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Key takeaways
- Even if you have a high income, you may be poorer than you think if you have a low net worth, significant debt, no retirement savings, or living paycheck to paycheck.
- In 2024, the average American consumer carries $105,056 in consumer debt, and 20% of households earning more than $150,000 per year live paycheck to paycheck.
- Opening retirement accounts, reducing bloated spending, and paying down debt can help build real wealth, beyond just earning a high income.
In the United States, the middle class covers a wide range of incomes. Data from the Pew Research Center indicate that a middle-class family of three has an annual income between $56,600 and $169,800. Low-income families earn less than $56,600; High-income families earn more than $169,800.
If you just look at your income, you might be considered middle class, upper middle class, or even upper class. But income alone does not provide the full picture.
Many households that might be considered upper-middle class or even wealthy are less financially stable than they appear at first glance. Consider the four measures of financial well-being below to discover if you are one of them.
Net worth vs income
Your net worth is the amount of money you have if all of your liabilities (debts) are subtracted from your assets (savings, investments, and other property). Net worth gives a more complete picture of your financial health than income alone.
You may be a high-income earner. But if you also have a five-figure mortgage payment, multiple car loans, and high credit card balances that you can’t pay off, your net worth may be much lower than the average earner who has no loans, lives mortgage-free, and pays off his credit cards in full every month.
When you look at your net worth, you may be much poorer than your income indicates. But this doesn’t have to be the case.
“Regardless of your current net worth, anyone can take steps to grow their wealth,” said Summer Brodhead, CPA, CFP, of Everthrive Financial Group. “I think the key is to set realistic goals and start now rather than later.”
Consumer debt
For many American families, religion is a fact of life. In 2024, the average American consumer owed $105,056 in consumer debt, such as credit cards and home equity lines of credit, according to an internal Experian study. Taking on significant consumer debt can strain your financial and emotional health, no matter how high your income is.
| The percentage of each generation that carries consumer debt | ||||
|---|---|---|---|---|
| General Z | Millennials | Gen. X | Baby births | |
| Credit card balance | 24% | 36% | 39% | 32% |
| Car loan | 20% | 33% | 33% | 26% |
Action steps
Prioritize paying off debt (and cutting spending) so you can prevent your income from disappearing once you earn it. Look at debt management strategies, such as:
Retirement savings
Your retirement savings may reveal that you are poorer than your income indicates. Unfortunately, not all working American adults have retirement savings.
Twenty-nine percent of Baby Boomers, 35% of Generation X, 38% of Millennials, and 48% of Generation Z do not have any retirement accounts, either through an employer or opened independently. If you are one of them, your long-term financial well-being is at risk.
“It’s really hard to cut expenses significantly in retirement,” Brodhead said. “For the most part, whatever you spend before retirement, you get used to it, and most people will continue to do so.”
If you don’t set aside money for retirement, you will likely find yourself without the means to support your lifestyle other than taking on significant debt or continuing to work beyond the time you want to stop.
Action steps
If your employer offers a retirement plan, talk to your human resources department about setting up and funding an account with contributions from your paycheck. Whether your employer offers a match or not, it makes sense to simply contribute to the huge advantage of growing tax-deferred savings. If your employer doesn’t offer a retirement plan, or you’re self-employed, open an individual retirement account (IRA) or Solo 401(k) and start making contributions yourself.
Even if you can’t contribute much to start, a small, consistent contribution can still be valuable, according to Brodhead. The earlier you start, the longer your money can benefit from compound interest and grow faster.
Living paycheck to paycheck
Having a high income does not always mean you have financial flexibility. At the end of 2024, 20% of households earning more than $150,000 lived paycheck to paycheck. For some families, this may be due to circumstances beyond their control, such as the need to support older family members or due to significant medical debt.
However, for many, living paycheck to paycheck is the result of lifestyle inflation and reckless spending. Wealth, according to Brodhead, “really depends on your lifestyle and how you spend.”
Action steps
Question every expenditure in your budget, rather than automatically trying to match a certain ideal or expected lifestyle. You can use your library to borrow books, tools, bikes, games, and more, or even to stream TV shows and movies. You can join your local Buy Nothing group to get free household goods, clothing, baby gear or yard equipment.
If you need to, think about ways to cut your spending significantly, such as:
- Get a housemate
- Downsizing to a one-car family
- Skip vacations for a year or two
- Share childcare or after-school care with a neighbor or friend
Focus on what you’re working toward, rather than what you’re giving up, to stay motivated.
“Write short-term goals and long-term goals, and start implementing steps to achieve those goals,” Brodhead said.
Bottom line
Being a high earner may make you wealthy in theory, but if you’re not deliberate about your financial decisions, you may be poorer than you think. Focus on eliminating consumer debt, building retirement savings, and escaping the paycheck-to-paycheck cycle to improve your finances and build real wealth.
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