Middle-Class Obstacles – The Misfortune of the Middle-Class

What comes to mind when you think of the middle class? A house in the suburbs with a couple of kids playing and a dog in the background? Family vacations to Disney once a year? A nice emergency fund, a 401K and a savings account? Weekend mini trips and dining out a couple of times a week? Not having the stress of living paycheck to paycheck?

Here is a breakdown of the 50/30/20 budget. It states that 50% should go to needs, such as housing, transportation, and food. 30% is allocated to entertainment and hobbies. 20% is available for investing or saving.

Sounds attainable right? It’s no family TV version of the middle class, but it’s close. According to an article in SmartReads, the average income an individual needs to live comfortably in a major U.S. city is $96,500. For a family of four, this increases to $235,000 and includes two working adults and two children. This data follows the 50/30/20 budget and was derived from the MIT’s living wage calculator. Check out your area here.

I’m not one to argue with MIT because they’ve got some pretty smart people there, but I looked at my area which showed an annual income before taxes as $42,329. A couple of the expenses shown for one adult with no children annually were $4,120 for food and $9,469 for housing. I’m not sure where they can rent or buy something for approximately $800/mo or buy groceries for $80/week, but I would love for them to show me.

In the interest of being supportive, I suppose that it is doable, but I wouldn’t call that “living comfortably”. Full disclosure, they do not state this is a comfortable living wage, just that it is a living wage. So, technically, yes, you can probably live on that, but it won’t be very enjoyable and I highly doubt that this comes without the stress of living paycheck to paycheck.

Let’s take a look now at what The Pew Research Center has to say. They define the middle-class as having income from $35,318 - $256,920 for a family of three in the U.S. The median income is $106,100. Now, we’re not comparing apples to apples here and there’s a lot of math involved for me to try to come up with corresponding numbers, but let’s take a look at what I can simply tell you.

According to the Pew Research Center, the minimum amount of income a family of three needs to make to be middle-class is $35,318. Again, I will use the MIT calculator for a family of three in my area (which is a rural area that encompasses two small cities and a bunch of towns). Here is the data from MIT that shows the required annual income before taxes for a family of three in an area that I would compare to midtown

America:

1 adult with 2 children: $96,843

2 adults with 1 child (one parent works): $68,688

3 adults with 1 child (both working): $83,833

And again, just for reference:

1 adult with no children: $42,329

The article from SmartReads which used the MIT data and applied the 50/30/20 rule shows the following to live comfortably:

1 adult with no children: $96,500

2 adults with two children: $235,000

How can we define the middle class as a family of three with a range of $35,318 to $256,920? That’s easy. The middle class is quite literally the median range of income for the geographic area that they live in. It’s just not what most of us think of when we have an image of the middle class.

Let’s take the Pew research data and break it down using the Forbes paycheck calculator for NY. Here are those net incomes calculated against the 50/30/20 budget:

Lower Middle Class: $35,318 pre-tax ($28,007 net)

Housing/Transportation/Necessities (50%): $14,004/year  ($1,167/month)

Entertainment/Hobbies (30%): $8,402/year ($700/month)

Savings/Investments (20%): $5601/year ($467/month)

Median Middle Class: $106,092 pre-tax ($78,565 net)

Housing/Transportation/Necessities (50%): $39,283/year ($3,274month)

Entertainment/Hobbies (30%): $23,570/year ($1,964/mo)

Savings/Investments (20%): $15,713/year ($1,309/mo)

Upper Middle Class: $256,920 pre-tax ($180,771 net)

Housing/Transportation/Necessities (50%): $90,386/year ($7,532/mo)

Entertainment/Hobbies (30%): $54,231/year ($4,519/mo)

Savings/Investments (20%): $36,154/year ($3,013/mo)

What does all this data mean? Well, I think it shows that there is a pretty stark division in a middle-class that can live comfortably and one that is just one paycheck away from shear devastation. I also think it shows why the middle class is shrinking. The Pew Research Center shows that Americans in the lower class income has increased by 3% and those moving to upper income have increased by 8%. The rich get richer and the poor get poorer. Those lower income middle-class families are not spending their money on entertainment and hobbies and they’re certainly not saving and investing. Their entire income is going towards necessities.

Even the middle of the road middle class would struggle to keep their necessities at $3,274/mo. With an average monthly cost of housing at $1,775 (includes mortgage payment, taxes and maintenance). And average transportation fee of $1,025/mo (includes car payment, insurance, gas and maintenance) and $475/mo on groceries.

Interestingly enough, those bare necessity expenses totaled $3,275/mo. But again, is this living comfortably? I mean, really, who spends only $475/mo on groceries?

What are we going to do about this? I don’t have the answers yet, but I certainly would like to start solving the problem.