America’s 5 Wealth Classes and Where You Stand

Today I thought it would be interesting to go over just how much money people actually need to feel comfortable in this country and kind of where everybody stands right now with the amount of wealth that they have. And I've made a couple videos in the past talking about how you don't want to always be in comparison mode between what you have and what everybody else has because then it's going to make it always feel like it's not enough. You're going to feel worthless. You're is really just to kind of outline where people are today and also highlight the fact that almost no matter where you are on the wealth spectrum it's never really enough. And for a while everybody's been talking about how the middle class has been disappearing, you know. And the reality is that even people who used to be considered upper class are starting to feel the pinch and often people who were upper class before are kind of being downgraded to middle class just due to the sheer cost of living. Nothing to do with them doing anything wrong or their wealth declining. It's just that everybody's wealth declines due to inflation. So no matter how much you have it's going to buy less when inflation is a big issue like it is today. And by the way I'm walking along the Tiburon Ridge Trail here in Tiburon, California near Ring Mountain. So in this video let's break down how the average American is doing when it comes to net worth. Now first we have to talk about the difference between net worth versus income because when most people think about social classes they think about income, how much money you make every year. But the full picture is net worth because you can have somebody that makes $300,000 a year who has a lower net worth than somebody who only makes $75,000 a year if they're just throwing away all that money and living paycheck to paycheck. Now according to the Federal Reserve there are five different wealth classes and I will put the chart up here on the screen. And according to them America has five wealth classes. The bottom 25% are people who have a net worth of $30,000 or less. Lower middle class is people who have $29,000 to $209,000 net worth. Upper middle class is $209,000 to $714,000 which by the way is the average net worth of retirees today. Upper class is $714,000 to $2.1 million in net worth. And then the wealthiest 10% is anybody who has a net worth of $2.1 million or more. Now people who are in the bottom 25% are people who earn minimum wage, also people who are just finishing up college and are graduating with a mountain of student loan debt, and people who have just made poor financial decisions and have blown all of their money over the years. And if you find yourself in this wealth class then your number one focus is usually going to be survival as you're likely living paycheck to paycheck. And people in this category should be looking at stabilizing their income, increasing their income, getting out of debt, and building up an emergency fund because all three of those things are going to be what's going to help you to move up to the next rank, so to speak, which is lower middle class. And by the way, it's not me defining this. It's all the Federal Reserve data and how they gauge where people's finances are. Now if you're lower middle class, you're probably somebody who's slowly building up a retirement account and you probably have a mortgage or multiple loans like car payments or student loans, things like that. You are getting ahead in the world, but you are still very financially vulnerable in the sense that if one thing goes wrong, everything that you've built up to this point can easily go poof just like that. And people in this income range should be striving to save anywhere between 15 to 20 percent of their income for retirement as the goal. Now if you are upper middle class, you are likely shifting your focus to a long-term financial independence outlook. Your retirement savings are growing at this point. Your debt is more manageable and maybe you're even out of debt at this point. And planning for taxes and your investments becomes a lot more important because as your net worth grows, so does the amount of money you got to pay in taxes because even if you're putting money into Roth IRA accounts, well guess what? You're paying the taxes up front. If you're putting into tax deferred accounts, you're paying it when you make the withdrawal. So one way or another, you're paying tax. So the more that you're saving for retirement, the more taxes you're going to pay in the long run. Now if you are upper class, then this is where we're starting to get into millionaire territory. But the thing is, you know, being a millionaire doesn't always mean you're living large. In fact, according to the most recent data, it's reported that about a thousand Americans per day are becoming millionaires lately, which is pretty impressive. But you have to understand, the reason why this is likely happening is all due to the phony gains that we've seen in the stock market. So if you've been halfway responsible in your life and you've been investing for at least the last 10 or 15 years, you've become a millionaire by default by just having those investments continue to have compound interest and build up over the years, not doing anything special to become a millionaire. You might be working just a regular job and be a millionaire just because of consistent long-term investing. And here's the kicker too, being a millionaire doesn't always get you very far depending on where you live. Like for example, if you live here in the Bay Area and you've got a $2 million net worth, you're likely living more of a middle class lifestyle than an upper class lifestyle because of how expensive it is to live here. Home prices, taxes, the cost of living, everything here is super expensive. And so that money just doesn't go as far as it would in somewhere in the middle of Ohio, for example. Now, if you're in the top 10% of earners, you're probably enjoying the finer things in life like traveling, maybe you have a charter jets. But here's the kicker also, a lot of people who are in the top 10% wealthiest of Americans say that they don't feel rich. They say people really don't start feeling rich until they have $4 to $5 million in net worth. And can you guess why that is? Well, I'm going to go out on a limb here and say it's most likely due to the fact that inflation makes everybody feel poor, even if you're rich. Because for example, say you have a $4 million net worth and you want to buy a second home, but that second home is going to cost you 1.5 million. Well, that's like 30% of your net worth or more. So of course you're not going to feel rich because buying that is no longer affordable. Whereas maybe five to 10 years ago, you could have bought that second home for five or $600,000, making it a much lower percentage of your net worth, making you feel like you can afford it. Because even if you can afford it on paper, you might feel like you can't afford it just by looking at how big of a chunk it's going to take out of your monthly income or even your overall net worth if you pay cash. Because yeah, even though you'll have that asset and you pay cash, it's technically a liability if you're not renting it out and generating a cashflow positive income from that property. So it's still going to be draining your bank account every single month from property taxes, insurance, HOA dues, if any, and repairs and maintenance. And that's with no mortgage. And here's also the reason why upper-class kind of feels like middle-class these days. Because let's say you have a $2 million net worth, that puts you in the top 10% of people. And if you're living off of that money, that will give you about $80,000 per year living off your investments, which isn't bad, but that's kind of just a middle-class income. That's right around what the average household makes in the US today. And ask any household that makes about $80,000 a year, they'll tell you that money doesn't go nearly as far as it used to. So this is why I wanted to bring you guys up here today. And as I start walking along the trail more, that's going to be the beautiful view you're going to see from here. It's pretty stunning. And let's face it, even if you are upper-class and you have that $80,000 a year that your investments are throwing off and you want to retire early and you're living off of that, you're still going to want to experience some of the finer things in life. Otherwise, you're going to have to just live on a budget. And even though you're technically wealthy, you're not going to feel wealthy. And you still got to deal with things like rising rents, if you're a renter, rising property taxes, if you're a homeowner, rising homeowner's insurance, rising car insurance, rising health insurance. And the thing is too, a lot of people that end up in this millionaire category early on likely did it in places like this, where it's very expensive to live. Because also the other thing that these areas provide is a lot of opportunity. So a lot of millionaires are made right here in the Bay Area and Silicon Valley, and even down in Miami, where I live as well. But also look at the cost of living in these areas. And a lot of people have been there for a while. Last thing you want to do is leave. So you spend years, if not decades, building up your wealth in a very familiar area, only to kind of be forced to move somewhere else, unfamiliar, maybe even another country in a lot of cases, in order to see your money go further. And I know a lot of these numbers that we talked about might sound kind of unrealistic, especially for younger people, or if you're somebody who's in the bottom class, or you're somebody who's in the lower middle class range. But here's an example of how just taking $5,000 and investing it into the market, and then dollar cost averaging over the span of 30 years, can make you a millionaire. And I'm definitely not saying that investing in the stock market is the only way to become a millionaire. It's just kind of the most traditional way, and it's one of the reasons that most people who are millionaires today have become one. So let's say you deposit $5,000 into a savings account that's only paying 3% APY right now. At the end of the first year, your balance would only be $5,152. After two years, you'd have about $5,300. And by year 10, you're sitting on only $6,749. And by 30 years later, you would have only accumulated $12,297. And that's if you keep that 3% APY all 30 years, which you know that's probably not going to happen. But let's say you were to invest that $5,000 into the stock market instead, and earn about 10% on average annual return, which is the historic annual average return for the S&P 500. And then you dollar cost average for 30 years, which means you put $5,000 in initial investment. And then over the course of 30 years, you put $500 a month in for the next 30 years. After 10 years, you'll have $115,000. After 20 years, you'll have $416,000. After 25 years, you'll have $723,000. And after 29 years, you will have $1.1 million, just starting off with that initial $5,000 investment and investing an additional $6,000 per year, which is pretty attainable for almost everybody. Even people making the average household income about $80,000 a year. So just by looking at that math, you can see why we're making so many millionaires in America, because a lot of people have done that. And by default, they are becoming millionaires just because they have followed this simple investment strategy over the course of many years. And of course, if you're able to increase your contributions over those 30 years beyond the $500 a month, you can get to millionaire status a lot faster than 30 years. But also there's no guarantees in life. There's no guarantee that over the next 30 years, the stock market's going to continue to have an average 10% return annually. They could be more, it could be less. But the point is, it's typically better than just throwing it in the bank into a high yield savings account and hoping you're going to get there that way. And I wanted to share an anonymous email that was sent to me from one of my viewers who said they've been watching my channel for the past three years to give you an idea of how even people who are very well off right now are not feeling that well off. Him and his family live in Vacaville, California, which is just kind of on the other side of the bay in the East Bay here. And we make a combined income of over three times the median income of the city of San Francisco, which I don't know what that is, but it's multiple six figures. They didn't say. He says we rent a home, which is likely a lot cheaper here in California than buying one. We have no credit card debt and our newer cars are paid off as of last year. So we carry no debt with cash savings in the bank. And he says for me to purchase a 1,700 square foot newer ranch home, even with a $100,000 down payment coming from the New York area, California is about 15 to 20 percent higher in cost of living compared to New York. He said, I never thought it would be this expensive. And I'm really concerned that if I get laid off, I'm trying to leave my family as a father and a As a former U.S. Marine, I can tell you more and more we are moving towards being a third world country. Thank you for being the light on the hill and taking the time to educate people. We need more guys like yourself to take up leadership roles and turn things around. Well, I won't be taking any leadership roles in the form of politics or local government because that is just not my cup of tea. And I'm not planning on being a professional liar for a But I appreciate the compliment. I'm definitely much more comfortable here on YouTube reporting the truth and telling people as it is and keeping people informed. But I still appreciate the message nonetheless. But that just goes to show you even somebody who's probably in that top 10 percent of earners here making multiple six figures, having no debt and is renting, likely saving, you know, more than half of what they would be paying if they were a homeowner here and still feeling like it's not enough. Now, living here, of course, is going to make people feel like no matter how much you make, it's not enough because things are just crazy expensive here. OK. And if you take your Bay Area income and move pretty much anywhere else in the country, you're going to feel pretty wealthy for the most part, although the areas that are available that are going to make you feel like that are shrinking by the day, no doubt, because even Miami, where I live, specifically Miami Beach, used to be relatively affordable and it is still more affordable than here. But it's closing the gap quickly, man, let me tell you, especially when it comes to housing costs. In fact, I would even argue that after all the properties I've seen here in Marin County, you can probably buy a nicer house for the same, if not slightly less money than you can buy in Miami Beach right now. And that's not an exaggeration. Same thing goes for the condos and townhouses, too. Now, I want to go over one more thing here, which is kind of a likely culprit of why a lot of people never make it to millionaire status besides not decreasing debt and not increasing their income. A lot of people have what's called zombie accounts. According to Secure Data Recovery, they recently found out that 94% of Americans, which is almost everybody, have some kind of zombie account, which is an account that once you've signed up for, you no longer use. And it might be costing you money. Platforms that have the most zombie accounts are things like Pandora, Groupon, Shutterfly. And the one that actually has the most is the investing app called Acorns. So a lot of people are just paying for services that they're not using. And just because you're not using the service doesn't mean you're not being charged. And I'm surprised that gym memberships isn't on this list because a ton of people sign up for gym memberships at the beginning of the year. They use it for like 30 days and then they quit. But the way that a lot of these programs get you is because the fees are very small. A lot of them are only like five or 10 bucks a month, and it can make it feel insignificant and you might forget about it. But say you have two or three of those, and all of a sudden you're paying $15 to $30 a month for programs and services you no longer use. That adds up. You could potentially be wasting hundreds of dollars, maybe even thousands of dollars a year, depending on how many of these accounts you actually have. And one of the other problems with these zombie accounts is not only are they slowly draining your bank account, but also they are a goldmine for fraudsters. For example, if a fraudster gains access to your account, they will likely purchase goods or build a profile without the original account holder catching on for quite a time because you don't use it anymore. And the fraud gets exponentially worse if they're able to actually get your password and username and change the email address associated with the account. So that way you're still being billed, but you're locked out of your own account and you can't even make changes anymore. A lot of times those problems can be solved by calling the vendor and telling them what has happened and also putting a stop charge on your credit card. But still, it's a lot of problems to go through and likely by then they've already got some of your money. So you have to be sure that you are routinely checking your bank statements and your credit card accounts for every single charge that's on there. And if there's something that doesn't look familiar or you're unsure of why you're being charged something, investigate it. And if it's still unfamiliar and you don't know, dispute the charge. And if you realize that it's from an account that you no longer use, cancel it. And the best thing to do if you find yourself having some of these zombie accounts is not only cancel the account guys, but just delete your account altogether. Don't just pause the billing because sometimes they have sneaky little things in there that say, well you're just pausing for a few months and then you promise to resume after x amount of time. That's very common with the food box subscriptions. I was using those for a while and they would do that all the time. They would say, well you can pause your subscription and then it would say kind of in fine print that we're going to automatically turn it back on in like three months from now. So in that case, it's better to just cancel your account entirely. That way you don't have to worry about stuff like this happening. Then of course, it's just the usual things that people waste money on, you know, going out to eat when they can't afford it, getting food delivered, spending money on the credit card that you don't have, the typical stuff. I just want people to know that it is possible to make it into that upper middle class range, even the upper class range with diligent budgeting and spending practices. And if you're somebody who's already made it there and you feel like it's not enough, make sure you let us all know in the comments why and what's going on because I would like to hear about that. So if you enjoyed this video, make sure you subscribe to the channel. And if you don't want to wait for my next video to come out, check out this one on the screen right over here, and I'll see you in the next one.