or Connect
Mothering › Mothering Forums › Natural Living › The Mindful Home › Frugality & Finances › My finances are the opposite of what I think they are
New Posts  All Forums:Forum Nav:

My finances are the opposite of what I think they are

post #1 of 12
Thread Starter 

You know how class has been a big topic in the media lately, and magazines and sites are offering all these charts and such so you can see whether you are in the top 1% or the bottom fifth or whatever, right?


Whenever I look on these charts to see where I am, two things stand out for me:


1) The charts say we make a lot of money. (Income affluent)

2) The charts say we have among the lowest net worths. (Bank statement poor)


Honestly, our $40k income is not bad at all, and we pay all the bills just fine. I just don't see us as upper middle class on that income. We live in a working class town. We don't have what I assume most Americans have - cable, two cars, etc. It seems like even working class people buy entertainment (our budget for that is zero), clothes (almost zero), even beverages (we don't buy beer, wine or even soda). So I'm having a hard time believing that we are in the elite for income.


And the other thing is that we are apparently the bottom of the barrel for net worth. I realize our net worth is not at all impressive. However, I thought we had more than most of our peers - just for having a positive net worth at all. I read that most Americans could not cover a $1000 emergency. So how is it that your average American has a net worth of tens or even hundreds of thousands but doesn't have a thousand bucks in the bank? Don't tell me it's equity in the home; last I checked, the bubble burst years ago. Our net worth is roughly $8k, accounting for our home (which lost value since we bought it, but luckily we're a bit above water on), our mortgage, our student loans, our cash savings and our retirement savings. Now I know $8k is really terrible, actually, but I look around at the people who live in my area, and I can't imagine that many of them have any more than that. In fact, we worked really hard and made many sacrifices (some listed in the previous paragraph) to get where we are.


So, it's strange and unsettling to see that, though we are extremely frugal and have worked hard on being financially responsible, that in fact we are doing terribly compared to the average American who has a significantly higher net worth on a much lower income than us.

post #2 of 12

First, I'm not sure what charts you are looking at.  A common definition of upper middle class is above the 85th%. I couldn't find that information, but the 5th quintile, so 80th percentile (in 2007) was $97K:




According to the 2010 census, the median household income was $52,673.  You can check for your state here:




A quick glance shows that $40K would be above the median in West Virginia and Arkansas, but I didn't notice any other states that were under $40K.  If you lived in Maryland or New Jersey, though, you'd be under 60% of the median income.


So, depending on where you live, your assumption that your income is upper middle class may be significantly off.


How old are you?  Net worth is *heavily* influenced by age.  People under 25 often have a negative net worth, while people who are in their early 60s are often at their peak (mortgage paid off, have not yet started drawing down retirement savings, etc...).  Remember, also, that net worth includes *all* assets.  Just because you have $15K of value sitting in a vehicle does not mean you have $1K or more in a bank account. 


Here is one net worth chart:



It says that if you are from 25-34, $8K would be exactly the median net worth.  Of course, I'm sure there is a HUGE range in there.  Many 25 year olds would just be starting out while there are 34 year olds that would have been working as professionals (and hopefully saving) for over a decade.


While medians are interesting to contemplate, they don't mean too much.  An obvious example is someone who dropped out of high school and started working at 16.  When you look at their net worth at 24 compared to someone who is two years into law school they're going to be *way* ahead, but it would be generally unlikely that they had better long term prospects. 


Are you meeting your goals?  It sounds like you're paying off student loans, saving for retirement *and* a homeowner, so it seems (logically) that you're doing well but I understand it can sometimes not feel that way :(

post #3 of 12
Thread Starter 
Originally Posted by TiredX2 View Post

First, I'm not sure what charts you are looking at. 

This is just the latest one:



From the New York Times, not some random site.


Our pre-tax income is just over $40k, which according to the chart, puts us at the 69th percentile and solidly in the upper middle class quintile.


As for net worth, the average according to the graphic is between $50k-$100k. I do hear you that this is largely age-related. I'm embarrassed to say that I'm 35, so I don't even have the excuse that I'm 22 and just starting out. I do think our net worth is quite low when I look at it one way; yet when I look around I have a hard time believing other people are sacrificing as much as we are.


If the graph showed that we were in the bottom quintiles for income, I would just assume people are making $100k a year and, without much effort, socking away $20k a year into retirement, savings, etc.


But the bottom line, according to the New York Times, is that we have nothing to show for our high income. And I just have a disconnect there.


Probably the most sound advice is to ignore it all but it's difficult to work so hard and feel like we have less than others (smaller house, no vacations, one car family, etc) and then be told that we should actually have money coming out our ears and everyone else is way ahead of us on half our income.


And yes, I'm painfully aware that this is all first world butthurt.

post #4 of 12

Maybe part of the problem is in distinguishing between individual and household income?  The median household income in the U.S. is about $50,000.  So I do not believe that $40k in income can put you in the 69th percentile.  But two earners each making $40k, for a household income of $80,000, could be upper middle class.


I too would find our net worth somewhat discouraging, except that I can compare it to what it was when we got married (far negative from student loans), and see how far we have come in only a few years.



post #5 of 12
Originally Posted by seashells View Post

This is just the latest one:



From the New York Times, not some random site.


Our pre-tax income is just over $40k, which according to the chart, puts us at the 69th percentile and solidly in the upper middle class quintile.


According to the chart: "The income refers to the yearly income of every individual who is employed full time over the age of 25. The middle fifth of earners make roughly $30,000 to $40,000."  On average, most families with children have more than one income (not two, but more than one).  When you add it up, on average, it is apparently over $50K for the median family income.


I don't know why they are reporting the 4th quintile as "upper middle class."  Most people consider "rich/wealthy" to be top 1-2%, not the top 20%.  For example, wikipedia says:


Sociologists Dennis Gilbert, Willam Thompson and Joseph Hickey estimate the upper middle class to constitute roughly 15% of the population. Using the 15% figure one may conclude that the American upper middle class consists, strictly in an income sense, of professionals with personal incomes in excess of $62,500, who commonly reside in households with six figure incomes.[1][5][8][11] The difference between personal and household income can be explained by considering that 76% of households with incomes exceeding $90,000 (the top 20%) had two or more income earners




It doesn't *really* matter (as in, what *really* matters is how you use the money and how you feel about it, kwim), but if you use different numbers you get quite a different perspective. 

post #6 of 12
Thread Starter 

Oh, I get it, you actually read the text biglaugh.gif


Yeah, that does change things... but then again, does it really? How can an individual's income be considered a class indicator? I could be very solidly upper middle class (by my own definition) making $17k a year. Because my doctor husband brings in $200k and I make my $17k being on some board or working part time in the library with all the other wives in my posh town just to keep from getting bored.


In my case, I am pretty much the sole breadwinner, so it's odd that the graph assumes that it can just double my income. That's our household income AND my individual income.


I guess your point is that the graph is crap, and I think you're right.


And you're right that what we feel about the money is important. It's odd how we (general) are driven to keep checking everyone else out to see how we're doing. I certainly do it - it sounds like a snobby thing but I really feel it's more for reassurance that I'm being responsible enough. I don't care about having more than everybody else per se, I'm not trying to die with the most toys. I just really want to feel like I'm on the right path and doing what's right for my family's security. And these stupid charts and graphs and so on that circulate these days are really inaccurate and not helpful.


post #7 of 12

I guess I thought the point of the linked graph was that "class" is about more than income. It talked about how some more modestly paid professions are still highly regarded (and therefore part of a higher "class" by some definitions), education plays into class, as well as income, and net worth.


I thought it was interesting if somewhat useless without more context.

post #8 of 12

I think that entire graph is weirdly skewed.


Based on education alone (some college, no degree), I qualify as upper middle class.  Even though I can't get a job that pays more than $12/hr and childcare costs that much.  Big disconnect. 


Based on job class alone, my DH qualifies as Upper Middle class, even without looking at income or education or net worth. 


I would take what that graph is showing with a very large grain of salt. 

post #9 of 12

Heck I got wildly different results if I entered myself as a biological scientist vs a biology technician. But have no clue how they defined each career and could legitimately be called either. Based on simply having a Bachelors degree it indicates I am upper middle class. Between my husband and I we do make a good income that I would call upper middle class. However, our net worth isn't that high either and I am also 35. As a PP mentioned it takes time to build net worth and I'm at a phase in my life where a lot of that net worth is still going to college debt, home ownership, and child rearing and I think that's all pretty norm.


However, depending on what I entered in each category (all accurate) I got anywhere from 26% to 91% on their class scale. It's a rather odd tool.

post #10 of 12

Also, not sure if it applies for OP specifically, but in general you do have to consider cost of living in thinking about what a certain $ amount of income should/could mean in terms of financial security. A $40,000/year income in San Francisco is not going to go anywhere near as far as that same $40,000/year in some small, rural agricultural town just a few hours from SF (like the one I grew up in...) 


I saw somewhere a "living wage" calculator (may have been linked here a while back), and it really gave a good perspective on what amount of money would provide the same life style in different locations. 

post #11 of 12

I don't think 40k is "making a lot of money" anywhere in US.  You can be comfortable in some lower cost of living areas with that, but in most places, if you're not paycheck to paycheck, and have any kind of savings, you're doing pretty well.  I'd say you've been managing your resources really well from your posts.


I just started a thread on another forum about money and there are many people who think 100k a year (for a family) is solidly middle class, not even upper middle, especially in high cost of living area.


National numbers don't matter much.  Most people compare to those they know.  I know some people who think 100k a year is meager, and "don't know how they'd manage", because all their friends make 200k+ a year.  It's all relative.

post #12 of 12

that NYT chart is from 2005....a lot (A LOT) has changed in personal income and finances in that time period!

New Posts  All Forums:Forum Nav:
  Return Home
  Back to Forum: Frugality & Finances
Mothering › Mothering Forums › Natural Living › The Mindful Home › Frugality & Finances › My finances are the opposite of what I think they are