Drake may have “started from the bottom,” but even he had to start somewhere. In his case, it was at Degrassi; most people’s stories will have much more humble roots. For the overwhelming majority of Americans, those roots are buried deep in the 99% — that is, the lower level of earners. Although the talk around the 1% versus the 99% may have fizzled in recent years, we’re much more acutely aware of income inequality than ever before.
Even as political figures, such as Bernie Sanders, fight to help level the playing field, the rich are getting richer. And with one of the country’s billionaires now in the White House, you can bet there won’t be many 99%-friendly policies enacted anytime soon.
But that certainly doesn’t mean all hope is lost. Although most of us won’t ever reach the tippy-top, we probably won’t find ourselves on the bottom of the pile either. In fact, your odds of making it into the top 20% are actually pretty good.
We looked at some data published by NPR’s Planet Money to get a better idea of what exactly the odds are. The data shows the likelihood that an American household will climb into different income strata (top 10% versus 20%, for example) at some point in their lives. The data itself is “from Mark Rank and Thomas Hirschl, who have analyzed over 40 years of household income data.”
Before we dig into the probabilities, though, we’ll define just what exactly it takes to become a member of the top 1%.
Defining the 1%
- To make it into the top 1% of American earners, you’ll need to pull in around $360,000.
Just who are the 1%? It’s a constantly shifting floor. According to the data from Rank and Hirschl, per NPR, you’ll need to earn at least $360,000 for two consecutive years to punch your ticket into America’s most exclusive club. But this, again, is something that’s going to constantly be changing. And depending on where you live, you might not feel like you’re rich, relatively speaking. In San Francisco, for example, $360,000 per year is a lot different than $360,000 per year in Rapid City, South Dakota.
Next: Can you make it into the top 20%? The odds are pretty good.
Making it: The top 20%
- The top 20% of American households earn roughly $111,000.
Getting down to brass tacks, how much do you need to earn to get yourself into the top 20%? According to Rank and Hirschl’s data, earning $111,000 for two years straight will put you across the finish line. Perhaps most surprising is just how many households are able to pull this off. Per the data, 61 out of every 100 American households will cross this threshold at some point. The odds are in your favor if you were hoping to keep up with — and beat — the Joneses.
Next: What about the top 10%, though?
The top 10%
- To crack the 10% threshold, your household will need to earn $153,000.
Obviously, the top 10% is a harder nut to crack. While more than 60% of American households will climb into the top 20% of earners at some point, only 39 out of 100 will make it into the top 10%. The threshold for the 10% is $153,000 for two consecutive years. And even though that’s a considerable amount of money, more than one-third of households will actually make it at some point in their lives. That doesn’t mean they stay there, but they do get there.
Next: The 1%
- Only 5% of American households will crack the 1% at some point — which might be more than you expected.
The top 1% — it’s the promised land. Earning enough to make it into the uppermost echelon of American earners didn’t used to be a big deal (most people probably wouldn’t know if they had), but it is these days. And to get there, you need to earn $360,000. According to the data, only 5 out of 100 households hit this mark.
Next: Getting into the 1% is one thing. Staying there, though, is another.
How the 1% stay on top
- To beat out the 99% worldwide, you only need to earn $32,400 per year.
As stated, the 1% threshold is relative and constantly changing. Getting there is one thing, but staying is another. Per our data, you’ll need to earn $360,000 per year for two consecutive years to get there. That means people get there and then fall back fairly quickly, especially if they hit some sort of economic windfall — think selling their house or receiving an inheritance.
We do know, though, that staying rich is easier than getting rich. The wealthy who tend to stay wealthy put their money to work for them. They invest it and have people manage it for them, generating returns that can add up to more in a single year than they spend. There’s no magic formula, but this is how the rich get richer in a very general sense.
Next: But what about those at the bottom? What are the chances you’ll wind up in the bottom 20%?
The people at the bottom
- Around 20% of American households will fall into poverty at some point.
While the chances are good that you’ll climb the economic ladder into the top 20% or 10%, there’s also a solid probability that you’ll slide the other way — into poverty. NPR’s piece puts the poverty level at earning just below $24,000 for a family of four for two consecutive years, and the data shows 20 out of 100 of households will fall below that mark at some point in their lives.
Next: Finally, how can you actively climb the ladder and keep your momentum?
Climbing the ladder — and staying on it
- The absolute easiest way to get started? Creating a budget.
The good news: If you hope to start climbing the ladder there is a ton of advice out there. We all have to start somewhere, and the easiest, most effective thing you can do right now is to take stock of your earnings and expenditures.
The way to build wealth is to save more than you spend and to find ways to increase your earnings and slice your spending. Over time, you’ll build up some savings and be able to start investing.
Yes, this is an oversimplification, but you can read further into it for yourself. Here’s a quick cheat sheet:
- Create a budget.
- Find ways to reduce spending.
- Increase earnings (get a new job, ask for a raise, get a second job, etc.).
- Stash money in savings and investments.