Forget the Corporate Ladder, Here’s How to Climb ‘The Wealth Ladder’ | Nick Maggiulli | 159 - Catching Up to FI

Episode Transcript
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(00:02):
In level two, I call that groceryfreedom because as your wealth goes
from $10,000 at the beginning toabout a hundred thousand dollars
by the end, if that was like, let'ssay your liquid net worth, right?
So that's all exclude your home equity,exclude your retirement accounts.
If you have a hundred thousand dollars.
The assumption is that your wealthis growing by 0.01% per day.
And if you do that for a year,you take that and do it 365 days,

(00:24):
that's about 3.7% per year, right?
And so this is inflation adjusted return.
I still think it's pretty conservative.
I don't think anyone's gonnabe like, oh my gosh, 3.7%.
What a crazy assumption.
Like, no, I think that'sa conservative return.
So what I mean is that if your wealthis creating that much per day, that's
how much you can spend per day andkeep your wealth the same, right?
All else equal.

(00:45):
those higher on the wealth ladder, solet's say levels four, five, and six
had far more of their assets in whatI would call income producing assets.
So stocks, bonds, retirementaccounts, real estate, their
own businesses, et cetera right?
They They have over half of their assetsin income producing assets, but in
levels one to three, those householdson average have less than 25% of their

(01:08):
assets in income producing assets.
In level one specifically, most oftheir wealth, that they have is in
cash, or it's in their vehicle, right?
By the get to level two, it's gonna bein cash, their vehicle and their home.
The home's usually the big one,especially level two, level three.
But as you kind of go past levelthree and get into like level four and
above, that kind of switches becausepeople have excess and so yeah, they

(01:29):
own their home, whatever, but thenthey also have a retirement account.
if you ask most financial people like,oh, I've started late, what should I do?
Everyone's like, you have to saveaggressively, you have to work hard.
Like my take is actually a non-financialanswer, which is like, start focusing
on your health even more than before.
Like exercise more.
Why am I saying that?
Because I want you to get healthier so youhave more time where you can work, right?

(01:50):
You'll hit your mid sixties,you're not as healthy, you're
probably gonna wanna retire.
You don't have money, like because youstarted late, you're in a bad spot.
So by exercising more, youextend your working life.
So it gives you more time to save money.
You get that time back that you didn't useearlier, that's one thing that's useful.

(08:44):
Hello and welcome backto Catching Up to Fi.
I am Bill Yount with Jackie CummingsKoski and we are so excited to talk
to today's guest about The WealthLadder, a new book coming out.
Nick Majuli.
Let me introduce him, Jackie, sowe can rock into the show 'cause
there's so much to talk about.
Right?
That's right.
I'm looking forward to this.
All right, so Nick Majuli is a financialwriter, data scientist and chief operating

(09:05):
officer at Riol Wealth Management.
He is best known for his popularblog of dollars and data where
he explores the intersection ofpersonal finance and data analytics.
And he is a man with chartsand graphs out the wazoo.
You've gotta check out his blog becauseit will explain to you with hard data why
things are the way they are in the world.
His work has been featured in majorpublications such as The Wall Street

(09:27):
Journal at CNBC and the Los Angeles Times.
In 2022, he published his first book,which I love, Just Keep Buying, a
book that distills key investmentprinciples into actionable strategies,
which has been translated intomultiple languages and is sold over
a hundred thousand copies worldwide.
His new book, as I mentioned, is TheWealth Ladder, Proven Strategies for
Every Step of Your Financial Life.

(09:49):
This is important, folks, becausewhether we know it or not, we are
all on this wealth ladder and wewould like to climb it to freedom.
He breaks down wealth into six distinctlevels, each requiring its own strategy
with its own challenges as well.
Nick holds a degree in economics fromStanford University and has built
a reputation for using data-driveninsights to simplify complex financial

(10:10):
concepts and help individualsmake smarter financial decisions.
So Nick, welcome to Catching Up To Fi.
Bill.
Thanks Jackie for having me on.
Appreciate it.
Nick wants to give us a shout out too.
We like to do charity shout outs.
And before we get started, Nick,tell us about the Malaria Consortium,
which you'd like to support today.
So with charity stuff, I was like,what's the best use of like per dollar

(10:32):
that I can use to save the most lives?
And, everything basically came down toeither deworming or like bed nets for
malaria prevention, like in Africa.
I think you can save on average, iffor every 1200 or $1,300 you spend,
you save someone's life, right?
And so I don't know of ahigher return that's out there.
And of course we can measurereturn in different ways.
Is saving a life the best thing?
I think it's pretty good.

(10:53):
Right?
So in terms of the malaria consortium,it's like they use a lot of that money.
They have very low overheadrelative to other charities.
And they use that money to do themost cost effective life saving
thing they can do, which is giveout bed nets and things like that.
I don't know all of the thingsthey do, but I just know like the
per dollar spent, it's like themost effective thing out there.
And I'm like so much aboutefficiency and all that stuff and so.

(11:14):
I'm very pro, the work they do.
So if I have to pick a charity,that's what I'm throwing in with.
All right.
We will drop that in the show notes.
And I am familiar with that charity.
There was someone else that wasactually supporting it as well, so I
donated on his behalf, so thank you.
We will put that in the show notes.
So Nick we share something in common.
We have an interestingperspective on $2 bills.

(11:35):
They're pretty cool.
And with your new book, Ilove the cover, by the way.
And if you're on YouTube,you can see that.
We will show it throughout the show.
But you've got dollar, you'vegot currency you've got a 20
or 50, a five, a 10 and a one.
But you're missing a $2 bill.
That's my thing.
So how are you using the $2 bills?
This is kinda under wrap, so I'm hopingthis will come out after the fact.

(11:55):
But basically I posted aboutthe book cover on LinkedIn and
someone's like, oh, it'd be so cool.
Like, I want the $2 bill, aspecial edition of the book
with a $2 bill on the cover.
And then someone's like, oh,it'd be a great pre-order bonus.
So I think what I'm gonna try anddo something where I either include
the $2 bill for those that get asigned copy, or at least if I can't
do that, I'm gonna just send it outto people that my contact list that
have been following my work for years.

(12:16):
And I'll put like a special$2 bill bookmark in there.
So that's the thinking.
But I know you guys sent me a $2 billso I can show this to the camera.
You sent me a nice thank you giftfor coming on the show and so I
have this one, which I'm gonna keepfor myself as my lucky $2 bill.
So appreciate that.
yeah, those are the gifts thatwe love sending to our guests.
And I got this uncut sheetof $2 bills behind me.
So we are, I am especiallycrazy about the $2 bills.

(12:38):
It was actually the first time Ilearned about saving, so there is
a little bit of a story behind it.
But, we wanna get into a littlebit about the book and you, Nick,
your story is so fascinating.
So you are about the numbers.
I started reading your blog ofdollars and data and I think
that's how most people know you.
Bill, is that how you know Nick as well?

(13:00):
Yeah, I mean, he is all about provingthings that people circumstantially talk
about and whether they're valid or not.
And I'm very impressed with yourability to take hard data and make
it accessible to the public ina sort of understandable format.
And your blog really does thatvery well, as do your books.
So give us briefly, Nick, the rungsof the ladder so that we can build

(13:24):
the construct of this talk today.
Yeah so I call them levels and the onlyreason I call them the levels on the
wealth ladder instead of rungs It didn'tsound as nice to me as levels, even though
technically it's a rung on a ladder.
But I'll talk about the sixlevels on the wealth ladder.
And so these levelsare based on net worth.
So your net worth as just a reminder,I know most of your listeners probably
know how to calculate their net worth.
It's very important forreaching financial independence.

(13:45):
But just as a reminder, it's all of yourassets minus all of your liabilities.
So that's like everything you own, yourcar, your house, your bank accounts,
your stocks, et cetera, minus any debt.
You have your mortgage, creditcard, student loans, et cetera.
So you have that number, you're net worth.
And then you're gonna fallinto one of the six levels.
Level one is less than$10,000 in net worth.

(14:07):
Level two is 10,000 to $100,000.
Level three is 100,000 to $1 million.
Level four is 1 million to $10 million.
Level five is 10 million to $100 million.
And lastly, level sixis over $100 million.
And the thing that makes this latterprinciple very easy to remember is
once you know one of the levels,if you just memorize any one of the

(14:29):
levels, you can back out the rest bymultiplying by 10 or dividing by 10.
And why did I use this kind ofa logarithmic like 10 x change?
Because I think that's the size ofthe change you need in wealth to see
a really large life impact, right?
So like going from like zero to $10,000that will change someone's life.
Like someone has no money to 10,000,they will feel a weight lifted,

(14:50):
they're kind of out of level one.
They kind of have financial securitylike that is a huge change for people.
The next big change, onceagain, I think is going in
past a hundred thousand, right?
And we can keep going upthe ladder from there.
One last thing I'll say in terms of howthis breaks out in US households, around
20% of households are in level one.
That's less than $10,000.
Around 20% of households are in level two.

(15:13):
That's, 10,000 to ahundred thousand dollars.
40% of households are in levelthree, which is a hundred
thousand to a million dollars.
So that's your typical middle class.
And then about 18% of households are inlevel four, that's one to $10 million.
And then the top 2% islevel five and level six.
And I think level six onlyhas like 10,000 households.
So it's a very, very small percentageof individuals that make it over a

(15:36):
hundred million dollars in wealth.
each of us has our own personal wealthladder journey and so that we can
understand you a little bit better.
You started somewhere on this wealthladder and you're somewhere now.
Can you take us through your own personaljourney a little bit from maybe even
childhood with regards to your firstlessons in money to where you are
today and how you climbed this ladder?
Yeah, so my parents met at McDonald's.

(15:57):
My father was a cook.
My mother ran the drive-through.
They met there, they had me a fewyears after that, in late eighties.
They were in level one, probably leveltwo-ish within a few years 'cause
they started saving money and stuff.
And you also include family.
When I think about levels, especiallylike if you grew up like lower
middle class or middle class, I don'talways say you're in level one unless

(16:18):
you're truly like an abject poverty.
And so if you have a family that hassome wealth, I still kind of can.
Count you as that as a child.
Even like I didn't grow up inlevel one even though my net worth
didn't exceed $10,000 until likeafter my first year of working.
I don't want to consider myself level one.
'cause I never went hungry.
I never dealt with what level onepeople in level one actually deal with.

(16:38):
So I would say I grew up in a leveltwo household in the United States.
My parents divorced whenI was like six years old.
They declared bankruptcy, right.
So a lot of bad things happened.
Unfortunately on financial side Igraduated from school, I got very lucky.
I got into Stanford University in 2008.
Went there for four years.
While I was there, I got tomeet so many more people,

(16:59):
like across the wealth ladder.
And what I mean by that is theyhad very different upbringings.
Most of 'em are level three.
Some, there's a good portion thatprobably had level four upbringings.
Most of the people I methad been to Europe already.
Right.
You have to realize like halfthe students are from California.
So that's quite a trek.
And while I was there, Ijust gotta meet people.
And I learned a lot more aboutlike the corporate world that I
just didn't know anything about.

(17:19):
Like, I had a friend, and I talkabout this in the wealth ladder
my buddy Michael came to me, he'slike, Hey, have you applied for
your internship for the summer?
I was like, what?
It was my sophomore winter.
He's like, yeah, you have torecruit now for the internship
between sophomore and junior year.
And I was like, why?
He is like, if you don't get thatinternship, then it's gonna be
really hard to get an internshipbetween junior and senior year.
And if you don't get that internship, thenyou're not gonna get a job out of college.

(17:40):
You get an internship between sophomoreand junior year that leads to an
internship between junior and senior,and that leads to your job offer.
So basically by the first quarterof senior year that you have a
job waiting for you seven, eightmonths later when you graduate.
It is so crazy that heknew all this, right.
I had never heard this, I didn'tgrow up with this, my parents
didn't graduate from college.
Like I don't have a background inany of that, but just being exposed

(18:01):
to that allowed me to learn morehow it works and like apply myself.
I didn't really have a resume at the time,so I had to go in a resume building mode.
I started applying for all theseresearch assistant positions at Stanford.
I worked part-time while I was there.
Built my resume and then I finally got adecent internship and I went from there.
So, got into data science, didthat for a while in consulting.
And then from there I joinedRiddle Wealth Management, which

(18:22):
is the current firm I'm at.
And I started as a data scientist,i'm now, I'm the COO, so I
help with operations there.
But.
in terms of climbing the levels,when I first started working on
a college, I was in level two.
I was there for a while.
I eventually got into levelthree just from saving.
And then to get into level four, that'sbasically when I started doing content,
and then only really around 2020 did Istart to make money off that content.
And then I put out booksand all these other things.

(18:43):
And it's not that the books orany of the content would've gotten
me into level four, or my jobwould've gotten me into level four.
It's just together, like havingone or the other is fine.
I would've gotten tolevel four eventually.
Like if I never had any of this contentstuff, I still would've gotten there.
I would've got there in like my lateforties instead of my mid thirties.
So I think based on myprojections, that's the only thing.
I kind of just collapsed time alittle bit and got there a little

(19:04):
bit sooner than I thought I would've.
So that's kind of the quick storyof how I moved through the levels.
I thought it was real interesting, Nick,when you were talking about growing up.
Me and Bill were, were having thisdiscussion before you came on about
how does the level you were born intoimpact you, and do you count yourself
in the level that your family's in?
So it sounds like yes, you would do that.

(19:25):
'cause I grew up poor.
So I grew up in level one, but yousaid yours was like maybe level two,
level three or something like that.
And it seems like it did impactyou from the school that you
went to and things like that.
Of course, it was things that youdidn't know, but it's just interesting
to see what an influence the levelthat we were born into has on
how we are moving up the ladder.

(19:47):
So thank you for sharing that.
I didn't know a lot ofthat stuff about you.
So you did go to schoolto be a data scientist.
That was your major.
I major in economics.
ended up working in something calledEconomics Consulting because I was
basically deciding between managementconsulting and economics consulting.
Management consulting is the onethat most people have heard of, like
McKinsey, Bain, BCG, all that stuff.
Everyone knows those names.
It's obviously much harder to getin there, but I didn't like how they

(20:10):
were trying to project the future.
Like I think it's very difficult to do.
I think it's not something that'sas rigorous and economics consulting
is looking at the past and saying,Hey, this thing happened and
there's litigation involved andwe have to analyze all this data.
And I said, you know what?
I want to do the thing that's more fitfor my skillset and what I enjoy and
it's more data heavy and it's gonnamake me a much better data scientist.
That's kind of the route I followedand I said, I'm gonna do that.

(20:32):
I don't think going managementconsultant to data scientist is really
a thing, so I took the litigationor economics consulting route.
And that's kind of how I gotinto doing all the data stuff.
And then I love personal finance,so I just married that , I started
writing about it, started puttingdata and that was kind of my edge
initially 'cause like anyone canjust put their opinion out there.
But like, if I can go dig through the dataand show something interesting, I think
that kind of gave me a little bit of anedge when I first started writing in 2017.

(20:55):
what's interesting to me toois you started at many levels
in the wealth ladder at Zero.
Did you have student loans?
Were you actually Sub-Zero orwere you able to get through
school without student debt?
So Stanford had a very generousfinancial aid policy, which they
announced like in early, I think 2008.
Like, they literally announcedit before like the recession hit.
And that's why I think they werelike, oh, we shouldn't have done this.

(21:17):
But, in late oh seven, Ifound out I got in early.
And because of that, like theyannounced this new financial aid
policy, which was like, if your parentsmake less than a hundred thousand
dollars a year, you don't pay tuition.
if they make less than $60,000 ayear, you don't pay room and board.
So for all four years, I had no tuition.
And then for three of the fouryears I had no room and board.
So only had one year where I hadto pay room and board, 'cause my

(21:37):
parents made like slightly over60 K. It's kind a sliding scale.
So I didn't have to take loans like Iasked, so I had some family that helped
out, but they had to pay five, six grand.
And so they helped out and wegot it covered and all that, but
I didn't have to take out debt.
So that was like a nice, very luckyprivilege I got because I happened to
get into a school that just rolled outthis incredible financial aid policy.
So I basically started at zero,but once again, I wouldn't consider

(21:59):
myself level one despite that.
That brings up the question too, becauseyou talk about spending, earning and
investing paths up the wealth ladder.
You don't have a chapter on debtand its impact on the wealth ladder.
Can you speak to that a little bit?
Of course.
I think there's a lot of studiesthat show if have mortgage debt, like
don't have the same psychologicalimpact from holding a mortgage as

(22:20):
they do with like student loans orcredit card debt, where the interest
rates are higher, it's more likelyto keep growing over time, et cetera.
And with housing, mostpeople just get the mortgage.
And at least when rates werelower, it wasn't a problem.
Now it's a little bit moredifficult with rates going up to
being, what, 7% on a 30 year fixed
right?.
So that's one of the things.
But.
I think with debt, if you have debt andyou have a negative net and you're in

(22:41):
level one, like I think a lot of thestuff still applies regardless if you have
debt, if you have debt and you're likelevel three or something, it's probably
'cause you have a mortgage and you stillhave a positive net worth obviously.
So I think it's more about the actionsyou take in level one are gonna be the
same regardless of you have debt or not.
Like you gotta try and get rid ofthe debt as quickly as you can,
especially the high interest debt.
And then you gotta startbuilding wealth from there.

(23:02):
And we can get intodifferent ways to do that.
Different things you can rely onthat aren't just financial in nature.
Nick, I'd like to hear a little bitabout the research that went into
this book, because you're the dataguy before I even picked up the book
and read through it, I already knewthat it was gonna be well researched.
You're gonna cite your sources and weget to actually look at the numbers

(23:25):
and what went into you creatingthis wealth ladder framework.
So can you talk to us alittle bit about that?
Like what's the basic of thebook that really supports your
assertions and this whole wealthladder framework you came up with?
So actually I came up with it from aJay-Z lyric, believe it or not, jay-Z,
he says, what's 50 grand to someone,I'm not gonna say the actual lyrics

(23:46):
he curses, but he says, what's50 grand to someone like me?
Can you please remind me?
At the time he wrote thathe was worth 500 million.
So I just did the math.
I'm like, that's about 0.01%.
And that little thing, which Ididn't think much about at the time.
I was like, oh, wow, that'slike a trivial amount of money.
What if I could like just scale that?
Like that's what a trivial amountof money is to someone, right?
For him, that's trivial, but forme, what's 0.01% of my wealth?

(24:07):
And then I can kind of back thatout and I use that and kind of when
talking about how much you can spendin things like this, like what's a
trivial amount of spending for you?
I just take 0.01% and multiplyby your net worth right?
But that's where it actually started.
I had that kind of thing.
I was like, oh, that's interesting.
And then I went and someoneelse had this, this idea about
like these levels of freedom.
Spending freedom.

(24:28):
And so I took those different things.
I kind of married it togetherand I created the wealth ladder.
I wanted to do the 10 X differencesbecause I thought it made a
lot more sense and it's easier.
There have been a lot of peoplethat have done like, oh, the
levels of wealth and this and that,
but.
They're really hard to memorize.
They didn't map as well, on tolike the US economic classes.
Like this maps, I actually showlike, 20 percent's level one,
20 percent's level two 40%.

(24:49):
That is the middle classis level three, right?
And then level four, that's about 18%.
That's the upper middle class.
And then the top 2% are like basically thesuper rich or the rich and the super rich.
That's level five and six.
And so it just came about fromlike that random observation,
pulling data, looking at it.
And for a lot of this data, I use thesurvey of consumer finances from the
Federal Reserve and then for lookingat like how wealth changes over time.

(25:13):
I use the panel study of income dynamicsfrom the University of Michigan.
And their data is really goodbecause they're following
the same set of households.
So instead of saying, how isaggregate wealth changing, I'm
saying how is individual householdwealth changing over time?
So I could follow people over decadesand see how they built wealth and say,
Hey, if you're in level two today, what'sthe probability that you're gonna be in
level three in like 10 years or 20 years.

(25:34):
And that's in the book, right?
All these little things are kind ofthere just to kind of give you an idea
of how do people build wealth, like.
What's their income look like?
How long does it take them to moveup the wealth ladder, et cetera?
I like this rule of 0.01% because youtalk about if you have difficulty spending
according to your wealth level, then themost expensive thing you own is your ego.

(25:55):
Are you spending according to yourwealth level or your income level?
And there's a big difference between say,net worth, liquid, net worth and income.
Can you take us through how the 0.01%level applies maybe to each level?
Yeah.
So in level one, you don't reallyhave much spending freedom 'cause
you just don't have a lot of money.
It's very obvious.

(26:15):
In level two, I call that groceryfreedom because as your wealth goes
from $10,000 at the beginning toabout a hundred thousand dollars
by the end, if that was like, let'ssay your liquid net worth, right?
So that's all exclude your home equity,exclude your retirement accounts.
If you have a hundred thousand dollars.
The assumption is that your wealthis growing by 0.01% per day.
And if you do that for a year,you take that and do it 365 days,

(26:38):
that's about 3.7% per year, right?
And so this is inflation adjusted return.
I still think it's pretty conservative.
I don't think anyone's gonnabe like, oh my gosh, 3.7%.
What a crazy assumption.
Like, no, I think that'sa conservative return.
So what I mean is that if your wealthis creating that much per day, that's
how much you can spend per day andkeep your wealth the same, right?
All else equal.
Now, of course, if you do this mathright, okay, let's say I have a

(26:59):
hundred thousand dollars, right?
Using the 0.01% rule,that's only $10 a day.
You're like, I can only spend $10 a day.
No, obviously you have to haveincome to cover your other spending.
This is the $10 a daymarginal decision, right?
Because.
I think when people have spendingdecisions when they're like, oh,
should I do this or that, likethey're doing it on the margin, right?
Like you're at the grocery store andyou're like, oh, can I buy these?

(27:19):
Can I get the cage free eggsinstead of the standard eggs?
It's like a dollar more.
It's $2 more, whatever it is.
I think this is like, yes, you can,if your net worth is over $20,000,
then that $2, it's trivial to you.
So you can make the purchase, right?
So, that's where I'm trying togo with the 0.01% rule, right?
And so by the time you get into levelthree, I call that restaurant freedom.
Because for a net worth of a hundredthousand to a million dollars, that

(27:41):
marginal spend is anywhere from $10to a hundred dollars by the time you
get to a million dollars in net worth.
And so obviously your income matters.
Everyone knows that like yourincome and your spending matter.
The problem is income can be fickle.
So I wanted something, I wanted away of spending money that allowed
you to have some lifestyle creepso you can spend more over time.

(28:01):
However, only after you've demonstratedfinancial discipline and built wealth.
So it's like, Hey, look, I got to ahundred thousand dollars in wealth,
now I can spend a little bit more.
And now when I go to a restaurant, Ican kind of maybe get a nicer entree.
I don't have to worry about, oh, it's$10 more for the salmon than the burger.
Or like, I don't know ifI wanna spend that $10.
Like, no, you've demonstratedsome financial discipline.
Get the salmon.

(28:21):
That's what I'm saying.
Well, what's interesting is you're nowthe father of the 0.01% rule the Jay-Z
rule, which shall we call it maybe.
And so we've had Bill Bangin onabout the father of the 4% rule.
It's interesting how your3.7% annual return almost is
synonymous with the 4% rule.
Is that just an accident?
I didn't realize it at the time.
Remember Jay-Z said this, then I said,okay, it's close enough to a 0.01%.

(28:44):
I was like, I'll just use that.
And then I didn't realize like, well,what is that like on a daily basis?
Like, I didn't think abouttime when I came up with it.
So I was like, let's try and just say,let's say you do that every day, right?
Every day you can have one marginalspending decision like that.
And I was like, oh, thatjust turned out to be 3.7%.
That's conservative.
Yeah.
It's around the 4% rule.
That's great.
And that's coincidental, butnothing to do with that at all.

(29:05):
So it just came out that way.
Well, that's also the latte factor.
Now we know what the latte factor is.
When can you get thatextra latte of five to $10?
Well, you have to have a certainwealth to do so, and we spend based
on income in the United States,and we assume debt based on income.
And we're not looking at wealth.
You're flipping on its head and making uslook at it completely differently right?

(29:25):
income definitely matters.
I don't wanna be like, oh, itdoesn't matter what your income is.
Like, no, of course your incomematters, but let's just say I'm trying
to come up with rules or ways to getpeople to allow themselves not to
worry about certain types of spending.
And so I think this is avery conservative approach.
Hey.
If once you have over a hundredthousand dollars in wealth, you'll
never have to worry about whatyou buy at the grocery store.
Again, once you have over a milliondollars order what you want at the

(29:46):
restaurant besides like the really crazybottles of wine, you can get anything
you want and don't worry about it.
And then level four, that's1 million to 10 million.
That's what I call travel freedom, right?
You start travel freedom.
By the time you're a 10 million, youcan get business class every time.
Don't worry about it.
You can't fly private.
That's not full travelfreedom, it's almost there.
But you see my point?
Like the whole idea is just likeas you're building wealth, give
yourself some mental freedom.

(30:07):
Stop beating yourself up about nickeland dimming every single thing.
And I think that's not agood way to go through life.
And so I tried to come up with a rule thatwas just gonna make it easier for people.
Yeah, I like the grocery store analogy'cause I remember when I was in college
iPhones weren't around at that time,but I had a little calculator 'cause
I had to add up stuff every now andthen I had to put something back, and
you just sort of trigger that memory.

(30:28):
But I haven't had to think about that ina really, really long time for decades.
And thank goodness I don'thave to think about it anymore.
The analogies I think does help alot for people to kind of realize
and put things in perspective,
you talk about level five.
Most of us will never reach beinghousing freedom, but we look at housing
that most of us will never reach . Isee your wealth ladder kind of like

(30:49):
overcoming the gravitational forceof getting to the moon or to orbit.
And when you get to orbit, you'rekind of at financial freedom
where you have a sustained orbit.
But we're trying to launch our spaceshipand get whether it be level three,
level four, where we reach freedom.
That's what most of us are searching for.
And we need to put in the energyand the fuel to get there.
I mean, mine is kind of a space analogywhere yours is a ladder analogy.

(31:11):
And I think the thing that, ifI'm being honest, like you guys
do much better with financialindependence is your spending matters.
If you're someone that spends 150K a year, that's very different
someone that spends 40 K a year.
Right?
And so to be like, the levelsmatter, but to get to that FI,
spending 150 K a year, you're gonnahave to be deep into level four.
You can probably get to FI either verybarely into level four, even in level

(31:31):
three if you spend a lot less, right.
Depends on your costs.
And so that definitely matters.
I don't wanna like, overlook that.
I'm just trying to come upwith a general framework that
I think works most of the time.
And you mentioned earning and peoplein our late starter audience, talk
about, well, I earn five figures,I earn six figures and earning
your way up the wealth ladder.
Interestingly, how much peopleearn broke down almost equally

(31:52):
across certain income levels.
Can you take us through thoseincome levels and I can help
you with that if you need to.
So I'm just gonna talk through thelevels and each level, I'm gonna read
the median US household income, right?
And so I'm not gonna repeat thewealth, like what's, how much wealth
is in each level, I'm assuming bynow you guys can figure that out.
So level one, medianhousehold income is $32,000.
Level two, median household incomeis $48,000 level three $83,000,

(32:18):
level four, which is now uppermiddle class that's roughly $200,000.
Level five is $724,000.
That's people with 10to a hundred million.
And then level six is $4.3million median household income.
And another piece of thisthough is like wealth and
income are kind of the strongestrelationship in personal finance.
I've seen.
Like there's very few householdsthat have high wealth and low income

(32:41):
or low income and high wealth.
It's, it just doesn'treally happen, right?
Because once you have wealth, it'svery easy to turn that into income.
Or you invested in something ingeneral, you buy index fund, you buy
a treasury bill, whatever you end upowning, it's gonna create income, right?
So it's like these things,it's kind of like a flywheel.
Once you start to have the wealth,it just starts building on itself.
And I saw this tweet recently,it was like, if your investment

(33:02):
portfolio earns more than youdo, is your job a side hustle?
Which is kind of a very funny thing.
But this is something thatstarts to happen in kind of
like level four at least.
Definitely.
Or if you have a lower income,it can start happening at level
three, but that's kind of what'shappening here with that correlation.
And then you talk about the income bywealth level, that somehow it broke
down in quartiles where 25% earned less
than th

(33:22):
it's, that's kind of
than five figures.
And she launched into level four ina period of about 10 to 15 years.
So if you get these things right, youcan really supercharge your journey to

(33:46):
a sustainable orbit, as I might say.
Yeah exactly.
That data, it's approximated, it's notexactly $70,000 as the meeting's, like
72 or something, but I'm trying tomake it easy for people to remember.
And so I'm, doing a lot of rounding here.
It's gonna be much easier to remember theround numbers, but yeah, so only 25% of
US households earn more than $140,000.
So despite what you see on Instagramand, Twitter or whatever, or LinkedIn,

(34:08):
like only a minority of householdsearn more than 150 K a year.
And this data is from 2022 / 2023.
It's in kind of both years.
But the data's probably slightlyhigher now, I don't think the incomes
have gone up that much since then.
Yeah.
And Nick, you mentioned one ofyour primary data sources was
the survey of Consumer Finances,and I've used that for a lot.
So I'm gonna drop that in the shownotes, but I love that you keep going

(34:30):
back to that those numbers and that datais sliced and diced all kinds of ways.
So I appreciate the fact that youhave kind of put it in a way that
people can actually remember it anduse this as a part of your framework.
What about the investing part?
Investing up the wealth ladder.
So the biggest thing I noticed aboutinvestments across the Wealth Ladder is

(34:53):
in general, those higher on the wealthladder, so let's say levels four, five,
and six had far more of their assets inwhat I would call income producing assets.
So stocks, bonds, retirementaccounts, real estate, their
own businesses, et cetera right?
They They have over half of their assetsin income producing assets, but in
levels one to three, those householdson average have less than 25% of their

(35:17):
assets in income producing assets.
In level one specifically, most oftheir wealth, that they have is in
cash, or it's in their vehicle, right?
By the get to level two, it's gonna bein cash, their vehicle and their home.
The home's usually the big one,especially level two, level three.
But as you kind of go past levelthree and get into like level four and
above, that kind of switches becausepeople have excess and so yeah, they

(35:38):
own their home, whatever, but thenthey also have a retirement account.
They also have stocks.
They may also have real estate, or theymay have their own business, right?
Whatever it is.
It's funny, when I wrote the firstbook, Just Keep Buying the mantra was
the continual purchase of a diverseset of income producing assets.
I wrote that a long time ago,never seen this data, whatever.
And then I go and in chapter three of thewealth ladder, I break out like how much

(35:59):
cash do households hold across each level.
right?
And you can see that right then.
Okay, what about vehicle wealth?
What about stocks, et cetera?
And when you put it all together,you realize like those with more
wealth just have so much more oftheir assets in things that are
generating income for them, that'sactually making them wealthier.
And so it's this kind of cruel ironythat wealth generates more wealth.
But that's what the data shows.
And it's good to see that becauseit doesn't mean you're gonna get to

(36:21):
level six if you allocate like someonein level six for the record, but
probably get closer to level six ifyou have most of your, assets or income
producing versus non-income producing.
And so that's kind of the maintakeaway there that I just happened
to rediscover out, even though I kindof had this philosophy beforehand
and the data showed it as well.
Yeah, that reminds me of somethingmy dad used to say all the time.
He would say, the rich get richer.

(36:42):
And it's true accordingto what you just said.
And it makes sense.
And so I think there's a lot of reallygood nuggets in just that statement of
the type of assets that people investin as they're growing their wealth.
Because if you've just got cashand cars, nothing is appreciating.
Maybe your income will, but hopefullyyou will introduce other asset classes.

(37:05):
But if you don't, therein lies the problemof not being able to sort of move up the
ladder or make some kind of progress.
So Nick, let's dive into each of theselevels a little bit more and talk about
opportunities, challenges I lived.
Paycheck to paycheck life as a highincome professional where my income
may have been level four income, but Iwas still living paycheck to paycheck.

(37:27):
And a lot of our audience may startas Becky Heping did my prior host
where their wealth level is zeroand she retired after 13 years
with a wealth level of 1.3 million.
So you can do this, but what are thechallenges and opportunities at Level One?
So in level one, the thing Italk about the most is that
your bad luck is amplified.

(37:49):
Bad luck.
Simple thing.
That's an annoyance for someone inlevel three or level four, let's
say your tire blows out, yourtire's flat, can't get to work.
That simple thing that's just like,oh, I gotta pay someone to fix
this, and then everything's fine.
That can derail you financially inlevel one, you can't get to work.
You could lose your job, youlose your job, you start going
into credit card debt, who knows?
It could just become a tailspin.

(38:10):
You look at the data like 10% of theUS population is responsible for like
the vast majority of financial distressevents, like getting behind on their
mortgage, getting behind on credit cardbills, like all of these bankruptcies.
It's a very small percentage ofpeople that kind of fall into this.
And I think once you fall into it,it's very difficult to get out.
So like, obviously if I could wave amagic wand, like never get into such

(38:31):
a situation, but if you're just inlevel one, and maybe you're not in that
situation, you're at zero, you want to tryand build that, a little bit of safety,
a little bit of redundancy in your life.
And now how do you do that?
That's a great question.
The catchphrase I use or thesubtitle for that chapter, which
is on level one is like atypicalresults require atypical actions.
And now I'm not trying to belike a grind, set, hustle.

(38:52):
Like I don't reallysupport that in general.
I think the only time where Iwould support that is if you are
in a dire financial situation.
Like you have to do everythingyou can to just get to safety.
And then after that, liketake your foot off the gas.
I, I'm not a big hustleall the time, work 24 7.
I don't support that at all.
I think if you're in a really toughsituation, you're gonna have to make some
sort of sacrifices to get out of that.
' It's really difficult.

(39:12):
Right.
And the other thing I mentioned in levelone to get out is to rely on your network.
Like think about the non-financial things.
We like to measure wealthjust with what do you have in
your bank account or whatever.
I think wealth is muchmore broad than that.
And I think your network, your friends,your family, whoever can help you out
to just help you save some money, likethat's what you can rely on early on
to kind of get outta that situation.
I think that's most important thing.

(39:34):
And obviously every situation'sdifferent, but that's kind of the
overarching theme is don't let badluck derail your financial plans.
And with regards to level two, youspeak to this because education here
is the key to climb out of level two.
You said you were born into a leveltwo family and you leveraged your
academic prowess into scholarships and.

(39:55):
Financial aid at Stanfordand graduated debt free.
Tell us a little bit more about thechallenges and opportunities of level two.
Yeah.
So I really think level two is theplace where like the difference in
the trajectory of your income is gonnadetermine where you end up, right?
And so you think about the medianhousehold income for someone in level four
for a household in level four is $200,000.
So that could be either two sixfigure earners or just one person

(40:19):
making 200 k basically, right?
And you think about like.
types of jobs, yougenerally need an education.
I'm not gonna say there's nojobs where you don't need one.
If you don't need an education, youneed some sort of skills, a very
valuable skill set that you cancharge a lot for whatever it is.
Like there's gonna be something wherelike you need some sort of skill to
kind of get to that income level.
And so when you realize that like thedifference in trajectory just on your

(40:43):
income, like once you're in level twois probably gonna determine where,
whether you get to level three orlevel four and how quickly, right?
That's the difference.
And like of the biggest myths inpersonal finance is that you can cut
your spending is how you get wealthy.
And like, don't get me wrong, that canhelp if you have a really high income and
your spending's crazy, like those peopledo need to cut their spending, right?
But for most people, if you look at thedata, overwhelmingly it's income that's

(41:04):
driving the change in wealth and it's notnecessarily their spending habits, right?
I mean, spending matters especiallyon the margin, but as I tried to
describe, like the people in higherlevels just have higher income, right?
And so that's what's kind of drivingthem, makes it so much easier to save.
And so it's the strongestrelationship in personal finance.
And so I think focusing on education soyou can eventually have a higher paying

(41:24):
job or even have a side hustle that'sbringing in extra money, whatever it
is, there's a lot of options out there.
Those are the things that helpyou kind of move at a level two.
Yeah.
And this level two is grocery freedom.
And I do have a lot of people askingme they don't know how to get traction.
They don't know how to get out of this.
I have nothing saved.
Let's say level one, level two.

(41:46):
And I always pose the question to themdo you think this is a permanent state?
And you gave a lot of tips on how doyou make that movement if school is
not for you, college or whatever youmentioned a skill, maybe you're a roofer,
hvac, maybe you open a small business.
So on the income side, you gotta getthat income up because you talked about

(42:07):
how tight the correlation is betweenincome and building that wealth.
That was the grocery one.
So level three.
Now this was the one that youcalled Restaurant Freedom.
So talk us through that.
So, yeah, the restaurant freedom, the ideais the marginal spending at a restaurant
is gonna be anywhere from, let's say,$10 to a hundred dollars, which is 0.01%

(42:28):
of 100,000 to up to $1 million, right?
That's where that marginal spend comes in.
But when I think about levelthree, the challenge is there.
I think it can be overspendingon big ticket items.
I know I just said spending doesn'treally matter all that much, but the
difference between level three and levelfour is not as large as people think.
Even though the financialdifference could be large, I think
lifestyle isn't as big as we think.
Like yes, in level four, which is theupper middle class, you probably live

(42:51):
in a slightly nicer neighborhood.
You probably sit in a slightlynicer seat on the plane.
Like, I can go through everything,but their lifestyles are very similar.
Like they're workingprobably nine to five.
They probably have a car, maybehave a Lexus versus a Toyota.
Like Their lifestyle isjust slightly fancier.
That's it.
You have a 10 x jump in wealth and yourlifestyle's just like slightly better.
It's not like, oh my God, the peoplein level four are not flying private.

(43:11):
For the record, that is not happening.
I mean, maybe if you get closeto 10 million, you can start
to fly private once in a while.
But if you actually look at thedata, private flight really starts to
take off in level five specificallywhen you get to around $20 million.
There's a guy named Preston Hollandthat's like the private jet guy.
He knows all the data on this, andit doesn't happen in level four.
I'm just gonna say,basically doesn't happen.
So for the most part, like, you guys areon the same plane, you're living this, you

(43:33):
live probably in adjacent neighborhoods.
Maybe your neighborhood's slightly nicer,but like lifestyle isn't that different.
So I think that what's causing alot of this is like people in level
three overspending to try and looklike they're more in level four.
And I think that can hold people back.
And so I think it's justsomething to keep in mind, like,
Hey, I don't need to do this.
'cause like, your lifestyle'snot gonna be that much better.
Like, I'm in level four and mylifestyle is not that much better

(43:55):
than someone in level three.
I'm getting in the TSA line likeeveryone else and doing my thing.
At the end of the day, like, yes, I havea little bit more financial freedom.
I can probably go andsay, hey, you know what?
I wanna take a step back and maybe dosomething different with my career.
I have that freedom that I probablywouldn't have had in level three.
So there are some big things that,level four does give you, but in
terms of your lifestyle, it's not asbig of a change as someone would say.

(44:17):
What's interesting to me about spendingis it's kind of like chutes and ladders.
You climb your way up the ladders,the chutes would be kind of spending.
We hear about all these high incomepeople that spend their way back down
the ladder, and so spending is botha superpower and a curse in these
levels, and you've got to watch that.
Now in level three, you talk aboutthat as being the focus of investing

(44:40):
and in your other book, Just KeepBuying, I want a quick little sidebar
on a couple of things that you maythink of differently with regards to
investing, and one of the things thatyou're a little bit famous for, maybe
controversial about, is your thoughtsabout a 401k and maxing out your 401k.
Can you talk to us about why yourthought process on this may be a little
bit different from our own audiences?
Yeah, so when I was in my early twenties, I tried to read every single book, every

(45:03):
single blog post I could on personalfinance and, there was probably somebody
out there, but I don't remember, a singleperson saying, not to max your 401k.
Every single one.
It was like five out of five financeprofessionals say, max out your 401k.
And that's what I did as soon as I wasable to, I had a decent income coming out.
I couldn't do it my first few years, butlike, I think my fourth or fifth year
I was able to start maxing out my 401kand I did it for four or five years.

(45:24):
And then at some point I'mliving in New York City.
Real estate got so expensive and I'mjust like, wait, I have this money
that's sitting in here and so I couldtake some out and you can take 50 K
out for a house purchase or whatever.
But I'm like, I put waymore than that in there.
And I'm like, I shouldn'thave locked this up.
And so I think the issue I had waspersonally, I should not have given up
my optionality for that extra, right?

(45:44):
So I think everyone shouldalways go up to the match.
If your employer's handing and ifthey say, okay, we'll match you
all the way up to your max, great.
But if your employer's matchinglike get up to the match,
it's considered free money.
I don't think anyone's debating that.
I think it's above the match.
The question is when actuallyran the numbers you get
about, let's say 0.75% a year.
Right?
And that assumes like reallyno 401k fees and stuff.

(46:05):
If your 401k has higher feesthan normal, that can go down.
And if your 401k fees are over0.75% a year, then you can lose
even more than that, right?
I don't think it's theright choice for everyone.
I think it's still great for a lotof people, but just think about it.
I just want to be adissenting voice a little bit.
Say like, Hey, is thisreally the right choice?
Let's really think this through,because I went and I did
that and I kind of regret it.
I wish I had less money in my 4 0 1 Ks andIRAs, and I had a little bit more outside.

(46:28):
now it seems like that's even moreimportant because with rates where they
are, I'm gonna have to basically putdown a really massive down payment.
Or I might even to have to buy a homein cash in a few years instead of just
borrowing like I normally would've.
So it doesn't matter in a low rateenvironment, but when rates are
7%, I don't wanna borrow at 7%,so I have to go and save extra.
And so I have to have much more moneyoutside of my qualified accounts.

(46:49):
And I think that's why I kind of push backon it because I can't foresee the future
and I didn't really plan ahead enough.
And so another opinion out there.
I'm not saying it's wrong for everyone,but just something to think about.
I like your dissentingvoice about 4 0 1 Ks.
I wouldn't say I made a mistakewith it, but I retired early.
I was 49 and I had some ina brokerage account, but the

(47:09):
vast majority was in a 401k.
So of course now I'm having to comeup with other ways to get money
out of these qualified accounts.
And as you move up the levels, I thinkthat will become more of a consideration
because starting out, if you do nothingand you're on autopilot, yeah, you just
go ahead and try to get the match and getwhat you can in a 401k, you automate it.

(47:32):
But I think these discussions arealways worth having when you don't
agree a hundred percent because youcan start to I guess decide that, hey,
there's some other ways to look at this,depending on what you have going on.
And in your case, you had some otherthings going on where you wish that you
could have had access to that money.
So did I retiring early, so Iappreciate your alternate view on that.

(47:55):
Well, I would almost fathom a guessthat level three does not have much
in brokerage accounts at all, andthey're kind of caught in what we
talked about in another episode,maybe this middle class trap.
And level four probably has significantly.
More amount of assetsin a brokerage account.
Would you agree?
Yeah, I'm in level fourby zero home equity.
I've never owned a car.
Like I have no, like physical assets.

(48:16):
Like everything I ownis financial securities.
I'm a very weird outliercase, but I agree with you.
Most people in level three, one of theirbiggest assets is their home, right?
And they probably haveretirement accounts.
And so when you shove all that in there,it's like, okay, I have this home equity
sitting here that I can't really access.
You can get a HELOC and thereare ways, right, as I'm not
gonna say you can't access it.
And then you have your retirementaccounts, which you can only access for
certain things before 59 and a half.

(48:37):
So if, especially probably yourlisteners who are trying to get to
FI, they're trying to want to do itbefore 59 and a half, they are gonna
not be able to access those accountsexcept for specific things before then.
So, yeah, maybe maxingyour 401k wasn't the thing.
If I had known like.
Oh, I might retire earlier, thenI probably should have just put up
to the max and then go from there.
'cause you're still gonna geta plenty of money in there.

(48:59):
You're not gonna have to worry as much.
Right.
With compounding and everything,you should still do fine.
And if not you're gonna have thishuge brokerage account, so you're
gonna have other flexibility.
Right.
And one last thing I'll say on this,not a lot of people know this, but with
a brokerage account, I think with amarried couple, it's like you can have
like over a hundred thousand dollars.
I don't, quote me exact, maybeit was 124 with the standard
deduction and everything.
So you can take a hundred thousanddollars a year in like capital gains

(49:21):
and pay no tax on it or something,
You can look this stuff up.
I can't remember the exact number.
But with a taxable brokerageaccount, like the cap gains rate
right now is 0% for married filingjointly with the standard deduction.
So it's a very high amount.
So in theory you could be taking a hundredK a year out of your taxable brokerage,
whether you're just selling payingthrough gains or if you're just getting
dividend income and you can just tax free.

(49:43):
As much as I wanna talk about 4 0 1 Ksand the match and all that, like that's
something that people don't look intoenough, and I think that's something that
should be talked about more because theUS government is incentivizing you to use
a taxable brokerage account in that case,because you're not paying taxes on your
capital gains up to a certain amount.
I mean, people are undereducatedabout taxable brokerages and don't
realize the true powers and how theirpowers are different from a 401k.

(50:07):
And when you talk about the marginalutility of a 401k being 0.75%, if you're
paying more than that in fees, maybeyou're better off putting that money after
the match in a taxable brokerage whereyou have this capital gains advantage.
And people are not educated on thisand don't talk about it or think
about it, which is why I wanted tobring this up so that people make
educated decisions on where they puttheir money as far as asset location.

(50:33):
Another thing you do that I wantedto at least bring up for our audience
is that people talk about rebalancingacross their portfolio, and in order
to make this easier, you do something alittle bit differently with each of your
individual accounts to make it easier.
What do you do thatmaybe isn't mainstream?
Yeah, so I think the mainstream adviceis like, okay, anything that's gonna
throw off income of some sort, putthat into your retirement account

(50:56):
so you're not paying taxes on it.
You might hold your stocks andyour brokerage account and then
all your bonds you hold in likeyour tax advantage accounts.
I've also heard the flip, which is like,actually you want all your stocks in your
retirement accounts because they're gonnagrow at a faster rate and you want to
avoid as much capital gains as possible.
So I've heard both of those.
I've heard kind of both arguments,which is like all stocks in retirement
accounts or all stocks in your brokerage.

(51:18):
I have a different belief on this,I think all of your accounts should
have roughly similar allocations.
And so when you rebalance,it's very easy, right?
So they're like cookiecutters of each other.
The only difference is if you're doingany tax loss harvesting, you have to
make sure that the tickers are different.
I'm not recommending these tickers,I'm just saying them just as they
are similar, but like SPY andVOO, like you want to have both.
'cause if you sell like SPYin your brokerage account to

(51:40):
try and tax loss harvest, youdon't want to then be rebuying.
SPY in your IRA or something andcreate a wash sale or anything.
So that's a more technical topic, butfor the most part, all of my accounts are
the same or cookie cutters of each other.
And that also allows forbetter rebalancing over time.
'cause if you have all your bonds arein your retirement account and all your
stocks are in another account, whenthe stocks go down, you can't just take
money outta your retirement accountand go buy more stocks to rebalance.

(52:02):
Because of limitations with retirementaccounts, you can't just move
money between them very easily.
So I think having the same allocationacross all of your accounts or roughly
similar is the way to go because it'sjust much simpler that way, to just
rebalance and manage all your finances.
Of course, is that the most optimal way?
No, it's not, it's not gonna earnyou the most money, but I think
it's, it's the most optimal interms of your mental freedom and

(52:23):
headache and bothering with that.
So I just set the same allocation everyaccount, and I just move on with my life.
And what do you do withrebalancing your taxable account?
Because there I have a harder timewrapping my head around selling stocks to
buy other assets and incurring the taxes.
What do you do withrebalancing a taxable account?
So what I like to do is somethingcalled an accumulation rebalance.
So you can only do this if you're stillsaving money once you're in retirement.

(52:46):
Obviously
this is not
really possible if youdon't have income coming in.
I just buy the underweight asset,so I'm always buying more stuff
and buying the underweight asset.
This is actually a fun fact,besides rebalancing where I'm
just kind of just rebalancing.
I've never sold an investment.
The only exception to that is I hadindividual stocks and I had some
meme coins at one point that I gotvery, very, very small percentage,
less than 1% of my portfolio.
I tried it out, I said, I'm neverdoing that again, and I got out.

(53:08):
But besides that, all of my indexfunds, I've never sold them.
Not once.
So I literally, I'm notjoking, I just keep buying.
And so I just do that overa long period of time.
And so, yeah, for me it's just aboutaccumulation and, yeah I don't worry
about that type of stuff becausewhen I'm buying more, I just buy
the underweight asset, and thatusually keeps them pretty in line,
So
bonds and taxable then?

(53:29):
yeah.
Yeah, yeah.
Yeah I have treasury bills, I havesome bond funds, things like that.
Because that's not the typical advice.
But the reason, you do that isbecause you can counterbalance that
by putting your stocks in pretax,and you'll see more growth there
to counterbalance the ordinary taxon your bonds in taxable, right?
No, trust me, if you wanna maximizeevery dollar, you put all your

(53:49):
stocks in your qualified accountsand your retirement accounts,
and you have all your bonds like.
In your brokerage.
'Cause in theory, like assuming stockskeep growing faster than bonds, which
I think is going to happen, right?
I don't think anyone's debating that.
If we assume that, we assume goodgrowth over the future, like that's
gonna maximize your wealth despite thetax hit you get from the bonds, right?
But I'm not trying tomaximize every dollar.
Like with the whole point of the wealthladder is like once you get into a level,

(54:11):
the difference between 4 million and5 million is not as big as you think.
I know.
You're like, Nick, that sounds sofirst world problems out of touch.
But if you actually go talk tothose households and say, if I
gave you a million dollars, howmuch would your life change?
Would they go and start flying private?
No.
They could pay for their kids' education?
There's a lot of great things you cando with the million dollars, don't
get me wrong, but your lifestyleis not completely transformed.
That's the truth.
It's not.

(54:32):
If you're at a hundredthousand, I give you a million.
Now your lifestyle's transformed, right?
That would change your life a lot.
But once you're in levelfour, the difference there
isn't as large as you think.
So as much as I want to tellpeople, maximize every dollar like.
You'll start to see as you get moreand more money, like that difference
is so small, and so I don't wannasit here and have the headache of
worrying about where my stuff is.
Yes, I pay more in taxes.

(54:52):
As a result, I think the US governmentcan use the tax money personally,
so I don't worry too much about it.
Well, and I appreciate that point, Nick,that, you just don't wanna take up your
head space to worry about the nuances orto get a slightly better marginal gain.
You're fine with it and you acknowledgeit, so you're mindfully doing it this way.
So our audience shouldreally take heed to that.

(55:14):
'cause there's some people thatreally don't want to worry about
optimizing every single thing.
I like that.
And the psychology of this wholething really, really matters.
Now we're getting to the higherlevels, now level five and six, those.
You said this is the smallestnumber of people, so why don't
we talk about the differences.
So level five is between 10million and a hundred million.

(55:35):
Level six is a hundred million plus.
So give us some of thedifferences in those two levels.
since most of us will never achievethat, why are they in this book?
Because most Americans probablywanna achieve level four.
And I see it as two different levelswhere it's one to five and five to 10
where that will differentiate that level.
And maybe we can talk aboutthat too, but you have to do

(55:55):
something dramatically differentto break out of level four, right?
besides famous, like celebrities,entertainers, athletes who have just
really high income because of a veryrare skill that they have and they
get paid millions of dollars per year.
Besides those people, we'll saynormal people and aggressive
population that gets in there.
They're all basically entrepreneurs.
They're business owners of some sort,whether they start their own business

(56:16):
and end up selling it for a lot of money.
And then after tax, theyhave over 10 million.
Or they join a startup reallyearly, get equity, and then
that business gets sold, right?
So you can even think like Nvidia is aweird case because that's like became
one of the most valuable companies in theworld very quickly, but that minted a lot
of people into level five that probablywould've stayed in level four, had that
event not happened, they still would'vedone well in their lives, but that equity

(56:39):
change was so drastic, so quickly, likeNvidia wasn't talked it was FANG forever.
And then all of a sudden, because ofAI and everything, NVIDIA's now the
hot stock on the block, one of themost valuable companies in the world.
And because of that, it mintedall these level five people that
wouldn't have been in there, right?
In terms what I talk about inlevel five and six, I don't talk
about money too much actually.
I talk about all the non-financial things.
And as we talked aboutamplification, right?

(57:00):
I said when you're in level one,bad luck is amplified, et cetera.
As you kind of go through the wealthladder, different things get amplified.
And by the time you get to level five andsix, the things that are amplified are
all the non-financial parts of your life.
And the reasoning's very simple.
You can't buy them, right?
You can't write your kid a check and say,Hey, love me or your spouse, a check.
You can't buy that, right?
You can't buy a new cardiovascularsystem because you've done

(57:22):
years of neglecting your health.
Right?
These things matter no matterwhere you are in the wealth ladder.
However, they matter more in levelsfive and six because you can't buy them.
That's also, I think one of thethings, people that get to level five
and six, they have so much wealth,they're very focused on their wealth.
They can be, and because of that,they can lose track of all the
other things in life that all thehard work they do, they could sell

(57:43):
another company, they can do all that.
That's not gonna change anyof the other types of wealth.
And so that's what I try tofocus on at level five and six.
And so like, yes.
The difference between level five andsix like, once you start to get into
level five, you can start to fly private.
By the time you get to levelsix, you can probably even own
your own private jet if you want.
Whether people want to dothat or not is up to them.
The consumption thing is for mostexperiences is not that different, right.

(58:04):
some really elevatedexperiences like a mega yacht
or chartering, things like that.
Level six is there.
But I think the thing for mostpeople to focus on is like
all the non-financial things.
And that's true
regardless of the,
wealth levels.
But I think in level five and six, Iwanna wake those people up and be like,
Hey, like money is not your issue.
When you're in level one most ofyour problems are money problems.
Once you're in level five andsix, money is not your issue.

(58:25):
Right.
It's gonna be something else.
And then you talk about five general typesof wealth in the book that you read too.
Can you take us brieflythrough what those are?
'cause financial is only one of the five.
Yeah.
So Sawhill Bloom came out with the bookcalled The Five Types of Wealth, and
his framework was just like, there'sdifferent types of wealth financial's.
There's time wealth, there'ssocial wealth, so like your
friends, family relationships.
There's physical wealth and there'smental wealth, like that's kind

(58:47):
of like mental health, et cetera.
And so I just talk about that briefly.
I think his book is obviously a muchlarger look at that, but I just talked
about it briefly at the end becauseI think it's the thing that people
kind of overlook, especially as theystart to build more and more wealth.
'cause if you're chasing a numberfor so long, it's easy to measure.
I can open my bank account andsay, oh look, there's the number.
Right?
I can't do that as easily with my health.
I can't do that with, how good ismy relationship with my spouse?

(59:09):
How good is my relationshipwith my friends?
We don't have an easyway to track that, right?
And because of that, I think it'seasy to overlook those things.
And so I'm trying to pushpeople's attention back toward it.
So Nick, for the late starters that arecatching up to financial independence.
So they read this book.
I guess what are some of the importanttakeaways they might have from the book?

(59:31):
Because I got a lot of stuff out ofthis, and a lot of it was the difference
in those early levels or bad luckis amplified, and things like that.
So for the late starters, any tipson what they might be able to get
out of the book on their journey?
Yeah.
So I think for a late starter you haveto say, okay, where do I want to get to?
And Everyone's like, oh, welleveryone's gonna wanna get to level six.

(59:51):
Like, no, I think a lot of peopleare reasonable and like, okay,
to get to level six, you have togo start a business and do it for
many decades and hope it does well.
I think people are reasonableand not gonna say that.
So like where do youreally want to get to?
Where do you think you can reasonablyget to with like hard work, making
some strategy changes, et cetera.
And then what are the strategiesthere that you can use to get there?
This is not something I put in the book,but my actual take on, like starting

(01:00:13):
late, I actually have a very differenttake than most people do, which is like,
if you ask most financial people like,oh, I've started late, what should I do?
Everyone's like, you have to saveaggressively, you have to work hard.
Like my take is actually a non-financialanswer, which is like, start focusing
on your health even more than before.
Like exercise more.
Why am I saying that?
Because I want you to get healthier so youhave more time where you can work, right?
You'll hit your mid sixties,you're not as healthy, you're

(01:00:34):
probably gonna wanna retire.
You don't have money, like because youstarted late, you're in a bad spot.
So by exercising more, youextend your working life.
So it gives you more time to save money.
You get that time back that you didn't useearlier, that's one thing that's useful.
Two, you're gonna be healthier,which is just a good thing.
I don't think anyone'sgonna argue against that.
Right?
And so when you think about that,like that's a way to give yourself
more time so that you can actuallysave more, compound, more, et cetera.

(01:00:57):
So I think for a late starter, my take ishit the gym more than you normally would.
That's the real way.
to like basically buy yourself moretime because you lost the time earlier.
And so that's what I would say for people.
That is great because you're the firstperson to say something like that.
And if I would add one thing,you sort of pair increasing your
income as rapidly as you can withincreasing your physical fitness.

(01:01:21):
You will shorten your latestarter journey to time freedom.
It would just add income increasingto your physical health increasing.
And you've got the formula forovercoming the late start, I would think.
Right.
Yeah, of course.
Yeah.
If you can increase yourincome Yeah, do that as well.
I'm just assuming that'sone thing you have to do.
Like that's generallytrue of wealth building.
But yeah, if you'relate, you gotta do both.

(01:01:41):
But if you can't do anything, atleast minimum, get your health
better 'cause even with the sameincome, you're gonna have more time
to save, you get that time back.
So I agree completely.
That's like an instant change or aninstant adjustment they can start on.
So the book, the Wealth Ladder,so when does it come out and where
can we get it and anything elseyou want us to know about you?

(01:02:02):
Yeah.
It comes out July 22nd, so dependingon when this airs, it'll be either
out already or it'll be out by then.
And it can be foundanywhere Books are sold.
Amazon, Barnes and Noble.
I think Apple Books hasit, target, et cetera.
They're all gonna have it.
And then about me, if anyonehas any questions for me,
feel free to reach out to me.
At Twitter, I'm at Dollars and Data, atInstagram, @nickmaggiuli or LinkedIn.

(01:02:23):
So you can find me under all those places.
I try to answer every dm, so please feelfree if you have a question or like,
Hey, where you talked about this thing,where can I find it I probably have a
blog post I can send you, et cetera.
So just trying to be helpful.
Well, if you're on Facebook, we inviteyou to join our community and be one
of the experts in the community thatanswers questions for our late starters.
We would be honored if you could do so.
Nick, this has been anawesome conversation.

(01:02:46):
I think it's veryimpactful, full of value.
I think this is going to launch ourlate starters into sort of new ideas.
'cause you do think differently and youthink differently because of the data.
It isn't just opinion,it's opinion based on fact.
And that's why we wanna directpeople to read your books.
Join your blog and embracea data-driven journey.

(01:03:08):
I truly appreciate that.
Thank you both for having me on.
Oh, it's been awesome.
We'll see you hopefully againto talk about more financial
topics on catching up.
Of course.
Any final words for our audience?
No, just that this is a supersmart guy that I've been reading
his material for a very long time.
We're honored to have himtoday and we will catch you
next time on Catching Up To Fi

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Forget the Corporate Ladder, Here’s How to Climb ‘The Wealth Ladder’ | Nick Maggiulli | 159

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}Forget the Corporate Ladder, Here’s How to Climb ‘The Wealth Ladder’ | Nick Maggiulli | 159