Have You Hit Upper-Middle Class This Year? If Not, Here Are 3 Steps You Can Take To Get There

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In 2023, 51% of American households fell into the middle class, down from 61% in 1971. According to Pew Research Center analysis, these households make between $56,600 and $169,800, and many are trying to grow their wealth to get to the next income bracket: upper-middle class.

Upper-middle-class households make over $169,800 annually, and their demographic has grown from 11% in 1971 to 19% in 2023. The middle class isn’t a bad place to be, as they usually are homeowners or have stable housing, have jobs with benefits and their debts are mostly from mortgages, education and medical bills. However, members of the upper-middle class may own multiple homes, have access to elite education and have the potential for early retirement.

Moving up to become a member of the upper-middle class is challenging but not impossible. Here are some ways middle-class households can position themselves to make the transition.

Maximize Investments

One of the best ways to build wealth is to max out your tax-advantaged retirement accounts. Traditional employees often have the option to divert a percentage of their paychecks to 401(k) plans each month before applying taxes. That money then can grow in a fund tax-free until retirement, where you’ll pay ordinary income taxes on all withdrawals.  

Another key advantage of maxing out your 401(k) is employee matches. If your employer offers an employee match, it means they will contribute the same amount of cash to your 401(k) that you do, up to a certain amount. In essence, you’re doubling your money for free.  

Even if you have a 401(k), opening and maxing out Roth IRA contributions is another way to grow your wealth quickly. These accounts work differently but still have a huge tax benefit. After paying taxes on your income, you can invest that money in a fund that grows without incurring capital gains tax for years. Because you pay taxes first, when you withdraw your funds in retirement, you won’t need to pay taxes at all. The catch is that you can only contribute $7,000 annually if you’re under 50 and $8,000 per year if you’re older than 50.

When you maximize these retirement funds, you won’t be able to access this money until retirement. However, doing so will still significantly grow your wealth and put you in a much better financial position.

Get More Income Streams

With your retirement funds at full capacity, your next step should be finding more ways to earn money. If you’re working on a salary, you can work harder to move up and get raises. However, there are other things you can do in the meantime, such as creating passive income streams for yourself.

Passive income streams are methods to make money without having to do any or only minimal work. Some passive income streams will require a bigger investment upfront, but others won’t break the bank. For example, you could try:

• Buying real estate and renting properties
• Investing in dividend stocks
• Creating and selling an online course 
• Getting monetized social media channels
• Operating vending machines
• Privately lending your money
• Building and selling a mobile app

As you build different income streams, you can invest in others. For example, you may begin by putting your money into a safer stock that pays out a dividend each month. The money you earn from that dividend could go toward buying vending machines, which in turn create income streams of their own.

Continue Your Financial Education

When it comes to finances and investing, knowledge is power. If you’re able to get the most out of retirement accounts and create multiple income streams, you’re on the right track. However, there are always new opportunities and technologies that you can take advantage of to get the most out of your finances.

By making your financial education a priority, you’ll continue to make better decisions and stay informed on what’s happening in the world and markets that can affect your growth. Reading or listening to books, articles and podcasts on financial topics will give you endless ideas of strategies you can take to move into the upper-middle class. You’ll also learn about the mistakes that others made so you can avoid falling into debt traps or making bad investments.  

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