Becoming 'Upper Class' Is A Reach If You Don't Own Equity By This Age

Many Americans dream of reaching upper-class status by the time they hit 50. But knowing how to achieve this isn't always straightforward. As you might imagine, your salary and how much you save early on play a major role. However, what many may not realize is how significant equity ownership is to hitting this goal. Some experts even say it's so important that not owning equity by the time you reach 45 could put your upper-class ambitions out of reach.

According to GoBankingRates' analysis of Federal Reserve data, having a net worth of at least $1 million to $1.5 million means you're upper class, though the exact figure varies depending on where you live and the kind of lifestyle you maintain. Whatever your number may be, getting there takes more than just a good salary and financial discipline — equity ownership is also a huge part of the equation. "No one builds true wealth on salary alone," Chad D. Cummings, a financial planning, tax attorney, and CPA at Cummings and Cummings Law tells GOBankingRates. "Owning part of a business — whether through a side company, law firm, tech startup or family partnership — is non-negotiable. By age 45, those who own nothing often stay that way."

There are various ways to own equity in a business. Depending on your interests and skills, you could start a side business around anything from bookkeeping or graphic design to personal training, tutoring, or life coaching. "Founding something small is often safer than hoping for something large," Cummings says. If you're interested in something on a larger scale, you could buy into a franchise, which provides a turnkey model for creating and running the business. On average, annual income for franchise owners is more than $107,000, according to Franchise Business Review. But if you buy into popular restaurant franchises, such as Chick-fil-A or Taco Bell, you can potentially earn even more than that.

There are various reasons owning equity helps generate wealth. It can increase your cash flow — thus increasing the amount of money you can save and invest. It can also be a valuable asset that you could sell down the road to generate even more income. Importantly, it's also a way to lower your tax burden. Owning a business allows you to claim significant tax deductions, from your business startup costs to ongoing operational expenses related to your home office, phone and internet, and supplies. There could even be some sneaky tax deductions you might be eligible for if you take a vacation. "The tax code punishes earned income and rewards ownership. Most never learn this," Cummings tells GoBankingRates. "Every dollar paid in unnecessary taxes is a dollar that never compounds."