As Americans, we often see capitalism as an unending scale with no cap to our potential success. However, we often also have an idea of what we consider to be a “comfortable” salary in terms of wealth and cost of living. For many of us, $70K a year seems like a lot of money. However, that number might lead us down a path of financial turmoil instead.
There are a variety of factors that determine financial security, but here are a few reasons why middle class earners don’t have it as easy as you’d think.
Taxes. For a lot of working Americans, this is four-letter word that either leads to a surplus of spending in the springtime or a dreaded deficit. Unfortunately, this is one area where people in the middle tax bracket have a steady disadvantage.
According to 2018 tax rates, an individual who makes $70K per year pays approximately 22% in federal income tax. Those who fall into this tax bracket face the unique problem of making too much money to count on a refund based on standard deductions, which lower-income earners are more likely to be eligible for.
While the tax rate increases as the earner’s income grows, this middle range experiences the combined misfortune of missing out on deductions and credits that are available to people on either end of the income spectrum.
For single people without children, this margin is even wider and many Americans in this income range end up owing money come tax season.
2. Cost of Living.
It’s an unfortunate truth, but many Americans wouldn’t be able to afford a $400 emergency if it happened today. This is just one more reason why an increase in salary doesn’t automatically equate to an increase in financial stability.
Increasing interest rates, cost of living, and even education costs can lead to a tipping point among lower to middle class Americans.
The average rent or mortgage payment is 30% of a person’s monthly income (after taxes). That means people in this category typically pay around $1,600 per month just for a place to live.
Once you factor in student loan payments, utility costs, insurance premiums, food, a car payment, and a buffer for flexible expenses like car repairs and doctor’s visits, there isn’t much left over. This is especially true for people who live and work in cities with a higher cost of living, such as New York City, Denver, or Seattle.
It’s nearly impossible for Americans to achieve the standard benchmark of “success” without acquiring a substantial amount of debt. In fact, our credit system depends on it. Whether you want to buy a house or lease a piece of furniture, your ability to obtain financing depends on two key factors: income and credit history.
Furthermore, many workers in this income range have college degrees. So, it’s no surprise that this adds to their overall debt ratio when tuition costs have increased by 1,120 percent since 1978.
On average, 72 percent of American borrowers have at least $25K in student loan debt. Most of these loans are unsubsidized or private, which drastically increases the amount owed over time due to compound interest.
For many of us, $70K might seem like a comfortable salary that would easily support a working individual (or even small family) in most places across the U.S.
It is true that many people in this salary range are more likely to enjoy certain auxiliary comforts that aren’t as easily available to lower-income individuals. Those who make around $70K per year are the primary demographic for travel packages, timeshares, and even recreational vehicles.
Certain purchases, including RVs, can help the owner extend their credit allowance in the form of an external loan. If used wisely, this is one way for those who are in debt to get on top of their bills.
Title loans allow people to get cash quickly in order to settle other more immediate expenses. If you own a car, motorcycle or an RV you may have the opportunity to apply for a title loan. Fortunately, there are lenders which require no credit check for an RV title loan. Title loans are just one method of money borrowing that actually can help middle-class earners out of the vicious debt cycle.
Even if you’re only considering the most basic required expenses, those dollars often don’t stretch very far. Like your typical broke college student, those who fit into the “middle-class” label might be stocking up on ramen noodles instead of going on a weekly grocery run to Whole Foods.