Climbing the wealth ladder

[walkinwood]

https://ofdollarsanddata.com/climbing-the-wealth-ladder/

An interesting take on wealth based on what difference an amount makes to you based on where you are in your life. For example, $50,000 doesn't make a difference to a billionaire, but would to most of us here. $1,000,000 net worth is amazing for a twenty-something person, but not that impressive for someone who is retiring this year or is 65.

He looks at it from a more everyday perspective too - are you wealthy enough that you could ignore grocery prices, or restaurant prices, or vacation prices etc.

I think the idea has uses in the spending phase of ER too. Many of us here have an issue with spending money (a subject of a number of threads), so this would be a good rule-of-thumb to see if you're putting your retirement in danger or not.

 

[daylatedollarshort]

That article is not really in line with The Millionaire Next Door, which is based on actual research and not an opinion piece. The second chapter of TMND is frugal, frugal, frugal.

 

[HI Bill]

The article is less about climbing the wealth ladder than the impact of reaching the different 'steps'. Most on this board follow the LBYM mantra, and didn't just automatically become wealthy. This is mostly a 'lottery fantasy' article, not a how to achieve and maintain wealth article.

 

[Sunset]

^^^^ well said about lottery fantasy, because if a person has $1,000 in savings, and starts not caring about saving a $1 on 1 grocery item, they are going to spend an extra $20/wk on groceries or more which is over 100% of their savings per year.
Not a "slight impact" as the author stated.

 

[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 -

 

[moneymaker]

This article is very true and one that I can rest relate to. I would very much agree with this having gone through 1 and 2 and currently find myself in level 3. I would say that I still very much look at prices even if it’s $1 or 2; however, realy don’t watch the incremental dollars at restaurants or things like that if it’s skmething I want. Basically if I want it I get it because it’s not gonna change my retirement goals because it’s such a small percentage. Flying, we still look st what’s cheapest but we can and do travel a lot too. Def an article that I can relate too!

 

[nap470]

I believe I am between level 4 and 5, but I have never want to over pay for something. I'm constantly struggling with myself over "yes I can afford that, but do I really need it?" Usually I end up not getting it or doing it. I could buy the dream house but then what about the annual property taxes? Constant inner struggle.

 

[Jerry1]

I had some experience with this earlier in the year. I was lucky enough to hit a lotto ticket for $50K. Me and DW discussed how interesting it was that it didn't change our life. Sure, it was VERY exciting to check my numbers and see that I won, but it really didn't change anything. Had my DD won $50K, it would have made a huge impact on her life (at least for a year or two as she ran through the money).

As for the article, I get the point, but don't agree with the labels chosen. For example, I may choose to save money eating out so that I can have money to use to fly in an upgraded fashion. I hate to fly, so personal experience/tastes come into how you will describe your levels along the way.

 

[mountainsoft]

Based on the article, I'd say I'm probably around level 3. I generally don't pay any attention to prices at a restaurant, as long as it's under $20-25 for each entree. I'm not gonna waste $50 on a fancy meal, even if it's a splurge. It wouldn't have much impact on our finances, but I just don't see the need to be foolish with my spending. A $20 entree will satisfy my hunger just as well as a $50 meal. I can cook better food at home anyway for far less money

I am very conscious of vacation spending, and will adjust my plans as needed to keep costs low. Or I'll choose to do something else that is less expensive.

We already live in our dream home, but only because we built it ourselves. If we had to go out and buy the same house today, we wouldn't be able to afford it.

 

[COcheesehead]

Wealth is having choices.

 

[jollystomper]

As for the article, I get the point, but don't agree with the labels chosen. For example, I may choose to save money eating out so that I can have money to use to fly in an upgraded fashion. I hate to fly, so personal experience/tastes come into how you will describe your levels along the way.

I look at those levels with the eye of "yeah, I can do that... but would I want to?" So technically grocery prices should not matter to us, but if we can spend $400/month and be satisfied, why spend $600 month but not caring about the prices - will $200 more make us happier. On the other hand, spending $1000 to pay for someone in DW's native country to cover her education expenses when our net worth was very low is not much, but it resulted in a much better job for them which has had a major impact on their life. Perhaps it is possible, to some degree, to choose which level you desire to operate on, based on what you choose is your priority.

 

[socca]

The author's analysis doesn't apply to my current (and probably future) mental wiring. The question: at what point do I stop performing a cost-benefit analysis regarding a purchase because the amount involved isn't worth the trouble? For me, the answer is 'never'. Making a purchase with a high cost-benefit ratio will never be satisfying for me regardless of the amount involved and my personal financial situation.

This is why I continue to fly cargo-class although my budget indicates that I can easily fly business class. For me, the benefits of business class aren't worth the cost. In fact, when I walk past the biz-class folks to the rear of the plane, I can't resist a smug sense of superiority. These folks might be alarmed if they knew what I am thinking: not the slightest trace of jealousy but something more kin to pity. Not exactly what the airlines or these passengers had in mind when they bought their tickets.

Of course, there is one benefit to biz-class tickets (and other expenditures of this type) - the opportunity to associate with other folks who are willing and able to make this type of expenditure. Some of these folks may consider this opportunity priceless. For me, it doesn't have much value, but I can see their point.

 

[RobbieB]

I really enjoy a $50 lunch (no booze either) easy to do at the Sushi Bar and I'm a regular. No waste, I finish every bit -

 

[davebarnes]

Net worth = 2.4M$
Need no more in a house.
So, level 4.36

We did spend $240 for lunch on my wife’s birthday.

 

[Car-Guy]

Step 4 is between 1 and 10 million... That's a heck of a step and a huge differences in today's dollars. 50k is almost nothing to someone with 10m but it's a nice chuck of change for a simple millionaire.

 

[ckelly78z]

I must be in level 4 because my DW and I just went out to eat at a nice pizza joint, and spent $50, I tipped another $10, and was happy with the meal, and felt no guilt.

We're planning another 7 night stay in SSC Jamaica all inclusive resort (our fifth all inclusive resort vacation).

$50,000 is still a big deal to me though.

 

[RobbieB]

Yeah 50 grand is about what the home improvements will cost to complete the mission. 2 bedrooms and all the landscaping

 

[L Carlisle]

Frugality

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.

 

[Alexi]

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 -

I'd worry about property taxes.

 

[RobbieB]

Here in CA, property taxes are not so bad. But dream houses are really expensive.

 

[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]

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.