Climbing the Wealth Ladder(ofdollarsanddata.com)
ofdollarsanddata.com
Climbing the Wealth Ladder
https://ofdollarsanddata.com/climbing-the-wealth-ladder/
313 comments
This is similar to how I’ve thought about money for a while. Through high school, I had dollar problems. As in, things in the $1-9 range were pretty important. Through college I had $10 problems. Early career it become $100 problems. Now anything under $1000 just doesn’t strike me as an issue. New hot water heater? Just go buy it. $10k things however are what feel like real issues now- new roof? I can do it, but’s it’s gonna put some hurt on for a while if I didn’t see it coming. $100k problems (if I didn’t have insurance and had a major health problem) would crush me like a $1000 problem would when I was 18.
I'm really not a fan of this breakdown because it seems to put each order of magnitude increase in liquid net worth as equal space on the graph. What percentage of people fall into each level. Maybe 50-60% of American adults fall into level 1?
Surely, most folks will never reach Level 3 on this chart. While this is an interesting way for someone who has made significant increases in their income over the years, I don't think the thesis holds that the best way to increase your ladder is to just save money.
We're all (or mostly all) wage earners here. Whether you are making $15/hour at a fast food gig, or $200+/hour as an engineer, you aren't going to save yourself into a new level. Saving might take some pressure off, and make you a little more comfortable within your level, sure, but for most people, it isn't reasonable for them to save 10 times the money they already have liquid without changing their income.
The idea that we're all just a few 'steps' away from being independently wealthy is one of the worst parts of American culture in my experience. The individualism that follows from "if I can just outcompete someone else" seems to me to be the root cause of things like a general anti-labor sentiment, minimum wages as low as $2.13/hour, etc.
Surely, most folks will never reach Level 3 on this chart. While this is an interesting way for someone who has made significant increases in their income over the years, I don't think the thesis holds that the best way to increase your ladder is to just save money.
We're all (or mostly all) wage earners here. Whether you are making $15/hour at a fast food gig, or $200+/hour as an engineer, you aren't going to save yourself into a new level. Saving might take some pressure off, and make you a little more comfortable within your level, sure, but for most people, it isn't reasonable for them to save 10 times the money they already have liquid without changing their income.
The idea that we're all just a few 'steps' away from being independently wealthy is one of the worst parts of American culture in my experience. The individualism that follows from "if I can just outcompete someone else" seems to me to be the root cause of things like a general anti-labor sentiment, minimum wages as low as $2.13/hour, etc.
I think this kind of article is helpful.
The thing I notice most is a lot of people buy cars (and replace them frequently) that are way above their "level" and represent hugely irresponsible decisions.
E.x. you should be way into 7 figures of wealth accumulation before you start leasing/buying $50-70k luxury cars.
You never know what someone's stock portfolio/401k/IRA whatever looks like but it's always an eyebrow-raiser for me to see someone drive up in an expensive car and then they later tell you they pay rent and have never bought property and the longer you talk to them the more you realize they're probably living paycheck to paycheck.. just with a relatively large paycheck that disappears nearly completely.
Especially when the trendy area to rent gets you a small studio or 1BR apartment for $2.5-3.5k/month and that's enough to pay the mortgage on a $1M property within 10 miles of said apartment.
The thing I notice most is a lot of people buy cars (and replace them frequently) that are way above their "level" and represent hugely irresponsible decisions.
E.x. you should be way into 7 figures of wealth accumulation before you start leasing/buying $50-70k luxury cars.
You never know what someone's stock portfolio/401k/IRA whatever looks like but it's always an eyebrow-raiser for me to see someone drive up in an expensive car and then they later tell you they pay rent and have never bought property and the longer you talk to them the more you realize they're probably living paycheck to paycheck.. just with a relatively large paycheck that disappears nearly completely.
Especially when the trendy area to rent gets you a small studio or 1BR apartment for $2.5-3.5k/month and that's enough to pay the mortgage on a $1M property within 10 miles of said apartment.
The article completely ignores the last and most important level of wealth, which is being financial independent. Being able to pay for rent, food, healthcare etc. for the rest of your life without the need of a day job will probably have the biggest impact on your life.
im presently reading Paul Fussells "Class" and this is a fascinating take on the idea in the age of wage stagnation.
>the best way to climb the wealth ladder is to spend money according to your level.
This is directly contradictory to, and detrimental to, how the US Economy expects its consumers to act. Credit has largely filled the gap of wages and productivity such that consumers now have no real sense of their level of real wealth, only that which is projected by their ostensible plastic card based opulence. The authors capstone to the article declares paradoxically at the end, "there is a lot more to life than saving money." so I suppose the siren call of conspicuous consumption remains a cornerstone of their life as well.
id also cynically argue that level 6, philanthropy, has less to do with having a profound impact on the world around you and more to do with dynasticism and displacement of the state as an agent of change or agency in society. people at this level of wealth have a need to extend their name to objects of gravity an institutions of permanence and prestige. They are so far removed from the society as a whole that any perceived generosity in the pursuit of a just and verdant society is merely a facade for tax evasion and self grandeur. They realize no meaningful other symbiosis or benefit from the society as a whole in which they are mistaken to be a part of.
>the best way to climb the wealth ladder is to spend money according to your level.
This is directly contradictory to, and detrimental to, how the US Economy expects its consumers to act. Credit has largely filled the gap of wages and productivity such that consumers now have no real sense of their level of real wealth, only that which is projected by their ostensible plastic card based opulence. The authors capstone to the article declares paradoxically at the end, "there is a lot more to life than saving money." so I suppose the siren call of conspicuous consumption remains a cornerstone of their life as well.
id also cynically argue that level 6, philanthropy, has less to do with having a profound impact on the world around you and more to do with dynasticism and displacement of the state as an agent of change or agency in society. people at this level of wealth have a need to extend their name to objects of gravity an institutions of permanence and prestige. They are so far removed from the society as a whole that any perceived generosity in the pursuit of a just and verdant society is merely a facade for tax evasion and self grandeur. They realize no meaningful other symbiosis or benefit from the society as a whole in which they are mistaken to be a part of.
I have a problem tying wealth to consumption. I always look at menu prices but I'm a lot better off financially than many people who don't seem to care how much they spend. Maybe because I do look at menu prices.
Other than that, this is basically a base 10 view of wealth. Each zero matters as much to you as the last one. Under that theory, Bloomberg is to me as I am to someone living paycheck to paycheck, but I feel much closer to the person living paycheck to paycheck.
Other than that, this is basically a base 10 view of wealth. Each zero matters as much to you as the last one. Under that theory, Bloomberg is to me as I am to someone living paycheck to paycheck, but I feel much closer to the person living paycheck to paycheck.
Not a good article.
There are three steps on the wealth ladder:
1. Wage slave - Most people will never leave this step, no matter how many ugly Merc SUVs they own or first-class flights they've taken.
2. FU Money - This person has enough money set aside to walk if they don't like a job or a customer.
3. F-Everyone Money - This person doesn't need to work at all.
There are three steps on the wealth ladder:
1. Wage slave - Most people will never leave this step, no matter how many ugly Merc SUVs they own or first-class flights they've taken.
2. FU Money - This person has enough money set aside to walk if they don't like a job or a customer.
3. F-Everyone Money - This person doesn't need to work at all.
People without a safety net who start out poor are generally going to end up poor. In another post I mentioned how its possible to save and due to the power of compound interest retire with millions on a 60k salary but that is a best case scenario. Most people don't make 60k. Also life has a funny way of stepping in. Just after you saved your first 3k, your alternator goes out or you get in a wreck. Or suddenly find out you are having a kid. Emergencies and unexpected expenses are very likely a major reason why so many people don't make it. If I have a low end salary it likely takes a year to save that 1 - 2k that is wiped out via major car repairs cost or the trip to the ER with a broken arm.
Most people are on a treadmill just trying to make it and life always sends them back to the beginning.
Most people are on a treadmill just trying to make it and life always sends them back to the beginning.
On the "travel freedom" category - just want to say we live in extremely unusual times when it comes to travel and there's little reason to pay out of your savings to fund travel at the present moment.
In the US we've been living in the Golden Age of travel and credit card rewards for the last decade. I started churning cards in 2012 and have not paid in full for personal travel since. It's become slightly harder to churn than it used to but the sign up bonuses and earnings on cards is still at highs nonetheless.
It's great because I'm not a materialistic person and don't spend much on physical goods anyway, and to get my travel mostly paid for means I haven't had to spend my own money despite being in the "travel freedom" step of the equation.
In the US we've been living in the Golden Age of travel and credit card rewards for the last decade. I started churning cards in 2012 and have not paid in full for personal travel since. It's become slightly harder to churn than it used to but the sign up bonuses and earnings on cards is still at highs nonetheless.
It's great because I'm not a materialistic person and don't spend much on physical goods anyway, and to get my travel mostly paid for means I haven't had to spend my own money despite being in the "travel freedom" step of the equation.
I'm not sure exactly what the article is trying to accomplish but it does feel in about the right ballpark for the levels. I don't think I'll ever get to the vacation one but simply paying last debt off really took a lot of weight off. Sure borrowing at low interest makes math sense but having a paid off house just feels good.
I highly encourage people in developed nations to become philanthropic as soon as they cross their country's poverty line. Giving to cost-effective charities can do tremendously more good for others, way more than you can do for yourself.
I currently give at least 10% of my income but my aim is to get back to giving 50% again.
Join others who give at least 10% https://www.givingwhatwecan.org/
I currently give at least 10% of my income but my aim is to get back to giving 50% again.
Join others who give at least 10% https://www.givingwhatwecan.org/
The part at the end about his new millionaire friend not having a much different life is what I think about quite a bit. Until you reach "buy my own plane without worrying too much about cost" levels of wealth your life is pretty much like everyone else...
You likely: * commute to work every day * work 8+ hours per day * spend weekend hours doing choirs (laundry, grocery shopping, etc)
Sure the size and comfort (of house, car, food, etc) may vary, but you have a similar day-to-day life as a waiter, just the job and numbers are different.
You likely: * commute to work every day * work 8+ hours per day * spend weekend hours doing choirs (laundry, grocery shopping, etc)
Sure the size and comfort (of house, car, food, etc) may vary, but you have a similar day-to-day life as a waiter, just the job and numbers are different.
I feel like education has an important role in this perception, too. I grew up in an environment with $10-$100 problems, and now I still compare the prices of what I buy in the $1-5 range, even if spending $400 on a gift once a month wouldn’t significantly alter my finances. This is some sort of conditioning where you _feel_ like being at some level while in fact being above it.
The article's focus on viewing payments as a fraction of your net worth is related to the Kelly criterion [1], which suggests making only investments that increase the expected logarithm of your net worth.
For example, say you have the chance to bet on a single flip of a biased coin that comes up heads 51% of the time. If the coin comes up heads, you win $10,000; otherwise, you lose $10,000. According to the Kelly criterion, this bet only starts to make sense once your net worth is at least $250,000 [2].
[1] https://en.wikipedia.org/wiki/Kelly_criterion
[2] https://www.wolframalpha.com/input/?i=solve+0.51*ln%5Bx+%2B+...
For example, say you have the chance to bet on a single flip of a biased coin that comes up heads 51% of the time. If the coin comes up heads, you win $10,000; otherwise, you lose $10,000. According to the Kelly criterion, this bet only starts to make sense once your net worth is at least $250,000 [2].
[1] https://en.wikipedia.org/wiki/Kelly_criterion
[2] https://www.wolframalpha.com/input/?i=solve+0.51*ln%5Bx+%2B+...
So the funny thing is this article is the exact opposite of the two most influential financial books in my life: "The Millionaire Next Door" and "Rich Dad Poor Dad". The true wealthy don't ever think of spending money as if it isn't important. Instead they distinguish between spending on income generation vs spending on luxury. They only spend on luxury intentionally but will spend on income generation freely.
In other words, if someone is frivolously spending their money on luxuries they are very definitely not wealthy. They only want to appear wealthy. The true wealthy really don't look wealthy. They never really leave level 1 on the chart.
In other words, if someone is frivolously spending their money on luxuries they are very definitely not wealthy. They only want to appear wealthy. The true wealthy really don't look wealthy. They never really leave level 1 on the chart.
The game changer is:
Move to a country where US dollar goes a long long way. Like Tim Ferris said: What would you do if you had a million dollars right now? Most people don't know. The tragedy is most people don't have any passion. All they do is keep calculating their net worth day in and day out. Happiness is not eating some expensive meal. It is continually growing and having some fun. Most things that are enjoyable aren't that expensive.
You can go snowboarding at whistler even if you don't have a lot of money. You don't need to own a house there, just get an airbnb
Move to a country where US dollar goes a long long way. Like Tim Ferris said: What would you do if you had a million dollars right now? Most people don't know. The tragedy is most people don't have any passion. All they do is keep calculating their net worth day in and day out. Happiness is not eating some expensive meal. It is continually growing and having some fun. Most things that are enjoyable aren't that expensive.
You can go snowboarding at whistler even if you don't have a lot of money. You don't need to own a house there, just get an airbnb
The 0.01% of liquid net worth concept is useful.
The rest of the article is not very useful. The higher one's liquid net worth, the more differences in priorities and consumption patterns.
The rest of the article is not very useful. The higher one's liquid net worth, the more differences in priorities and consumption patterns.
Problem is that while there's a limit to how much you can spend on (I guess student, not mortgage) debt, groceries, and restaurants, the amount you can spend on holidays, houses and philanthropy vary on a much larger scales.
You can go on a holiday flight to another country for a few hundred dollars. Or you can rent a private jet to tour the world, staying at a 5-star hotel each place. That could easily be the difference between a 3 figure price and a 6 figure price.
Houses, you can get them for a few annual average salaries, or a few hundred. Depends on where you want to live.
And donations can vary as much as you like, a dollar or 100M.
For software devs, I would think the real ladder is not whether you can buy the groceries you want. My guess is most of us in the West can buy the truffles every week if we really felt like it, and likewise with restaurants.
What you perhaps want to consider is whether you have the resources to not work for a while, whether to educate yourself, travel, or do your own startup. This comes down to the opportunity cost of lost income being worthwhile to do those things.
You can go on a holiday flight to another country for a few hundred dollars. Or you can rent a private jet to tour the world, staying at a 5-star hotel each place. That could easily be the difference between a 3 figure price and a 6 figure price.
Houses, you can get them for a few annual average salaries, or a few hundred. Depends on where you want to live.
And donations can vary as much as you like, a dollar or 100M.
For software devs, I would think the real ladder is not whether you can buy the groceries you want. My guess is most of us in the West can buy the truffles every week if we really felt like it, and likewise with restaurants.
What you perhaps want to consider is whether you have the resources to not work for a while, whether to educate yourself, travel, or do your own startup. This comes down to the opportunity cost of lost income being worthwhile to do those things.
Nice, I used to say that I feel comfortable when I choose my yogurt and do not look at the price.
I realize that I am objectively much higher on the wealth axis today, but this is what I tell my children. Live without needing much and do not worry if what you really want is 500€ more expensive.
I like this chart because it also tells that some people can be happy by buying the 15€ fast lane at the airport (this is what we did with my wife, the kids queued up). Or getting the 500€ more expensive version of vacation to have more space.
I realize that I am objectively much higher on the wealth axis today, but this is what I tell my children. Live without needing much and do not worry if what you really want is 500€ more expensive.
I like this chart because it also tells that some people can be happy by buying the 15€ fast lane at the airport (this is what we did with my wife, the kids queued up). Or getting the 500€ more expensive version of vacation to have more space.
I mean if you have $100k in wealth you absolutely have travel freedom. Backpacking in Europe is a common experience so it's pretty cheap and the rest of the countries have crazy USD conversion rates. $100k could be a lifetime's worth of money in a non-western country. You can still find lodging in Ukraine for like $4/day.
Another positive aspect of gradually ramping up spending is that you slowly and safely learn how to use money. Your behaviors have to be calibrated to your income and wealth to avoid wasting money.
Although the person overspending is probably using credit or living paycheck to paycheck, there is the rarer but more acute problem of windfalls. If you receive a windfall without previously having experience with money, there's a good chance you will fritter the windfall away.
A common way this happens is when professional athletes overpay for a mansion after signing a contract. Five or so years later the mansion is sold for a huge loss or sits on the market for years with an unrealistic selling price.
Although the person overspending is probably using credit or living paycheck to paycheck, there is the rarer but more acute problem of windfalls. If you receive a windfall without previously having experience with money, there's a good chance you will fritter the windfall away.
A common way this happens is when professional athletes overpay for a mansion after signing a contract. Five or so years later the mansion is sold for a huge loss or sits on the market for years with an unrealistic selling price.
> Lastly, you might argue that you shouldn’t increase your consumption with your net worth, but I would counter that some lifestyle creep can be highly rewarding in terms of maximizing your leisure time and long-term life satisfaction.
I don't agree with this. I think life satisfaction is a function of what you think you need rather than what you really need. Changing that perspective can create as much contentment with existing resources as increasing consumption. For example - no one misses what they never knew they could have. Very few people come up with a _necessity_ for a private jet from first principles.
I don't agree with this. I think life satisfaction is a function of what you think you need rather than what you really need. Changing that perspective can create as much contentment with existing resources as increasing consumption. For example - no one misses what they never knew they could have. Very few people come up with a _necessity_ for a private jet from first principles.
No one should be allowed to reach "what are prices?" People who are there already should be taxed back down into the "I care about prices again" range within a few generations.
I think you can pretty easily guess this article isn't written by anyone whose family is recently immigrants. Kids from those families don't need to be instructed on how to spend at the right level (at least in the first few stages) -- everything is about saving money! This story is probably for people whose parents have forgotten what it's like to be poor and skipped the step of instructing the kids (inadvertently, or deliberately) on what that's like.
So...a couple of these posts are about climbing the income ladder. If you want to climb the wealth ladder here’s my advice. Buy a single-family home, in an area with good schools, that you can afford with a 30 year fixed mortgage. You will need 20% down, so you won’t be able to reach the “food freedom” or “travel freedom” levels as described here until your home purchase is completed. This is almost foolproof over the long term.
In these conversations it is important to remember that the median US income is somewhere around $40k per year. Conversations like this should serve to remind us that the US system is deeply broken. There is no reason we couldn't have a system where everyone could live comfortably. People making an easy six figures talking about how poor people should scrimp and save is ridiculous.
I think the rules he’s using for measuring wealth are way off. It only makes sense if your goals are to work a full time job for the rest of your life. Something more meaningful would be financial independence. How long can I live comfortably without working? Do my investments still lead to net personal wealth increases without working? If so, how much?
I hate being negative but this article, despite its good intent, just tries to force some very shallow abstractions to the point where it's ridiculous ...
On the first example of levels, it's funny that 'guys that can eat where they want' are on the same level (3) as 'billionaries'.
Then goes on with the very old (and wrong) belief that for a high net worth individual 50K is chump change and equivalent to a normal guy throwing away a dollar ...
Then the "improved" levels do not really make sense as levels: travel freedom can be much more than expensive than house freedom, for sure!; also, one could engage in a philantrophic cause without belonging at the absolute peak of wealth.
Another one is how at the highest level in his chart, he uses the expression "What are prices?", implying that people at the highest bracket just do not look at price tags anymore. Honestly, plenty of rich people live fairly frugal lives, while on the other end plenty of people at the bottom spend in a lot of things without thinking twice about the cost and its impact on their lives.
And then there is no advice on how to actually climb such arbitrarily defined ladder ...
On the first example of levels, it's funny that 'guys that can eat where they want' are on the same level (3) as 'billionaries'.
Then goes on with the very old (and wrong) belief that for a high net worth individual 50K is chump change and equivalent to a normal guy throwing away a dollar ...
Then the "improved" levels do not really make sense as levels: travel freedom can be much more than expensive than house freedom, for sure!; also, one could engage in a philantrophic cause without belonging at the absolute peak of wealth.
Another one is how at the highest level in his chart, he uses the expression "What are prices?", implying that people at the highest bracket just do not look at price tags anymore. Honestly, plenty of rich people live fairly frugal lives, while on the other end plenty of people at the bottom spend in a lot of things without thinking twice about the cost and its impact on their lives.
And then there is no advice on how to actually climb such arbitrarily defined ladder ...
I don't care how much money I make - I shop at the cheap grocery store, pay attention to restaurant prices, look for deals, don't waste money. This is a good lifestyle no matter how much you make. It's called being frugal.
> More importantly though, the best way to climb the wealth ladder is to spend money according to your level.
As far as I (a non-economist) can personally tell, any notion of climbing up some abstract wealth ladder is synonym with a salary increase for the vast majority of people. Other methods, whether they involve quantity of free time or already-available money, are intrinsically tied to the quality of your job or, failing that, the quality of your parents' or partner's jobs.
Personal net worth, while definitely an important factor in this equation, is far less so than income in my opinion. A fiscally irresponsibly professional worker living from paycheck to paycheck has "grocery freedom" while a person with 10,000$ of accumulated wealth and no income whatsoever (let's say they are between jobs) is far more likely to buy the store brand margarine. Similarly, the former will most likely not achieve "travel freedom" without decades of hard work, of careful spending, of saving, investing, etc.
Simply put, no amount of "not carelessly booking flights" will turn you into Jay-Z, let alone into that small business owner across the street with the McMansion and the gaudy Christmas decorations. The undisputed "best way" to climb the wealth ladder is to receive large amounts of cash from some external source.