7 Signs You Might Drop From Upper Middle Class This Year

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Reaching an upper-middle-class lifestyle is the kind of thing most people dream of and aspire to. Having a significant financial cushion, greater freedom, and more income — are all perks of being part of this socioeconomic class. But a few wrong moves could easily make you lose that position.

“The upper middle class is often recognized for its generous discretionary income,” said Ann Martin, director of operations at CreditDonkey. “But if you’re using that income for the wrong things, you could fall out of this class in 2024.”

Here are some tell-tale signs you could jeopardize your financial position.

You’re Giving Into Lifestyle Inflation

According to Martin, many new members of the upper middle class give into lifestyle inflation, allowing themselves to adopt more expensive tastes and “upgrade” their lives in ways that lead to increased monthly expenses. 

“Over time, this can make it all but impossible to meet the financial goals you need to remain in the upper middle class, such as building wealth and keeping debts low.”

One of the biggest contributors to someone dropping out of the upper middle class is a combination of lifestyle creep coupled with job loss, said Jennifer P. Kirby, a fiduciary financial advisor and managing partner of Talisman Wealth Advisors. 

“When people grow their standard of living — a bigger house with large mortgage payments, expensive vacations, private school, costly cars and so on — there is often the feeling that stepping backwards is not possible,” she said. “In fact, there is a sense of inevitability that their wealth will only continue to grow. This makes people vulnerable because they quietly assume too much risk without even realizing it.”

You’re Carrying Excessive Debt

“Imagine a family excitedly pursuing a better life, perhaps upgrading to a bigger home or exploring new opportunities,” said Karina Newman, real estate investor and owner of iBuyers. “However, the temptation to fulfill these dreams leads them to accumulate more debt than they can comfortably handle.”

She noted that as life unfolds, the weight of rising debt becomes burdensome, making it challenging for them to maintain the lifestyle they aspired to. 

Additionally, she said the stress of managing credit card expenses or the interest on high balances can quickly spiral into a financial struggle. 

You’re Not Investing In Professional Development

“Picture someone who excelled in their profession suddenly facing job displacement due to technological advancements,” Newman said. “The need to adapt quickly to a changing job market becomes a daunting challenge. Envision an industry affected by globalization, leading to fewer job opportunities locally.”

She observed that individuals who once had job security find themselves navigating a competitive global market. All to say, neglecting to invest in professional development could have disastrous effects.

“Now, think about the hurdles of retraining for a new career. The costs and time involved can feel like starting over, posing challenges for those dealing with sudden unemployment.”

You’re Relying Too Heavily on One Asset

Newman noted that homeowners experiencing a downturn in the real estate market can easily find themselves financially vulnerable.

“The value of their property, once a source of financial security, diminishes, impacting their overall net worth,” she said. “Think about someone heavily invested in the stock market. When the market experiences volatility, their investments can suffer significant losses, affecting their financial stability. Consider the risk of relying too heavily on a particular type of asset.”

She said that if your wealth is tied predominantly to real estate or stocks without diversification, you become more vulnerable to market fluctuations. 

You Haven’t Built Up Significant Savings

“Think about a family facing an unexpected health crisis,” Newman said.

Despite having health insurance, she said the various costs, including deductibles and co-pays, can add up quickly and put a strain on your finances. 

“Now, imagine the primary breadwinner encountering a serious health issue, rendering them unable to work,” she continued. “The combination of lost income and mounting medical expenses creates a difficult financial situation. Consider the emotional and financial toll of a family member needing long-term care, requiring not only significant emotional investments but also substantial financial resources.” 

You Have  Zero Investments 

“With the financial situation of today’s economy being such that more has become less, the truth is, it really wouldn’t take much for one to be pulled down from the upper middle class by the weight of all their financial responsibilities, and financial goals,” said Mafe Aclado, general manager of Coupon Snake.

“You no longer need to indulge in excessive spending before your finances begin to feel the heat,” she explained. “You only need to neglect to prioritize growing your investment, or just have zero investments to begin with.”

She noted that if as an upper-middle-class earner, your spending is greater than your income, then you are on a fast train to the lower middle class. 

“Having zero investments is one of the factors that would cause people to go from upper middle class down to lower middle class this year,” she added. “With no investments to support their earnings and financial responsibilities, the fact is, not only would they be living paycheck to paycheck, but they would also end up eating into their savings.”

You Don’t Have a Financial Backup Plan

“I also see people greatly overestimate their ability to replace a high income when they lose a job,” Kirby said. “This is where things can get dicey very quickly. With big cash out the door every month, when the music stops you can hit the wall hard in short order. This is when you see things like foreclosures, excessive credit card debt, and the raiding of long-term savings. If it takes too long for the ship to right itself — if it takes too long to find a job, or there is a certain level of denial and expenses are not cut quickly — this can have a deeply adverse long-term effect on someone’s financial picture.”

She said that in the current environment, certain sectors have still not recovered from the economic distress of the past few years. That’s why it’s vital to have a financial backup plan lined up.

“This is where high earners are the most vulnerable of losing their jobs,” she added. “With higher inflation and expenses that do not drop such as a big mortgage, school, or hefty car payments, any long period without that income can be devastating.”

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