Upper Middle Class Collapse: Optimizing Your Way to Upper Class

Level 2 - Value Investor

Welcome Avatar! We’ve been pondering a lot of the W-2 changes. Not because of the recent Dell Layoffs (source) or recent Intel Cuts (source). Rather, this has made us run some numbers on what is happening to the Upper Middle Class. From what we’ve seen, they are getting pressured the most. Part of it is psychological (obsessed with prestige) and part of it is legitimate (limited quality of life improvement). For this we’re going to do a quick summary based on numbers from major cities. We’re well aware that if you make $400,000 a year that you’re rich in Oklahoma. The problem is that the majority of readers are not general managers for the Oklahoma City Thunder. They are most likely forced to live in major cities such as SF, LA, NYC, Boston or Miami.

Part 1: Upper Middle Class “Quality of Life”

Back in the 1990s, being a Lawyer, Doctor or Investment Banker was considered glamorous. This is because the quality of life it bought was enormous. While no one should shed a tear for bankers making $400,000 a year in 2024 (they are not struggling), the quality of life is certainly a fraction of where it once was.

General Salaries

We’re just going to do a simple 10-year view. This is probably a pretty good gauge of where things have moved. The same positions look like this:

• Investment Banker VP: 2014 or so would be around $400-600K. In 2024? It’s about the same. Perhaps some benefits came along with more 401K matching, some stock that has gone up decently (excluding disasters like SVB) and we’ll make it a max $450-$650K. Taking the middle a move from $500K to $550K.

• Doctor: Directionally we’ve seen a standard doctor move from around $340K in 2014 to $400K in 2024. This is not a massive change but is slightly better than a banker in terms of wage/income increase.

• Big Law: We’re aware mid-tier lawyers don’t make much. This side of the web is full of intense people so we’ll focus on Big Law only. Around year 6-7 you’re looking at $400,000 in 2014 and for 2024 around $500,000 in income. This is pretty good and is always dependent on firm/performance. The only downside is lawyers have 3 extra years of school/debt to go through

• Big Tech: This is much harder to gauge since talent is a massive driver of compensation along with stock price. If you’re looking at the better performing firms total comp tracks to around $350,000 in 2014 and closer to $450,000 or so in 2024. *However* this does not account for the massive stock vest and large performance it drives. We’re going to add an extra $100K and $150K since Tech benefitted from all the money printing. $450K and $550K. Big difference here? You don’t work 60-80 hours a week like a banker

• Enterprise Sales: This is going to track to between a banker and a Big Tech person. We’re not going to assume everyone get the dream role in FAANG sales that pays the most. Therefore assume a $350K (2014) to $450K (2024).

Summary: Banking has been a mess due to regulation, competition and now lower deal flow. Big Tech is probably dragging up a bit as an outlier due to some winners at the Mag 7. If you were to look at this and eyeball it you’d get to a rough number of 15-20% increase in earnings. We’re going to take the high end of that and assume that earnings are up for the same position about 20% in 10-years.

Before people say “but you get promotions and the increases are larger each year!”… You’re missing the point! The same position from 10 years ago pays about more. The talking point is actually what HR sells to you when you join a firm. “In 10 years you’ll be making $XXX,XXX!”. It’s a trap to get you moderately up the ladder then *stuck* so you can’t jump ship and can’t really save enough to really quit later on. Firms have gotten smarter and traded in the golden handcuffs for copper ones. You don’t want your good employees to leave, you want them stuck and unable to jump without maximum pain (giving up stock vesting for example).

In short, assume a 20% increase in income over the past 10 years, we’re not going to bother with taxes and all of that since people will miss the point and talk about various deductions like 401K contributions (meaningless and misses the point).

Move to Costs

To keep things simple we’re just going to use the median for the USA. There is no way to claim that high cost of living areas are in decline relative to the median household in the USA. If someone finds a specific region with SF for example, we can just tell them to look at Silicon Valley/Bay Area in general. The trend is the same.

Quick Change: You’re looking at $426K from $288K. This is a 48% increase. Read that again. Price are up 48%. This means that if you had the exact same position in 2014 you would have been better off. This is because 10 years later someone in your shoes would only be earning 20% more vs. 48%.

Simply math on housing is that it is up 50% over 10 years while wages are up 20%.

Moving Onto Other Costs: We’re not going to debate the whole true inflation rate. Anyone with a basic calculator knows that the inflation number is smaller than stated if you live in a major city. However, to keep it simple we’ll use government data and the number is 33% of cumulative inflation.

Doing the Quick Calculation

Onto the drumroll and why we think the Upper Middle class is the most likely to turn to vice (gambling) and leverage (hanging onto prestige/status). If you put the numbers through you *must* look at the exact same position. This is critical for a few reasons: 1) entry level positions keep pace the most because employers want the best young talent and are forced to compete for them out of University, 2) if you don’t compare the same positions it doesn’t give you a similar “quality of life” comparison and 3) it tells you if the industry is growing or dying. If an industry is growing the same position pays more (hint: look up salaries for entertainers such as athletes - salaries are up much more than 40% - nearly doubled actually).

Source

Similar Comp: Directionally speaking we know that salaries are up about 20% from the past decade *for the same position*. If you run this through it means you have someone making $416,666 growing to $500,000. To keep the math simpler we’re just going to use $400,000 to $480,000 (looks cleaner)

Assumptions: Assumed a 33% tax rate to include federal + state. Assumed 30% total income to housing (mortgage/rent irrelevant) assumed another 20% spend on rest (Everything from food to vacations). Assumed a starting total savings rate of 17% versus total income to include all the 401K stuff, post tax savings, etc.

It Is Actually a Bit Worse: To be clear, all of these are based on government level data. We know that expensive cities had higher inflation across housing/food etc. The big thing we left out was really the mortgage rate/interest rate issue. We only included the cost of the house and didn’t include the cost of carrying the note.

Roughly speaking, a 4% interest move to 7% on the mortgage rate would be a 40% increase in interest/principal monthly payments. This is significant and can approach $2,000 a month if you’re borrowing $1M+ (rough numbers).

Quick Conclusion

10-years later and the ability to sustain the same lifestyle is possible. The problem is that the amount being saved is diminished. You can live in the same house, eat the same stuff… however… your savings rate will be down 57%. Quick rough math means that you have to work an extra year to save (proportional) to what you could do in one year during 2014.

Part 2: The Ways Out

Outside of being a super star and scaling up the ladder faster (or dating/marrying a similarly intense corporate professional), the easiest way out is with technology and some longer hours working for yourself.

Hourly Grind: We’ve run the math quite a bit and it is actually possible to be “over-employed” if you’re smart about it. While it isn’t going to be possible to work two jobs as a doctor, you can certainly work as a Tech employee then work as a freelancer. The chances anyone cares/notices is slim. If someone does care/notice, by that time you’re so big that you don’t care.

Similarly, if you’re remotely savvy, you can just set up an entity and send the bill to that LLC. Yes, later on you need to pivot to scale and avoid time for money, but the math is the math. Most people only really work 20-30 hours a week unless in a sweatshop (in that case move ASAP).

How to Do This? Here is a quick list of tips to be well liked, yet work less hours.

• Automatic emails. If you finish something early or want to send something interesting out. Don’t do it during the regular hours. Set up an auto release email later in the day or in the morning to make it seem like you’re still doing something.

• Chat GPT/Summarize: Outside of important conference calls, the boring ones can be recorded with a voice transcriber. You can use free or paid tools like Chat GPT to get the summary. This frees up the entire time to ignore it. For those on Wall Street, there is no real reason to obsess over all the conference calls, you can get a summary as well using the same functions (or just find the changes - similar to how the Fed has the red-line summary of changes).

• Only Attach to People Who Matter: The first 6 months is where all the work is. You have to grind all day to show you care and simultaneously find who matters at the firm. Once you are in the good graces of the rain makers, you can immediately go into A- mode where you do just enough to get promoted consistently and let the star A+ employee work 20+ hours more per week

Stepping into the Fire: Once this is done, based on what we’ve seen online, you’re probably best doing affiliate marketing. At this point even blackhat is fine. We’re saying this because we’ve noticed a big trend to consensus herd following. Ironically, that’s a good skill to have for an affiliate. Affiliate marketers are just chasing trends/offers and dumping as much inventory as possible while the iron is hot. Once the campaign dies, it’s off to the next hyped item.

• As a note, the majority are too scared to do this since you’re forced to “break the rules” a ton. People in these white collar prestige/political environments are 95% risk averse. Affiliate forces you learn the grey zone and operate there. Break rules not laws.

Building Something Realistic: From here, the sky is the limit. If you’ve found ways to earn as a free lancer, dabbled with affiliate marketing and have the tools, it’s time to make your own product. Some people can skip directly here, this post is really just a way to line up the “least risky way” to get your income up. We all know your promotions and wage increases won’t keep pace (the numbers can be checked going back 10 years with ease).

Part 3: United States of Asia & Latin America

The trend is still the same from 3 years ago. The Upper Middle class is being pushed into the middle class. This means the true “Upper Middle Class”, is going to become small business owners. The only difference between upper middle and upper class will be the successes at scaling, inheritance and some odd ball incredible investors.

Considering that the vast majority of Wealth Management clients are all small business owners, the answer is in front of you (statistically).

Fade at Your Own Risk: You have all the numbers in front of you. We don’t sell dreams of “guaranteed riches”. We only provide the highest *probability* way to make it big. That’s the best you can do: play the odds.

Besides, even if you mess up, Thailand and Poland are always there.

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Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are *opinions* written by an anonymous group of Ex-Wall Street Tech Bankers and software engineers who moved into affiliate marketing and e-commerce.

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