How the Middle Class Can Build Wealth on a Modest Income

The median income of all middle-class households, regardless of household size, was $90,131 in 2020, according to the latest available data from Pew Research Center. While middle-class income levels have increased over the years, this growth has been steady but slow.

For those in the middle class who earn less than the median, or whose income allows them to live a more modest lifestyle, the goal of becoming rich might seem like a stretch. After all, the value of the dollar doesn’t go quite as far as it once did, and the cost of living is still high throughout many parts of the country. Not only that but some common middle-class money trends might keep these individuals from becoming wealthy.

If your household is considered middle class, but you’re earning a modest income and want to build wealth, here are some things you can do.

Change Your Mindset Around Money

Many people in the middle class view money in terms of what it can get them right now — like an expensive new vehicle or a house. But this can make it harder to build wealth, regardless of income. Those who want to become rich may want to start thinking about money in terms of its long-term value instead.

The middle class “fall into the trap of what I call ‘must-haves’ — things they have become convinced they must have to maintain some lifestyle they’ve slipped into,” said JL Collins, the author of “Pathfinders: Extraordinary Stories of People Like You on the Quest for Financial Independence — And How To Join Them” and “The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life.”

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“A great example is buying as much house as their lender and real estate agent tells them they can afford, rather than the less expensive house that meets their needs,” Collins said. “They fail to understand that, among the many things money can buy, the most valuable is their financial freedom.”

Focus on Investing Rather Than Spending

Spending money in a calculated manner can still allow you to build wealth even if you live on a modest income. But recklessly spending while ignoring investment opportunities can keep you from becoming rich or elevating your financial status in ways that truly benefit you.

“A lifestyle that looks rich with fancy houses, cars and the like is just spending,” Collins said. “Building wealth is about buying investments, ideally low-cost, broad-based stock index funds.”

Get a Second Income Stream

Having a modest income will get you only so far, especially if you don’t have any other income streams going on. For those in the middle class who truly want to build wealth, it’s important to get a second or even third source of income. And this means more than just relying on the stock market.

The middle class “never focus on building a second stream of income,” said Steve Davis, CEO of Total Wealth Academy. “They speculate in the stock market for all their lives. The stock market doesn’t produce cash flow so they never get wealthy.”

Davis continued by saying that people can build another income stream by purchasing income-producing assets like real estate and businesses.

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Invest in Your Education

Living on a modest income shouldn’t keep you from investing in your own education and skills development. You don’t even need to go overboard with your spending here. But prioritizing these areas in life can help improve your financial situation now and in the future.

Sebastian Jania, owner of Ontario Property Buyers, said, “Another thing that those in the middle class often do is they focus on saving money rather than focus on spending money on things that will make them more income, such as skill development.”

While there are many types of skills you could invest in, it might help to start with the basics of finance and investing.

“People need to educate themselves on income-producing assets and start investing as soon as possible,” Davis said.

Don’t Let Yourself Become House Poor

Someone is considered “house poor” when their housing expenses — including their mortgage and related bills — are too high for their income. This can result in them taking on more debt to cover the essentials, or struggling month to month to keep up with the bills.

Naturally, becoming house poor can keep someone from obtaining true wealth, especially if they already live on a modest income.

“For many in the middle class, the dream of homeownership is pretty central,” said Jeff Rose, CFP and founder of Good Financial Cents. “They save up for that down payment and take on a mortgage, looking at their home as an investment.”

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While this isn’t necessarily a bad thing, buying too much house can be. And if that house comes with additional expenses you didn’t expect — like ongoing maintenance or high property taxes — that can also keep your money tied up in your home.

“Buying a home can indeed help build wealth over time because property often appreciates,” Rose said. “But there’s a catch: All the extra costs like fixing the roof or updating the plumbing can chip away at your wealth if you’re not careful.”

One way to prevent this is to simply buy a less expensive home and to make sure you’re financially prepared for the true cost of homeownership.

Don’t Just Go for Instant Gratification

A lot of people seek instant gratification, something that’s even easier to do when you have a bit of extra spending money — like those with modest incomes. But this money habit is another way of keeping people from becoming wealthy. This is especially the case with those who promise themselves that they’ll save or invest — but do so only after they spend.

“The poor and middle class have it backwards,” Davis said. “They buy the toys first. Cars, houses, jewelry, watches, vacations and such. Then they tell themselves that as soon as they have everything that they want, they will start saving.

“The problem is that the debt on these things keeps them living paycheck to paycheck and there is no money left to save and invest. The rich buy income-producing assets first. Then they buy the toys with the cash flow from these assets.”

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Start Thinking Long Term About Money

Living in the moment might work for a while, but it’s rather limiting when you’re trying to build a financially stable future. And forget about it if your goal is to build generational wealth for your descendants.

By thinking about your future and the value of your money, you’ll be better positioned to become wealthy. One way to do this is to start viewing your savings as a necessary expense, according to Rose.

“If you’re looking to beef up your savings, start treating your savings account like a monthly bill,” he said. “Set up an automatic transfer each month to make sure it happens. Even bumping up your retirement savings by 1% can make a big difference.”

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