22 ms·

Three Levels of Wealth

203 points by acconrad 8y ago

paulsutter 8y ago
These seem more like levels of income than wealth (hint, the three levels are not worrying about debt/dinner bills/vacation costs). Wealth is the ability to generate such income levels passively (having control over your time).
- italicbold 8y ago
  Agreed, I spend about 95% of my earnings every month and dont worry about any of these. I live a privileged life yet I have only accumulated $80,000 in assets over the years which puts me in the lowest 40 to 59th percentile and below the average americans net worth of 100k.
  - jonknee 8y ago
    > I spend about 95% of my earnings every month > I live a privileged life yet I have only accumulated $80,000 in assets Maybe you should save more? Even just spending 90% would make a huge difference and then you can continue to live a privileged life forever.
Rotdhizon 8y ago
I think about this very topic sometimes, but my levels are different. Mine are something like 1. Paycheck to paycheck. Includes constant worry and frustration about living expenses and basic necessities. Any unexpected cost will lead to not being able to pay the bills. Money is on your mind 24/7, life in this category is hell. Very difficulty to escape this category once you fall into it. 2. Able to afford living expenses with a little left over. I guess you'd call this middle class? Or maybe upper lower class. These people have an income that lets them pay their bills without worry, so they have a cushion of a few hundred/thousand dollars a month. These people don't experience stress over standard bills anymore, they are free to enjoy living life a bit fancy. Can go out to eat at good restaurants, can afford to do miscellaneous activities. 3. Anything above #2 really. This is the bracket and beyond that has plenty of income in that expenses don't matter anymore. Stress about affording living expenses is non-existent.
- naturalgradient 8y ago
  I would disagree with 3 because there are many in 2 and 3 which can go to 1 just by losing their job and e.g. having one high medical bill (in the states at least). So surely there must be differentiation on whether any given job or emergency can affect your standard of living significantly.
  - organsnyder 8y ago
    I'd say one of the differences between 2 and 3 is that people in category 3 are virtually immune to dropping a level due to life events.
  - Rotdhizon 8y ago
    I'd say look at this generically, without adding exceptions for outliers. Even for #3, a multi-million dollar medical bill could be a huge setback. I'm talking more along the lines of standard happenings. Say if a kid gets sick and the parents need to fork out a few hundred/thousand dollars for treatment. #2 would be able to rely on their cushion to avoid being cast down into #1.
  - ck425 8y ago
    Medical bills aside (the US system is batshit!!) good financial planning should make going from 2 and 3 to 1 far less likely. Unfortunately many people don't bother to save significant backup funds while things are going well.
    - dsnuh 8y ago
      There's also divorce. Trust me, it can drop you down to 1 in a heartbeat.
- okmokmz 8y ago
  So in your classifications the "I don’t care what stuff costs in restaurants" and " I don’t care what a vacation costs" would fall into the same category? To me being able to afford living expenses with a little left over would likely qualify as middle, not having to care about restaurant cost would qualify as upper-middle, and not caring about vacation cost would be upper. There's a pretty huge gap between being able to drop $1000 at a restaurant, and people able to spend tens, if not hundreds of thousands of dollars on a vacation.
noelwelsh 8y ago
The title is a bit misleading. This is mostly about inequality, using the "three levels of wealth" are a jumping off point to explore how income inequality has changed over time. The conclusion is nothing new: inequality is rising.
- lihaciudaniel 8y ago
  So question remains will UBI be the solution? Or will it be forced by automatisation and Ai progress?
okmokmz 8y ago
The self-identification chart is pretty interesting. It looks like within the past few years ~10% of people who would have identified as lower/working class are now identifying as middle/upper-middle despite the middle class continuing to decline while the lower and middle-upper classes have slowly increased
- frgtpsswrdlame 8y ago
  I suppose that's probably just a consequence of a good economy right? What's interesting is how fast the drop is, when you don't even see a drop between 2000 and 2008 where I would expect one.
vfc1 8y ago
Other than focusing on caring about the price of restaurants or vacations, what about adding financial independence to the equation? Somehow that is something that does not seem to be valued enough when it comes to this type of discussions. Financial independence does not mean necessarily being rich, as much as it means not needing to work for someone else and still be able to make a comfortable living.
- azag0 8y ago
  The independence can only ever be relative. No one is truly independent. As a self-sufficient farmer, you depend on weather. As a millionaire, you depend on the continuing functioning of the financial system.
soperj 8y ago
There's definitely another level of wealth there for the very few. Weird thought one day while dreaming, if I somehow managed to get a job where I cleared $1 million a week, it would still take me over 1500 years to attain the net worth of Warren Buffet. If I managed to up that and clear $1 million a day, I still wouldn't manage in my lifetime (224 years). That to me put in perspective the insanity of the wealth of the very rich.
- habitue 8y ago
  If you made $52M a year, with 5% growth per year in some super conservative investment, you'd have Warren Buffet's wealth in 87 years If you got 10% it would be 50 years Warren Buffet is definitely impressive, but compounding capital is a huge benefit (Ok ok I ignored taxes, inflation blah blah) Edit: just because this is fun: at $365M a year, you get WB wealth in 50 years at 5% and 32 years at 10% Edit2: if you take Berkshire Hathaway's historical annualized return (20.8%), compounded quarterly, starting with $52M and no additional capital after that, you get WB wealth in 36 years.
  - neaden 8y ago
    To be fair that would get you WB's present wealth. If Warren Buffet was still alive and investing just like you did, you would never catch up. This is one of the reasons social stratification can increase over time.
    - graff1994 8y ago
      He's still alive....
      - dpiers 8y ago
        The wording is a bit confusing, but I believe they are saying that it would take that long to catch up to Buffett's current wealth. If you assume his assets continue to grow at the same pace as yours, you will never catch up.
wjossey 8y ago
It’s interesting the categories the author chose, as I had a similar tone with my mother when I finally started making good money. I grew up in a divorced household. On one side I had a father and step mother who made large amounts of cash in a relatively inexpensive area. They vacationed regularly to Hawaii and Las Vegas, and prioritized spending money on themselves. My mother and step father combined to earn around $30k, were hyper frugal, and stressed about every expense. Any expense whatsoever was agony, and they made sure my sister and I understood their inability to buy things on a whim. So, as I bounced between houses each week, I yo-yo’d between borderline poverty (although they made it work) and quite high wealth. When I hit my mid to late 20s, my wife and I hit a point where we had no debt. Could go out anytime. Could rent any reasonable home in our area (couldn’t buy because we didn’t have that kind of down payment money), and traveled a few times a year throughout the world. When I contrasted this against how I felt after undergrad, while in grad school, where I was heavy in debt, had no car, and felt constant financial stress, it’s remarkable. As I’ve continued to grow older, I’ve now come to realize it wasn’t the travel, eating out, or the things I could buy that helped me to be less stressed, it was the lack of burden of worrying about how I would pay for X, Y, or Z. I make way less money now as I run my own startup, don’t go out that much as I do all the cooking, don’t travel that much because we can’t afford it, yet I carry the same lack of stress and worry as I did years back. Part of why I’d like to see universal, free at the point of delivery, health care in the United States is for this very reason. I’ve first hand experienced and witnessed the choice of not going to get needed medical care because of the financial burden. UBI is still highly experimental, and many other wealth normalization techniques have severe downsides that potentially outweigh the benefits; however, universal health care has enough clear data points of success in the rest of the world, from my vantage point, that maybe that can be the “level 0” of wealth in the United States.
- arethuza 8y ago
  Thanks for being careful to say "free at the point of delivery" - that was always one of the core principles of the UK NHS and everyone knows its not "free" - we all pay for it in our taxes - which I'm personally quite happy about.
  - 8y ago
jeffreyrogers 8y ago
I wish there were data that distinguished between top 1% by income and top 1% by wealth. Income inequality may be worth targeting in itself, but if the turnover of top-1% income earners is high it doesn't matter as much as if it's fixed. Similarly, if wealth is not being maintained generation after generation then concentration is not as important either.
- robbintt 8y ago
  Check out "Capital in the 21st Century" by Thomas Picketty. The picture is bleak, and it describes how the truly wealthy (top 1% of stored wealth) must self regulate or risk passing a tipping point. And how they are failing to do so between 1980-2010, as modern conditions globally approach those of the French Revolution.
tptacek 8y ago
This is pretty weird. I don't care how much flights and lodging costs, not because I can afford to do whatever I want, but because I simply don't take travel vacations very often. I can spend somewhat outlandishly on travel and not ruin my annual budget. On the other hand, there are things I do routinely that I have to be price sensitive about; for instance: I am price sensitive about parking fees. For that matter, despite its status as "wealth level 2", I am more price sensitive about restaurant meals than about travel.
- kerbalspacepro 8y ago
  Are you sure your price sensitivity is rational then?
  - tptacek 8y ago
    Why wouldn't it be?
    - kerbalspacepro 8y ago
      Your price sensitivity would rationally be set to look at the opportunity cost across spheres of spending- an extra $100 on your flight is 10 days of parking tickets or something like that. It seems like you're falling to the "Mental Accounting" [1] fallacy, wherein you create buckets of money but forget that they're fungible. You splurge in one area and cut back in another. [0]https://en.wikipedia.org/wiki/Mental_accounting https://en.wikipedia.org/wiki/Mental_accounting
      - deleted 8y ago
        [deleted]
      - tptacek 8y ago
        No, my point is that different decisions in how I park can make a bigger impact on my bottom line than whether I fly Southwest or American First Class. I take a real travel vacation maybe once every 3-4 years.
- 8y ago
daotoad 8y ago
Level 0 is missing here. They want to know if they can afford rent AND food this month. They might be able to squeak by if nothing goes wrong. But something always does. Whether the 12 year old car needs an expensive repair or someone gets sick and misses work or even a parking ticket can leave them struggling to get by. Also missing is level 4: I don't have to work to be at level 3 levels of comfort. There's a tiny fraction who own significant wealth that are in a special level 5 or higher. "I don't care what anything costs."
- gota 8y ago
  The article is about level of wealth, so in a sense a level 0 means "does not qualify as wealthy". I think the scale is fine on the lower end but agree it could go "higher". Although your example of level 4 takes into account some sort of ROI, which is not present in any other level.
- timerol 8y ago
  Practically speaking, the people in your level 0 category would respond to a financial setback by accumulating debt, generally via credit cards. This puts them below level 1 by definition. Being at level 1 means being wealthy, though obviously not level 2 or level 3 wealthy. I think this is clear from the article, especially the "no longer" in the level 1 definition.
- TheRealPomax 8y ago
  level 3 includes your level 4, there is no "having to work or not" stipulation, so that's fine. One higher level of "I don't need to think about what anything costs", however, would be useful, if only to unpollute the numbers by taking out the folks who can walk into a marina office, buy a 30 million dollar yacht on the spot, and walk out still having roughly the same amount of money as they did before they walked in.
- tytso 8y ago
  I'd use as level 4: I don't care how much my (primary) house costs. Beyond that there might be, "I don't care how much my second (third, etc.) house costs". And of course, there's the level where someone asks, "how many houses do we own, again"?
kowdermeister 8y ago
Here's another interesting breakdown based on net-worth: https://www.reddit.com/r/AskReddit/comments/2s9u0s/what_do_insanely_wealthy_people_buy_that_ordinary/cnnmca8 https://www.reddit.com/r/AskReddit/comments/2s9u0s/what_do_i...
- munificent 8y ago
  Ah, I'm glad someone else tracked this comment down. One of the most fascinating things I've ever read on reddit.
- sokoloff 8y ago
  Fascinating post. I'm a little surprised that the private jet levels seem to be "off by one" too high. (Most people I know in the $10-30MM set are already users, sometimes heavily, of fractional programs, NetJets, etc.)
dev_dull 8y ago
The problem I have when discussing "wealth" is that it's almost always done in comparison to others at this time. For example, I'm "rich" or "poor" compared to the richest and poorest people around me today. If we compared it with other people internationally, or even historically, we're filthy rich at almost any level of the ladder.
- themodelplumber 8y ago
  That's a good point. I also don't like that these discussions of wealth are always accompanied by a discussion of income and then they end. Especially in an article where debt is featured so prominently. Significantly raising one's income and seeing it as the sole dividing factor between oneself and others becomes part of a false system of hope for many. A saving habit _and_ reasonable living on one's income, no matter the level, will _often_ quickly result in the kind of savings that will pay for those big restaurant meals, if needed, or those vacations, if needed. My friends who are good savers tend to take vacations to really nice places without needing to spend a lot when they get there. So they have more money for the next vacation, etc. There are people who are unfairly saddled with debt, to whom this doesn't really apply as readily, but it'd be nice if messages like "wow, sad, income levels make life so hard" could be accompanied by "but here's what many of you who are reading this can do at any level to feel on top of things." We are short-changing our children by not bundling that more realistic discussion with discussions of income.
  - ansgri 8y ago
    That's an interesting comment. It made me think about having two different kinds of wealth: wealth enabling things and wealth freeing from problems. If you can do fancy things with careful planning, that's one thing. Doing fancy things without burdening yourself with complicated cost-benefit analysis is the other, and it's probably the latter that gives more freedom and the one the article talks about.
  - kaitai 8y ago
    Reading "The Millionaire Next Door," as much a of a cliche or a classic as it is right now, really opened my eyes to some of this nuance for me. The book points out that many high earners are still living paycheck to paycheck, and some lower earners do quite well by saving aggressively. So who is rich, the software engineer who earns $120k/year in a LCoL area and takes expensive vacations and buys photography equipment and has a nice house & great car and has little saved, or the senior school teacher who makes $80k and saves a ton, but doesn't take the expensive vacations, drives a 20-year-old Civic, and enjoys gardening? What's the definition of rich? What's the definition of value? What do you want in life? The other aspect is (as you and parent posters note) the comparison with others. If you live in an expensive area where everyone drives a nice car, pays for a gardener, and sends the kid to a high-tuition school, you'll stand out if you drive a 2008 Civic, have an adequate but not nice yard, and send the kid to the public kindergarten. "Comparison is the thief of joy," said someone. I personally was much happier with my un-professionally-landscaped yard and small house and used car in my middle-class neighborhood when I realized that those were reasons we have a higher net worth than most of our peers, not signs that we don't.
aerovistae 8y ago
I strongly disagree with the proposition that the final level is "you don't care how much your vacations cost"-- in fact I think it's downright ridiculous and a person would only stop there for lack of imagination or for modesty. Because beyond those 3 levels is the world of "I can spend money to improve the lives of people around me, or to improve the world in general" e.g. starting foundations, making donations, seeing things created like hospitals or homes or new companies....all of these are things some people would like to do, and which require a level of wealth far beyond "I don't care what my vacation costs."
- throwawaymath 8y ago
  Sure, but in the context of lifestyle changes those are really the three major leaps. This is a paradigm that looks at what categories of stress are removed as your wealth increases, not how your raw capability to drive the means of production changes. The distinctions laid out across these three tiers are both practical and relatable. Each step is another dimension of stress which subsumes the ones below it, which implies that eliminating one level also eliminates the level below it. Level 1 means you have no debt. That already puts you well ahead of e.g. most Americans. It means you don't have to worry about your purchases in the past. Level 2 is a step beyond that, because it means you need not care about the cost of small luxuries in the present. And at level 3, you need not care about the size of large luxuries in the present. The floor and utility of money increases categorically at each stage. Without debt, you can focus on "things" unencumbered. If you don't need to worry about the cost of restaurant bills, you can focus on "luxurious things". Vacations realistically cost thousands of dollars. If you don't need to worry about the cost of those, you can happily spend four or five figures on an "experience" that lasts perhaps a week to a month. And if you're not truly not caring for the cost of these things, at each step you can partake of the benefit many times in one year. I concur with another commenter that you can formulate a step 4, which is "I don't need to work to enjoy step 3", but beyond that I think you're really splitting hairs when it comes to lifestyle changes.
- RangerScience 8y ago
  I think at that point "wealth" becomes "capital".
neap24 8y ago
It's interesting that the charts everyone uses for share of household wealth are from the 1970s until today. If you take it back a bit further, to the 30s/40s (or even further to 1916) the share of the lowest and middle classes is significantly improved and the top 1% has lost wealth. It IS true that that trend has been reversing since the 70s, but it's still not close to pre 30s levels of inequality. I agree we need to figure out what's been going on since the 70s, but I also kind feel like we need to include all the charts for the best perspective.
deleted 8y ago
[deleted]
cuillevel3 8y ago
If you stop working today, how many months/years can you maintain your standard of living?
- icedchai 8y ago
  At least 20 years...
paulpauper 8y ago
I'm kinda amazed by how many wealth ppl there are in America, especially given all the negative headlines about debt, student loans, ppl not having enough for retirement, etc. It's actually easier to be a multi-millionaire (statistically speaking) than a member of Mensa.
jl2718 8y ago
The fed’s net worth quantiles are all positive. It’s depressing to learn that I came from the bottom of the bottom tier. Income was median, but my dad bought (mortgaged) an ‘unbuildable’ foreclosed lot and we built a house as a family activity in a rich town. I never knew the difference, didn’t even notice the fancy clothes and expensive cars. I still don’t know what wealth is supposed to feel like, nor do I care. I have zero interest in restaurants and luxury travel. The more free I am with purchases, the more bullshit accumulates in my life that I never use. If I had to choose objectively based on experience, I’d probably stick with being poor. The best was zero money and possessions as a vagabond because I was forced to be social to survive. But I’m not throwing it away just yet, because that next level of wealth is supposed to be oh so much better. Can’t wait for the disappointment on that one.
paulpauper 8y ago
I think many can agree that there is another level: where money is as abundant as air and dropping $50k is like taking a deep breath.
cryoshon 8y ago
i get what the author was trying to say, but i'd put it differently (as others in the thread have already indicated). i envision a few different modes of life. these modes or levels are strongly entrenched. downward mobility is more likely than upward mobility by a huge margin, but it still takes a large negative shock to generate downward mobility. level 0: primitive accumulation of non-liquid assets. the image here is a homeless person trucking around all of their possessions in a shopping cart or perhaps someone living in a shantytown. there is no ability to pay for any kind of costs, except by the generosity of others. severe mental illness is guaranteed. level 1: destructive equilibrium. wealth remains constant (and low) despite consistent or inconsistent income. this is where many of the working poor are -- no getting ahead, but a large potential for falling behind. a small number of fixed costs may be sustainable, but stability is very low and anxiety is very high. there is no purchase which can be made without budgeting. mental illness is highly probable. level 2: unstable accumulation. wealth is low, but there is a slow rate of accumulation of wealth. the wealth is often dipped into during times of crisis, so on the long run, there isn't much compounding going on even if the wealth does accumulate. many purchases require budgeting, but the smallest of purchases (like a pack of gum) can escape deliberation. the rest of the working poor and most of the "middle" class fall into this category. mental illness is probable, because there is never true stability -- the amount of wealth in the bank is never enough to protect against more than one problem at a time. level 3: stable accumulation. wealth accumulates reliably, and compounding interest makes the long-term view rather rosy. less-trivial purchases like TVs or nice dinners don't require deliberation. the real defining feature of this level is that for the first time, the means for having nice things increases over time. someone might be only able to afford one vacation a year at the start of their career, but if they stay within this level they could afford four by the end. mental illness is less likely because there are enough resources to protect against more than one shock at a time. note that major purchases like houses or cars are never beyond at least some deliberation for this level, even if other things are. this is the "upper" middle class. level 4: accelerating accumulation. these are the upper classes. shocks are irrelevant to this level because a shock of sufficient size to threaten their well-being would probably be the end of the world or at least major chaos. at this level, budgeting does not really exist. the economic deliberations of the lower levels are replaced by a consumption deliberation. the question is no longer "can we afford this" but rather a purely hedonic "would i like to have/do this". the wealth base at this level is so large that even excessive consumption will not slow its accumulation by an amount which would require cutting down on future excessive consumption. the people at this level hold most of the world's financial resources. is this view of things reductive? yep. the takeaway lesson is that the vast majority of the people with a positive net worth do not have genuine stability.
gwbas1c 8y ago
There's always a $150 plate of macaroni and cheese, or a $25,000 heli-skiing trip. Don't define wealth by saying "you don't care what a meal or vacation costs." You always care, it's more that most meals and vacations are easily affordable.
- sokoloff 8y ago
  I would expect there's a level of wealth (well, well above mine) where you only ration time and attention and completely stop rationing money on meals and vacations.
mfringel 8y ago
I typically thought of "wealthy" as discernible through a single question: "Is the vast majority of the money you spend on a daily basis from capital, or wages?" If capital, you're wealthy. If wages, you're not.
- dcre 8y ago
  This used to work better than it does today due to the rise of very high salaries in the past 30 years. It used to be that very rich people didn't work. Now there are quite a few people who just get paid a ton. Though the question of whether that's properly understood as wages or capital gets blurry. (Of course, if you work at a salary of $500,000 for a few years you start to accumulate capital pretty quickly, but it would take a lot of saving for investment income to get bigger than your salary.)
  - svachalek 8y ago
    I'd argue that until you have that accumulated capital, you are not wealthy even if you may be living large.
    - mfringel 8y ago
      Precisely. "Living paycheck-to-paycheck, but with bigger numbers." is not wealth.
  - PeterisP 8y ago
    Even in medieval and ancient times a certain portion of the very rich people were merchants/bankers/entrepreneurs - though the stereotypical "very rich" of the time is a major landowner, there are even richer-than-whole-empires people like Fugger or Crassus who did work just as much as the founder-owner-CEOs of modern technology megacorps.
- refurb 8y ago
  I think some CEOs with salaries in the 10's of millions might disagree.
rsync 8y ago
I think there are much more interesting ways to view hierarchies of wealth. Level one is living on the fruits of ones labors. Your wealth is based on what you do. Level two is living on your assets, or capital. Your wealth is based on what you have. Level three (rare in 20th/21st century) is living on your conquest and subjugation of others. Your wealth is based on who you are.[1] [1] I speak not so much of colonial conquest, or subjugation of native peoples by outsiders, but rather of local conquest - you may not have killed all the other claimants to the local throne, but your grandfather did and nobody is challenging you.
- TeMPOraL 8y ago
  Is this a useful view, though? It seems like level 1 is 99% of people, level 2 is 1% of people, and level 3 doesn't happen in the western world.
  - carapace 8y ago
    > level 3 doesn't happen in the western world. What? Crimea? Iraq? https://en.wikipedia.org/wiki/Annexation_of_Crimea_by_the_Russian_Federation https://en.wikipedia.org/wiki/Annexation_of_Crimea_by_the_Ru... https://en.wikipedia.org/wiki/Iraq_conflict_(2003%E2%80%93present) https://en.wikipedia.org/wiki/Iraq_conflict_(2003%E2%80%93pr...
beat 8y ago
Along a similar vein, I define "rich" as "Could live comfortably for the rest of one's life without ever 'working' again". No need for a wage-paying job, or owning a business that requires day-to-day attention.
lisper 8y ago
Level 4: I don't care how much I have to pay someone to work for me full time. Level 5: Legal limits are the limiting factor in my political contributions. Level 6: I don't care how risky an investment is because I won't even notice if I lose the money. Level 7: If I told you about this level, my life would be in danger.
robbintt 8y ago
Income is not wealth. If prolonged inactivity will force a radical restriction in what you consume, you are not wealthy. Many people with high incomes think they are wealthy because of their income. You are wealthy only if you have stored wealth. See Picketty's "Capital in the 21st Century" for more about income distribution and wealth distribution.
- rch 8y ago
  Exactly. I think it's easier describe wealth in terms of time (yours and that of others'), not income.
GreenPlastic 8y ago
I think there's a 4th level of wealth that wasn't mentioned which is financial independence. This is independent of how you think about expenses - it's more the freedom and stress removed of knowing you don't care if you're RIF'd and you don't need to impress someone or depend on someone for income or a job.
oxymoron 8y ago
These are to a large extent the same observations as the ones made by Thomas Piketty in _Capital in the 21st Century_. I’m a classic liberal in the Smith/Mill sense, but nevertheless found it to be a thoughtful criticism of the capitalistic system. Besides a thorough look at the dynamics of wealth and income inequality, Piketty’s main thesis is that the higher rate of return that you typically see on capital, as compared to the equalizing effects of economic, will lead to an ever increasing concentration of wealth unless checked. I didn’t find his position to be anti-entrepeneurial, rather he seems bothered by the fact that collecting rent tends to pay better than value-creation through labour, including entrepeneurial efforts.
ant6n 8y ago
How about defining levels of wealth based on how you optimize your food/meals: level 1: Optimize for most calories per $$$. My budget on food is money. level 2: calories have become cheap, so I have to worry about getting fat. The budget for food is calories. level 3: I only ever optimize for time. The budget for food is how much time meals take.
coldtea 8y ago
The levels seem arbitrary. I'd make it (and like the ones in TFA, those all start above normal middle class status and end below < 5 million dollars -- beyond that it's mostly extravagance and political power and influence rather than actual quality of life changes). 1) Level 1. I’m not stressed out about debt: People who no longer have to worry about their credit card debt or student loans. 2) Level 2. I can buy for anything I fancy within reason (e.g. I could get buy a new high-end laptop every year, lots of clothes, eat out regularly at fancy restaurants, have a $5K watch and so on), but not extravagant stuff (e.g. no Ferrari collection or yacht). 3) Level 3. I might work, but I don't have to work. I can take a vacation anytime I want for as long as I want, and stay in a 5-star hotel for as long I like.
sulam 8y ago
I think once you hit his final wealth level you realize there’s another one that isn’t obvious to people lower down the wealth ladder. At some point your assets are making a substantial portion of your annual income for you passively. If you’ve hit that point, congrats. If not, you definitely know it and are probably working toward it. And I wouldn’t be surprised if there isn’t another break point above that, probably to do with how much you think about the cost of large purchases like a home (or homes).
arisAlexis 8y ago
the most important one is missing. when you don't need to work anymore. fuck restaurants
dredmorbius 8y ago
I find Yonatan Zunger's "financial shock wealth" far more useful: This number is probably the truest measure of a person’s real wealth: What is the largest unexpected financial shock you could sustain without the cost of that to you suddenly becoming ten times the original cost or more? https://shift.newco.co/your-financial-shock-wealth-4845e6dc1d2f https://shift.newco.co/your-financial-shock-wealth-4845e6dc1...
ww520 8y ago
I think the author missed a level - stop working tomorrow and have no worry to carry on with life.
timoth3y 8y ago
Level 4; You don't know what your vacation cost.
thatthatis 8y ago
I break it down into 5 levels of wealth/freedom: Class 1: you can afford your current lifestyle without concern for daily expenses, and could withstand 1 or more major emergencies (job loss, car destroyed, $30,000 bill) without reducing your lifestyle. Class 2: your assets are sufficient that with a reduction in lifestyle you never have to work again. Class 3: your assets are sufficient that with no reduction in lifestyle you never have to work again. Class 4: no amount of incremental wealth will increase the amount you’d spend on a primary home, and you never have to work. Class 5: no amount of incremental wealth will affect your spending on vacation homes, yachts, or planes and you never have to work. There are obviously levels of subsistence below these. But these are, to my mind, the levels of wealth/freedom. Below these I wouldn’t call someone financially secure or say have “financial freedom.” I think when creating these tiers it’s important to acknowledge that lifestyle is a variable and some people’s preferences make it easier to achieve different levels. If you have caviar tastes, you need more money to make it into class 1. If you are extremely frugal and well paid, it doesn’t take much actual money to make it into class 5. Lifestyle vs freedom is a choice and there’s a trade off - do you use extra money to buy lifestyle or to buy freedom?
JimTheMan 8y ago
It's strange that he would classify how wealthy you are to be how discriminate you are with prices in level 2 and 3. Spending as much as possible without considering the value isn't something I would associate with wealth. I think there are better, more tightly specified definitions in this thread.

203 points by acconrad 8y ago

These seem more like levels of income than wealth (hint, the three levels are not worrying about debt/dinner bills/vacation costs). Wealth is the ability to generate such income levels passively (having control over your time).

italicbold 8y ago
Agreed, I spend about 95% of my earnings every month and dont worry about any of these. I live a privileged life yet I have only accumulated $80,000 in assets over the years which puts me in the lowest 40 to 59th percentile and below the average americans net worth of 100k.
- jonknee 8y ago
  > I spend about 95% of my earnings every month > I live a privileged life yet I have only accumulated $80,000 in assets Maybe you should save more? Even just spending 90% would make a huge difference and then you can continue to live a privileged life forever.

Rotdhizon 8y ago

I think about this very topic sometimes, but my levels are different. Mine are something like 1. Paycheck to paycheck. Includes constant worry and frustration about living expenses and basic necessities. Any unexpected cost will lead to not being able to pay the bills. Money is on your mind 24/7, life in this category is hell. Very difficulty to escape this category once you fall into it. 2. Able to afford living expenses with a little left over. I guess you'd call this middle class? Or maybe upper lower class. These people have an income that lets them pay their bills without worry, so they have a cushion of a few hundred/thousand dollars a month. These people don't experience stress over standard bills anymore, they are free to enjoy living life a bit fancy. Can go out to eat at good restaurants, can afford to do miscellaneous activities. 3. Anything above #2 really. This is the bracket and beyond that has plenty of income in that expenses don't matter anymore. Stress about affording living expenses is non-existent.

naturalgradient 8y ago
I would disagree with 3 because there are many in 2 and 3 which can go to 1 just by losing their job and e.g. having one high medical bill (in the states at least). So surely there must be differentiation on whether any given job or emergency can affect your standard of living significantly.
- organsnyder 8y ago
  I'd say one of the differences between 2 and 3 is that people in category 3 are virtually immune to dropping a level due to life events.
- Rotdhizon 8y ago
  I'd say look at this generically, without adding exceptions for outliers. Even for #3, a multi-million dollar medical bill could be a huge setback. I'm talking more along the lines of standard happenings. Say if a kid gets sick and the parents need to fork out a few hundred/thousand dollars for treatment. #2 would be able to rely on their cushion to avoid being cast down into #1.
- ck425 8y ago
  Medical bills aside (the US system is batshit!!) good financial planning should make going from 2 and 3 to 1 far less likely. Unfortunately many people don't bother to save significant backup funds while things are going well.
  - dsnuh 8y ago
    There's also divorce. Trust me, it can drop you down to 1 in a heartbeat.
okmokmz 8y ago
So in your classifications the "I don’t care what stuff costs in restaurants" and " I don’t care what a vacation costs" would fall into the same category? To me being able to afford living expenses with a little left over would likely qualify as middle, not having to care about restaurant cost would qualify as upper-middle, and not caring about vacation cost would be upper. There's a pretty huge gap between being able to drop $1000 at a restaurant, and people able to spend tens, if not hundreds of thousands of dollars on a vacation.

noelwelsh 8y ago

The title is a bit misleading. This is mostly about inequality, using the "three levels of wealth" are a jumping off point to explore how income inequality has changed over time. The conclusion is nothing new: inequality is rising.

lihaciudaniel 8y ago
So question remains will UBI be the solution? Or will it be forced by automatisation and Ai progress?

okmokmz 8y ago

The self-identification chart is pretty interesting. It looks like within the past few years ~10% of people who would have identified as lower/working class are now identifying as middle/upper-middle despite the middle class continuing to decline while the lower and middle-upper classes have slowly increased

frgtpsswrdlame 8y ago
I suppose that's probably just a consequence of a good economy right? What's interesting is how fast the drop is, when you don't even see a drop between 2000 and 2008 where I would expect one.

vfc1 8y ago

Other than focusing on caring about the price of restaurants or vacations, what about adding financial independence to the equation? Somehow that is something that does not seem to be valued enough when it comes to this type of discussions. Financial independence does not mean necessarily being rich, as much as it means not needing to work for someone else and still be able to make a comfortable living.

azag0 8y ago
The independence can only ever be relative. No one is truly independent. As a self-sufficient farmer, you depend on weather. As a millionaire, you depend on the continuing functioning of the financial system.

soperj 8y ago

There's definitely another level of wealth there for the very few. Weird thought one day while dreaming, if I somehow managed to get a job where I cleared $1 million a week, it would still take me over 1500 years to attain the net worth of Warren Buffet. If I managed to up that and clear $1 million a day, I still wouldn't manage in my lifetime (224 years). That to me put in perspective the insanity of the wealth of the very rich.

habitue 8y ago
If you made $52M a year, with 5% growth per year in some super conservative investment, you'd have Warren Buffet's wealth in 87 years If you got 10% it would be 50 years Warren Buffet is definitely impressive, but compounding capital is a huge benefit (Ok ok I ignored taxes, inflation blah blah) Edit: just because this is fun: at $365M a year, you get WB wealth in 50 years at 5% and 32 years at 10% Edit2: if you take Berkshire Hathaway's historical annualized return (20.8%), compounded quarterly, starting with $52M and no additional capital after that, you get WB wealth in 36 years.
- neaden 8y ago
  To be fair that would get you WB's present wealth. If Warren Buffet was still alive and investing just like you did, you would never catch up. This is one of the reasons social stratification can increase over time.
  - graff1994 8y ago
    He's still alive....
    - dpiers 8y ago
      The wording is a bit confusing, but I believe they are saying that it would take that long to catch up to Buffett's current wealth. If you assume his assets continue to grow at the same pace as yours, you will never catch up.

wjossey 8y ago

It’s interesting the categories the author chose, as I had a similar tone with my mother when I finally started making good money. I grew up in a divorced household. On one side I had a father and step mother who made large amounts of cash in a relatively inexpensive area. They vacationed regularly to Hawaii and Las Vegas, and prioritized spending money on themselves. My mother and step father combined to earn around $30k, were hyper frugal, and stressed about every expense. Any expense whatsoever was agony, and they made sure my sister and I understood their inability to buy things on a whim. So, as I bounced between houses each week, I yo-yo’d between borderline poverty (although they made it work) and quite high wealth. When I hit my mid to late 20s, my wife and I hit a point where we had no debt. Could go out anytime. Could rent any reasonable home in our area (couldn’t buy because we didn’t have that kind of down payment money), and traveled a few times a year throughout the world. When I contrasted this against how I felt after undergrad, while in grad school, where I was heavy in debt, had no car, and felt constant financial stress, it’s remarkable. As I’ve continued to grow older, I’ve now come to realize it wasn’t the travel, eating out, or the things I could buy that helped me to be less stressed, it was the lack of burden of worrying about how I would pay for X, Y, or Z. I make way less money now as I run my own startup, don’t go out that much as I do all the cooking, don’t travel that much because we can’t afford it, yet I carry the same lack of stress and worry as I did years back. Part of why I’d like to see universal, free at the point of delivery, health care in the United States is for this very reason. I’ve first hand experienced and witnessed the choice of not going to get needed medical care because of the financial burden. UBI is still highly experimental, and many other wealth normalization techniques have severe downsides that potentially outweigh the benefits; however, universal health care has enough clear data points of success in the rest of the world, from my vantage point, that maybe that can be the “level 0” of wealth in the United States.

arethuza 8y ago
Thanks for being careful to say "free at the point of delivery" - that was always one of the core principles of the UK NHS and everyone knows its not "free" - we all pay for it in our taxes - which I'm personally quite happy about.
- 8y ago

jeffreyrogers 8y ago

I wish there were data that distinguished between top 1% by income and top 1% by wealth. Income inequality may be worth targeting in itself, but if the turnover of top-1% income earners is high it doesn't matter as much as if it's fixed. Similarly, if wealth is not being maintained generation after generation then concentration is not as important either.

robbintt 8y ago
Check out "Capital in the 21st Century" by Thomas Picketty. The picture is bleak, and it describes how the truly wealthy (top 1% of stored wealth) must self regulate or risk passing a tipping point. And how they are failing to do so between 1980-2010, as modern conditions globally approach those of the French Revolution.

tptacek 8y ago

This is pretty weird. I don't care how much flights and lodging costs, not because I can afford to do whatever I want, but because I simply don't take travel vacations very often. I can spend somewhat outlandishly on travel and not ruin my annual budget. On the other hand, there are things I do routinely that I have to be price sensitive about; for instance: I am price sensitive about parking fees. For that matter, despite its status as "wealth level 2", I am more price sensitive about restaurant meals than about travel.

kerbalspacepro 8y ago
Are you sure your price sensitivity is rational then?
- tptacek 8y ago
  Why wouldn't it be?
  - kerbalspacepro 8y ago
    Your price sensitivity would rationally be set to look at the opportunity cost across spheres of spending- an extra $100 on your flight is 10 days of parking tickets or something like that. It seems like you're falling to the "Mental Accounting" [1] fallacy, wherein you create buckets of money but forget that they're fungible. You splurge in one area and cut back in another. [0]https://en.wikipedia.org/wiki/Mental_accounting https://en.wikipedia.org/wiki/Mental_accounting
    - deleted 8y ago
      [deleted]
    - tptacek 8y ago
      No, my point is that different decisions in how I park can make a bigger impact on my bottom line than whether I fly Southwest or American First Class. I take a real travel vacation maybe once every 3-4 years.
8y ago

daotoad 8y ago

Level 0 is missing here. They want to know if they can afford rent AND food this month. They might be able to squeak by if nothing goes wrong. But something always does. Whether the 12 year old car needs an expensive repair or someone gets sick and misses work or even a parking ticket can leave them struggling to get by. Also missing is level 4: I don't have to work to be at level 3 levels of comfort. There's a tiny fraction who own significant wealth that are in a special level 5 or higher. "I don't care what anything costs."

gota 8y ago
The article is about level of wealth, so in a sense a level 0 means "does not qualify as wealthy". I think the scale is fine on the lower end but agree it could go "higher". Although your example of level 4 takes into account some sort of ROI, which is not present in any other level.
timerol 8y ago
Practically speaking, the people in your level 0 category would respond to a financial setback by accumulating debt, generally via credit cards. This puts them below level 1 by definition. Being at level 1 means being wealthy, though obviously not level 2 or level 3 wealthy. I think this is clear from the article, especially the "no longer" in the level 1 definition.
TheRealPomax 8y ago
level 3 includes your level 4, there is no "having to work or not" stipulation, so that's fine. One higher level of "I don't need to think about what anything costs", however, would be useful, if only to unpollute the numbers by taking out the folks who can walk into a marina office, buy a 30 million dollar yacht on the spot, and walk out still having roughly the same amount of money as they did before they walked in.
tytso 8y ago
I'd use as level 4: I don't care how much my (primary) house costs. Beyond that there might be, "I don't care how much my second (third, etc.) house costs". And of course, there's the level where someone asks, "how many houses do we own, again"?

kowdermeister 8y ago

Here's another interesting breakdown based on net-worth: https://www.reddit.com/r/AskReddit/comments/2s9u0s/what_do_insanely_wealthy_people_buy_that_ordinary/cnnmca8 https://www.reddit.com/r/AskReddit/comments/2s9u0s/what_do_i...

munificent 8y ago
Ah, I'm glad someone else tracked this comment down. One of the most fascinating things I've ever read on reddit.
sokoloff 8y ago
Fascinating post. I'm a little surprised that the private jet levels seem to be "off by one" too high. (Most people I know in the $10-30MM set are already users, sometimes heavily, of fractional programs, NetJets, etc.)

dev_dull 8y ago

The problem I have when discussing "wealth" is that it's almost always done in comparison to others at this time. For example, I'm "rich" or "poor" compared to the richest and poorest people around me today. If we compared it with other people internationally, or even historically, we're filthy rich at almost any level of the ladder.

themodelplumber 8y ago
That's a good point. I also don't like that these discussions of wealth are always accompanied by a discussion of income and then they end. Especially in an article where debt is featured so prominently. Significantly raising one's income and seeing it as the sole dividing factor between oneself and others becomes part of a false system of hope for many. A saving habit _and_ reasonable living on one's income, no matter the level, will _often_ quickly result in the kind of savings that will pay for those big restaurant meals, if needed, or those vacations, if needed. My friends who are good savers tend to take vacations to really nice places without needing to spend a lot when they get there. So they have more money for the next vacation, etc. There are people who are unfairly saddled with debt, to whom this doesn't really apply as readily, but it'd be nice if messages like "wow, sad, income levels make life so hard" could be accompanied by "but here's what many of you who are reading this can do at any level to feel on top of things." We are short-changing our children by not bundling that more realistic discussion with discussions of income.
- ansgri 8y ago
  That's an interesting comment. It made me think about having two different kinds of wealth: wealth enabling things and wealth freeing from problems. If you can do fancy things with careful planning, that's one thing. Doing fancy things without burdening yourself with complicated cost-benefit analysis is the other, and it's probably the latter that gives more freedom and the one the article talks about.
- kaitai 8y ago
  Reading "The Millionaire Next Door," as much a of a cliche or a classic as it is right now, really opened my eyes to some of this nuance for me. The book points out that many high earners are still living paycheck to paycheck, and some lower earners do quite well by saving aggressively. So who is rich, the software engineer who earns $120k/year in a LCoL area and takes expensive vacations and buys photography equipment and has a nice house & great car and has little saved, or the senior school teacher who makes $80k and saves a ton, but doesn't take the expensive vacations, drives a 20-year-old Civic, and enjoys gardening? What's the definition of rich? What's the definition of value? What do you want in life? The other aspect is (as you and parent posters note) the comparison with others. If you live in an expensive area where everyone drives a nice car, pays for a gardener, and sends the kid to a high-tuition school, you'll stand out if you drive a 2008 Civic, have an adequate but not nice yard, and send the kid to the public kindergarten. "Comparison is the thief of joy," said someone. I personally was much happier with my un-professionally-landscaped yard and small house and used car in my middle-class neighborhood when I realized that those were reasons we have a higher net worth than most of our peers, not signs that we don't.

aerovistae 8y ago

I strongly disagree with the proposition that the final level is "you don't care how much your vacations cost"-- in fact I think it's downright ridiculous and a person would only stop there for lack of imagination or for modesty. Because beyond those 3 levels is the world of "I can spend money to improve the lives of people around me, or to improve the world in general" e.g. starting foundations, making donations, seeing things created like hospitals or homes or new companies....all of these are things some people would like to do, and which require a level of wealth far beyond "I don't care what my vacation costs."

throwawaymath 8y ago
Sure, but in the context of lifestyle changes those are really the three major leaps. This is a paradigm that looks at what categories of stress are removed as your wealth increases, not how your raw capability to drive the means of production changes. The distinctions laid out across these three tiers are both practical and relatable. Each step is another dimension of stress which subsumes the ones below it, which implies that eliminating one level also eliminates the level below it. Level 1 means you have no debt. That already puts you well ahead of e.g. most Americans. It means you don't have to worry about your purchases in the past. Level 2 is a step beyond that, because it means you need not care about the cost of small luxuries in the present. And at level 3, you need not care about the size of large luxuries in the present. The floor and utility of money increases categorically at each stage. Without debt, you can focus on "things" unencumbered. If you don't need to worry about the cost of restaurant bills, you can focus on "luxurious things". Vacations realistically cost thousands of dollars. If you don't need to worry about the cost of those, you can happily spend four or five figures on an "experience" that lasts perhaps a week to a month. And if you're not truly not caring for the cost of these things, at each step you can partake of the benefit many times in one year. I concur with another commenter that you can formulate a step 4, which is "I don't need to work to enjoy step 3", but beyond that I think you're really splitting hairs when it comes to lifestyle changes.
RangerScience 8y ago
I think at that point "wealth" becomes "capital".

neap24 8y ago

It's interesting that the charts everyone uses for share of household wealth are from the 1970s until today. If you take it back a bit further, to the 30s/40s (or even further to 1916) the share of the lowest and middle classes is significantly improved and the top 1% has lost wealth. It IS true that that trend has been reversing since the 70s, but it's still not close to pre 30s levels of inequality. I agree we need to figure out what's been going on since the 70s, but I also kind feel like we need to include all the charts for the best perspective.

deleted 8y ago

[deleted]

cuillevel3 8y ago

If you stop working today, how many months/years can you maintain your standard of living?

icedchai 8y ago
At least 20 years...

paulpauper 8y ago

I'm kinda amazed by how many wealth ppl there are in America, especially given all the negative headlines about debt, student loans, ppl not having enough for retirement, etc. It's actually easier to be a multi-millionaire (statistically speaking) than a member of Mensa.

jl2718 8y ago

The fed’s net worth quantiles are all positive. It’s depressing to learn that I came from the bottom of the bottom tier. Income was median, but my dad bought (mortgaged) an ‘unbuildable’ foreclosed lot and we built a house as a family activity in a rich town. I never knew the difference, didn’t even notice the fancy clothes and expensive cars. I still don’t know what wealth is supposed to feel like, nor do I care. I have zero interest in restaurants and luxury travel. The more free I am with purchases, the more bullshit accumulates in my life that I never use. If I had to choose objectively based on experience, I’d probably stick with being poor. The best was zero money and possessions as a vagabond because I was forced to be social to survive. But I’m not throwing it away just yet, because that next level of wealth is supposed to be oh so much better. Can’t wait for the disappointment on that one.

paulpauper 8y ago

I think many can agree that there is another level: where money is as abundant as air and dropping $50k is like taking a deep breath.

cryoshon 8y ago

i get what the author was trying to say, but i'd put it differently (as others in the thread have already indicated). i envision a few different modes of life. these modes or levels are strongly entrenched. downward mobility is more likely than upward mobility by a huge margin, but it still takes a large negative shock to generate downward mobility. level 0: primitive accumulation of non-liquid assets. the image here is a homeless person trucking around all of their possessions in a shopping cart or perhaps someone living in a shantytown. there is no ability to pay for any kind of costs, except by the generosity of others. severe mental illness is guaranteed. level 1: destructive equilibrium. wealth remains constant (and low) despite consistent or inconsistent income. this is where many of the working poor are -- no getting ahead, but a large potential for falling behind. a small number of fixed costs may be sustainable, but stability is very low and anxiety is very high. there is no purchase which can be made without budgeting. mental illness is highly probable. level 2: unstable accumulation. wealth is low, but there is a slow rate of accumulation of wealth. the wealth is often dipped into during times of crisis, so on the long run, there isn't much compounding going on even if the wealth does accumulate. many purchases require budgeting, but the smallest of purchases (like a pack of gum) can escape deliberation. the rest of the working poor and most of the "middle" class fall into this category. mental illness is probable, because there is never true stability -- the amount of wealth in the bank is never enough to protect against more than one problem at a time. level 3: stable accumulation. wealth accumulates reliably, and compounding interest makes the long-term view rather rosy. less-trivial purchases like TVs or nice dinners don't require deliberation. the real defining feature of this level is that for the first time, the means for having nice things increases over time. someone might be only able to afford one vacation a year at the start of their career, but if they stay within this level they could afford four by the end. mental illness is less likely because there are enough resources to protect against more than one shock at a time. note that major purchases like houses or cars are never beyond at least some deliberation for this level, even if other things are. this is the "upper" middle class. level 4: accelerating accumulation. these are the upper classes. shocks are irrelevant to this level because a shock of sufficient size to threaten their well-being would probably be the end of the world or at least major chaos. at this level, budgeting does not really exist. the economic deliberations of the lower levels are replaced by a consumption deliberation. the question is no longer "can we afford this" but rather a purely hedonic "would i like to have/do this". the wealth base at this level is so large that even excessive consumption will not slow its accumulation by an amount which would require cutting down on future excessive consumption. the people at this level hold most of the world's financial resources. is this view of things reductive? yep. the takeaway lesson is that the vast majority of the people with a positive net worth do not have genuine stability.

gwbas1c 8y ago

There's always a $150 plate of macaroni and cheese, or a $25,000 heli-skiing trip. Don't define wealth by saying "you don't care what a meal or vacation costs." You always care, it's more that most meals and vacations are easily affordable.

sokoloff 8y ago
I would expect there's a level of wealth (well, well above mine) where you only ration time and attention and completely stop rationing money on meals and vacations.

mfringel 8y ago

I typically thought of "wealthy" as discernible through a single question: "Is the vast majority of the money you spend on a daily basis from capital, or wages?" If capital, you're wealthy. If wages, you're not.

dcre 8y ago
This used to work better than it does today due to the rise of very high salaries in the past 30 years. It used to be that very rich people didn't work. Now there are quite a few people who just get paid a ton. Though the question of whether that's properly understood as wages or capital gets blurry. (Of course, if you work at a salary of $500,000 for a few years you start to accumulate capital pretty quickly, but it would take a lot of saving for investment income to get bigger than your salary.)
- svachalek 8y ago
  I'd argue that until you have that accumulated capital, you are not wealthy even if you may be living large.
  - mfringel 8y ago
    Precisely. "Living paycheck-to-paycheck, but with bigger numbers." is not wealth.
- PeterisP 8y ago
  Even in medieval and ancient times a certain portion of the very rich people were merchants/bankers/entrepreneurs - though the stereotypical "very rich" of the time is a major landowner, there are even richer-than-whole-empires people like Fugger or Crassus who did work just as much as the founder-owner-CEOs of modern technology megacorps.
refurb 8y ago
I think some CEOs with salaries in the 10's of millions might disagree.

rsync 8y ago

I think there are much more interesting ways to view hierarchies of wealth. Level one is living on the fruits of ones labors. Your wealth is based on what you do. Level two is living on your assets, or capital. Your wealth is based on what you have. Level three (rare in 20th/21st century) is living on your conquest and subjugation of others. Your wealth is based on who you are.[1] [1] I speak not so much of colonial conquest, or subjugation of native peoples by outsiders, but rather of local conquest - you may not have killed all the other claimants to the local throne, but your grandfather did and nobody is challenging you.

TeMPOraL 8y ago
Is this a useful view, though? It seems like level 1 is 99% of people, level 2 is 1% of people, and level 3 doesn't happen in the western world.
- carapace 8y ago
  > level 3 doesn't happen in the western world. What? Crimea? Iraq? https://en.wikipedia.org/wiki/Annexation_of_Crimea_by_the_Russian_Federation https://en.wikipedia.org/wiki/Annexation_of_Crimea_by_the_Ru... https://en.wikipedia.org/wiki/Iraq_conflict_(2003%E2%80%93present) https://en.wikipedia.org/wiki/Iraq_conflict_(2003%E2%80%93pr...

beat 8y ago

Along a similar vein, I define "rich" as "Could live comfortably for the rest of one's life without ever 'working' again". No need for a wage-paying job, or owning a business that requires day-to-day attention.

lisper 8y ago

Level 4: I don't care how much I have to pay someone to work for me full time. Level 5: Legal limits are the limiting factor in my political contributions. Level 6: I don't care how risky an investment is because I won't even notice if I lose the money. Level 7: If I told you about this level, my life would be in danger.

robbintt 8y ago

Income is not wealth. If prolonged inactivity will force a radical restriction in what you consume, you are not wealthy. Many people with high incomes think they are wealthy because of their income. You are wealthy only if you have stored wealth. See Picketty's "Capital in the 21st Century" for more about income distribution and wealth distribution.

rch 8y ago
Exactly. I think it's easier describe wealth in terms of time (yours and that of others'), not income.

GreenPlastic 8y ago

I think there's a 4th level of wealth that wasn't mentioned which is financial independence. This is independent of how you think about expenses - it's more the freedom and stress removed of knowing you don't care if you're RIF'd and you don't need to impress someone or depend on someone for income or a job.

oxymoron 8y ago

These are to a large extent the same observations as the ones made by Thomas Piketty in _Capital in the 21st Century_. I’m a classic liberal in the Smith/Mill sense, but nevertheless found it to be a thoughtful criticism of the capitalistic system. Besides a thorough look at the dynamics of wealth and income inequality, Piketty’s main thesis is that the higher rate of return that you typically see on capital, as compared to the equalizing effects of economic, will lead to an ever increasing concentration of wealth unless checked. I didn’t find his position to be anti-entrepeneurial, rather he seems bothered by the fact that collecting rent tends to pay better than value-creation through labour, including entrepeneurial efforts.

ant6n 8y ago

How about defining levels of wealth based on how you optimize your food/meals: level 1: Optimize for most calories per $$$. My budget on food is money. level 2: calories have become cheap, so I have to worry about getting fat. The budget for food is calories. level 3: I only ever optimize for time. The budget for food is how much time meals take.

coldtea 8y ago

The levels seem arbitrary. I'd make it (and like the ones in TFA, those all start above normal middle class status and end below < 5 million dollars -- beyond that it's mostly extravagance and political power and influence rather than actual quality of life changes). 1) Level 1. I’m not stressed out about debt: People who no longer have to worry about their credit card debt or student loans. 2) Level 2. I can buy for anything I fancy within reason (e.g. I could get buy a new high-end laptop every year, lots of clothes, eat out regularly at fancy restaurants, have a $5K watch and so on), but not extravagant stuff (e.g. no Ferrari collection or yacht). 3) Level 3. I might work, but I don't have to work. I can take a vacation anytime I want for as long as I want, and stay in a 5-star hotel for as long I like.

sulam 8y ago

I think once you hit his final wealth level you realize there’s another one that isn’t obvious to people lower down the wealth ladder. At some point your assets are making a substantial portion of your annual income for you passively. If you’ve hit that point, congrats. If not, you definitely know it and are probably working toward it. And I wouldn’t be surprised if there isn’t another break point above that, probably to do with how much you think about the cost of large purchases like a home (or homes).

arisAlexis 8y ago

the most important one is missing. when you don't need to work anymore. fuck restaurants

dredmorbius 8y ago

I find Yonatan Zunger's "financial shock wealth" far more useful: This number is probably the truest measure of a person’s real wealth: What is the largest unexpected financial shock you could sustain without the cost of that to you suddenly becoming ten times the original cost or more? https://shift.newco.co/your-financial-shock-wealth-4845e6dc1d2f https://shift.newco.co/your-financial-shock-wealth-4845e6dc1...

ww520 8y ago

I think the author missed a level - stop working tomorrow and have no worry to carry on with life.

timoth3y 8y ago

Level 4; You don't know what your vacation cost.

thatthatis 8y ago

I break it down into 5 levels of wealth/freedom: Class 1: you can afford your current lifestyle without concern for daily expenses, and could withstand 1 or more major emergencies (job loss, car destroyed, $30,000 bill) without reducing your lifestyle. Class 2: your assets are sufficient that with a reduction in lifestyle you never have to work again. Class 3: your assets are sufficient that with no reduction in lifestyle you never have to work again. Class 4: no amount of incremental wealth will increase the amount you’d spend on a primary home, and you never have to work. Class 5: no amount of incremental wealth will affect your spending on vacation homes, yachts, or planes and you never have to work. There are obviously levels of subsistence below these. But these are, to my mind, the levels of wealth/freedom. Below these I wouldn’t call someone financially secure or say have “financial freedom.” I think when creating these tiers it’s important to acknowledge that lifestyle is a variable and some people’s preferences make it easier to achieve different levels. If you have caviar tastes, you need more money to make it into class 1. If you are extremely frugal and well paid, it doesn’t take much actual money to make it into class 5. Lifestyle vs freedom is a choice and there’s a trade off - do you use extra money to buy lifestyle or to buy freedom?

JimTheMan 8y ago

It's strange that he would classify how wealthy you are to be how discriminate you are with prices in level 2 and 3. Spending as much as possible without considering the value isn't something I would associate with wealth. I think there are better, more tightly specified definitions in this thread.