The Wealth Ladder

A framework on how to think about financial wealth, from The Wealth Ladder by Nick Maggiulli:

Some people have warped perceptions of wealth and what it means to do well financially. If we map the different economic classes in the U.S. onto the Wealth Ladder, we can see this more clearly:

1. Level 1. Lower class (<$10k)
2. Level 2. Working class ($10k–$100k)
3. Level 3. Middle class ($100k–$1M)
4. Level 4. Upper middle class ($1M–$10M)
5. Level 5. Upper class ($10M–$100M)
6. Level 6. The superrich ($100M+)

You’ll note that Maggiulli points out that Level 4 “millionaires” can’t really have the lifestyle that term used to signify from those halcyon days of yore:

From this perspective, you can begin to understand why some people with lots of money don’t feel rich—it’s because they’re looking at higher economic classes or Wealth Levels. People in Level 4 look at people in Levels 5–6 and say, “I’m not rich, they are rich.” Though people in Level 4 are millionaires, they can’t afford to live like the stereotypical rich person depicted in the media and popular culture. Those people, who are in Levels 5–6, can actually afford to fly in private jets and own supercars.

Maggiuli proposes a “0.01% rule” as a framework for determining irrelevant/sustainable/affordable spending that scales with your wealth:

If we assume that your wealth is invested and growing by 0.01 percent per day above inflation, this translates into a growth rate of roughly 3.7 percent per year. This is a relatively conservative annual return, even after adjusting for inflation. Assuming that your wealth will grow by 3.7 percent annually, you could spend about 0.01 percent of your wealth each day and maintain the same net worth. For example, if you had $100,000 invested and it grew by 0.01 percent daily, that would give you ten dollars that you could spend in excess of your income each day. You could spend this money without reducing your long-term wealth.

To put that spending in context relative to the levels of wealth:

Using the 0.01% Rule as a guide, we can demonstrate how the Wealth Ladder relates to spending money. To do this, I’ve listed the six levels of the Wealth Ladder below and how they relate to different spending categories:

1. Level 1. Paycheck-to-paycheck (<$10k): You are conscious of every dollar you spend. This includes people with crippling debt.
2. Level 2. Grocery freedom ($10k–$100k): You can buy what you want at the grocery store without worrying about your finances.
3. Level 3. Restaurant freedom ($100k–$1M): You can eat what you want at restaurants.
4. Level 4. Travel freedom ($1M–$10M): You travel when and where you want.
5. Level 5. House freedom ($10M–$100M): You can afford your dream home with little impact on your overall finances.
6. Level 6. Impact freedom ($100M+): You can use money to have a profound impact on the lives of others (e.g., buy businesses, engage in large-scale philanthropy, etc.).

I like the idea of different categories of spending freedom. He also puts some specific number ranges here to quantify the level of spending that essentially doesn’t matter in a given wealth context:

1.  Level 1 (<$10k). Paycheck-to-paycheck: $0.01–$0.99 per decision
2. Level 2 ($10k–$100k). Grocery freedom: $1–$9 per decision
3. Level 3 ($100k–$1M). Restaurant freedom: $10–$99 per decision
4. Level 4 ($1M–$10M). Travel freedom: $100–$999 per decision
5. Level 5 ($10M–$100M). House freedom: $1,000–$9,999 per decision
6. Level 6 ($100M+). Impact freedom: $10,000+ per decision

I really like this framing, and I think it does broadly map onto real differences in the perception of wealth, what’s easy to “afford,” and how much financial spending can “hurt” when it exceeds its appropriate level.

The things I used to do to earn and save money when I was a student are radically different than what I would do now. And that makes sense.

He argues that generally adding incremental wealth within a level doesn’t really change the types of things you can easily afford. Going from $2 to $3 million in wealth doesn’t make a mansion magically affordable.

But one thing can scale to match any level of wealth:

In truth, the most expensive thing some people own is their ego.

I selected some choice excerpts from Maggiulli’s first book, Just Keep Buying, here back in 2022.