Climbing the wealth ladder

[Markola]

The article is too relative to be useful for me, e.g. does the ability to “spend frivolously on vacations” include a full year at the Four Seasons? If so, I’m not “Level Four.” I prefer Radical Personal Finance podcaster Joshua Sheets’ levels:


Stage 1 – Financial Solvency. You can support yourself, without help or handouts from others, and you’re current on your bills.

(Many people think that financial management stops at Stage 1.)

Stage 2 – Financial Stability. You can support yourself, your bills are current, and you hold some savings.

Stage 3 – Debt Freedom. You’re debt-free, in addition to the points above. It’s your choice whether or not you want to include your mortgage within this definition.

Stage 4 – Financial Security. You have enough investment income to cover basic, bare-bones living costs.

Stage 5 – Financial Independence. You have enough investment income to cover your current lifestyle.

Stage 6 – Financial Freedom. – You have enough investment income to cover BIG dreams and upgrade your lifestyle.

Stage 7 – Financial Abundance. – You have enough investment income that you cannot possibly spend this money. Vast amounts of your money will outlive you, and your focus is wise stewardship of this wealth so that you can leave a beautiful legacy.

[street]

^ much easier to relate to in the above level categories.

[Ready-4-ER-at-14]

Funny what we focus on and how much things like interest rates affect wealth at the point where it starts compounding above basic living expenses.

How wealthy I feel comes from cash flow to me. So if I am in the 1-10 mil brackets and maybe half in fixed income 2% vs 11% can make a difference to how I spend.

[Letj]

These levels make a lot more sense and fairly straight forward.

[The Cosmic Avenger]

Quote:

Originally Posted by L Carlisle This is a great article, but!!! Having grown up with 3 brothers in a lower middle class family, in Alaska, in a trailer... I have always been very frugal and worried if I have enough money to survive to age 90 and give my 3 kids some kind of nest egg so they don't have to work as hard as I did. Even though my net worth is over 2 million I feel like I am level 2. I think if you have always been frugal it is hard to change.

Same here. Our NW just broke the $3M mark, but I still spend a lot of time comparing unit prices in the supermarket! I like Markola's steps better, we're currently on Stage 5, aiming for somewhere within sight of Stage 6 when we retire.

[pjigar]

Quote:

Originally Posted by RobbieB I seem to be at wealth level 4. I could afford a dream house, but then I would worry about the other spending. I'll keep the "good enough" house and live large on the rest of the stuff -

Funny you say this. The exact same thought came to my mind. I can care less about how much we spend on dream house but do care about vacation and other big ticket item prices!

[karen1972]

Its definitely interesting way to look at wealth and using just the price ranges as outlined I think its fairly accurate, though his examples for me don't work. Clearly they have never tried the $36/lb cheese or done charity dinners at $150/pp, so for me grocery and restaurant choices need to move up 1 level.

[Rianne]

Spending psychology is more complicated than 5 or 6 levels of NW. DH will spend $30 on a bottle of wine but will balk over grapes in the grocery story if they're $2.29 as opposed to $1.99/lb. I think it depends on what's important to you. I drive by houses that are cracker box sizes, old roofs, yards full of leaves and gravel driveways and a Lexus parked there. Just as a grocery store cashier will have $50 nails.
CC debt might be $10K and no thought to a 2 week Cancun vacation.

[Another Reader]

How I got to the current wealth level was by paying attention to ALL the decisions at every level. Today I don't pay as much attention to the Level 1 decisions, but I do pay attention to the Level 2 decisions, as my gripe about the B of A ACH fee demonstrates.

I completely disagree with the statement that "the best way to climb the wealth ladder is to spend money according to your level." No, the best way to climb the wealth ladder is to pay attention to most of the decisions described and make more expensive choices only when they bring real value to your life. Your wealth will grow faster and you won't feel deprived.

[Andre1969]

Like some of the earlier posters, I'm a bit conflicted on these levels. I'm not worried about the house, so much. I could pay it off if I really wanted to. But, I'm still mindful about spending needlessly, blowing too much money on food, fancy trips, etc. I guess I just need to see the value in it, no matter how much, or little, it costs.

[Sojourner]

According to the article, I'm at Level 4 (between $1MM and $10MM net worth), but it also says that at this level I should have "travel freedom".

Quote:

Level 4. Travel freedom: You travel when you want, how you want, and stay where you want.

I certainly don't feel (or operate) like I have unfettered freedom to travel how I want and stay where I want. If I did, I would always fly first class and always stay in the finest, most luxurious hotels and resorts. If I were to start doing that, I'm pretty sure the incremental level of spending required on a per-trip basis would be more than .01% of my net worth. Heck, just upgrading from a transatlantic basic economy airfare (say, $1000) to first class (say, $3500) would be more than six times the .01% referenced in the article, and that's just for one part of the travel budget for a big overseas trip.

If I were at the very upper end of the Level 4 range, with a NW of around $10MM, then I could see myself not worrying too much about routinely upgrading to first class flights and 5-star hotels, but I think it's quite a stretch to say that someone with a $1-2MM net worth would (or should) operate in this manner.

[GravitySucks]

Silly article.
As said above, $50k to someone with $1M doesn't fit the same as the step to $10m.
Do like the use of the Jay-Z scale as a jump off point though.
I find my spending habits silly. I'm fairly frugal at the grocery store- watching every penny, but not as much at resturaunts. I travel on the cheap, but do so quite often.
Here's a fun one:
Went to the local pub for trivia night and got there 10 minutes early before happy hour ended. So I order the $4 draft because it was discounted to $3.25. But the rest of the evening drank my favorite $6 pint IPAs because happy hour was over. Being Christmas I left the bartenders $30 on top of the regular tip. Having the discounted beer that's not my favorite - why would I do that? But I do it every time I'm early!

[davebarnes]

Back to original level 4.
https://www.wsj.com/articles/for-ame...oi-11577285774
"For American Homebuyers, Paris Has a Certain Je Ne Sais Quoi
U.S. buyers are flocking to France’s capital city and fueling its real-estate market
...
For most of that time, Mr. Taylor, 65, and his wife, 64, stayed at the Hôtel Plaza Athénée. But in May 2017, they bought a three-bedroom, two-bathroom apartment for €3.6 million (now $4 million) and now go to Paris at least four times a year. “There is nothing like having your own place,” he says."

[NW-Bound]

I don't know how high I am on the wealth ladder, but I am comfortable where I am.

I do not mind climbing one more rung if that is possible.

But I certainly do not want to fall off the ladder, and will invest and spend accordingly.

It's a good thing I do not have expensive habits or tastes.

[NW-Bound]

Quote:

Originally Posted by davebarnes Back to original level 4. https://www.wsj.com/articles/for-ame...oi-11577285774 "For American Homebuyers, Paris Has a Certain Je Ne Sais Quoi U.S. buyers are flocking to France’s capital city and fueling its real-estate market ... For most of that time, Mr. Taylor, 65, and his wife, 64, stayed at the Hôtel Plaza Athénée. But in May 2017, they bought a three-bedroom, two-bathroom apartment for €3.6 million (now $4 million) and now go to Paris at least four times a year. “There is nothing like having your own place,” he says."

It's too bad the Concorde is no longer flying for them to make it there and back quickly, in case they want to go there just for a weekend.

[RobbieB]

Quote:

Originally Posted by NW-Bound I don't know how high I am on the wealth ladder, but I am comfortable where I am. It's a good thing I do not have expensive habits or tastes.

It's good to be comfy. But you do have expensive tastes, you have 2 houses. Consider the amount of first class airfare, deluxe hotels, caviar, lobster and Jamon Iberico you can buy with a house.

[moneymaker]

Quote:

Originally Posted by Rianne Spending psychology is more complicated than 5 or 6 levels of NW. DH will spend $30 on a bottle of wine but will balk over grapes in the grocery story if they're $2.29 as opposed to $1.99/lb. I think it depends on what's important to you. I drive by houses that are cracker box sizes, old roofs, yards full of leaves and gravel driveways and a Lexus parked there. Just as a grocery store cashier will have $50 nails. CC debt might be $10K and no thought to a 2 week Cancun vacation.

Exactly! It’s what is important to you. I can spend $10.99 on a 6 pack of beer all day long or $8.99 for a pint of good beer at a restaurant, but a fruit tray for $10.99 is ridiculous and so is chips and salsa appetizer for $8.99! LOL. Point though, I’ll cut up my own fruit but I can’t brew a good beer.

The levels are a good generality though.

[street]

Quote:

Originally Posted by RobbieB It's good to be comfy. But you do have expensive tastes, you have 2 houses. Consider the amount of first class airfare, deluxe hotels, caviar, lobster and Jamon Iberico you can buy with a house.

Hey, RobbieB don't let NW-Bound fool ya brother, he's got it! LOL

[RobbieB]

Yup. Everyone spends according to their own priorities. Splurge or scrimp according to taste.

[NW-Bound]

I can only eat and drink so much. And while traveling, I prefer Airbnb or agriturismo in rural villages or the surburbs rather than deluxe hotels, and eat in the joints that the locals frequent.

What I do not mind having is a waterfront home on Bainbridge Island, but that would take a big bite out of my stash.

PS. Speaking of eating/drinking, I step on the scale daily. Have not exceeded a BMI of 24 in several years.