Does Your Net Worth Put You in the Upper, Middle, or Lower Class?

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Net worth is a common way to measure wealth. Add up the value of all your assets, subtract all your outstanding debt, and voila. For example, if you have $100,000 in retirement accounts, $25,000 in savings, and $10,000 in debt, then your net worth would be $115,000. This gives you an idea of how you're doing financially.

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Once you know your net worth, you may be interested in seeing how it compares to the upper, middle, and lower classes. Thanks to research from the Federal Reserve, we have data on just that.

Here's the net worth of the upper, middle, and lower class

Class is often based on income, at least in financial discussions. The highest 20% of earners are considered the upper class. The bottom 20% make up the lower class. Everyone else makes up the middle class, specifically the lower-middle, middle, and upper-middle class.

The Federal Reserve provides the median net worth for these groups in its 2022 Survey of Consumer Finances. Here's the much each group has:

• Theupper class starts with an average net worth of $793,120. That's for the top 80% to 90% of earners. The top 10% has much more -- an average net worth of $2.65 million.
• The upper-middle class has an average net worth of $300,800.
• The middle class has an average net worth of $169,420.
• The lower-middle class has an average net worth of $58,550.
• The lower class has an average net worth of $16,900.

While net worth isn't everything, it is important. Ideally, your net worth should go up over the years. One of the best ways to make that happen is by investing your money. The stock market, as represented by the S&P 500, has an average annual return of about 10% over the last 50 years.

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How to increase your net worth

There's no need to obsess over your net worth, but it is important to build wealth as you get older. You'll have more financial security, and by setting aside enough money, you'll be able to retire when you want.

Here's a step-by-step look at the financial habits that will help you do this.

Spend less than you earn

It all starts with managing your expenses. If you spend everything you make, you won't be able to save. A good rule of thumb is to spend no more than 50% to 60% of your income on your regular bills. This will leave you with money left over to save and spend on yourself.

Be careful with big expenses like your home and car, in particular. These are areas where people frequently overspend. And it's tough to get out of an expensive housing or car payment, so this is an issue that can continue affecting you for years.

Commit to saving and investing a portion of your monthly income

A popular recommendation is to save 10% and invest 10%, but you can use whatever numbers work for you. For example, if you make $5,000 per month, you could transfer $500 to your savings account and another $500 to an investment account.

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Invest in the stock market to grow your money

The stock market is one of the most proven investments historically. As I mentioned earlier, its long-term return has historically been about 10% per year.

You can invest in stocks through traditional brokerage accounts and individual retirement accounts (IRAs). You may want to find an IRA first, as these help you save on taxes. If you hit the yearly IRA contribution limits, then you could also invest through a traditional brokerage account.

Build an emergency fund to be ready for unexpected expenses

Emergencies will happen, and if you're not prepared for them, you may need to go into debt to pay for unplanned bills. Put some of your savings toward an emergency fund -- when fully funded, this should have three to six months of living expenses. Make sure to keep this money in your high-yield savings account to maximize interest.

Be very selective about taking on debt, and avoid high-interest debt

Some types of debt can work out well, with mortgages being the best example. But high-interest debt, such as credit card debt, makes it much harder to build wealth.

If you follow these habits, your net worth will grow over time. Now, it will go through ups and downs. You might need to dip into your savings at some point, or the value of your investment portfolio could drop temporarily.

For that reason, you shouldn't get too wrapped up in tracking your net worth from month to month. No matter what income class you're in now, and where you end up, building wealth is a long-term process. Results are measured in years and decades. As long as you have good money habits, you'll be going in the right direction.

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