The Wealth Ladder: Proven Strategies for Every Step of Your Financial Life with Nick Maggiulli
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Understanding how to build wealth isn't just about investing early or spending wisely. It's also about knowing where you are and what actually moves the needle. So today I'm joined by Nick Maggiuli, a data-driven financial writer and author of a great upcoming book, The Wealth Ladder, to break down the six levels of wealth in a way that's tactical, clear, and rooted in reality. As Nick puts it, If you can understand the wealth ladder, then you can really start to control your time

and your life. In this episode, we'll break down every step of the wealth ladder, what separates those of us who move up from those who stall out, and how to make smarter decisions at each stage of your journey. I'm Chris Hutchins. If you enjoy this episode, please share it with a friend or leave a comment or review. And if you want to keep upgrading your life, money, and travel, click follow or subscribe. Now let's get into it right after this.

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The deal's only available through our link, so support the show and go to allthehacks.com slash element L-M-N-T. Nick, what do you think most people get wrong when they think about growing their wealth? I think the main thing that people get wrong is they don't focus enough on income. I think income, it's the strongest relationship in all personal finance. And there's a lot of things that matter. Your mindset matters, how you spend money matters. Of course, all those things matter, but it

The thing that's most correlated with building wealth is income. It's not even close. Everything I've seen in the data, it's now overwhelming to me. I can't not see it anywhere else. It's very rare to see someone with low wealth and high income or someone with high income and low wealth. They're just so correlated that if you have high income, you're going to get wealth, right? Unless you're a crazy spender, which is very rare and vice versa. So

It's one of those things where like wealth built income, income built wealth, and it's just this flywheel that keeps working on itself. But it is possible to confuse the two, right? To think, oh, because I have a lot of income, I have a lot of wealth. So while income might be really important, how is it also important to understand the distinction? Well, the distinction is income's the...

the flow that's coming in, you now need to save that and make it into the stock, which is your wealth, right? And so a lot of people say, oh, I have all this stuff coming in. The problem is income is very fickle. They've done these studies and roughly 10% of US households are going to see a 50% drop in income in the next two years, right? And then they've studied this over time. It's relatively consistent. It shot up a little to 12% during the great financial crisis, but then it drops back down, but it's roughly 10%. So what does that mean? Roughly one in 20 people are going to lose their job in the next two years. It's not that crazy of a step.

But you do that over a long time and this does affect people. So income is very fickle. I like looking at like professional athletes and people like, well, how did they end up broke? Well, they end up broke because they had five years of really high income and they spent money based on their income, not on their wealth. They didn't accumulate wealth to keep sustaining that spending. And as a result, you end up one day end up bankrupt because you don't have the flow after five to seven years that dries up and then you have to live the rest of the life off that. So that's the difficulty with this stuff.

Yeah, that's the argument. Mathematically, lottery winners should always take the lump sum. But I imagine that if you win the lottery and you take the payments over however many years, you are probably statistically likely to end up better off because people that win the lottery, some large percentage of them end up without money. Yeah, exactly. Has anyone actually ever not taken the lump sum? I bet it's happened, but it's very rare if it's ever happened. But that's such a great point.

Yeah. It would be hard to convince someone to do this inopportune thing. People don't typically take advice when you're saying, do this thing because I don't trust that you'll be able to make good money. And plus, the thrill of the lump sum, it must be absolutely insane. Yeah. I think the biggest lottery lump sum I ever had was like $10. So I don't know that thrill. But in the most recent book, you've chosen to look at wealth as a ladder and that wealth is not necessarily income. How do you think about that perspective?

I think the main thing to think about is as you build wealth, your financial decisions can change and what strategy makes sense for you can change as well. The analogy I give in the beginning of the book is a fitness coach would give very different advice to someone who's like morbidly obese versus a well-trained athlete. I think we can apply that same analogy to financial advice. If you're just starting out and you're up negative net worth or zero net worth,

The advice I would give you is going to be very different than if you have a million dollars. You're like, hey, how can I get to 10 million? How do I get to 20 million, et cetera, right? And so based on that, I've classified wealth into the six levels and we can talk about those.

And based on which level you're in, based on your net worth, right, which is all your assets minus all your liabilities, we can get into that as well. It determines, okay, what income things do I think about? What spending things? What investment decisions would I make differently? And all those things impact your financial well-being. We're going to run through the levels. Do you think of it more as conceptual levels or is there like an actual...

Like an actual step function change where it's like, well, I get one more dollar here. Things happen versus this kind of linear progression. No, it's of course, it's more of a linear progression than a step function change. And for every person is different. It depends where you live. I mean, there's all sorts of factors that impact this. I like thinking them as steps because I think there's just a mindset change that happens as you move throughout the levels. And the big thing is like each level is 10x faster.

from the other levels, right? So if you have less than $10,000 in net worth, that's level one. Level two is 10,000 to 100,000, right? The next level, level three is 100,000 to a million and et cetera, right? And the reason for that is because you need a large step change to fundamentally change how you live your life, right? Someone with a million dollars as...

nice as their life is, if I give them another million dollars, it's not going to change their life as much as if I took someone from zero and gave them a million dollars. Even though they're both a million dollars, the person from zero to a million, their life's going to change in a ton of ways. The person with a million to two million, yeah, their life's going to change. They're going to have a pretty nice improvement, but it won't change as much as the other person. I think everyone knows that intrinsically, but seeing it happen in the real world and actually experiencing it

is something in itself. By the way, all these levels, I think, map onto economic classes, at least within the United States. So for your US listeners, I think this is going to map quite well. So once again, level one, less than $10,000 in total net worth. That includes your bank accounts. That includes your car, everything you own. You put it all together in a pile, less than $10,000, right?

Level two is 10,000 to 100,000. That's like the lower middle class. Level three is 100,000 to a million. That's your middle class America. Level four is 1 million to 10 million. I would consider the upper middle class. I know 10 million is going to sound like that's really upper middle, like in maybe the very high cost of living areas, that's upper middle class, but that's mostly upper class at this point.

And then 10 million to 100 million, that's level five. That's definitely upper class. And then 100 million plus is like the super rich. And so each one of these levels, if I had to give you like percentage of the United States, I'm going to approximate. These aren't the exact percentages. It's 20% of US households. So not just individuals, households are in level one, 20% are in level two.

40% are in level three. That's the middle class. That's 100,000 to a million. So now that's 80% of America is in levels one, two, and three. And then in the final 20% is level four and above. And in level four in particular, it's roughly, let's say 18%. And then the top 2% is level five.

and above. Actually, that level four figure, $1 million to $10 million, that's changed a lot in just the last few years. Before COVID to now, there's been a huge change. There's more millionaires than ever. A lot of it's like real estate prices have gone up. A lot of things like net worth has gone up. Doesn't mean that someone has a million dollars in their bank account, but total net worth that has increased considerably. And so should people consider that when they're thinking...

about levels? Is it liquid net worth or their total net worth? It's total net worth. That's how we do the wealth ladder and that's how I've done it. However, when you're talking about maybe spending decisions, I think you should look at liquid net worth and we can get into that a little bit as well. I think that's the difference because you can't eat your home equity, right? I can't be like, oh, I have a million dollar house and $5,000 in my bank account so I can go spend whatever. No, not at all, right? In terms of just the wealth ladder in general, it doesn't matter where it is, but in terms of your spending decisions, it's definitely going to matter how it's comprised. I imagine we have listeners that

every single one of those levels. So I'd love to give everyone a little bit of an overview of what should you be thinking about this level? What are some of the challenges and tactics and risks when you're there? Yeah. So let's start at level one. So

I like to say some piece of your life is being amplified in every wealth level. In level one, which is less than $10,000 in wealth, that amplification is bad luck. And what I mean by that is literally some unfortunate thing happens to you and that can send your life down a very different path than if that thing hadn't happened. And this could be true of anyone. Anyone can get unlucky, can get sick or something. I'm not even talking about that. I'm talking just normal bad luck.

my tire blew out i can't get to work now because of that and then i lose my job and then i'm in debt if someone in level three or level four their tire blew out they would just get it repaired it's an annoyance right but it's something that money can easily fix for someone in level one

that's something where like a simple piece of bad luck you run into can really set you back a lot. And so the goal in level one is do everything you can to get out of level one. So I'm usually not a fan of cut your spending and all that. I'm not usually saying that, but in this case, like if you want atypical results, you have to have atypical actions. You have to do something differently. So it's not a great place to be in because you have this constant fear of, oh, what if something happens, all this type of stuff. And so

The goal of level one is to get out of level one. That's it. Once you're out of there, then you can breathe easy a little bit. You heard about this during COVID when stimulus checks came in. People were like, oh my gosh, I've never had this much money in my bank account and I don't have to worry about how am I going to afford food this week? Something as simple as that, just even a few thousand dollars, you'll start to feel that stress falling away. Once you get into level two, you have $10,000. Well, if that's when it's much clearer that, okay, I have much more redundancy in my financial accounts. So would you say...

Cut spending and pick up extra work? Yeah. If you're in level one, I look at it as like an emergency in many cases. Of course, that shouldn't be your long-term goal is I will cut your spending and take your spending to zero. It's too difficult. And I've written about this extensively. I'm not a fan of cutting spending. I don't think it works.

I think if you're in a drastic situation and you need to get out of that, there are ways you can try to do that. But the long-term goal is to increase your income. That is really the way at how you get out of any level to go forward, you have to increase your income. And there's different types of ways of increasing your income that we can discuss. And that would apply to different levels. But in terms of level one, the goal is just to get out. That's probably the biggest money change. Like just going from level one to level two is going to have a bigger impact than basically anything else in your life. Okay. And so then you get to level two.

Level two, at this point, okay, you have some financial resources saved and people at level two are going to be all over the place. There's going to be people graduating from college. You're like, well, I have no money. Yeah, but you have a degree from a nice university and skills and you're making good income. You're basically not in level one, even though you don't have $10,000 in wealth, but you have intangibles that are worth at least that much. So you have an education, you have skills that are going to allow you to generate the income to get out of level one easily. So level two, the thing I say to focus on is once you're there, what

else can you do to grow your income? What type of skills can you learn? What type of education can you get? So the main thing to focus on there is your education. It's like the trajectory of your life, of your career, at least in this case. What can you do that trajectory really takes off so you can really start amplifying your earnings? I think most people in level two, I would guess, they make a good wage, but their entire earnings are just tied to how much they work. And I'm guessing they don't have that high of a wage. And so as a result, it's like, you can feel like you're working 50, 60 hours a week. Like, Nick, I'm

working really hard at this stuff. And at the same time, I might see enough progress. And the reason isn't because of your effort. You're working hard, but the issue is your wage just isn't paying you enough, right? And so we have to be like, okay, how can I find a different income source, another income source that can actually get me to that next level?

And how much is your age dependent on some of these levels? When you started talking about college, I was thinking if someone's 50 years old and has a net worth of $10,000, they're probably in a very different situation than someone who's 22 and saved their first $10,000. I agree completely. It's a very different situation. And so obviously, time is correlated with wealth in the sense like you've had more time to work and save money and all this stuff. So in general, you'll see the median age within each level goes up. The

up. The median age in level four is 62, by the way. So if you took all the people who have one to 10 million, all the households in the United States that have one to $10 million, and you put them in a room and you took the middle person, that person's 62 years old. So as much as you see people, oh, they're young and rich, that's not the case. The data doesn't support that.

You're right. It's correlated a lot here. Either way, if you're in level two and you have to deal with that, say, okay, what can I do to increase my income? That's the question. It's not going to happen overnight. It's a multi-year process. And you have to figure out what's the thing that's going to help me get there and start working on that thing. And it takes a ton of work. There's no way around it. I wish I could say there was a shortcut or something. There just isn't, unfortunately.

I like how you added some freedom to help people come up with a name here. You gave this level two grocery freedom, right? Yeah. So once we're talking about spending, level two is what I call grocery freedom. Not right when you get into level two, but as you progress through level two, you can just care less and less about what you spend at the grocery store. By the time you have $100,000 in wealth, let's just say liquid net worth, just to be very conservative here, paying an extra dollar here for the cage-free eggs versus the non-cage-free, it's not going to impact your wealth at all. And the reason where I came up with this is

I use something called the 0.01% rule, and all that is just 0.01% of your net worth. So take your net worth and divide by 10,000. That's the same thing as 0.01%. So if you have a net worth of $10,000, that difference is 10,000 divided by 10,001. So it's $1 if your net worth's

100,000, you divide by 10,000, that value is 10. And that's how much extra you can spend per day without having to worry about losing your wealth or anything like that. The assumption is that your wealth is going to grow by 0.01% per day, which is 3.7% a year. I don't think anyone's going to be like, oh, that's a crazy return. No, it's a very conservative return. And so given that, I think anyone's wealth will be able to grow at roughly that rate over time. And so you can spend that...

And that's not how much you can spend in a day because it assumes you're working. That's just like extra. If things cost that much extra one day over the other, don't stress it.

Now, I'm not assuming this is going to be true of most people. Like, okay, you're spending all of your income. Even after you've done that, you can still spend whatever your wealth throws off and your wealth would, in theory, stay the same over time. Now, of course, I'm hoping you're not spending all your income, you're saving money, but it's just a good mental heuristic when you're looking at something. So if you know your net worth is somewhere between $10,000 and $100,000,

don't sweat it at the grocery store but when you go to a restaurant okay maybe you need to be careful about what you buy right and so for example if you're in level four one million to ten million and i know we jumped over level three we can come back but one million to ten million that's called travel freedom so that's the beginning of travel freedom so for example if i'm in level four when i go to a restaurant i don't look at the prices i enjoy whatever i want besides like the wine list which is a little crazy sometimes outside of that i just get whatever i want now

When it comes to travel stuff, I'm very particular on what I buy. I'm always buying coach. Even if someone had one to $10 million, I would say, yeah, you got to try and get the cheapest stuff. You got to save money where you can because that marginal difference is pretty expensive. Going from like a coach seat to business class is not necessarily cheap. I spend according to my level. And I'm not saying everyone has to do that. It's what I recommend. If you spend according to your level, it doesn't mean you're going to build wealth, but it's going to prevent you from falling down the wealth ladder, which I think is the more important thing. So let's go back to level three.

Yeah, so level three, assuming level two, you've gotten the education, you've gotten the skills you need. Now you're earning more money. You're able to save more. Now you're in level three. What else can you do to keep that ball moving in the right direction? That's where investing comes in. Investing or a side hustle.

For a lot of people, it's investing. I'm not saying you shouldn't be investing when you're in level one or level two. I'm just saying it doesn't matter as much in terms of the total dollars that's being generated, right? I'll give you a simple example. If you have $10,000 and you generate a 10% return, that's a thousand bucks. That's great. But as someone who's working, you can more easily generate income just through your labor than you can through your capital. You don't have a lot of money. The 10 grand is not that much in the grand scheme of things.

But by the time you get to level three, now you have a hundred grand. Now a 10% return is $10,000. That's now starting to compete with you a little bit. I saw a tweet today. It was actually very funny. If your investment portfolio earns you more than your job, is your job a side hustle? It's a joke, but it gets at the point, which I'm getting at is over time, if you're investing your money, your investment portfolio is going to get large enough for that. It's actually generating more income than you are. And especially if you're in level four, that's going to be true. So we can get to level four in a sec, but

The main thing to think about there is investment side hustles. What else can I do to raise my income? And by investing, that's the way that I've seen most people that go from level three to level four. They keep buying assets over time and those assets generate more income and more income and it just grows from there.

In the last time you were on the show, we talked a lot about your previous book, Just Keep Buying. We've had a handful of shows about investing. So we won't go deep today on investing and index funds and ways to do that, but totally hear you. At that level, it starts to matter. Whereas, I can't remember if this was from our conversation before, but sometimes I meet people really early in their financial journey. They just saved their first $5,000 and they're like, what should I invest in? And in a way, I want you to pick up good habits early.

But whether you get a 10% return, a 5% return or a 20% return on your first $1,000, we're talking tens of dollars difference. And if you picked up a side hustle for one hour a week, you'd probably outperform that. And so it matters a lot more later. But I think the habits you pick up earlier can translate and pay dividends in the future. So it's important, but also not.

Yeah, yeah. You're completely right. Both of those things matter. I want people to learn about investing. I want them to care, but you don't want to obsess over it. As your portfolio gets bigger and bigger, once you're in level four, level five, any of those levels, then investments are everything because you're not going to be able to compete with yourself. Your portfolio is generating more income than you are. And so you're at a point where you're like, oh my gosh, my investment decisions really matter now. That transition slowly happens over time, unless your income just keeps going up, which great, congrats for you. But for most people, at some point, their portfolio is going to generate more income than they will.

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So it seems like at level two, the risk was go get a lot more education and skills and career path because the risk is that you don't move up. In level three, what are some of the risks people should be thinking about that might prevent them from moving? I think that's where overspending can really get you into it. Because once you're like, oh, look, I'm making more money. And then you start investing, you're bringing more income, which is great. But if you start spending all of that income, especially in level three, which is like, okay, you're in the middle class. Now there's like

social status and all these things that I think the middle class and the upper middle class get much more wrapped up in than other economic classes do. People in level three and level four, their lives aren't that different in terms of a consumption habit, like very similar. They might live in a slightly nicer neighborhood or they drive a slightly nicer car, but they

pay a lot of money for that. So if you're thinking about like, oh my gosh, people in level four are flying private and people level three are flying coach. Nope, they're in the same plane. They might be in a slightly better seat, but lifestyles are very similar. I think people in level one and like people in level three, very different lifestyles, right? Like they're in the stress levels. Everything's very different. But in terms of

Level three and level four, the difference is not really that high, but people will spend a lot of money for status and all sorts of things that changes their perception of themselves, but it doesn't necessarily really change their lifestyle that much. If I had to pick like what's the one thing that prevents people from just getting into level four, assuming they have a decent income, it's probably from overspending of some sort and going after and chasing those things. So-

And I know what you do day to day for work, but I'm curious for people who think, oh, are these Nick's ideas? What kind of data went into this? How much kind of research and data have you dug through when you put all this together? There is a lot of stuff. So there's two different data sources I use. The main one, which is the snapshot data, is from the Federal Reserve. It's called the Survey of Consumer Finances. It just looks at wealth in different U.S. households over time. It samples them and then you can weight it and figure out all these statistics and all that.

That was very useful for just understanding wealth in general in the United States. But if I wanted to understand how household wealth actually changes over time, you have to follow the same set of households, right? So the SCF Data Survey of Consumer Finances doesn't do that.

But there's another data set called the Panel Study of Income Dynamics from the University of Michigan. They followed the same households over time. So that's how I was able to talk about all this stuff with building wealth. And there's an analysis in the book. I say, look, the difference between the people that were started in level three and got to level four versus those that started in level three and stayed in level three, the main difference is their starting income and how much money they spent, right? It's true in basically every wealth level. If you compare the households in level two that got to level three versus those that were in level two that stayed in level two,

The ones that got to level three, A, had a higher income, but also didn't spend as much relative to their income as people that stayed in level two. So there's a lot of cases where everyone in level two is spending the same amount of money, but the people that have more income, they end up making it to level three. So I think spending does matter and you can see it in the data, but you have to really parse it out in different ways of what prevents people from climbing the wealth ladder. And at some point, spending can do that. But for the most part, I say it's income. Okay. So you said level three and level four are similar. Where are they different?

They're different in the sense of once you're in level four, which is 1 million to 10 million, I think you can...

really take your foot off the gas in a way that most people in level three probably couldn't. You start doing something called coast fire. Basically coast fire is this idea of, "Hey, I don't have to work this job anymore. I've saved enough money for my retirement, all these things. I can work something where I don't get paid as much and I just enjoy more. And I just need to get through the next 15 years and then I'll be good. I'm just coasting." There are people in level three, a hundred thousand to a million that can coast, but I think you have to be in the low cost of living area.

I think for most of the US, which is, let's say, mid to high cost of living, you need to be in level four before you can do that. So it gives you a little bit more freedom over what you do for your job. If you love your job and you're level three, you've already made it. I say level three, level four, they're very similar to me. The only difference is that time freedom you might be able to have in a higher cost of living area. So that's the main difference. And so I call level four travel freedom, level three restaurant freedom, but...

They're similar in a lot of ways because you just start the travel freedom in level four. You're not truly like, oh, I can go do whatever and travel however I want until you're much deeper in there, which is like eight, nine, $10 million, which is obviously a lot of money. Most people will never make it there. I like the concept of Coast Fire. The thing I think about it is that you've saved enough money that if you've stopped contributing to your retirement or whatever you want to call that long-term savings bucket, you'd probably be okay working.

If you want, you can adjust your income by changing your job such that you can live on your earnings, but you don't need to keep contributing to savings because chances are, like you said, your savings is going to grow over time as it's invested. And when you've got $1 to $10 million saved, that will grow to be probably what you need when you're done working, assuming you're not trying to stop working now.

Yeah, exactly. It allows a little bit more flexibility. That's the only difference. And it depends, well, where are you in level three? And that's where it's, yes, this is a step function, but at the same time, like if you're at a hundred thousand, that's very different from someone with a 5 million, right? That's someone low on level three versus someone middle level four, obviously very different. But if you're like,

oh, I have 800,000 net worth or I have 1.4 million. $600,000, that's a lot of money, but their lifestyles are not that different. Even though that's a large difference, that $600,000 is not going to generate enough income on its own unless you consume it all, right? If you plan on consuming all of your resources, then yeah, it is a big difference. But most people don't want to consume all the resource. They want to leave money to the next generation, et cetera. As a result, the income that generates is not that high. So that's something to keep in mind.

What are some of the risks that people face as they're creeping up level four that are different than what you might have at level three? Yeah. So the risks I think about, obviously investment decisions. Once again, you're 10x more wealth. The investment decisions are 10x more important, right? All else equal. So bad investment decision can lead to all sorts of stuff. And I don't have too much data on this in particular, like what the portfolios are of millionaire households versus households with 100,000 to a million in terms of what's in their actual portfolios.

But I would guess that the people, as you move up the wealth ladder, there's a little bit more concentration going on. So there is some of that. If you said, hey, I have a bunch of individual stocks and maybe they did well, and you keep making those types of bets in level four and beyond, like,

You could keep growing your wealth or you could lose a lot of it. So I think that the thing is once you're in level four, you want to get more diversified, right? You want to protect that. You probably want to start owning more treasury bills. It depends on a host of things in your life. Without knowing much about you, it's very hard to make a quote recommendation or advice. And I'm not trying to give that advice. But at the end of the day, protection is a little bit more important in level four than it is in level three. And so it's something to think about as you're making that transition.

Am I over-concentrated or am I overlooking some risk in my financial life, in my investment portfolio? It matters in every level, but it's obviously much more important because you can't make up for it with your income, right? Let's say you have $5 million and you make a 10% investment mistake, that's $500,000.

Let's say you can save $100,000 a year, which is a lot of money. That would take you five years to make up for a mistake that could happen in the course of a few months. So if you're in level three and you can save $100,000 a year, you can make up for that type of mistake very easily. So that's the difference. Your labor is far less useful at impacting your finances. And so because of that, all the decisions you make not related to your labor and your work are probably much more important.

Yeah. One other thing you mentioned in the book was the role of these kind of speculative investments that come in as you start building your wealth. And it's something I've seen amongst people in that kind of level four camp, right?

And the risks that I've seen them face is one, they feel like, "Oh, wow. Now I maybe see this path to being on level five one day." And they start wanting to act like that. And they're like, "I need to be doing these crazy private syndicated real estate deals and investing in private equity funds." And one, I'm not sure they need to be doing that because the amount at which they're doing relative to the potential outsized return, I'm not sure it has the impact it does. But the other thing I've seen people come into a problem with is

They want to get, let's call it fancier with their investments. And they don't realize the kind of liquidity constraint that comes with some of these sophisticated vehicles. And if you're thinking about someone who has $50 million, if they've got $40 million tied up somewhere that they can't really access for five years, well, it's okay. They've got this other $10 million.

But if you've got $3 million and you tie up 2.9 million of it in a way you can't access it, I've seen a handful of people that are squarely far into level four that are like,

I can't get any of my money. I've tried to do all these sophisticated things and their problem is they don't actually have access to any of it. I don't know if you've seen that in this level or not. I think it definitely is an issue. Obviously, I don't have data on what percentage of households are locked up in private investment vehicles, but I do think it's something that people overlook. Liquidity matters and you don't realize how much it matters until you need it. It's like you forget about it. You're living in a paradise and all of a sudden you realize that we're in a drought and you're like, I need water. I don't have any. Well,

Liquidity is a very real thing in that sense. You don't actually realize you need it until you actually need it, right? And so I agree with you. I think people should be mindful of how liquid they are, especially once you're at that level, it's like, okay, I have 3 million bucks. Okay, maybe I can have 10%, maybe 20% in private investments. That's still a good amount of money. $600,000 you can't access, that's a lot of money. If you're having anywhere over 50% of your net worth, that's where it gets difficult. And then this is the same with owning a business. You can own a business that's

shooting off a lot of income, that's great. But if you can't sell it or something, at the end of the day, that's just like having the liquid investment. And in many cases, it's like a job you have to keep working, right? To service the income. So it's an interesting place to be in. And what are some of the biggest things that change as you go from level four to level five? So...

Most people don't go to level five. And I don't mean this as a diss or anything like that. It's just the things that got you into level four are not the things that get you into level five. And the biggest surprise I got from going through this whole process, analyzing all this wealth data, et cetera, was just

Just how hard is it to get a level four? Now, let me give you an example. Let's say you've acquired a million dollars in assets, right? Let's just pretend it's all liquid for now just to make it easy. You have a million dollars and you're saving $100,000 a year after tax. How long does it take until you get to $10 million? Growing at 5% a year. The answer is 20%.

28 years. Let's say we kick that up to 300,000. You're saving 300K a year with your million dollars. How long would it take you to get to 10 million? 17 years. Do you know how hard it is to save $300,000 after tax? It's incredibly difficult. You have to have a really huge income. You have to be making 700K. When you really do the math on this, you're like, holy crap,

That's why I think a lot of people get stuck in the data shows. The level you're most likely to get stuck in is level four. That's not a bad thing. I think level four is great. I think you can have an amazing life in level three, level four. You don't need to make it to the level five. This is where Coast Fire comes in. So I brought this idea up.

The things that got you in there are not the things that are going to get you to level five. You have to do something completely different. Start your own business, join a startup, get equity early, and it has to sell for a ton of money. That's the only way I've seen people get out. There's obviously exceptions, celebrities, entertainers, stuff like that. But for the most part, assume you're not one of those people, you got to start a business. That's the only way to do it.

I call it the no man's land of wealth. And it's not a bad thing, but it's like, you can't get out. You're not getting out of level four. You're stuck in there. I expect myself to be in level four the rest of my life. I could sell a million books, right? Even after tax and everything, I'm not nowhere close to level five, right? I'm still like just treading water, right? So it's like, I could do all this stuff and I'm still not going to get out of that. I have to go and start my own business, do this whole other thing for me to get there. And I

don't really think that's going to be worth the trade-offs of doing that. So everyone has to make those decisions personally. And that's why I think Coast Fire is such a great solution for a lot of this stuff, because you can spend more time with family, kids, whatever, those things that you care about. But I think that getting to that point is what really matters. Even if you waited those 28 years saving $100,000 a year, you finally say, oh, I just got to $10 million. That doesn't necessarily mean any...

anything changes the moment you go from 9.99 to 10. So I guess we can come back to the question I brought up earlier. It's like, how do you know when anything in your life should change? You didn't say it yet, but I know that the spending freedom in level five is house freedom. I assume someone who goes from $9,999,000 to 10 million isn't great. I could buy seven homes now. It doesn't change on a dime. So how do people generally...

Know when they can change when they're comfortable spending a little more or doing different things That's where the I try to really use the point of 1% rule Like I really believe that rule helps because it over time as you're saying hey look I've demonstrated I can build wealth it allows you to spend more and more in certain categories now, of course like it's a sliding scale because it's point zero one percent your wealth It's always if your wealth keeps increasing that numbers going up, right? So if you have a million dollars

You can spend $100 a day without even thinking about it, right? $100 a day on top of whatever else you're spending, assuming you're not spending above your income, that is, right? It's one of those things where like, hey, oh, this is going to cost me $100. Don't sweat it. If you're in level four and $20 dropped out of your pocket and you can't find it, you just don't spend time looking for it. It's gone. No big deal. Move on, right? It's one of those things where it's not going to impact you. You just got to move on with your life.

And so when I start thinking about, okay, well, when does it change? There's no exact moment. And a lot of this is psychology in terms of how people think about money. But I like to really use this rule because when I was younger, I would go to a restaurant. I'd be like, yo, I got to get the cheapest thing. I can't afford this stuff, right? And then over time, I gave myself the freedom to spend more. Now I go to a restaurant, I get what I want, basically. Besides, as I said, the expensive French wine, I'll pass on those things. But everything else, I don't care. I just want it. I'll get it, right? And that's only because I've demonstrated the discipline. I built the wealth. I spent a lot of time doing this stuff.

It allows some lifestyle creep. There's going to be people say, don't let your lifestyle creep. Don't let your lifestyle creep. I'm like, yeah, let your lifestyle creep if you've demonstrated

the financial discipline to build wealth. It gets you a little bit the best of both worlds. That's what I'm really trying to do is get rid of spending guilt, but I'm not giving you free reign to spend on everything. And that's where I think this is a nice balance of those two things. What advice would you have for someone who may or may not be like me, where it's okay, I've done the math, I've run the numbers, I've used the 0.01% rule, and I should be able to spend these things. But I find myself some

sometimes like getting caught up and this is a psychological issue, right? It's not a financial issue. There are days where my wife and I are at the grocery store and we're like, God, I remember we were at Costco the other day. It was like organic strawberries or like 1199 or something. They're normally like 799. We're fighting ourselves over like,

I know this doesn't matter, but also it seems egregious. Any tips for people like that? That's something you have to deal with because it feels like you're getting ripped off. It feels like an injustice and it doesn't matter if an injustice is a penny or $10 or $100. It feels wrong and I get that.

At the same time, you'd be like, well, how much do I care about strawberries? Do I need to have these strawberries? Can I just get a different berry? If you really care about that, obviously there's some point where it's okay. Well, well, Nick, you can spend a hundred dollars a day. Why don't you spend a hundred dollars for strawberries? I'm like, yeah, that's kind of silly. At some point there's like a full premium. You don't want to be a fool either.

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I just want to thank you quick for listening to and supporting the show. Your support is what keeps this show going to get all of the URLs, codes, deals, and discounts from our partners. You can go to all the hacks.com slash deals. So please consider supporting those who support us. I'm going to say maybe we have one or two listeners in level six, so we don't need to spend too much time there, but what happens there?

Well, I'll say the same thing. I'll talk about level five and six together because I think the main thing to focus on, this is helpful for any wealth level, but as you get to level five, level six, as you just build wealth in general, all of your problems in your life are less likely to be money problems. I'm not saying you can't have money problems in level six or level five or level four, but when you're level one, you could have other problems, but most of your problems are money problems.

As you get to the higher wealth levels, all of your problems cannot be solved by money. And that is the big realization because you can't like, oh, well, I've been working so much to build this wealth to sell this business. So and I'm worth 15 million dollars. As a result of that, I can't run my spouse a check to say, hey, just forget about all those years where I neglected you like we have money now. So let's all get along.

That doesn't work. You can't do that with your children. You can't ACH your cardiovascular system just to work better, right? If you're not taking care of your health. So like all the problems you're going to have in level five and level six are all the non-financial things. That's what's being amplified there is all the non-financial pieces of your life.

Money is not going to buy them. Right. And you're like, well, you can buy friends. Not really. You really can't do true friendship. It doesn't work. Right. So the thing I tell people to focus on, if you're in those levels, they're probably focusing too much on their money and not enough on everything else in their life. In the wealth ladder, in the book, I talk about this stuff in level fives and level six, which is, hey,

Focus on all the non-financial pieces because your financial stuff's good. Focus on all the other things because I bet you're overlooking at least your health or your relationships or your friendships or some piece of your life you're overlooking and you don't even realize it. So that's what I would say for those people. When I first started with the book, I was like, oh, you know what? I feel like Nick needs to go read Sahil's book about the five types of wealth. That was like early thought. Then I get to the point of the book where you actually reference the entire thing. So I'm curious to

to date, all of the wealth you've talked about on the ladder, moving up the levels is all financial. How do you think about other types of wealth, whether it's family or health or anything like that? It's very funny because I collaborated with Sahil on his book when he needed help with the financial wealth piece. And I was like, you know what? This is such a great framework. I'm going to use this. And so it's very interesting because all these types of wealth, they're easy to overlook because they're not as easy to measure. I

I can look at my bank balance, right? I can give you a number like, hey, here's what's in my checking account. Here's my net worth or whatever. Of course, it's approximated, but still I can give you a number. Can I give you an exact measure of my health? I would assume, well, I could tell you my VO2 max. I could tell you my miles. I can tell you all this stuff. At the end of the day, like for all you know, there's something going wrong somewhere else in my body that I can't even predict that none of these measures are going to pick up. So at the end of the day, your relationship with your spouse, with your children, you can't rate it. You can come up with a rating, but you don't know the other person's feelings, right? It's harder to measure those things.

So they get overlooked. And so I think that's the big problem with the other types of wealth. And so I try to bring that back as a focus. And especially after talking about level five and level six, where these people have all this wealth and all this wealth is not going to fix these other problems in their life. So just a good reminder of all the other things that matter in our lives and where you should be spending your time as well.

I've been fortunate to have a lot of travel in my life, but I've met people all around the world, some of whom are very squarely in level one, very happy people. And when I heard you saying, oh, this got you into level five, it almost made it feel like you've got to climb the ladder. And I'm wondering if

how you think about general life happiness and whether we even need to be climbing, or maybe once you get to level two or three, is that enough versus thinking of it as something that we need to get to the top of? Yeah, I agree. Without a doubt, level four, 1 million to 10 million, if you're in that level, you do not need to keep climbing. I don't think it's going to add much value to your life personally. However, I can see why people say, you know what, maybe level three is not enough because of I spend X dollars and you've

And even if you have a million dollars, that's not gonna be able to throw off enough income to support a certain lifestyle. So I think it matters like based on your lifestyle, what you value in your life. There's people at level two, level one that are very happy, that are happier than people in level three and level four. In general, happiness tends to go up with income and wealth as long as you're happy already.

But that's what I said, like, where's enough? Every person's going to be different. I think for most people, it's level three and level four, you'll be fine. Now, of course, there's happy people all over the place. But, you know, if you don't want to have to worry about money stresses, all those other things, I encourage people to get at least out of level one for sure, and then go beyond there. But yeah.

Yeah, I think it's a good question. And it does depend on a host of things. You can be much happier with no wealth, but I'm showing what the data shows. Remember that original study from Kahneman and Dean who was like, hey, your happiness doesn't increase after $70,000 a year. Well, they kind of went through the data again and dug through it. And basically, happiness does keep increasing above $70,000 a year in income with wealth, etc. They've looked at wealth and income.

But the issue is you have to already be happy, right? If you're not a happy person, more money is not going to make you happier. And that's what the original study found. But if you're happy in your loving life, I'm telling you more money is going to probably make you happier. Does that mean you need to chase it? No. I don't know why people are saying otherwise. I just don't want to mislead people. Yeah. And you mentioned the kind of myth we see on the internet.

on the internet of all these people that are in their 30s that are millionaires and how the data shows that's not really true. What is the kind of timeline to get through these levels? Like how long does it take to move up? And what other kind of myths might exist in society about where we should be at certain times?

times. Yeah. So the data is all in chapter 10 of the book where I go through a lot of this stuff, but the median age for someone level four, which is 1 million to 10 million, is 62. So it takes time. It takes decades for this to happen. And I have data in the book, which goes through all the percentages in terms of, okay, this percentage of people went up one wealth level within 10 years or 20 years. Basically, long story short is it just takes time. There's no way around that. So after 20 years,

32% of households will have gone up one level, 5% will have gone up two levels. So wherever you are now, whatever wealth level you're in, within the next 20 years, there's a 32% chance you'll be up one level, all else equal. I have no idea. This doesn't control for ages, it's across all ages. There's a 5% chance you'll be up two wealth levels, right? So it does take time. And then over a 10-year timeframe, there's a 20% chance you're up one level, there's a

a 2.5% chance you're up two levels. So it does happen, but as you can see, it's hard. And so you can still build wealth and stay in your level. It's nothing wrong with that. But just to show that the percentage of households moving up and down levels is not as high as we might have thought.

What about moving down? I can't help but think with two kids about the chutes and ladders analogy. Yes, you can stay standing. Yes, you can move up. But do people do things like overspending or make risky investments and then go down a level? Oh, yeah, it happens. It's much rarer. I can give you the data again. Over a 10-year period, roughly 11% of households will go down one level.

right? And then 2% of households will be down two levels. So it's very rare. There's much more upward mobility than downward mobility because I think most households are generally disciplined. 63% of households won't change their level at all. And then over a 20-year period, only 12% of households will be down a level. Over a 20-year, whichever level you're in today, there's only a 12% chance you're going to be down any number of levels from where you are. So it's unlikely over long periods of time that that happens, but it's

something to consider right so all the data is in there it's even switching matrices where it's oh if you start at this level what's the percentage i'm going to be at that level in 10 years or 20 right and so you can start going through all the data and thinking about this stuff and i think it's cool to see that because i'm actually following the same households i'm not just looking at random houses i'm like saying let's look at how households actually built wealth from 1984 to 2021 and so we're just looking through all these 10 year and 20 year periods that are there and saying how did they actually build wealth and what percentage of them moved around

It's very fascinating to see that. This data, if someone really wanted to nerd out, they can download it and play around with it. It's from the University of Michigan PSID data. It's not that easy to pull. It's like a long process. But if you're interested in doing this, please DM me. I respond to all my DMs. I have the whole code base. It's up on the internet. It's free to see. With AI, you can probably get this thing up and running, even if you've never programmed too much before. And you can actually download the data and get all this stuff running. And you can play with it yourself and see what's out there.

That's one of those things where I'm like, oh, that would be fun. But you've done a pretty good job summarizing it. So I'm not going to go down that rabbit hole. Yeah. And it doesn't need to be perfect. Like the exact percentages don't matter. The core idea is there is mobility upward. That's generally true, at least in U.S. society over the period I talked about. I think that's probably going to be true in the future, even though, yes, it's been a little bit slower recently. I think Gen Z is.

millennials, Gen Alpha, all these people, it's been tougher on them than prior generations. Like for a host of reasons, I think housing prices is one of those big determinants that's slowing that down. But we're going to see this change over time as the boomers pass on and stuff, all that wealth is going to start moving back into the next generation, et cetera. I'm hopeful. I think we just have to wait it out. First time home buyer age is going to go up. We're just going to have to delay what we normally would have done earlier in life. That's all. I love the 0.01% rule, but there's also a 1% rule that I hadn't heard, which

Maybe I thought was even more impactful as someone who loves a good side hustle, but recently has been trying to make sure that I don't waste time on business opportunities or work ideas that aren't really going to have an impact. Can you talk about that one? Yeah. So the 1% rule is just take 1% of your net worth. And that's the amount that should be the minimum before you consider getting into an opportunity. So let's do a simple example.

Let's say you're worth $100,000 and someone's like, hey, would you be willing to come speak at this event for $100? You're like, no, your cutoff should be $1,000, which is 1% of your net worth. 1% of 100,000 is 1,000 bucks, right? It's like you have to think about income opportunities and how they impact you and so whether you're willing to take on that income opportunity.

Obviously, it matters how much time you have to put into the thing, but using it as a different way to evaluate a new income opportunity, right? Because a lot of times people will be thinking about these things and they'll say, should I really do this thing? And it's, oh, wait, that's actually not going to move the needle at all. So why am I spending my time on this? And this is really true more for business owners and entrepreneurs and people who have all these different things, a lot of hats, a lot of things you're doing, side hustles, things like that. I think it's more applicable for those people than it is

for others. And so you're lower on the wealth ladder, you'll say yes to almost everything, right? Because 1% of your net worth isn't that much money. But as you go up, you're like, yeah, this isn't really worth my time anymore. And so you have to really rethink that because it just doesn't make an impact. That's the problem.

Yeah. For some reason, I never thought about it as a percent of net worth. And I always just equated it to something in my life. Whereas early on, it was like, is this thing going to make a car payment? And then it's like, oh, okay. Now, is this thing going to make a rent payment or a mortgage payment? Or maybe you have kids in school. Is this going to cover their tuition? You move up. And I've always visually thought of it as something, but I never really had a framework for how to pick that number. So that was really helpful for me

Yes, I have a business and we have opportunities where we're like, oh, should we plan trips and do this travel agency thing? Well, what kind of impact would that have? But even when I was working, it's like, oh, here's this side hustle. Before we started recording, I talked about...

buying and selling gold at Costco. And I did a whole episode on it. It's like, "Okay, but how much is this thing actually going to make? And does it move the needle?" Because not only is there time involved, but we have this limited amount of headspace to be creative and think about things. And I could spend all my day thinking about flipping gift cards from the grocery store. But if the overhead that's going to cause and the anxiety of "Oh, is there a sale this weekend?" All of those things combined will make me $500 a month.

I should probably take that thing and just shove it to the side. But 10, 15, 20 years ago, me in college totally would have been all over it. Yeah. And that's the main idea. It's like you're going to make different decisions about your spending income investments as you move up the wealth ladder. It's built into every piece of it. I try to come up with different rules for each one of these things. Yeah. We're

We were talking about travel and level four, you've got a million dollars plus net worth. You've got travel freedom. I know people that listen to this show probably want to travel even sooner. How do you think about that? And how has that been a part of your journey? Yeah. So it's not that you can't travel sooner than that's not the idea at all. It's a gradual increase in freedom, right? At a million dollars, that marginal spend from the

0.01% rule is a hundred bucks, right? So that's not a ton of money, but hey, I can get a slightly better seat or I can upgrade and get a slightly nicer hotel room, right? Whatever it is. You can start making those types of decisions when you start to get into level four, but as you get deeper into level four, then you can make bigger and bigger types of travel decisions. And so that's the idea behind it. It's not that, oh, as soon as you hit a million bucks, now you can do whatever you want to travel. No, but-

Over time, you're gonna be able to do that. And so what I say is that's why I think hacks like this matter because I'm in level four. So I'm like, hey, travel freedom matters to me, but I need to use these hacks because I don't have that much travel freedom. I can't go and upgrade my flight anytime I want. I can't do that. So I have to use points and all these things. So a lot of this stuff matters in the context of your level. Even if you're in level four, you still need to use these things. I think it's very helpful. So something to think about for those that are wanting to travel a lot.

The nice thing is that as you're earlier in your journey, you have a lot more flexibility. We were talking with some friends who have no children and they're like, oh yeah, we could just take any week off. They could go anywhere anytime, no regard to school schedules, three hour red eye, 12 hour layover, doesn't matter. And

And so earlier in your career or your journey or your life, the ability to leverage things like points and miles where flexibility just gives you a huge, huge leverage on what value you can get gives you a kind of shortcut to some of these freedoms. Like I think you have a lot of travel freedom earlier in your career if you play the points game well and you're flexible that otherwise would have cost you a lot that would be not prudent to spend on. Yeah, I agree. Yeah.

That's a very different way of thinking about travel freedom in that sense. Like you can do more stuff because you're more flexible. It's like, you know, I can't take my family to Hawaii during spring break because that's when everyone else wants to go to spring break. That's the type of stuff where you don't have that flexibility, but you can do other things. You're right. There's ways around this. There's ways to hack travel freedom to have it earlier with less wealth, but it requires a little bit more effort on your part, right? The whole idea of travel freedom is by the time you get to 10 million, you don't have to worry about that. You say, hey, I want to go here at this time. You just go. That's the difference. You've

You've been on this journey yourself through some of the levels. What are some of the big takeaways you've gotten and some of the mindset shifts you've made as you move through this journey? So a few things. The first one that I had was stop focusing so much on my investments and focus more on income and career. I over obsess with investments and that's why I'm an investment financial writer today. But at the same time, I should have been focused a little bit more on my career in terms of just actual financial dollars I was bringing in, right? And I wasn't looking at that much. So that was the first mindset change was to really become income focused.

The other one over time, it's how my relationship with money has changed. I grew up kind of lower middle class. I would say level two, even though my parents declared bankruptcy twice, it happened within a 10 year span. And though that's technically level one, like I didn't grow up in level one for all practical purposes. So I would say like I grew up in level two, I've lived that lifestyle and then going to level three and level four and just seeing those changes and kind of understanding how different people view money. And it's just interesting to me to witness that personally, but then also

how it's been able to transform my life and my relationship with my family. Like my sister, her car broke down. She was like, oh my gosh, what am I going to do? I was like, Kelly, I'll just write you a check. It's all good. I'm very fortunate I'm able to do it. Not everyone's able to do that. And so that's the big

thing that I've seen change is my relationship with money. And it's a tool for a lot of things that can help people. And I think getting that first thing out of level one to level two is the biggest mindset shift you can have. And building on that is what's important. If you had to zoom out a little bit and think, what do you think someone who understands the ladder and understands how to get through it and the risk associated, how do you think that really impacts their life and their journey?

I think you can make much better decisions on how to prioritize your time and what you're going to do at different stages. If you don't understand the latter, you're just going to keep trying to maximize wealth. You're going to keep moving through it. And if you understand it, you can understand what the trade-offs are and what's needed to get to the next level and the sacrifices and all those different things. I think you can make much better decisions about what do I want to do with my time? How do I want to spend my time? With who? At what

frequency, et cetera. I think those are the types of decisions that really impact your life because you can start going down a path. And once you realize that's why I talked a little bit about the level four stuff, it's because most people are going to get stuck in there. They'll never get out. And you're spending all this time running on the hamster wheel and it doesn't really impact your wealth that much anymore. And you're working so hard for what? And I don't understand why people do it. And so I think that's the big thing

mindset shift is realizing, okay, once you understand the ladder and all the decisions behind it, you can make much better decisions about how you use your time and what you do with your life. So the book's called The Wealth Ladder. It comes out July 22nd. It's available for pre-order now. Where can people find it? And where can people find everything you're working on?

So the book can be found everywhere books are sold. All my stuff I'm working on is going to be at dollarsanddata.com. If you want to learn more about the book, you can go to wealthlatterbook.com. And yeah, if you have any questions, feel free to DM me. I'm on Instagram, Twitter, LinkedIn. I respond to every DM. If it's always a legit DM, I will respond to it. So reach out to me anytime and be happy to chat. Yeah. We'll link to everything in the show notes. Nick, thanks so much for being here. Thanks so much, Chris. Appreciate you having me on again. Thank you.

I really hope you enjoyed this episode. Nick is such a wealth of knowledge and his blog is fantastic, filled with so much good data. If you want to check out the Wealth Ladder, definitely go pre-order it. I got an advanced copy and it was fantastic. As always, I love getting questions, feedback, suggestions. Send them to podcast at allthehacks.com. That's it for this week. I will see you next week.