23 ms·

Climbing the Wealth Ladder

259 points by razin 7y ago

eppp 7y ago
I'm not sure exactly what the article is trying to accomplish but it does feel in about the right ballpark for the levels. I don't think I'll ever get to the vacation one but simply paying last debt off really took a lot of weight off. Sure borrowing at low interest makes math sense but having a paid off house just feels good.
- esotericn 7y ago
  I'm not so sure, personally. The six levels: Level 1. Paycheck-to-paycheck: You are conscious of every dollar you spend. This includes people with crippling debt. Level 2. Grocery freedom: How much specific grocery items cost don’t impact your finances. Level 3. Restaurant freedom: You eat what you want at restaurants regardless of the cost. Level 4. Travel freedom: You travel when you want, how you want, and stay where you want. Level 5. House freedom: You can afford your dream home. Level 6. Philanthropic freedom: You can give away money that has a profound impact on others. I personally would say 4, 5, and 6 are in the wrong order entirely. I give away money that has a profound impact on others (so I'm at #6). But I can't afford my 'dream home' (#5) (I'm within an order of magnitude, I suppose). And #4 doesn't even interest me (I actively don't _want_ to have a private jet or whatever). I can take a holiday pretty much whenever I want, if that's what it's getting at? I think very few people actually travel "how they want". I think this is based on a very narrow, 'hollywood star' style of lifestyle. You don't need to be stupidly rich to give 10% of your income or to take a sabbatical from work.
  - eightysixfour 7y ago
    > And #4 doesn't even interest me (I actively don't _want_ to have a private jet or whatever). I don't believe his intent was "private jet" it was "you can pick first class without concern and you don't have to look at the hotel/rental home prices."
    - esotericn 7y ago
      That doesn't change my point. House freedom is way below that. There's an inbuilt assumption that you desire extravagance, which inevitably places philanthropy last. My point is that it's a choice.
  - Kirby64 7y ago
    I think you're overthinking this. The article examples maybe aren't descriptive enough. #4 would mean I don't price shop Airbnb, hotels, and plane tickets so much. Or maybe I just take first class everywhere. Either way, you're talking spending amounts in the $10k+ range. #5 means you can buy whatever size house you want within limits. That's more a $1M+ decision (although, amortized out long term) #6 means Bill Gates level philanthropy. Not saying whatever donations you're giving away aren't meaningful, but I doubt you're getting wings in hospitals named after you.
    - hirako2000 7y ago
      That's why we don't call small donations acts as philanthropy. It surprises me how philanthropic individuals are sold as benefactors who are a solution to solving problems linked to lack of resources, for those in needs around the world. I think it rather servers themselves instead, an effective PR routine that comes with decent guilt therapy. It's one of those things like "expat" sounding all so good compared to those job stealing "immigrants". Maybe we should all give a portion of our monetary power to those in needs, displacing what we would normally give to Unilever-like producers. It would skip the inefficient intermediary.. I digress.. The scale ain't right, but the idea is spot on.
    - esotericn 7y ago
      No, they're dependent on preferences in what you want. Your preferences differ from mine here. Either that, or you're assuming that the reasonable benchmark for comparison is close to the absolute most expensive example within a specific sector, which doesn't really match how I spend money. Thinking about it more, I'd probably say I even hit #4 before #3. Why? a) I don't really care that much about eating out, so despite being able to theoretically afford "Super Fancy Meals" I still think about it because I could just give someone else that money instead. b) First class flights and fancy hotels I find ridiculous, they don't factor into my purchasing decisions. I far prefer a cabin in the woods or going hiking or something like that to some constructed notion of luxury. I'd sooner give $10k to charity before I take a first class flight - in fact I'm on track to do that this year, and hope to increase it. If you don't count anything below $millions as being philanthropic then of course you've defined level 6 as being the top, that doesn't make sense to me.
  - jetpackjoe 7y ago
    I think the labels are not very helpful, but tying each level to 0.01% of an individuals net worth is. For example, I still don't flinch at paying 1 or 2 dollars more for items at the grocery store, but I do for paying 10-20 dollars more for items at a restaurant. "Travel" can mean grey hounds and motels, or first-class flights and luxury hotels. Philanthropy can be donating $100,000 or giving a buck to a guy on the street. The key take away from the article, at least for me, is how much you flinch at extra costs, and that being about 0.01% of what you have in the bank.
    - esotericn 7y ago
      I agree with the concept of the levels, I disagree with the ordering - particularly the final one, because philanthropy is something that almost everyone can practice, it's an individual choice. The idea that you must first have your entire life laid out with a massive house and first class flights and stuff before you start helping others is deeply wrong IMO.
      - svachalek 7y ago
        I think it boils down to the definition of "philanthropy", to a lot of people (self included) that's something billionaires do, the rest of us can try "charity". Kind of like the old saw about only the poor are "crazy", with enough money you become "eccentric".
- 3dprintscanner 7y ago
  It's taking the approach that the best way of gaining wealth is to convert earned income into unearned (passive) income over time. That once the basic necessities are covered the bulk of your nontrivial expenditure should really be investments and that your elective consumption should be pegged to some nominally small percentage of your overall wealth. I think this has to come from a place of having something to fall back on at a certain level of wealth, you can take the risk on those investments if the downside wouldn't be any worse than losing your current 'level' of wealth.
- hirako2000 7y ago
  It tries to tell the bottom 99% how very wealthy people think, and how people think in between and perhaps whats important to do to getting there, and stay there. What I see with most people around me,who stand at a low level: - spend most if not all or even more than what they can afford. - far more obsessed with getting more money than adapting their expenses. Of course they have no clue how to make more money, so they don't end up financially happy at all. I think it's a great article as it put things rather simply.
clktmr 7y ago
The article completely ignores the last and most important level of wealth, which is being financial independent. Being able to pay for rent, food, healthcare etc. for the rest of your life without the need of a day job will probably have the biggest impact on your life.
- Kirby64 7y ago
  That's completely tangential to this article though. It depends on what your definition of that is, and some people handle it better than others. You see those people retiring on 500k (for a couple) and living in a van or something at one extreme. Then there's folks making 500k+/yr and somehow manage to spend most of it without saving any of it. Independence is a state of mind, not a dollar amount.
  - clktmr 7y ago
    > Independence is a state of mind, not a dollar amount. This is only true if you have no debt. Even in your low-end example you need a net worth of 250k, which is a non trivial amount of money for most people. And I would still call it naive, it's just not enough. Financial independence to me is, having other assets than your time which will pay for your most basic needs. Living in a van probably means doing a lot of stuff by yourself, which requires a lot of time.
    - Kirby64 7y ago
      Sure, there's a dollar amount where you literally could not live. There's even more nutso people who talk about living on $100k by retiring to some foreign country where cost of living is absurdly low, though. I don't think those people (or the 250k van people) are realistic, since obviously there's longer term problems (i.e. vans aren't going to be great for someone who is old). I would disagree with your financial independence definition though. Basic needs threshold is much lower than 'comfortable' living. The traditional definition of financial independence is not having to work if you don't want to. What that looks like (the sacrifices you make) depends on the person. Maybe to be financially independent you are cool with a $500/mo apartment and Ramen... or maybe that means a mansion and a bunch of supercars. Either way, if you're dependent on a job or someone else, you aren't financially independent.
nimbius 7y ago
im presently reading Paul Fussells "Class" and this is a fascinating take on the idea in the age of wage stagnation. >the best way to climb the wealth ladder is to spend money according to your level. This is directly contradictory to, and detrimental to, how the US Economy expects its consumers to act. Credit has largely filled the gap of wages and productivity such that consumers now have no real sense of their level of real wealth, only that which is projected by their ostensible plastic card based opulence. The authors capstone to the article declares paradoxically at the end, "there is a lot more to life than saving money." so I suppose the siren call of conspicuous consumption remains a cornerstone of their life as well. id also cynically argue that level 6, philanthropy, has less to do with having a profound impact on the world around you and more to do with dynasticism and displacement of the state as an agent of change or agency in society. people at this level of wealth have a need to extend their name to objects of gravity an institutions of permanence and prestige. They are so far removed from the society as a whole that any perceived generosity in the pursuit of a just and verdant society is merely a facade for tax evasion and self grandeur. They realize no meaningful other symbiosis or benefit from the society as a whole in which they are mistaken to be a part of.
- jacquesm 7y ago
  >>the best way to climb the wealth ladder is to spend money according to your level. I would argue that the best way to climb the wealth ladder is to spend below 'your level'. Keeping up with the Jones' who are doing their best to display their achieved status is an excellent way to end up just like they will at the end of a long life of hard work: in hock to the bank for their primary residence and with little to no savings. Spend less than you could, pay off your primary residence as fast as you can, re-invest whatever you make after that in real estate and the stock market if you have an appetite for it, make your money work for you. Simple rules, nothing flashy and at the rate a typical IT worker can make money it won't be all that long before you will have a nest egg that you can retire on, provided you continue to control your spending.
  - nradov 7y ago
    With mortgage interest rates being so low right now it hardly makes sense to pay off your primary residence. Better to have the cash available for emergencies or to take advantage of investment opportunities.
tibbon 7y ago
This is similar to how I’ve thought about money for a while. Through high school, I had dollar problems. As in, things in the $1-9 range were pretty important. Through college I had $10 problems. Early career it become $100 problems. Now anything under $1000 just doesn’t strike me as an issue. New hot water heater? Just go buy it. $10k things however are what feel like real issues now- new roof? I can do it, but’s it’s gonna put some hurt on for a while if I didn’t see it coming. $100k problems (if I didn’t have insurance and had a major health problem) would crush me like a $1000 problem would when I was 18.
- throwawayhhakdl 7y ago
  I agree with this. Although I don’t think I’m exposed to anything over $1k as a potential risk as I don’t own a car or a home, short of a lawsuit I suppose. I feel very wealthy, though in the scheme of things I am not.
- Retric 7y ago
  I agree, what’s useful about this mentality is not about becoming a multimillionaire, it’s about having your wealth match your income. A doctor making 250k is often living pay check to pay check while spending crazy money. Even with a steady paycheck their not accumulating wealth. Even worse, a football player with a 20million dollar contract is likely to end up broke if they instantly maximize their spending. However, if their lifestyle is based on their savings account that’s going to quickly grow to match that income.
  - bronco21016 7y ago
    It bothers me when people use the phrase living paycheck to paycheck to describe both someone who literally doesn’t make enough money to cover the essential bills of living as well as someone making $200k+. These people are not in the same boat whatsoever. The doctor, or any professional making that much, simply needs to turn in the lease on the luxury car, or downsize their house, or cancel their vacation to materially change their financial circumstance. A person truly living paycheck to paycheck has to choose between eating or paying rent and there’s no luxury car to sell or turn in to free up cash flow to make that decision easier. They are very much resource constrained. This isn’t to say I don’t believe there are professionals in this boat. I just believe we need a different term for it as it’s not fair to lump these two very separate groups into the same definition. Perhaps describing them as living beyond their means.
disintegore 7y ago
I understand this isn't the point of the article, but it seems like a roundabout way of saying "don't overspend". This part in particular bothers me : > More importantly though, the best way to climb the wealth ladder is to spend money according to your level. As far as I (a non-economist) can personally tell, any notion of climbing up some abstract wealth ladder is synonym with a salary increase for the vast majority of people. Other methods, whether they involve quantity of free time or already-available money, are intrinsically tied to the quality of your job or, failing that, the quality of your parents' or partner's jobs. Personal net worth, while definitely an important factor in this equation, is far less so than income in my opinion. A fiscally irresponsibly professional worker living from paycheck to paycheck has "grocery freedom" while a person with 10,000$ of accumulated wealth and no income whatsoever (let's say they are between jobs) is far more likely to buy the store brand margarine. Similarly, the former will most likely not achieve "travel freedom" without decades of hard work, of careful spending, of saving, investing, etc. Simply put, no amount of "not carelessly booking flights" will turn you into Jay-Z, let alone into that small business owner across the street with the McMansion and the gaudy Christmas decorations. The undisputed "best way" to climb the wealth ladder is to receive large amounts of cash from some external source.
- baking 7y ago
  This obviously depends on your age and the reliability of your income.
- hirako2000 7y ago
  I would concur. However, spending wisely needs coupled with higher income. That's what most people don't apply. Save 10% or more of your income at all times, see your revenue continously increasing, even if not tremendously, and in matter of a few years you can start investing (housing, business, whatever) See yourself spending near all you get, even getting significant income increases and you get stuck into a loop of ever spending more. Its also very risky, as if that incomes downfalls, it can easily cost you all the small stupidly useless property you already have. I think the idea is to control your spending and find ways to increase income. I bet jayz continuously did that or he would have ended up like many other stars who lost it all. Or maybe just luck/talent..
baking 7y ago
I have a problem tying wealth to consumption. I always look at menu prices but I'm a lot better off financially than many people who don't seem to care how much they spend. Maybe because I do look at menu prices. Other than that, this is basically a base 10 view of wealth. Each zero matters as much to you as the last one. Under that theory, Bloomberg is to me as I am to someone living paycheck to paycheck, but I feel much closer to the person living paycheck to paycheck.
- TravHatesMe 7y ago
  I agree. This article does not mention that your life and upbringing play a major role on how you think about money. I know many folks that are well off but they are still frugal. They care about the cost of groceries, the cost of restaurants, etc. They don't need to but they choose to. They lived the majority of their lives without this kind of comfort -- some behavior cannot be changed when it is learned and repeated over time. The value of money has become a part of their values. I admire it to a certain extent. Even if they win the lotto they would probably donate most to a good cause and continue to nickel and dime.
markvdb 7y ago
The 0.01% of liquid net worth concept is useful. The rest of the article is not very useful. The higher one's liquid net worth, the more differences in priorities and consumption patterns.
Pfhreak 7y ago
I'm really not a fan of this breakdown because it seems to put each order of magnitude increase in liquid net worth as equal space on the graph. What percentage of people fall into each level. Maybe 50-60% of American adults fall into level 1? Surely, most folks will never reach Level 3 on this chart. While this is an interesting way for someone who has made significant increases in their income over the years, I don't think the thesis holds that the best way to increase your ladder is to just save money. We're all (or mostly all) wage earners here. Whether you are making $15/hour at a fast food gig, or $200+/hour as an engineer, you aren't going to save yourself into a new level. Saving might take some pressure off, and make you a little more comfortable within your level, sure, but for most people, it isn't reasonable for them to save 10 times the money they already have liquid without changing their income. The idea that we're all just a few 'steps' away from being independently wealthy is one of the worst parts of American culture in my experience. The individualism that follows from "if I can just outcompete someone else" seems to me to be the root cause of things like a general anti-labor sentiment, minimum wages as low as $2.13/hour, etc.
- deleted 7y ago
  [deleted]
- lazyguy2 7y ago
  It's entirely possible for a wage earner to become a millionaire in the USA. Anybody with a middle class income can do it. It's not even complicated or hard to figure out. The problem is that it requires discipline and living under your means. The first step is to eliminate debt and don't make stupid purchases. Debt includes credit card, personal loans, car loans, and mortgages. Stupid purchases are things like expensive vacations, eating from restaurants all the time, or buying new cars, or buying boats. That sort of thing. Pretty much: if you buy a brand new car you are a moron if your goal is to increase wealth. You want to do things include living in inexpensive neighborhoods, having secondary sources of income, having no adult 'children' and so on and so forth. Woe is to parents that are still paying for their 20-somethings. If you go drive around your city and you want to see were "middle-class millionaires" live you need to avoid the 'wealthy' neighborhoods. Look for the 50-something living in a older neighborhood driving older economy cars around. These people are going to have very low credit scores, as well. The best of them are going to have a credit score of 0, which means no credit history for several years. Do you calculate the cost of purchases by how many payments can afford in a month? If so you are doing it wrong. Instead you should only ever pay cash. If you don't have money in the bank to pay for it you can't afford it. The S&P 500 has, historically, provided a 12% return over average 20 year period. If you start off at age 30 and invest 500 dollars a month at that rate it would take you about 26 years to make your first million dollars. 6 years after that would be your 2 million dollar mark. 3 years later would be your 3 million dollar mark. By retirement you would have just under 4 million dollars. If you make $50k dollars a year then that amounts to about 12% of your income. You think that is too hard? The average car payment in the USA is at $550. The average credit card debt is $4,717. At 15% interest and doing minimum payments at $189 that card is going to take 10 years to pay off and $22,869 in total. That means that for every 1 dollar you spend the bank makes 4. If you can afford to make banks rich you can afford to make yourself rich. Just can't do both at the same time.
jackcosgrove 7y ago
Another positive aspect of gradually ramping up spending is that you slowly and safely learn how to use money. Your behaviors have to be calibrated to your income and wealth to avoid wasting money. Although the person overspending is probably using credit or living paycheck to paycheck, there is the rarer but more acute problem of windfalls. If you receive a windfall without previously having experience with money, there's a good chance you will fritter the windfall away. A common way this happens is when professional athletes overpay for a mansion after signing a contract. Five or so years later the mansion is sold for a huge loss or sits on the market for years with an unrealistic selling price.
nathanbarry 7y ago
If you're interested in more of a discussion on _how_ to increase wealth I wrote a 5,000+ word post on it a few weeks ago called "The Ladders of Wealth Creation". https://nathanbarry.com/wealth-creation/ https://nathanbarry.com/wealth-creation/
yboris 7y ago
I highly encourage people in developed nations to become philanthropic as soon as they cross their country's poverty line. Giving to cost-effective charities can do tremendously more good for others, way more than you can do for yourself. I currently give at least 10% of my income but my aim is to get back to giving 50% again. Join others who give at least 10% https://www.givingwhatwecan.org/ https://www.givingwhatwecan.org/
- hk__2 7y ago
  > Join others who give at least 10% https://www.givingwhatwecan.org/ https://www.givingwhatwecan.org/ You should disclose your affiliation with this website.
  - yboris 7y ago
    Sorry -- was thought it would be obvious that I've taken the pledge Giving What We Can recommends. I'm not quite sure why it matters whether I've taken the pledge or not though. Could you elaborate why I should disclose this explicitly? Also disclosing affiliation seems sensible if I'm promoting a product and I'm going to benefit from others purchasing it. Here I'd be thrilled for more people to join in, but this is akin to telling others about an opportunity to volunteer. Are you thinking there's some conflict of interest? I'm really curious -- thank you for your time.
    - hk__2 7y ago
      > Sorry -- was thought it would be obvious that I've taken the pledge Giving What We Can recommends. The way you wrote the sentence really looked like a product promotion, especially to someone (most of us?) who doesn’t know GWWC. Based on your response I don’t think there’s a conflict of interest, but I needed your clarification in order to think that.
hk__2 7y ago
I feel like education has an important role in this perception, too. I grew up in an environment with $10-$100 problems, and now I still compare the prices of what I buy in the $1-5 range, even if spending $400 on a gift once a month wouldn’t significantly alter my finances. This is some sort of conditioning where you _feel_ like being at some level while in fact being above it.
ben7799 7y ago
I think this kind of article is helpful. The thing I notice most is a lot of people buy cars (and replace them frequently) that are way above their "level" and represent hugely irresponsible decisions. E.x. you should be way into 7 figures of wealth accumulation before you start leasing/buying $50-70k luxury cars. You never know what someone's stock portfolio/401k/IRA whatever looks like but it's always an eyebrow-raiser for me to see someone drive up in an expensive car and then they later tell you they pay rent and have never bought property and the longer you talk to them the more you realize they're probably living paycheck to paycheck.. just with a relatively large paycheck that disappears nearly completely. Especially when the trendy area to rent gets you a small studio or 1BR apartment for $2.5-3.5k/month and that's enough to pay the mortgage on a $1M property within 10 miles of said apartment.
- greedo 7y ago
  A mortgage for a $1M property is roughly $4-$5k depending on credit etc etc.
  - jdashg 7y ago
    $5100 for $1M borrowed (a low) 3%, excluding down payment, property taxes, and likely PMI, given how onerous saving 20% of seven figures is.
    - hultner 7y ago
      Is the interest rate that high in the US? If you negotiate with a couple of banks in Sweden you can easily get sub 1% (0.79% is what I seem to be able to get). Heck I just checked my bank and I can even get a line of credit up to 1M SEK at 1.74% for up to 50% of my portfolio without any property as security.
      - shantly 7y ago
        Checking, I'm seeing rates approaching 4% for 30-year mortgages here (the US), down to 3.5% for a 15-year, which squares with what's been more-or-less the norm for a while, so is probably about right. 1% on a mortgage would... not be normal here.
maire 7y ago
So the funny thing is this article is the exact opposite of the two most influential financial books in my life: "The Millionaire Next Door" and "Rich Dad Poor Dad". The true wealthy don't ever think of spending money as if it isn't important. Instead they distinguish between spending on income generation vs spending on luxury. They only spend on luxury intentionally but will spend on income generation freely. In other words, if someone is frivolously spending their money on luxuries they are very definitely not wealthy. They only want to appear wealthy. The true wealthy really don't look wealthy. They never really leave level 1 on the chart.
- namdnay 7y ago
  I would steer clear of the bullshit peddled by Kiyosaki... https://www.johntreed.com/blogs/john-t-reed-s-real-estate-investment-blog/61651011-john-t-reeds-analysis-of-robert-t-kiyosakis-book-rich-dad-poor-dad-part-1 https://www.johntreed.com/blogs/john-t-reed-s-real-estate-in... It's exactly this kind of get-rich-quick crap (that always seems to revolve around heavily leveraged real estate) that was one of the causes of 2008
  - martokus 7y ago
    +1. When I was young and naive I used to praise Kiyosaki. Later experience taught me he's just a charlatan getting rich by teaching others how to get rich.
  - maire 7y ago
    In general I agree with you. I hesitated to bring Kiyosaki up because of his later activities. I never highly leveraged anything. The first book never mentioned this. But it did get me to invest in income real estate. I have been glad of that. I never read his later books because they didn't pass the smell test. I also liked the Rat Race game. I used to play it with the kids. One thing he had you do is pick a goal of what you wanted to do when you retired. I always picked saving a forest and my daughter always picked a small farm. We compared notes recently and realized that we have both reached our goals.
anirudhrx 7y ago
> Lastly, you might argue that you shouldn’t increase your consumption with your net worth, but I would counter that some lifestyle creep can be highly rewarding in terms of maximizing your leisure time and long-term life satisfaction. I don't agree with this. I think life satisfaction is a function of what you think you need rather than what you really need. Changing that perspective can create as much contentment with existing resources as increasing consumption. For example - no one misses what they never knew they could have. Very few people come up with a _necessity_ for a private jet from first principles.
lordnacho 7y ago
Problem is that while there's a limit to how much you can spend on (I guess student, not mortgage) debt, groceries, and restaurants, the amount you can spend on holidays, houses and philanthropy vary on a much larger scales. You can go on a holiday flight to another country for a few hundred dollars. Or you can rent a private jet to tour the world, staying at a 5-star hotel each place. That could easily be the difference between a 3 figure price and a 6 figure price. Houses, you can get them for a few annual average salaries, or a few hundred. Depends on where you want to live. And donations can vary as much as you like, a dollar or 100M. For software devs, I would think the real ladder is not whether you can buy the groceries you want. My guess is most of us in the West can buy the truffles every week if we really felt like it, and likewise with restaurants. What you perhaps want to consider is whether you have the resources to not work for a while, whether to educate yourself, travel, or do your own startup. This comes down to the opportunity cost of lost income being worthwhile to do those things.
howeyc 7y ago
The part at the end about his new millionaire friend not having a much different life is what I think about quite a bit. Until you reach "buy my own plane without worrying too much about cost" levels of wealth your life is pretty much like everyone else... You likely: * commute to work every day * work 8+ hours per day * spend weekend hours doing choirs (laundry, grocery shopping, etc) Sure the size and comfort (of house, car, food, etc) may vary, but you have a similar day-to-day life as a waiter, just the job and numbers are different.
- mLuby 7y ago
  Generally agreed. The major difference is whether someone has a regular work schedule or not. You don't have to be a millionaire to not work, nor are most millionaires on perpetual vacation. Nit-pick: There are plenty of cultures where barely middle-class families hire others to do their chores.
seibelj 7y ago
I don't care how much money I make - I shop at the cheap grocery store, pay attention to restaurant prices, look for deals, don't waste money. This is a good lifestyle no matter how much you make. It's called being frugal.
moralestapia 7y ago
I hate being negative but this article, despite its good intent, just tries to force some very shallow abstractions to the point where it's ridiculous ... On the first example of levels, it's funny that 'guys that can eat where they want' are on the same level (3) as 'billionaries'. Then goes on with the very old (and wrong) belief that for a high net worth individual 50K is chump change and equivalent to a normal guy throwing away a dollar ... Then the "improved" levels do not really make sense as levels: travel freedom can be much more than expensive than house freedom, for sure!; also, one could engage in a philantrophic cause without belonging at the absolute peak of wealth. Another one is how at the highest level in his chart, he uses the expression "What are prices?", implying that people at the highest bracket just do not look at price tags anymore. Honestly, plenty of rich people live fairly frugal lives, while on the other end plenty of people at the bottom spend in a lot of things without thinking twice about the cost and its impact on their lives. And then there is no advice on how to actually climb such arbitrarily defined ladder ...
beamatronic 7y ago
So...a couple of these posts are about climbing the income ladder. If you want to climb the wealth ladder here’s my advice. Buy a single-family home, in an area with good schools, that you can afford with a 30 year fixed mortgage. You will need 20% down, so you won’t be able to reach the “food freedom” or “travel freedom” levels as described here until your home purchase is completed. This is almost foolproof over the long term.
- yboris 7y ago
  Or consider buying a mobile home in a good community. My house was $50,000 and my rent is $600/month (I live in NJ and don't pay land taxes). The savings from not paying a mortgage or buying an expensive house means there's that much more you can put into investing for retirement (and in my case give more to cost effective charities).
slumdev 7y ago
Not a good article. There are three steps on the wealth ladder: 1. Wage slave - Most people will never leave this step, no matter how many ugly Merc SUVs they own or first-class flights they've taken. 2. FU Money - This person has enough money set aside to walk if they don't like a job or a customer. 3. F-Everyone Money - This person doesn't need to work at all.
- lioeters 7y ago
  There's also an implicit rule of the game: as you climb up each step (or are born into it), join your cohorts in making sure to kick the ladder from under you.
- analyst74 7y ago
  Yeah, I was thinking about this, my happiness didn't change much between making $10k during college versus $100k later in life, in major part due to my balooning living expenses keeping me in the wage-slave category.
thatfrenchguy 7y ago
> Level 6. Philanthropic freedom: You can give away money that has a profound impact on others. Letting the rich decide how society is organised, what a great plan.
wonderwonder 7y ago
People without a safety net who start out poor are generally going to end up poor. In another post I mentioned how its possible to save and due to the power of compound interest retire with millions on a 60k salary but that is a best case scenario. Most people don't make 60k. Also life has a funny way of stepping in. Just after you saved your first 3k, your alternator goes out or you get in a wreck. Or suddenly find out you are having a kid. Emergencies and unexpected expenses are very likely a major reason why so many people don't make it. If I have a low end salary it likely takes a year to save that 1 - 2k that is wiped out via major car repairs cost or the trip to the ER with a broken arm. Most people are on a treadmill just trying to make it and life always sends them back to the beginning.
- tonyedgecombe 7y ago
  Just after you saved your first 3k, your alternator goes out or you get in a wreck. Some people seem to have these sort of problems more often than others. I guess poverty is about a lot more than lack of money.
  - wonderwonder 7y ago
    I don't think its that, I think its more when it happens to someone who has the money to easily deal with it, you don't hear about it. About 6 months ago I had to get a new alternator and brakes, total cost was ~2,800 as my car was past warranty. I just paid it, got the dealership rental car for a day ($50 per day) and went about my life. If I did not have the money, they same thing would have happened but I would not have been able to get it fixed and would have had to desperately reach out to people hoping to borrow money. If I happened to have just enough to fix the alternator, I would have had to drive around on very worn brakes potentially leading to an accident in the future, putting me back at square one. I would have had no choice though as I would not be able to afford not going to work. Not to mention I would not have been able to afford the rental meaning I would have had to spend the whole day at the dealership, missing a day of work and probably that pay. It is very expensive to be poor.
  - shantly 7y ago
    Poor people with shitty, cheap, old cars have these problems more than others. Because they're poor.
vd84 7y ago
The game changer is: Move to a country where US dollar goes a long long way. Like Tim Ferris said: What would you do if you had a million dollars right now? Most people don't know. The tragedy is most people don't have any passion. All they do is keep calculating their net worth day in and day out. Happiness is not eating some expensive meal. It is continually growing and having some fun. Most things that are enjoyable aren't that expensive. You can go snowboarding at whistler even if you don't have a lot of money. You don't need to own a house there, just get an airbnb
supernova87a 7y ago
I think you can pretty easily guess this article isn't written by anyone whose family is recently immigrants. Kids from those families don't need to be instructed on how to spend at the right level (at least in the first few stages) -- everything is about saving money! This story is probably for people whose parents have forgotten what it's like to be poor and skipped the step of instructing the kids (inadvertently, or deliberately) on what that's like.
sbochins 7y ago
I think the rules he’s using for measuring wealth are way off. It only makes sense if your goals are to work a full time job for the rest of your life. Something more meaningful would be financial independence. How long can I live comfortably without working? Do my investments still lead to net personal wealth increases without working? If so, how much?
bumbledraven 7y ago
The article's focus on viewing payments as a fraction of your net worth is related to the Kelly criterion [1], which suggests making only investments that increase the expected logarithm of your net worth. For example, say you have the chance to bet on a single flip of a biased coin that comes up heads 51% of the time. If the coin comes up heads, you win $10,000; otherwise, you lose $10,000. According to the Kelly criterion, this bet only starts to make sense once your net worth is at least $250,000 [2]. [1] https://en.wikipedia.org/wiki/Kelly_criterion https://en.wikipedia.org/wiki/Kelly_criterion [2] https://www.wolframalpha.com/input/?i=solve+0.51*ln%5Bx+%2B+1e4%5D+%2B+0.49*ln%5Bx-1e4%5D+%3E+ln+x https://www.wolframalpha.com/input/?i=solve+0.51*ln%5Bx+%2B+...
tempsy 7y ago
On the "travel freedom" category - just want to say we live in extremely unusual times when it comes to travel and there's little reason to pay out of your savings to fund travel at the present moment. In the US we've been living in the Golden Age of travel and credit card rewards for the last decade. I started churning cards in 2012 and have not paid in full for personal travel since. It's become slightly harder to churn than it used to but the sign up bonuses and earnings on cards is still at highs nonetheless. It's great because I'm not a materialistic person and don't spend much on physical goods anyway, and to get my travel mostly paid for means I haven't had to spend my own money despite being in the "travel freedom" step of the equation.
- deleted 7y ago
  [deleted]
- shantly 7y ago
  Something I've wondered about this: doesn't opening & closing tons of lines of credit fuck with your credit rating? Or do you just leave them open until/unless the issuer decides to close the (unused) account, leaving you more crap to have to watch for fraud & such?
  - tempsy 7y ago
    It does a tiny bit but it's not a huge weight in the credit scoring equation and has very little long term effect. I've maintained a ~750+ score for a long time despite opening 5-6 cards/year on average. I wouldn't do it if I were in the market to buy a new house in the next ~12 months but otherwise a small temporary dip in your credit score has literally zero impact on your life.
issa 7y ago
In these conversations it is important to remember that the median US income is somewhere around $40k per year. Conversations like this should serve to remind us that the US system is deeply broken. There is no reason we couldn't have a system where everyone could live comfortably. People making an easy six figures talking about how poor people should scrimp and save is ridiculous.
nathan_compton 7y ago
No one should be allowed to reach "what are prices?" People who are there already should be taxed back down into the "I care about prices again" range within a few generations.
timwaagh 7y ago
"Consider carefully whether the extra step is worth it". This is what I'm wondering about everyday /s
npip99 7y ago
I mean if you have $100k in wealth you absolutely have travel freedom. Backpacking in Europe is a common experience so it's pretty cheap and the rest of the countries have crazy USD conversion rates. $100k could be a lifetime's worth of money in a non-western country. You can still find lodging in Ukraine for like $4/day.
BrandoElFollito 7y ago
Nice, I used to say that I feel comfortable when I choose my yogurt and do not look at the price. I realize that I am objectively much higher on the wealth axis today, but this is what I tell my children. Live without needing much and do not worry if what you really want is 500€ more expensive. I like this chart because it also tells that some people can be happy by buying the 15€ fast lane at the airport (this is what we did with my wife, the kids queued up). Or getting the 500€ more expensive version of vacation to have more space.

259 points by razin 7y ago

eppp 7y ago

I'm not sure exactly what the article is trying to accomplish but it does feel in about the right ballpark for the levels. I don't think I'll ever get to the vacation one but simply paying last debt off really took a lot of weight off. Sure borrowing at low interest makes math sense but having a paid off house just feels good.

esotericn 7y ago
I'm not so sure, personally. The six levels: Level 1. Paycheck-to-paycheck: You are conscious of every dollar you spend. This includes people with crippling debt. Level 2. Grocery freedom: How much specific grocery items cost don’t impact your finances. Level 3. Restaurant freedom: You eat what you want at restaurants regardless of the cost. Level 4. Travel freedom: You travel when you want, how you want, and stay where you want. Level 5. House freedom: You can afford your dream home. Level 6. Philanthropic freedom: You can give away money that has a profound impact on others. I personally would say 4, 5, and 6 are in the wrong order entirely. I give away money that has a profound impact on others (so I'm at #6). But I can't afford my 'dream home' (#5) (I'm within an order of magnitude, I suppose). And #4 doesn't even interest me (I actively don't _want_ to have a private jet or whatever). I can take a holiday pretty much whenever I want, if that's what it's getting at? I think very few people actually travel "how they want". I think this is based on a very narrow, 'hollywood star' style of lifestyle. You don't need to be stupidly rich to give 10% of your income or to take a sabbatical from work.
- eightysixfour 7y ago
  > And #4 doesn't even interest me (I actively don't _want_ to have a private jet or whatever). I don't believe his intent was "private jet" it was "you can pick first class without concern and you don't have to look at the hotel/rental home prices."
  - esotericn 7y ago
    That doesn't change my point. House freedom is way below that. There's an inbuilt assumption that you desire extravagance, which inevitably places philanthropy last. My point is that it's a choice.
- Kirby64 7y ago
  I think you're overthinking this. The article examples maybe aren't descriptive enough. #4 would mean I don't price shop Airbnb, hotels, and plane tickets so much. Or maybe I just take first class everywhere. Either way, you're talking spending amounts in the $10k+ range. #5 means you can buy whatever size house you want within limits. That's more a $1M+ decision (although, amortized out long term) #6 means Bill Gates level philanthropy. Not saying whatever donations you're giving away aren't meaningful, but I doubt you're getting wings in hospitals named after you.
  - hirako2000 7y ago
    That's why we don't call small donations acts as philanthropy. It surprises me how philanthropic individuals are sold as benefactors who are a solution to solving problems linked to lack of resources, for those in needs around the world. I think it rather servers themselves instead, an effective PR routine that comes with decent guilt therapy. It's one of those things like "expat" sounding all so good compared to those job stealing "immigrants". Maybe we should all give a portion of our monetary power to those in needs, displacing what we would normally give to Unilever-like producers. It would skip the inefficient intermediary.. I digress.. The scale ain't right, but the idea is spot on.
  - esotericn 7y ago
    No, they're dependent on preferences in what you want. Your preferences differ from mine here. Either that, or you're assuming that the reasonable benchmark for comparison is close to the absolute most expensive example within a specific sector, which doesn't really match how I spend money. Thinking about it more, I'd probably say I even hit #4 before #3. Why? a) I don't really care that much about eating out, so despite being able to theoretically afford "Super Fancy Meals" I still think about it because I could just give someone else that money instead. b) First class flights and fancy hotels I find ridiculous, they don't factor into my purchasing decisions. I far prefer a cabin in the woods or going hiking or something like that to some constructed notion of luxury. I'd sooner give $10k to charity before I take a first class flight - in fact I'm on track to do that this year, and hope to increase it. If you don't count anything below $millions as being philanthropic then of course you've defined level 6 as being the top, that doesn't make sense to me.
- jetpackjoe 7y ago
  I think the labels are not very helpful, but tying each level to 0.01% of an individuals net worth is. For example, I still don't flinch at paying 1 or 2 dollars more for items at the grocery store, but I do for paying 10-20 dollars more for items at a restaurant. "Travel" can mean grey hounds and motels, or first-class flights and luxury hotels. Philanthropy can be donating $100,000 or giving a buck to a guy on the street. The key take away from the article, at least for me, is how much you flinch at extra costs, and that being about 0.01% of what you have in the bank.
  - esotericn 7y ago
    I agree with the concept of the levels, I disagree with the ordering - particularly the final one, because philanthropy is something that almost everyone can practice, it's an individual choice. The idea that you must first have your entire life laid out with a massive house and first class flights and stuff before you start helping others is deeply wrong IMO.
    - svachalek 7y ago
      I think it boils down to the definition of "philanthropy", to a lot of people (self included) that's something billionaires do, the rest of us can try "charity". Kind of like the old saw about only the poor are "crazy", with enough money you become "eccentric".
3dprintscanner 7y ago
It's taking the approach that the best way of gaining wealth is to convert earned income into unearned (passive) income over time. That once the basic necessities are covered the bulk of your nontrivial expenditure should really be investments and that your elective consumption should be pegged to some nominally small percentage of your overall wealth. I think this has to come from a place of having something to fall back on at a certain level of wealth, you can take the risk on those investments if the downside wouldn't be any worse than losing your current 'level' of wealth.
hirako2000 7y ago
It tries to tell the bottom 99% how very wealthy people think, and how people think in between and perhaps whats important to do to getting there, and stay there. What I see with most people around me,who stand at a low level: - spend most if not all or even more than what they can afford. - far more obsessed with getting more money than adapting their expenses. Of course they have no clue how to make more money, so they don't end up financially happy at all. I think it's a great article as it put things rather simply.

clktmr 7y ago

The article completely ignores the last and most important level of wealth, which is being financial independent. Being able to pay for rent, food, healthcare etc. for the rest of your life without the need of a day job will probably have the biggest impact on your life.

Kirby64 7y ago
That's completely tangential to this article though. It depends on what your definition of that is, and some people handle it better than others. You see those people retiring on 500k (for a couple) and living in a van or something at one extreme. Then there's folks making 500k+/yr and somehow manage to spend most of it without saving any of it. Independence is a state of mind, not a dollar amount.
- clktmr 7y ago
  > Independence is a state of mind, not a dollar amount. This is only true if you have no debt. Even in your low-end example you need a net worth of 250k, which is a non trivial amount of money for most people. And I would still call it naive, it's just not enough. Financial independence to me is, having other assets than your time which will pay for your most basic needs. Living in a van probably means doing a lot of stuff by yourself, which requires a lot of time.
  - Kirby64 7y ago
    Sure, there's a dollar amount where you literally could not live. There's even more nutso people who talk about living on $100k by retiring to some foreign country where cost of living is absurdly low, though. I don't think those people (or the 250k van people) are realistic, since obviously there's longer term problems (i.e. vans aren't going to be great for someone who is old). I would disagree with your financial independence definition though. Basic needs threshold is much lower than 'comfortable' living. The traditional definition of financial independence is not having to work if you don't want to. What that looks like (the sacrifices you make) depends on the person. Maybe to be financially independent you are cool with a $500/mo apartment and Ramen... or maybe that means a mansion and a bunch of supercars. Either way, if you're dependent on a job or someone else, you aren't financially independent.

nimbius 7y ago

im presently reading Paul Fussells "Class" and this is a fascinating take on the idea in the age of wage stagnation. >the best way to climb the wealth ladder is to spend money according to your level. This is directly contradictory to, and detrimental to, how the US Economy expects its consumers to act. Credit has largely filled the gap of wages and productivity such that consumers now have no real sense of their level of real wealth, only that which is projected by their ostensible plastic card based opulence. The authors capstone to the article declares paradoxically at the end, "there is a lot more to life than saving money." so I suppose the siren call of conspicuous consumption remains a cornerstone of their life as well. id also cynically argue that level 6, philanthropy, has less to do with having a profound impact on the world around you and more to do with dynasticism and displacement of the state as an agent of change or agency in society. people at this level of wealth have a need to extend their name to objects of gravity an institutions of permanence and prestige. They are so far removed from the society as a whole that any perceived generosity in the pursuit of a just and verdant society is merely a facade for tax evasion and self grandeur. They realize no meaningful other symbiosis or benefit from the society as a whole in which they are mistaken to be a part of.

jacquesm 7y ago
>>the best way to climb the wealth ladder is to spend money according to your level. I would argue that the best way to climb the wealth ladder is to spend below 'your level'. Keeping up with the Jones' who are doing their best to display their achieved status is an excellent way to end up just like they will at the end of a long life of hard work: in hock to the bank for their primary residence and with little to no savings. Spend less than you could, pay off your primary residence as fast as you can, re-invest whatever you make after that in real estate and the stock market if you have an appetite for it, make your money work for you. Simple rules, nothing flashy and at the rate a typical IT worker can make money it won't be all that long before you will have a nest egg that you can retire on, provided you continue to control your spending.
- nradov 7y ago
  With mortgage interest rates being so low right now it hardly makes sense to pay off your primary residence. Better to have the cash available for emergencies or to take advantage of investment opportunities.

tibbon 7y ago

This is similar to how I’ve thought about money for a while. Through high school, I had dollar problems. As in, things in the $1-9 range were pretty important. Through college I had $10 problems. Early career it become $100 problems. Now anything under $1000 just doesn’t strike me as an issue. New hot water heater? Just go buy it. $10k things however are what feel like real issues now- new roof? I can do it, but’s it’s gonna put some hurt on for a while if I didn’t see it coming. $100k problems (if I didn’t have insurance and had a major health problem) would crush me like a $1000 problem would when I was 18.

throwawayhhakdl 7y ago
I agree with this. Although I don’t think I’m exposed to anything over $1k as a potential risk as I don’t own a car or a home, short of a lawsuit I suppose. I feel very wealthy, though in the scheme of things I am not.
Retric 7y ago
I agree, what’s useful about this mentality is not about becoming a multimillionaire, it’s about having your wealth match your income. A doctor making 250k is often living pay check to pay check while spending crazy money. Even with a steady paycheck their not accumulating wealth. Even worse, a football player with a 20million dollar contract is likely to end up broke if they instantly maximize their spending. However, if their lifestyle is based on their savings account that’s going to quickly grow to match that income.
- bronco21016 7y ago
  It bothers me when people use the phrase living paycheck to paycheck to describe both someone who literally doesn’t make enough money to cover the essential bills of living as well as someone making $200k+. These people are not in the same boat whatsoever. The doctor, or any professional making that much, simply needs to turn in the lease on the luxury car, or downsize their house, or cancel their vacation to materially change their financial circumstance. A person truly living paycheck to paycheck has to choose between eating or paying rent and there’s no luxury car to sell or turn in to free up cash flow to make that decision easier. They are very much resource constrained. This isn’t to say I don’t believe there are professionals in this boat. I just believe we need a different term for it as it’s not fair to lump these two very separate groups into the same definition. Perhaps describing them as living beyond their means.

disintegore 7y ago

I understand this isn't the point of the article, but it seems like a roundabout way of saying "don't overspend". This part in particular bothers me : > More importantly though, the best way to climb the wealth ladder is to spend money according to your level. As far as I (a non-economist) can personally tell, any notion of climbing up some abstract wealth ladder is synonym with a salary increase for the vast majority of people. Other methods, whether they involve quantity of free time or already-available money, are intrinsically tied to the quality of your job or, failing that, the quality of your parents' or partner's jobs. Personal net worth, while definitely an important factor in this equation, is far less so than income in my opinion. A fiscally irresponsibly professional worker living from paycheck to paycheck has "grocery freedom" while a person with 10,000$ of accumulated wealth and no income whatsoever (let's say they are between jobs) is far more likely to buy the store brand margarine. Similarly, the former will most likely not achieve "travel freedom" without decades of hard work, of careful spending, of saving, investing, etc. Simply put, no amount of "not carelessly booking flights" will turn you into Jay-Z, let alone into that small business owner across the street with the McMansion and the gaudy Christmas decorations. The undisputed "best way" to climb the wealth ladder is to receive large amounts of cash from some external source.

baking 7y ago
This obviously depends on your age and the reliability of your income.
hirako2000 7y ago
I would concur. However, spending wisely needs coupled with higher income. That's what most people don't apply. Save 10% or more of your income at all times, see your revenue continously increasing, even if not tremendously, and in matter of a few years you can start investing (housing, business, whatever) See yourself spending near all you get, even getting significant income increases and you get stuck into a loop of ever spending more. Its also very risky, as if that incomes downfalls, it can easily cost you all the small stupidly useless property you already have. I think the idea is to control your spending and find ways to increase income. I bet jayz continuously did that or he would have ended up like many other stars who lost it all. Or maybe just luck/talent..

baking 7y ago

I have a problem tying wealth to consumption. I always look at menu prices but I'm a lot better off financially than many people who don't seem to care how much they spend. Maybe because I do look at menu prices. Other than that, this is basically a base 10 view of wealth. Each zero matters as much to you as the last one. Under that theory, Bloomberg is to me as I am to someone living paycheck to paycheck, but I feel much closer to the person living paycheck to paycheck.

TravHatesMe 7y ago
I agree. This article does not mention that your life and upbringing play a major role on how you think about money. I know many folks that are well off but they are still frugal. They care about the cost of groceries, the cost of restaurants, etc. They don't need to but they choose to. They lived the majority of their lives without this kind of comfort -- some behavior cannot be changed when it is learned and repeated over time. The value of money has become a part of their values. I admire it to a certain extent. Even if they win the lotto they would probably donate most to a good cause and continue to nickel and dime.

markvdb 7y ago

The 0.01% of liquid net worth concept is useful. The rest of the article is not very useful. The higher one's liquid net worth, the more differences in priorities and consumption patterns.

Pfhreak 7y ago

I'm really not a fan of this breakdown because it seems to put each order of magnitude increase in liquid net worth as equal space on the graph. What percentage of people fall into each level. Maybe 50-60% of American adults fall into level 1? Surely, most folks will never reach Level 3 on this chart. While this is an interesting way for someone who has made significant increases in their income over the years, I don't think the thesis holds that the best way to increase your ladder is to just save money. We're all (or mostly all) wage earners here. Whether you are making $15/hour at a fast food gig, or $200+/hour as an engineer, you aren't going to save yourself into a new level. Saving might take some pressure off, and make you a little more comfortable within your level, sure, but for most people, it isn't reasonable for them to save 10 times the money they already have liquid without changing their income. The idea that we're all just a few 'steps' away from being independently wealthy is one of the worst parts of American culture in my experience. The individualism that follows from "if I can just outcompete someone else" seems to me to be the root cause of things like a general anti-labor sentiment, minimum wages as low as $2.13/hour, etc.

deleted 7y ago
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lazyguy2 7y ago
It's entirely possible for a wage earner to become a millionaire in the USA. Anybody with a middle class income can do it. It's not even complicated or hard to figure out. The problem is that it requires discipline and living under your means. The first step is to eliminate debt and don't make stupid purchases. Debt includes credit card, personal loans, car loans, and mortgages. Stupid purchases are things like expensive vacations, eating from restaurants all the time, or buying new cars, or buying boats. That sort of thing. Pretty much: if you buy a brand new car you are a moron if your goal is to increase wealth. You want to do things include living in inexpensive neighborhoods, having secondary sources of income, having no adult 'children' and so on and so forth. Woe is to parents that are still paying for their 20-somethings. If you go drive around your city and you want to see were "middle-class millionaires" live you need to avoid the 'wealthy' neighborhoods. Look for the 50-something living in a older neighborhood driving older economy cars around. These people are going to have very low credit scores, as well. The best of them are going to have a credit score of 0, which means no credit history for several years. Do you calculate the cost of purchases by how many payments can afford in a month? If so you are doing it wrong. Instead you should only ever pay cash. If you don't have money in the bank to pay for it you can't afford it. The S&P 500 has, historically, provided a 12% return over average 20 year period. If you start off at age 30 and invest 500 dollars a month at that rate it would take you about 26 years to make your first million dollars. 6 years after that would be your 2 million dollar mark. 3 years later would be your 3 million dollar mark. By retirement you would have just under 4 million dollars. If you make $50k dollars a year then that amounts to about 12% of your income. You think that is too hard? The average car payment in the USA is at $550. The average credit card debt is $4,717. At 15% interest and doing minimum payments at $189 that card is going to take 10 years to pay off and $22,869 in total. That means that for every 1 dollar you spend the bank makes 4. If you can afford to make banks rich you can afford to make yourself rich. Just can't do both at the same time.

jackcosgrove 7y ago

Another positive aspect of gradually ramping up spending is that you slowly and safely learn how to use money. Your behaviors have to be calibrated to your income and wealth to avoid wasting money. Although the person overspending is probably using credit or living paycheck to paycheck, there is the rarer but more acute problem of windfalls. If you receive a windfall without previously having experience with money, there's a good chance you will fritter the windfall away. A common way this happens is when professional athletes overpay for a mansion after signing a contract. Five or so years later the mansion is sold for a huge loss or sits on the market for years with an unrealistic selling price.

nathanbarry 7y ago

If you're interested in more of a discussion on _how_ to increase wealth I wrote a 5,000+ word post on it a few weeks ago called "The Ladders of Wealth Creation". https://nathanbarry.com/wealth-creation/ https://nathanbarry.com/wealth-creation/

yboris 7y ago

I highly encourage people in developed nations to become philanthropic as soon as they cross their country's poverty line. Giving to cost-effective charities can do tremendously more good for others, way more than you can do for yourself. I currently give at least 10% of my income but my aim is to get back to giving 50% again. Join others who give at least 10% https://www.givingwhatwecan.org/ https://www.givingwhatwecan.org/

hk__2 7y ago
> Join others who give at least 10% https://www.givingwhatwecan.org/ https://www.givingwhatwecan.org/ You should disclose your affiliation with this website.
- yboris 7y ago
  Sorry -- was thought it would be obvious that I've taken the pledge Giving What We Can recommends. I'm not quite sure why it matters whether I've taken the pledge or not though. Could you elaborate why I should disclose this explicitly? Also disclosing affiliation seems sensible if I'm promoting a product and I'm going to benefit from others purchasing it. Here I'd be thrilled for more people to join in, but this is akin to telling others about an opportunity to volunteer. Are you thinking there's some conflict of interest? I'm really curious -- thank you for your time.
  - hk__2 7y ago
    > Sorry -- was thought it would be obvious that I've taken the pledge Giving What We Can recommends. The way you wrote the sentence really looked like a product promotion, especially to someone (most of us?) who doesn’t know GWWC. Based on your response I don’t think there’s a conflict of interest, but I needed your clarification in order to think that.

hk__2 7y ago

I feel like education has an important role in this perception, too. I grew up in an environment with $10-$100 problems, and now I still compare the prices of what I buy in the $1-5 range, even if spending $400 on a gift once a month wouldn’t significantly alter my finances. This is some sort of conditioning where you _feel_ like being at some level while in fact being above it.

ben7799 7y ago

I think this kind of article is helpful. The thing I notice most is a lot of people buy cars (and replace them frequently) that are way above their "level" and represent hugely irresponsible decisions. E.x. you should be way into 7 figures of wealth accumulation before you start leasing/buying $50-70k luxury cars. You never know what someone's stock portfolio/401k/IRA whatever looks like but it's always an eyebrow-raiser for me to see someone drive up in an expensive car and then they later tell you they pay rent and have never bought property and the longer you talk to them the more you realize they're probably living paycheck to paycheck.. just with a relatively large paycheck that disappears nearly completely. Especially when the trendy area to rent gets you a small studio or 1BR apartment for $2.5-3.5k/month and that's enough to pay the mortgage on a $1M property within 10 miles of said apartment.

greedo 7y ago
A mortgage for a $1M property is roughly $4-$5k depending on credit etc etc.
- jdashg 7y ago
  $5100 for $1M borrowed (a low) 3%, excluding down payment, property taxes, and likely PMI, given how onerous saving 20% of seven figures is.
  - hultner 7y ago
    Is the interest rate that high in the US? If you negotiate with a couple of banks in Sweden you can easily get sub 1% (0.79% is what I seem to be able to get). Heck I just checked my bank and I can even get a line of credit up to 1M SEK at 1.74% for up to 50% of my portfolio without any property as security.
    - shantly 7y ago
      Checking, I'm seeing rates approaching 4% for 30-year mortgages here (the US), down to 3.5% for a 15-year, which squares with what's been more-or-less the norm for a while, so is probably about right. 1% on a mortgage would... not be normal here.

maire 7y ago

So the funny thing is this article is the exact opposite of the two most influential financial books in my life: "The Millionaire Next Door" and "Rich Dad Poor Dad". The true wealthy don't ever think of spending money as if it isn't important. Instead they distinguish between spending on income generation vs spending on luxury. They only spend on luxury intentionally but will spend on income generation freely. In other words, if someone is frivolously spending their money on luxuries they are very definitely not wealthy. They only want to appear wealthy. The true wealthy really don't look wealthy. They never really leave level 1 on the chart.

namdnay 7y ago
I would steer clear of the bullshit peddled by Kiyosaki... https://www.johntreed.com/blogs/john-t-reed-s-real-estate-investment-blog/61651011-john-t-reeds-analysis-of-robert-t-kiyosakis-book-rich-dad-poor-dad-part-1 https://www.johntreed.com/blogs/john-t-reed-s-real-estate-in... It's exactly this kind of get-rich-quick crap (that always seems to revolve around heavily leveraged real estate) that was one of the causes of 2008
- martokus 7y ago
  +1. When I was young and naive I used to praise Kiyosaki. Later experience taught me he's just a charlatan getting rich by teaching others how to get rich.
- maire 7y ago
  In general I agree with you. I hesitated to bring Kiyosaki up because of his later activities. I never highly leveraged anything. The first book never mentioned this. But it did get me to invest in income real estate. I have been glad of that. I never read his later books because they didn't pass the smell test. I also liked the Rat Race game. I used to play it with the kids. One thing he had you do is pick a goal of what you wanted to do when you retired. I always picked saving a forest and my daughter always picked a small farm. We compared notes recently and realized that we have both reached our goals.

anirudhrx 7y ago

> Lastly, you might argue that you shouldn’t increase your consumption with your net worth, but I would counter that some lifestyle creep can be highly rewarding in terms of maximizing your leisure time and long-term life satisfaction. I don't agree with this. I think life satisfaction is a function of what you think you need rather than what you really need. Changing that perspective can create as much contentment with existing resources as increasing consumption. For example - no one misses what they never knew they could have. Very few people come up with a _necessity_ for a private jet from first principles.

lordnacho 7y ago

Problem is that while there's a limit to how much you can spend on (I guess student, not mortgage) debt, groceries, and restaurants, the amount you can spend on holidays, houses and philanthropy vary on a much larger scales. You can go on a holiday flight to another country for a few hundred dollars. Or you can rent a private jet to tour the world, staying at a 5-star hotel each place. That could easily be the difference between a 3 figure price and a 6 figure price. Houses, you can get them for a few annual average salaries, or a few hundred. Depends on where you want to live. And donations can vary as much as you like, a dollar or 100M. For software devs, I would think the real ladder is not whether you can buy the groceries you want. My guess is most of us in the West can buy the truffles every week if we really felt like it, and likewise with restaurants. What you perhaps want to consider is whether you have the resources to not work for a while, whether to educate yourself, travel, or do your own startup. This comes down to the opportunity cost of lost income being worthwhile to do those things.

howeyc 7y ago

The part at the end about his new millionaire friend not having a much different life is what I think about quite a bit. Until you reach "buy my own plane without worrying too much about cost" levels of wealth your life is pretty much like everyone else... You likely: * commute to work every day * work 8+ hours per day * spend weekend hours doing choirs (laundry, grocery shopping, etc) Sure the size and comfort (of house, car, food, etc) may vary, but you have a similar day-to-day life as a waiter, just the job and numbers are different.

mLuby 7y ago
Generally agreed. The major difference is whether someone has a regular work schedule or not. You don't have to be a millionaire to not work, nor are most millionaires on perpetual vacation. Nit-pick: There are plenty of cultures where barely middle-class families hire others to do their chores.

seibelj 7y ago

I don't care how much money I make - I shop at the cheap grocery store, pay attention to restaurant prices, look for deals, don't waste money. This is a good lifestyle no matter how much you make. It's called being frugal.

moralestapia 7y ago

I hate being negative but this article, despite its good intent, just tries to force some very shallow abstractions to the point where it's ridiculous ... On the first example of levels, it's funny that 'guys that can eat where they want' are on the same level (3) as 'billionaries'. Then goes on with the very old (and wrong) belief that for a high net worth individual 50K is chump change and equivalent to a normal guy throwing away a dollar ... Then the "improved" levels do not really make sense as levels: travel freedom can be much more than expensive than house freedom, for sure!; also, one could engage in a philantrophic cause without belonging at the absolute peak of wealth. Another one is how at the highest level in his chart, he uses the expression "What are prices?", implying that people at the highest bracket just do not look at price tags anymore. Honestly, plenty of rich people live fairly frugal lives, while on the other end plenty of people at the bottom spend in a lot of things without thinking twice about the cost and its impact on their lives. And then there is no advice on how to actually climb such arbitrarily defined ladder ...

beamatronic 7y ago

So...a couple of these posts are about climbing the income ladder. If you want to climb the wealth ladder here’s my advice. Buy a single-family home, in an area with good schools, that you can afford with a 30 year fixed mortgage. You will need 20% down, so you won’t be able to reach the “food freedom” or “travel freedom” levels as described here until your home purchase is completed. This is almost foolproof over the long term.

yboris 7y ago
Or consider buying a mobile home in a good community. My house was $50,000 and my rent is $600/month (I live in NJ and don't pay land taxes). The savings from not paying a mortgage or buying an expensive house means there's that much more you can put into investing for retirement (and in my case give more to cost effective charities).

slumdev 7y ago

Not a good article. There are three steps on the wealth ladder: 1. Wage slave - Most people will never leave this step, no matter how many ugly Merc SUVs they own or first-class flights they've taken. 2. FU Money - This person has enough money set aside to walk if they don't like a job or a customer. 3. F-Everyone Money - This person doesn't need to work at all.

lioeters 7y ago
There's also an implicit rule of the game: as you climb up each step (or are born into it), join your cohorts in making sure to kick the ladder from under you.
analyst74 7y ago
Yeah, I was thinking about this, my happiness didn't change much between making $10k during college versus $100k later in life, in major part due to my balooning living expenses keeping me in the wage-slave category.

thatfrenchguy 7y ago

> Level 6. Philanthropic freedom: You can give away money that has a profound impact on others. Letting the rich decide how society is organised, what a great plan.

wonderwonder 7y ago

People without a safety net who start out poor are generally going to end up poor. In another post I mentioned how its possible to save and due to the power of compound interest retire with millions on a 60k salary but that is a best case scenario. Most people don't make 60k. Also life has a funny way of stepping in. Just after you saved your first 3k, your alternator goes out or you get in a wreck. Or suddenly find out you are having a kid. Emergencies and unexpected expenses are very likely a major reason why so many people don't make it. If I have a low end salary it likely takes a year to save that 1 - 2k that is wiped out via major car repairs cost or the trip to the ER with a broken arm. Most people are on a treadmill just trying to make it and life always sends them back to the beginning.

tonyedgecombe 7y ago
Just after you saved your first 3k, your alternator goes out or you get in a wreck. Some people seem to have these sort of problems more often than others. I guess poverty is about a lot more than lack of money.
- wonderwonder 7y ago
  I don't think its that, I think its more when it happens to someone who has the money to easily deal with it, you don't hear about it. About 6 months ago I had to get a new alternator and brakes, total cost was ~2,800 as my car was past warranty. I just paid it, got the dealership rental car for a day ($50 per day) and went about my life. If I did not have the money, they same thing would have happened but I would not have been able to get it fixed and would have had to desperately reach out to people hoping to borrow money. If I happened to have just enough to fix the alternator, I would have had to drive around on very worn brakes potentially leading to an accident in the future, putting me back at square one. I would have had no choice though as I would not be able to afford not going to work. Not to mention I would not have been able to afford the rental meaning I would have had to spend the whole day at the dealership, missing a day of work and probably that pay. It is very expensive to be poor.
- shantly 7y ago
  Poor people with shitty, cheap, old cars have these problems more than others. Because they're poor.

vd84 7y ago

The game changer is: Move to a country where US dollar goes a long long way. Like Tim Ferris said: What would you do if you had a million dollars right now? Most people don't know. The tragedy is most people don't have any passion. All they do is keep calculating their net worth day in and day out. Happiness is not eating some expensive meal. It is continually growing and having some fun. Most things that are enjoyable aren't that expensive. You can go snowboarding at whistler even if you don't have a lot of money. You don't need to own a house there, just get an airbnb

supernova87a 7y ago

I think you can pretty easily guess this article isn't written by anyone whose family is recently immigrants. Kids from those families don't need to be instructed on how to spend at the right level (at least in the first few stages) -- everything is about saving money! This story is probably for people whose parents have forgotten what it's like to be poor and skipped the step of instructing the kids (inadvertently, or deliberately) on what that's like.

sbochins 7y ago

I think the rules he’s using for measuring wealth are way off. It only makes sense if your goals are to work a full time job for the rest of your life. Something more meaningful would be financial independence. How long can I live comfortably without working? Do my investments still lead to net personal wealth increases without working? If so, how much?

bumbledraven 7y ago

The article's focus on viewing payments as a fraction of your net worth is related to the Kelly criterion [1], which suggests making only investments that increase the expected logarithm of your net worth. For example, say you have the chance to bet on a single flip of a biased coin that comes up heads 51% of the time. If the coin comes up heads, you win $10,000; otherwise, you lose $10,000. According to the Kelly criterion, this bet only starts to make sense once your net worth is at least $250,000 [2]. [1] https://en.wikipedia.org/wiki/Kelly_criterion https://en.wikipedia.org/wiki/Kelly_criterion [2] https://www.wolframalpha.com/input/?i=solve+0.51*ln%5Bx+%2B+1e4%5D+%2B+0.49*ln%5Bx-1e4%5D+%3E+ln+x https://www.wolframalpha.com/input/?i=solve+0.51*ln%5Bx+%2B+...

tempsy 7y ago

On the "travel freedom" category - just want to say we live in extremely unusual times when it comes to travel and there's little reason to pay out of your savings to fund travel at the present moment. In the US we've been living in the Golden Age of travel and credit card rewards for the last decade. I started churning cards in 2012 and have not paid in full for personal travel since. It's become slightly harder to churn than it used to but the sign up bonuses and earnings on cards is still at highs nonetheless. It's great because I'm not a materialistic person and don't spend much on physical goods anyway, and to get my travel mostly paid for means I haven't had to spend my own money despite being in the "travel freedom" step of the equation.

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shantly 7y ago
Something I've wondered about this: doesn't opening & closing tons of lines of credit fuck with your credit rating? Or do you just leave them open until/unless the issuer decides to close the (unused) account, leaving you more crap to have to watch for fraud & such?
- tempsy 7y ago
  It does a tiny bit but it's not a huge weight in the credit scoring equation and has very little long term effect. I've maintained a ~750+ score for a long time despite opening 5-6 cards/year on average. I wouldn't do it if I were in the market to buy a new house in the next ~12 months but otherwise a small temporary dip in your credit score has literally zero impact on your life.

issa 7y ago

In these conversations it is important to remember that the median US income is somewhere around $40k per year. Conversations like this should serve to remind us that the US system is deeply broken. There is no reason we couldn't have a system where everyone could live comfortably. People making an easy six figures talking about how poor people should scrimp and save is ridiculous.

nathan_compton 7y ago

No one should be allowed to reach "what are prices?" People who are there already should be taxed back down into the "I care about prices again" range within a few generations.

timwaagh 7y ago

"Consider carefully whether the extra step is worth it". This is what I'm wondering about everyday /s

npip99 7y ago

I mean if you have $100k in wealth you absolutely have travel freedom. Backpacking in Europe is a common experience so it's pretty cheap and the rest of the countries have crazy USD conversion rates. $100k could be a lifetime's worth of money in a non-western country. You can still find lodging in Ukraine for like $4/day.

BrandoElFollito 7y ago

Nice, I used to say that I feel comfortable when I choose my yogurt and do not look at the price. I realize that I am objectively much higher on the wealth axis today, but this is what I tell my children. Live without needing much and do not worry if what you really want is 500€ more expensive. I like this chart because it also tells that some people can be happy by buying the 15€ fast lane at the airport (this is what we did with my wife, the kids queued up). Or getting the 500€ more expensive version of vacation to have more space.