How Much Do You Need to Earn to Be Middle Class?

Two of the most revealing numbers in personal finance have eclipsed six figures: The salary you need to be middle class, and the cash you need to buy a home.

For most of us, the definition of "middle class" is simple. It's halfway between being rich and poor. But it's actually more technical than that. As Pew Research explains it, middle class is "those with an income that is two-thirds to double the U.S. median household income adjusted for family size and local living costs."

According to Pew, 52% of Americans are middle class, and they earn at least $56,600.

Of course, if you live in a big city with a higher cost of living, you'll need to earn a lot more than that just to survive, much less be middle class. A new report, however, says Americans in the 50 largest metro markets are falling way behind.

The report from MyPerfectResume.com concludes…

Across the 50 metros analyzed, our estimated average middle-class lifestyle threshold is $104,681. The average median wage is just $52,460, leaving the typical worker more than $52,000 short. Most strikingly, not a single metro came close to the estimated threshold.

Here's how they came to this conclusion…

Using data from the MIT Living Wage Calculator, the Bureau of Economic Analysis, and the Bureau of Labor Statistics, we calculated the gross annual salary a single adult needs to cover housing, transportation, food, healthcare, retirement savings, and a modest financial cushion in each of the 50 largest metros.

That's pretty thorough. So was the explanation for why this is happening. It's three factors you probably can guess, and one you might not realize.

The four financial reasons

First, there's housing costs. We all know how those have skyrocketed, but the Urban Institute says over the past decade, "home sale prices have increased 81% and rents 54%." Salaries aren't keeping up. If you need proof of that, ask yourself: "Has my salary gone up by more than half over the past 10 years?"

Second is healthcare. A decade ago, the average cost per person was around $9,500. Today, it's just shy of $15,500, according to the federal Centers for Medicare & Medicaid Services. That's a big hit for the middle class.

Third is "geographic divergence." This is just a fancy way of saying it costs more to live in New York City (population 8.58 million) than New Amsterdam, Indiana (population 12).

Lastly, there's "wage stagnation at the median." This means wages have grown for the upper middle class and beyond, but median wages have risen much more slowly for the middle class – especially when adjusted for the cost of living in high-priced metro areas. Inflation plays a major role in this. It's often hard to tell just how much wage stagnation costs you. Sure, you see the higher prices at the pump and the grocery store. But it permeates everything you buy – and how quickly you can fall into debt.

The other six-figure hit

"Americans need to earn $109,796 to afford the typical U.S. home for sale."

That's according to a new study from the real estate firm Redfin, which adds, "The income needed to buy a home is roughly $22,000 above what the typical U.S. household earns."

You can see how this bad news dovetails with the bad news I mentioned earlier. In fact, Redfin calculates, "The typical American homebuyer would need to spend 37.6% of their income to buy the median-priced U.S. home."

How to counteract the one-two punch

Sadly, these two studies show just how rough middle-class living has become. Notice that I haven't mentioned personal debt at all, which might sound odd from the chairman of a company called Debt.com.

That's because debt is inevitable when the middle class is stretched this thin. As CBS News reported last month, "More than a quarter of working-age adults who relied on credit cards to buy groceries were either unable to pay their balance in full or missed their minimum payment."

Recall that minimum payments typically run between $25 and $40.

This is why I founded Debt.com. Early in my career as a CPA, I worked at the best white-shoe accounting firm. I decided I didn't want to help well-off people make more money. I wanted to help middle-class people get rid of their debts. So I founded a nonprofit credit counseling agency that, three decades later, is now the largest credit counseling organization in the world.

Unfortunately, that wasn't enough, because I could only help a fraction of the people who reached out. So I started Debt.com to help millions more face their financial challenges with confidence and knowledge – and help the middle class become debt-free forever and live the life they deserve.

These two new reports just reinforce that I made the right decision all those years ago. The middle class is by far the biggest beneficiary of debt management programs and debt settlement. They really work, and right now, they're more needed than ever.

I don't expect relief for the middle class anytime soon, certainly not this year. It will take longer than that for inflation to finally break and for home prices to fall. Hopefully, it won't take a recession to make that happen.