make is to be aware it can happen.

 

[TwoMisfits]

Of course 20% is a good idea but it used to be stressed so much you need to save save save for years so you can get that 20% but that idealogy has shifted. I was never negating that 20% is a good idea if you can swing it.

As mentioned in my above post my house is already worth more than I paid and should continue to increase in value...at least to a certain point. Sure when my house is 10 years old for example but there are homes that are only 6 or 7 years old that could affect the value. If we had to right now sell we would make a profit on our home, that is a benefit of living in the neighborhood that we live in..new homes combined with an elementary, middle and a new high school make it very desirable. In 2016 the average days on the market for my neighborhood was 41 days, in 2015 it was 52 days.

When we started the process it was Jan 2014 and our credit was checked...every month until we closed on our house in September 2014, when our credit was again checked, we had to send the mortgage company bank statements, pay stubs, and 401k statements. They were not going to just give us the house. We were also under strict orders not to buy big things like furniture or whatnot that could impact our credit score and overall monies available.

FWIW I'm sorry though you had to go through all that I don't think anyone truly wants to go through with that. The point that we can all make is to be aware it can happen.

Thanks, but we actually chose to do it. The job offer (and salary increase) was too good to turn down then (and would likely never come around again) and the job he had was not good enough to keep (with 0% raises a near certainty and making very little compared to peers in his chosen field). So, I knew in advance we'd lose money, but the worst part was actually the double payments, not the final loss. At least once it finally sold (and this was 2005, top of the market almost everywhere but where my house was), its financial sink was done...

But if we'd have had 20% in, there would have been no worry and the choice to take the job would have been a no brainer. As it was, we lived REALLY tight those 6 months and then raided retirement savings to pay off the balance, and the mortgage situation was a major check in the minus column when we thought about taking/not taking the job.

I always say I'm the only one who sold in 2005 who actually lost money...

 

[WDWNY]

Of course 20% is a good idea but it used to be stressed so much you need to save save save for years so you can get that 20% but that idealogy has shifted. I was never negating that 20% is a good idea if you can swing it.

Interesting how things are different in different parts of the country. In NYC you need 20% down, some bldgs require even more.