Key Takeaways
- The middle class is shrinking, and the upper class is growing. If your income exceeds $161,000, you’re considered a part of the upper class.
- Your social circle, media consumption, and where you live can shape perceptions of wealth. These influences can lead to poor financial decisions that harm rather than help.
- It’s essential to consider only your financial health and not compare yourself to others. You may be richer than you realize because of how well you manage your finances.
There are a few ways to look at your wealth and decide if you’re “rich” or not. You may have a high salary that’s considered part of the upper class. You may have a high net worth. Or you may just be really good at managing your finances so you feel rich based on what you have in the bank and how you live your life.
The term rich is relative depending on these factors and more. People evaluate their own success by comparing themselves with their neighbors, and a middle-class income in one part of the country might be luxurious in another region.
Where you are, who you surround yourself with, and the type of media you consume affect how you judge your own wealth.
Comparison Is the Thief of Joy
It’s hard to resist the urge to compare your wealth with others. Someone might think they’re doing very well with an income of $130,000 a year until they visit the Hamptons. Surrounded by boats, large houses, and expensive restaurants, they might suddenly feel like they aren’t making enough.
Wealthier places also have higher expenses. If you live in a large financial center like New York City or Chicago, even a high salary might not go very far. Depending on your social circle, you might be tempted to spend beyond your means.
“These comparisons can go both ways; they can make people feel less wealthy than they really are, or they can cause people to have an inflated sense of their own wealth,” said Dan Cunningham, founder and CEO of the financial advisory firm, One Day in July. “If you perceive yourself as wealthier because you see yourself as wealthier than those around you, it can lead you to overspend or take larger financial risks. This can deplete your wealth over time.”
To show how widely incomes can vary, the following table shows the upper income limits by quintile for a selection of U.S. states, as well as the country as a whole, according to Census Bureau data.
How Does Your Salary Compare in Your Area?
Region
1st Quintile – 20%
2nd Quintile – 40%
3rd Quintile – 60%
4th Quintile – 80%
Lower Limit of Top 5%
United States
$31,942
$61,190
$97,458
$155,515
$250,000
Minnesota
$37,850
$68,223
$103,805
$160,398
$250,000
Mississippi
$21,071
$42,400
$69,475
$111,926
$206,135
New York
$30,308
$62,380
$104,135
$175,120
$250,000
Household income thresholds by quintile, 2023
A Shrinking Middle Class
But wealth inequality isn’t just in your head.
According to the Pew Research Center, a middle-class household is defined as a household with an income between two-thirds of and double the median. In 2023, the real median household income in the US was $80,610.
In 1971, 61% of Americans lived in middle-class households. By 2023, that number had fallen to 51%. In the same period, the number of upper-income households—those earning more than double the median—grew from 11% to 19% of the total, while the share of lower-income households grew from 27% to 30%.
Income growth in upper-income households is far outpacing growth in middle-income and lower-income households. In 2022, the median upper-income household earned 7.3 times the income of lower-income households, up from 6.3 times in 1970. Similarly, upper-income families earned 2.4 times what middle-income households were making, an increase from 2.2 times in 1970.
So while your salary of $130,000 might be well above the national median of $80,610, it may not feel like much in high-cost areas, like New York, where the cost of living is 132% higher than the national average.
“As income inequality rises, people may change what they perceive as being ‘enough,'” Cunningham said. “Even people who earn high salaries and are able to save and invest consistently may feel like they are behind because the people at the top are simply out of reach for most of the population.”
Fast Fact
Wealth and success are often measured by income or net worth, but another factor is time wealth: the amount of freedom and flexibility you have over your own day.
Psychological Impact
People who feel less wealthy may make poor financial decisions, such as cutting back on retirement contributions, overspending, and taking on unnecessary debt to keep up with the lifestyle they’re around.
About one in five households in the U.S. is upper-income. This can make it feel like everyone is doing better, but that’s not the norm. Believing everyone is doing better and you’re being left behind can lead to feelings of inadequacy and frustration.
The yardstick against which you measure yourself can change how you view your own financial security and the decisions you make.
“People often adjust their spending, saving, and investing habits based on how they feel about their wealth in comparison to others,” Cunningham says. “The best way to measure wealth is objectively looking at your own accounts and determining what decisions can bring you closer to your long-term goals.”
How to Benchmark Your Wealth Accurately
Here are a few ways you can assess your wealth without being influenced by external factors:
- Check your wealth using Pew Research Center’s calculator, which looks at income, household size, and location.
- Focus on your net worth, not your income. Net worth gives the true picture of your wealth. This takes into account savings, home equity, investments, and debt. “Tracking what percent of your income you save and invest can help you give a more accurate picture of your wealth,” Cunningham says. “Consider the amounts you have in these accounts when you inevitably measure yourself against someone else, not just the size of your house or the number of vacations you are going on.”
- Compare your wealth locally, not nationally. Making $130,000 may be middle-income on a national level, but upper-income where you live.
- Be aware of your social circle because if all of your friends and acquaintances are very high earners, that will distort your reality. Try to pay attention to the quality of life you live, your comfort, and your financial security.
- Be mindful of lifestyle creep, or the tendency to spend more when your income goes up. This could lead to higher costs in the future and kill gains. “If you receive a raise, use this time to increase your savings and investments instead of immediately putting this money towards purchases,” Cunningham says. “Over time, seeing how [your net worth] changes can give you a good idea of what direction you are heading in. Ideally, your net worth would be growing.”
The Bottom Line
How wealthy you feel isn’t just about how much you get paid at work. It’s impacted by where you live, who you spend time with, and what you’re seeing on social media. Even if you’re in a financially strong position, it can feel like you’re not making enough if your reference point is distorted by your environment and your media consumption.
This feeling can also be strengthened by the fact that the middle class is shrinking and the upper class is growing. The best way to avoid this inadequacy trap is to focus on your own financial health, define what wealth means to you, and be honest about your surroundings.