The average household income, which shows how much money a person, family or people living in one household makes, has gone up, according to a new report by the Census Bureau.
The report, which comes out each September (the latest being from September 2017) , showed a 3.2 percent uptick in U.S. median household income from 2015 and 2016.
The average U.S. income grew from $57,230 to $59,039 and is now the highest income year on record.
Before this report, the highest U.S. average income was $58,665 in 1999. But Census officials explained that you need to take the year over year comparisons with a grain of salt because the bureau has changed its methodology over the years.
Income Increased for Black and Hispanic Families
The bureau also reported that incomes for almost every demographic group also increased.
Black families experienced an income increase of 5.7 percent in 2016 to $39,500 and Hispanic families had a 4.3 percent increase to $47,675. There wasn’t a significant change for Asians, who have the highest median income of $81,500.
The poverty rate also decreased from 13.5 percent in 2015 to 12.7 percent in 2016. The bureau estimates there are 2.5 million fewer Americans living in poverty.
The following shows the average household income since 1999 and the change from the previous year.
Why Do These Numbers Matter?
The household income is one way for the government to measure how well we’re doing economically and track trends based on averages.
This increase in household income is mainly due to better paying jobs and working longer hours, even though wages remained relatively the same. This means the average American worker is working harder than ever to pay for necessities as it relates to their job, including childcare and commuting.
The economy added roughly 2.2 million jobs last year and an additional 1.4 million in the first eight months of this year.
The Gig Economy
The gig economy has been steadily growing over the last decade, with more Americans taking on side jobs, freelancing and finding ways to make passive income for extra money. However, the Census data doesn’t account for gig jobs. While they do account for contract and non-employer data, these may not accurately reflect what’s happening in the gig economy.
Studies show that the appeal of the gig economy is steadily growing.
A CompareCards survey found that 58 percent of people with side gigs want to turn them into a full-time career, and earlier this year, CNN reported that the gig economy is expected to include 43 percent of American workers by 2020.
Even Though Income is Up, Inequality is Too
You’ve probably heard about the income disparity between the extremely wealthy (the top 1 percent) and the middle class. Income inequality continues to be a problem — the rich continue to grow their wealth, while the poor remain poor.
What’s considered poor? A family of four, making roughly $24,250 a year is defined as living in poverty, according to the 2015 Poverty Guidelines of US Department of Health and Human Services.
In order to be considered the top 1 percent in America you need to be making at least $389,436, according to the Economic Policy Institute. It’s not millions of dollars, as you may have thought, but then again, the average income is pretty low, at $59,039 for an entire household.
It’s not all bad, the report showed 2.5 million fewer people living in poverty in 2016, compared to the numbers in 2015.
Middle Class Struggles to Keep Up
In addition to the poor, the middle class also feels the burn from the large income disparity.
Both the poor and working class are experiencing more debt (i.e. credit card debt) to keep up with the rising cost of living, while wages remain unchanged.
The middle class has been in decline the last 40 years and only makes up 50 percent of the U.S.
Middle Class Income Range
In recent years, the definition of what middle class really means has been unclear, and an Ohio interview from Senator Rob Portman illustrated this point. When speaking about the proposed tax plan, which would give the average American family an average raise of $4,000, Portman was asked what middle class meant. He answered, “$150,000 for a family.”
Considering the median household income for a family in Ohio is $73,458 (CNBC), Portman was way off, as are many Americans who identify with being middle class. A Gallup poll from said that 62 percent of Americans, mostly comprised of older and young adults, identify with being middle class but aren’t really sure what that even means.
In order to be considered middle class, you need to earn more than $30,000 a year, and according to the Washington Post, America’s middle class range is huge, “from $35,000 to $122,500 in annual income,” while Pew Research says middle class is anywhere from $42,000 to $125,000 before taxes.
Part of the reason why it’s difficult to put a specific definition of middle class is due to a number of factors, including the number of people who are part of a family and where they reside in the U.S. The cost of living in San Francisco will be significantly higher than say, Birmingham, Alabama.
How Average Income is Reported
When the bureau gathers household income for the country, they use various factors in their report, including age and number of people who reside in the household. They also poll about 125,000 people across the country.
If you’re age 15 and older and earn an income, the bureau counts that in their income per capita. If there are two or more related people living together in a home, it’s considered a “family.” Relations can be biological or by adoption, and by marriage.
The bureau looks at everyone residing in the home and counts the average of all the individuals in that household. If you live alone, you’ll be counted as one household.
The Census reports two kinds of averages. The mean sums up all incomes and divides by the number of people reporting.
The median income is the middle, or the point where half the people make more and half make less. Most reports use median incomes because the mean can be easily skewed by the extremely wealthy.
How to Raise Your Income in 2018
While 2016 proved to be up for household incomes, what about this year?
Take some time to set goals to increase your income, pay off debt, create a budget and a plan to lessen your spending.
Remember, it’s not about how much you make, it’s about how much you keep. True wealth isn’t necessarily about having millions in the bank, it’s about having enough to be comfortable and to have the freedom to do the things you love.
Set a Budget and Have Specific Goals
Look through the last three months of your income, bills and other spending. Figure out how much your monthly budget needs to be so you can save extra money. Make it a point to shave off a percentage of your monthly spending.
Start with a small amount, such as 5 to 10 percent. Whatever you don’t spend, put it towards your debt. If you don’t have debt, put that extra money into savings.
Assess the situation after the month, and increase the amount you’re putting away by another 5 percent.
Automate your paycheck so that a portion of it goes straight into your savings account. If you’re an employee, you can ask your HR manager if you can split your paycheck so a portion of it goes directly into your savings.
Or maybe the most important thing is to get rid of debt first. If that’s the case, how much more do you need to put into your debt each month in order to get rid of it? How many months will that take you?
Time for a Side Hustle
If money is tight and you can’t afford to put in extra money to pay off your debt quickly, a side hustle may be in order. Based on your debt, how much extra money do you need each month?
Set a number for how much extra income you need to make. Having a concrete number always works better than just generally saying you’d like to “increase your income” or “make more money.”
Then write down all the things you can do in order to bring in that kind of money.
For example, can you tutor or perhaps get a babysitting job from Care.com? Can you pick up extra hours at your job?
Make a column for how you can earn extra income, such as listing a room on Airbnb and calculate how much you could make.
Ways to Earn Side Gig Income
Based on a recent survey about top financial goals for 2018, the Well Kept Wallet community expressed interest in earning extra income this year as one of their goals.
Some of the best ways to do this is through side gigs from the share economy, technology and apps.
There are so many ways to earn extra money from home. You literally have no more excuses!
Look for a New Job
Did you know it’s actually recommended that you switch jobs every three years? Thanks to more Millennials dominating the workforce, job hopping may be seen as a good thing, and it’s one of the best ways to make a significant jump in pay.
According to Fast Company, “Workers who stay with a company longer than two years are said to get paid 50% less, and job hoppers are believed to have a higher learning curve, be higher performers, and even to be more loyal, because they care about making a good impression in the short amount of time they know they’ll stay with each employer.”
Start your search on LinkedIn or Indeed, and set your preferences for recruiters to reach out to you if an opportunity is a good fit. Update your resume and make sure your LinkedIn profile is professional, with details of successful projects for each position you held.
As the saying goes, looking for a job is a job in itself, so schedule blocks of time into your calendar to get this done on a regular basis. Set a goal, even if it’s to send your resume out to one new company a day.
Taxes & Gifts
If you know you’re getting a tax return this year, put that money to good use and get rid of as much debt as you can.
If you don’t have debt, put that money into a high yield savings account (rather than putting it in an account that won’t earn any interest, like the ones from big banks). We recommend the online savings account from CIT Bank, or put that money into your IRA account. You’re allowed to contribute up to $5,500 for the year.
Any extra gifts or money you receive during the year should also be put towards your debt.
Your Household Income Goal
Whether you identify with upper, middle or the lower income class, one thing is universal among all classes — which is — be smart about your money.
Understand your spending habits, create a budget and make it a goal to increase your income, pay off your debt and save more money.