#629: Nick Maggiulli: The Wealth Ladder Consists of Six Levels (and Most Individuals Fail to Ascend Beyond Four)

      Here’s the reality of personal finance advice: strategies that are effective with $10,000 may not apply when your net worth reaches $1 million.

      However, most financial guidance treats all individuals the same, whether you're putting together a $1,000 emergency fund or contemplating an upgrade to business class.

      Nick Maggiulli, the author of “The Wealth Ladder,” is here to explain how financial strategies must adapt as your net worth increases. He has outlined six distinct wealth levels, each requiring unique approaches to spending, saving, and investing.

      The levels begin quite simply.

      Level 1 includes anyone with a net worth of less than $10,000 — which represents 20 percent of American households. In this level, misfortune can escalate quickly. A $200 flat tire, for instance, could lead to job loss and debt if funds for repairs aren't available.

      Level 2 encompasses those with a net worth between $10,000 and $100,000. Maggiulli refers to this as “grocery freedom” — here, you can afford to indulge in premium eggs without worrying about your bank account.

      Level 3, which ranges from $100,000 to $1 million, introduces “restaurant freedom.”

      Level 4, for those with a net worth between $1 million and $10 million, offers “travel freedom.”

      Advancing beyond Level 4 — into the $10 million and above category — necessitates either business ownership or significant patience. Maggiulli estimates that even if you save $100,000 annually after surpassing $1 million, it would take 23 years to reach $10 million, assuming a 5 percent annual return.

      The data reveals that income is more significant than frugality, particularly in the initial levels. The median household income for Level 1 is $32,000, while in Level 4 it rises to $197,000, and reaches $4.3 million in Level 6.

      We explore the prevalence of homeownership in Levels 2 and 3, how investment assets become essential in the higher levels, and why many individuals in Level 4 opt for “Coast FIRE” instead of pursuing the more arduous route to Level 5.

      Resources mentioned:

      The Wealth Ladder Book

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