Breaking Through The Middle Class

By Eric Fontinelle | October 14, 2010 AAA
Breaking Through The Middle Class

Unless you've already struck it rich, you're probably working hard every day trying to get ahead. But what really defines "middle class"? What can you do to break through to get into that exclusive club, "the rich"? (To find out if you fit into the middle class, check out 6 Signs That You've Made It To Middle Class.)


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What Is the Middle Class?
We all have some idea of what we believe middle class to be. But when you try to create hard distinctions, socioeconomic classes have proved very difficult to define. Opinions abound as to what income levels are middle class, and how large of a percentage of the population is middle class. Due to these widespread disagreements, middle class can only be loosely defined.

The most popular way to define the middle class is to delineate a range around the median household income. In the United States, the median annual household income is around $46,000. If we were to consider the middle 33% of households to be "middle class" then "middle class" could be defined as a household income ranging from approximately $30,000 to $62,500 per year.

Moving Up the Ladder
There is no single easy path to follow if you're trying to move up the economic ladder. The current list of the richest people in the world includes moguls from many different industries, each of whom did it in their own way. Many believe, however, that some basic economics shows the fundamental strategy that richer people apply more effectively.

Factors of Production
In general, we can think of an economy as a collection of four "factors" which produce goods and services. These factors are land, labor, capital (machines) and human capital / knowledge. To produce a car, for example, you need land on which to build a plant, a labor force, machines for fabricating parts and human capital to design cars and direct the manufacturing process.

It could be argued that a primary difference between the rich and the poor is that richer people successfully aim to control or own the factors of production. In doing this, they are able to leverage these factors to achieve superior wealth. To stay with our car example, it is pretty clear that the owner of the car company is going to make considerably more money than the factory line worker.

To implement this strategy, it isn't necessarily that you should go on a buying spree for unused land and fabricating machines. However, there are three areas which are easy to focus on in order to increase your economic status.

1. Education / Human Capital
A major predictor of economic status is educational attainment. This makes sense if you consider that in today's world there is a great deal of valuable work that can only be done by highly trained individuals. Individuals who can do this work in an important sense "own" the human capital factor of production, and can attract high salaries in return. It is no wonder that an undergraduate degree is almost a requirement for entry into the middle class, and that further education is generally a requirement for entry into the "rich" class.

Education does not always have to happen in the classroom, however. In fact, several billionaires including Bill Gates, Michael Dell, Mark Zuckerberg and Steve Jobs dropped out of college. However, keep in mind that each was highly intelligent, and got a valuable education from running their own start-ups. The common thread is that having superior skills and expertise can bring significant wealth your way. (Learn more about these figures in 4 Lessons From Billionaire Entrepreneurs.)

2. Thrift
As the old saying goes, it takes money to make money. Money is not itself a factor of production, but a certain amount is often required for investments that gain control of other factors of production. Many now-rich people had to save in order to have enough money to make their initial investments. For example, Warren Buffett is said to have saved around $90,000 in present day dollars by the time he had graduated from college. (For more on Buffett, see Warren Buffett: The Road To Riches.)

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3. Hard Work / Labor
Any rise in economic class will not be easy - you have a lot of competition. Hard work is always required to become rich, especially if you do not have much education or money to leverage initially. But hard work does not stand alone as a ticket to wealth. Obviously, unskilled labor is in great supply. There are certainly many poorer people who work longer, harder hours than the rich. To move up in economic status, you do need work hard, but you will also need to leverage other factors to increase your earning power.

The Bottom Line
While there is no easy way to the top, understanding some basic economics will help you leverage your talents and help you move up the economic ladder.

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