What is Middle Class?

What is Middle Class?

Every morning I browse through the local news on my iPad with my Dad who has been retired for almost 7 years.  For those of you who are reading this, your future Retirement life is kind of like being at work but not really. 

One thing I've noticed is that retired people for the first 5-10 years still have worries and concerns that come from years and years of working.  The simplest tasks such as going out for lunch includes having 5 different backup plans just incase something goes wrong, as if the Brewery is going to be packed to the full on a Wednesday at 2:00 pm.  The point being is that these concerns just sort of manifest into something that is inconsequential. 

Retired life is also getting way too excited about Let's Make a Deal and the Price is Right. 

To people who are at work behind a desk at 9:00 am, these shows are not important for the first 65 years of life. 

Anyway, what my Dad shared this news story today and I thought I would share it. 


Is $120,000 the new Middle Class? I actually think this is not that far off from being a legit statistic in today's economy. The era in which someone could be considered "Middle Class" at $50,000 a year is pretty much gone, and has been gone for a long time. I somehow have been able to improve my financial situation in life in the complete opposite way as what is "Normal" but that's also the business of politics sometimes, on many occasion it works the exact opposite the way people think it does. Hypothetically if I would to go back in time to 2009 when I graduated college in the worst economy in 70 years and got a job for $30,000 a year I would be in worse financial situation now at 38. I would have overspent, over extended, gotten into credit card debt, had to pay on my student loans that were incurring interest, probably purchased a car above my means and would be more like the average millennial today who is about $100,000 in debt with little to no retirement savings, and probably not a home owner.

I was lucky to have some very smart people in Sacramento about 15 years ago make sure nobody hired me so I wouldn't end up like the regular average Joe of my generation. 

As of today thanks to smart money management from my single father who is a retired school teacher, I am a home owner on a new home with him, at an interest rate of under 4%, with a good deal on solar energy to cut back on monthly energy prices and yearly increases, and we were able to transfer the property tax from the home we had in Suisun California in Solano County from 1999, so our property taxes are about $3,000 less per year then it would have been.  There was only about a 6-9 month period in 2021 in which these situations collided in a perfect vin diagram of sorts.  If we had closed on the house 9 months before hand, we would have had lost out on the property tax transfer, if we would have waited another 9 months we would have had to pay for a higher price for the home and got a higher interest rate.  Luckily we were in a real estate market in the end of 2020 and first 6 months of 2021 which was a perfect time.  We were the first home in our old neighborhood in Suisun to sell for $525,000, now it is worth around $600,000.  

The move essentially led to my economic wealth on paper to go from $0 to the equity in this home and it paid off my college debt.  So even though my checking account says I only have $18, I am technically worth something like $300,000 because our principal on this home is around $200,000 and the market value is about $500,000.  

Here is more or less what this guy is getting at.  Money is not necessarily spent evenly or equally among the middle class.  

Let's just compare my case to the average millennial and assume they have a job with the average salary of $47,000 and $120,000.  

I have no wife, no kids, no credit card debt, no student loan debt. I have a fictional "net worth" in the equity of a home I am on the title of in the amount of something like $300,000, and I have access to $18 in my checking account, and I am going to Rome on vacation in a few weeks.  The vacation is paid for by my Dad and is costing about $2,000 in total and we have been saving and kind of planning it for about 2 years. I even am going to Florence because I found a train ticket for $40 and I sold a book during Christmas for $40 so that's where that book sale went to.

Debt by Generation Link

The average Gen X is $135,000 in debt.

The average Millennial is $78,000 in debt. 

The average Debt to Income Ratio for the average millennial is about 37% meaning about 37% of their income goes to debt rather it be a car, mortgage, credit cards, student loans or so on.  The average millennial salary is $47,000.  37% of that salary is $17,390 which means the average millennial at the average salary with the average debt is making about $30,000 after they pay their bills just related to their debt. 

After you include utilities, phone, cable, food, gas, clothes, etc that $30,000 becomes significantly less.

If you compare my situation to this, where someone is making $47,000 a year but is about $80,000 in debt. Which is roughly a -$30,000 a year net. 

Me and my +$18 in my checking account and $300,000 in fictional equity in a home I am on the title of is more ahead financially. 

Why? because my +$18 is more then having a -$30,000 hole of debt per year, even though this hypothetical average millennial has more then $18 in their checking account because they pull in $47,000 a year. 

However, let's say Sacramento get's their act together enough to finally give me a job at around $47,000.  That $47,000 of taxpayer dollars in salary would be spent differently. 

Instead of $17,000 a year going to the banks in the form of paying debt, it would go to paying off a mortgage.  By my calculations within 5-6 years I would own a home outright if I had a job with the average millennial salary. If I had a job at $120,000 the home could be paid off in 2-3 short years because I would spend $80,000 a year to the principle and live off $30,000.  If I had a $47,000 salary I would put $20,000 to the mortgage and live off $25,000.  

Mind you all of these numbers are more than they actually would be because this doesn't include taxes and SSI and stuff.  

Hypothetically I would be +$25,000 a year after paying my housing expenses and stuff, instead of at a -$30,000 per year for the average millennial at the average salary at the average debt. 

And each year that goes on it adds up, and within 6 years I would have a home completely paid off, and theoretically in 6 years I would be making more than $47,000. And so long as my DTI ratio remains at 0% I would be technically be about 40% more wealthier than the average millennial. 

But this is just a hypothetical, Sacramento somehow won't give me a job.  So I remain hypothetically ahead with my $18.  

But let's hypothetically say a millennial is within the top 14% of income earners in America and pulls in $120,000 a year and has the average debt of about $80,000. 

This hypothetical millennial even at $120,000 a year salary would still be technically not as wealthy as me and my $18 with a 0% DTI with the hypothetical salary of the average millennial at $47,000.   

120-80 = 40.  


Now part of that debt includes home, but my hypothetical $47,000 would all be extra money that goes all to the principle of a mortgage and 0% to the interest, so I am giving myself a little bit of a hypothetical out and declaring my whatever I choose to spend to housing as not going towards "debt" because it would all be extra money paid each month on a mortgage and 0% of it would be going towards interest, and this is my blog so I can call in a loophole like this if I want to.  

At the end of the day it is all just hypothetical discussions and stuff. 

The truth is money is not the same as it used to be.  Even randomly looking at hypothetical things I would possibly buy in a store I am shocked at the price of things.  You almost need to make about $120,000 a year just to afford to live like a middle class person in today's economy.  

But if you can be debt free and make $120,000 a year you can more or less easily become a "Millionaire" and enter the top 8 percent of people in America.  

Technically I am 30% to that goal and I have never had a salary job and my Dad is a retired school teacher and we live on a single income. 

just don't use credit cards, make every meal at home, don't spend money you don't have, and be smart about financial planning, and do what you can to find the right time to buy a home.  

On the topic of interest rates on a 30 year mortgage it is a historically interesting discussion to have. 

When my Sister was born in the Summer of 1981 the 30 year rate was at a historic high at about 17%. 

When I was born in the Summer of 1986 it was about 10%.  For the seven years from 1979 to 1986 the rate was above 10% which is a historic anomaly of high interest rates.  

For about 22 years from 1986 to 2008 Interest rates were more or less stable fluctuating between 6-10%. 

Mind you the average housing price was also significantly less during this time so the average salary was enough to pay for a house at these interest rates. 

The financial crash of 2008 right when I graduated college created a situation that necessitated lowering interest rates for a long while.  And then there was a pandemic about a decade later. 

Now homes cost significantly more then they did in the 1990's, but the interest rate remains the same, which means that more of that average salary is going towards a mortgage then ever before.  

The point being is that it was never technically "normal" to have a 30 year mortgage interest rate be under 5%.  Just as it was not really normal to have the rate be above 10% like it was in the early 1980's. 


I guess if you think of this by decade you could say that the "normal" interest rate in the 1970's was 7-10%

the "Normal" interest rate in the 1980's was somewhere around 12%

in the 1990's it was  about 8%

In the 2000's it was about 6%

In the 2010's it was about 4%

and in the 2020's I guess the Fed is trying to get it back up to that 6-10% which is a historically normal range for 4 out of previous 5 decades.  It's just the shock of the rate doubling within a single year that is making people sort of freak out. It went from about 3% in the fall of 2021 to 6% in the fall of 2022. 

The problem is that this is not the 1970's. The average home price in 1974 was $40,000 which adjusted for inflation in 2024 is about $248,000. 

The median price for a home in the USA in 2024 is $387,000.  Which is $140,000 more than the average home in 1974 even after adjusting for inflation.  

At 6 percent interest a mortgage loan of $140,000 over 30 years would need $220,000 to pay off. And that is just the difference of the cost of the average home even after adjusting for inflation for a the average home from 1974. 


People need a lot more money in their salary to have the same kind of lifestyle as people who came before them. 

Back to blog