How I Became Solidly Middle Class – Now What Should I Do With My New Income?

The middle class can be rather difficult to define. Traditionally, it was more of a lifestyle, one that involved a nice home, two children, a decent vehicle, enough disposable income, and perhaps other nice-to-have discretionary goods. Nowadays, the middle class is defined more by household income, even if it’s not enough to afford a home in a locality where there’s a high cost of living.

In the U.S., the middle class is defined by households that earn between 66% and double the national median income. Indeed, it can differ from city to city. But for the most part, it’s ballparked to be around $106,000 for the average three-person household, at least as of 2022. In any case, this Reddit user, who claims to have grown up in poverty, celebrated their move into the middle class with the r/MiddleClassFinance community.

What was their secret to success? Unsurprisingly, there was no get-rich-quick scheme to be had here. Rather, it was aggressive saving and boring, low-cost investing.

Undoubtedly, investing in oneself (educational pursuits), saying no to lifestyle creep, saving and investing aggressively, and taking advantage of 401(k) matches from employers can be enough to allow one to really build significant wealth. And the good news for this young individual is that their nest egg only stands to get even larger as the power of compounding continues to work its magic.

Making the jump to the middle class isn’t easy amid tariffs and inflation

It’s not easy to make the jump into the middle class, especially these days, with inflation, tariffs (which will produce even more inflation and perhaps tons of empty shelves), and economic uncertainties abound. Given the rising costs of everything and the alarming number of Americans who are living paycheck to paycheck, it may seem like a pipe dream to some to jump up an income class or two. In any case, I do think that any small amounts that can be put aside for investments can make a considerable impact over the long haul.

Of course, as tariffs bring another wave of inflation, it’s going to be much harder to have any extra cash left after all the bills are paid. Either way, tariffs and inflation will pass. And when they do, it’s important to use any additional income to top up the portfolio rather than upgrade one’s lifestyle by a considerable amount.

What to do with the extra income left over? Invest, invest, invest.

Stocks are the best path to wealth for many. And while the stock market has felt rather unwell of late due to tariff threats and fears of a recession, I still think plowing money into stocks or equity-based index funds such as the Vanguard Total Stock Market Index Fund ETF (NYSEARCA:VTI) is the best way to plant the seeds that will grow the money tree that will provide one shade in retirement.

With the VTI down close to 10% from its high, it’s arguably a better time to put a bit more disposable income to work by picking up more shares at today’s cheaper prices. Indeed, when stocks head south, staying the course and continuing to buy is the best way to go. If one can automate the process and take emotions out of the game, one can essentially set and forget.

Of course, avoiding lifestyle creep, which sees people spend more money if they have more money, isn’t easy, especially if funds are being put towards “boring” investments. For those seeking a more hands-on approach, index fund investing and stock-picking may be worth pursuing.

The principles of Warren Buffett, an investment legend, should be followed for those who choose to go down the path of a stock picker. He’s a value investor who emphasizes owning pieces of great businesses at fair-to-low prices. His lessons are invaluable for beginners looking to embark on a journey towards greater wealth.

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