Climbing the Wealth Ladder

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

by razin • 7 years ago

259 313 7 years ago

eppp• 7 years 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.

esotericn13• 7 years 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• 7 years 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."

Kirby644• 7 years 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.

jetpackjoe• 7 years 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.

3dprintscanner• 7 years 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.

hirako20004• 7 years 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.

clktmr2• 7 years 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.

Kirby644• 7 years 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.

clktmr2• 7 years 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.

marvin• 7 years ago

It’s not entirely a state of mind. There is a qualitative difference between having an investment income approximately equivalent to a middle-class salary, and not having it.

Certainly you can find people who would feel miserable with that amount of money, and people who could thrive on a small fraction, but it would give most people a freedom that very few ever get.

LUmBULtERA• 7 years ago

Yes, I agree with your take. One can be "financially independent" somewhere between level 3 and 5. Most folks who say they have met FI in the FIRE movement likely have NOT made it to Level 5 ("Home Price Matters Less"/$10mm+). FI people can generally say they can cover their housing costs, but they still need to make sacrifices with regard to location, quality, and size (housing costs matter).

jeppz• 7 years ago

It really isn't that simple, most people will start spending more if you bump them up this ladder which means that "for the rest of your life" probably wont be true for long.

nugget• 7 years ago

One of the best definitions of “rich” that I’ve come across is a top 1% income based on a perpetual withdrawal rate of dividends alone (about 3%). This puts the wealth threshold around $15m for most US states and around $25m for the Bay Area.

nimbius• 7 years 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.

jacquesm4• 7 years 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.

nradov4• 7 years 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.

sixdimensional• 7 years ago

I think the hidden danger in this model, which I think about a lot, is that doing philanthropy is shown as an activity you can’t afford to do until you are very wealthy.

The trick is to do good for the world long, long before then. You shouldn’t need to be wealthy to volunteer a few hours a month..

Before anyone judges me negatively, I say this as someone who has spent the vast majority of my lifetime trying to “climb a ladder” only to want to get to a point where I can give my resources away for free to help others. But I have never figured out how, and then one day it just struck me, why can’t I jump to level 6 now without the money, and maybe that might just be what’s wrong with the money driven world somehow, or at least my understanding of it.

I feel like if I could understand how to not care/worry about the money then I could free up the mind and energy to do something better for the world, and I want to.

And then I realize the counterpoint that we have to work within the rules of the system, too, and the system is much more cruel and demanding than I wish it was.

hirako20004• 7 years ago

I think you got it!

The is a paradox in 'climbing the ladder' and giving away financial resources. Simply because, in the competitive market, you aggregate resources by taking it from others. Either competitors or random individuals. Philanthropy should start giving away those resources to the actors most in need, and they may be very close to your activities, but then you can't aggregate and climb up. The market doesn't have sympathy, and lack of resources can be devastating during tough times.

Don't climb the ladder. Who cares.

nradov4• 7 years ago

If you don't have money, you can contribute time.

shantly9• 7 years ago

im presently reading Paul Fussells "Class"

That's a really fun read. I had a great time playing "spot the behavior of parents/relatives, described as if he knew them personally" (all of which fell somewhere in Prole or Middle, for the record, so nothing to brag about, particularly in the latter case—oh boy, the poor, sad, misguided Middle)

Interesting lens through which to view Trump—does he ever have some weird displayed-class-markers. He reads as the most Middle and entirely un-self-aware and unobservant person possible, who's also won the lottery so all of that is on extreme display. Like a parody of the Middle. It's so strange. It's gotta be just a perfectly-maintained act, right? Given his upbringing it makes no sense for it to be natural, AFAIK. Utterly bizarre.

Lots of subtle observations in there that really do seem to match reality. The "mirrored surfaces signal you don't clean your own house" thing—that's been a fun one to watch out for. I felt very proud in a totally raised-Middle way that I knew the obelisk thing among the Upper-Middle and Upper was aimed at oblique association with Paris rather than Egypt before he got to the reveal, hahaha.

Some updated version by a similarly-observant person would be awesome, but Class is still remarkably accurate given how long ago it was written.

tibbon• 7 years 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• 7 years 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.

Retric3• 7 years 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.

bronco210163• 7 years 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.

tooMuchCensor• 7 years ago

I'm not sure I have sympathy for my fellow 10%ers who can't manage their 6 figure incomes.

Overspending is not an excuse. When you only need tens of thousands of dollars to live and thrive, anything beyond is excessive.

I know my peers that overspend, I weep for them. I don't envy the limo you take, I feel bad that those things are where you find pleasure.

yibg• 7 years ago

I seem to have stopped at some level. I still look at prices for groceries (those mangosteens are pricey) and restaurant items, let alone flight prices. This despite being in the level 4 category in the article.

Maybe it’s being poor since childhood or the first generation immigrant frugality.

pfranz• 7 years ago

I definitely think the frugality can get baked in for a bunch of reasons. Also, I'll often do stuff myself because the "administrative overhead" is worse than just doing it. I had a problem with my oven and called 5 places. 3 didn't service my area and 2 didn't service my brand. I ended up just buying the part even though I would have preferred to have someone else deal with it, but I'm sure that wouldn't even occur to a bunch of people.

disintegore7• 7 years 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.

baking2• 7 years ago

This obviously depends on your age and the reliability of your income.

hirako20004• 7 years 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..

disintegore7• 7 years ago

Saving 10% on a median income adds up to roughly three thousand dollars saved, a year. Depending on the amount of risk you're willing to accept, you may find yourself making between ~2 to 10 grand over a 10 year period from interests alone. I think those numbers are reasonable (and that saving in general is absolutely worth it), but I don't think they're significant enough to grant you upwards mobility.

Even furnishing a savings account is a privilege many people cannot afford, and no amount of frugality will help them. Only access to higher quality jobs.

If you ask me, Jay-Z gambled on the entertainment industry and won. His gambling chips were talent and hard work.

CPLX3• 7 years ago

Yup. I see this kind of logic in personal finance discussions all the time but it's bullshit. There simply aren't any spending decisions you can make that will change you from not wealthy to really wealthy. Those things can just move you from poor to middle class at best, or to a better level of middle class.

Outside of real outlier status where you're paid really, really large amounts of money for your services (like notable entertainer or cardiac surgeon) the way to wealth is to own the means of production. Period.

Same as it ever was.

jlawson• 7 years ago

Saving money, even from a salary job, gives you the breathing room you need to take economic opportunities. For example, if you save a year of expenses you can start a software business without external capital or connections.

Most of the paths from middle-class to wealth involve avoiding frivolous spending.

brazzy• 7 years ago

I really think this logic is more about avoiding spending decisions that can change you from middle class to poor rather than the other way round.

OnlineGladiator4• 7 years ago

like notable entertainer or cardiac surgeon

Google says cardiac surgeons make $400-800k, assuming that's true a very talented engineer at FAANG can easily match this (staff or senior staff level) without being mired by an additional 10 years of school. I personally know engineers making 7 digits in liquid compensation. Obviously these are not your average engineers, but it's doable if you're the 1% (to be good enough for FAANG) of the 1% (to be amongst the best at FAANG) of engineering talent - so this isn't most people.

Just throwing it out there because I imagine most readers here are engineers and you make it sound like it's an impossibility for any of us. I bet at least a handful of readers here are engineers making over $500k.

hello_1234• 7 years ago

You are completely discounting the power of compounding. Saving every penny won't make you rich in a year or even in 10 years. But think about 20 years in the future. Think about retirement. Every extra dollar that you put into your 401K will make a meaningful difference on how you retire in 20-40 years. Here's one real example for you: 96-Year-Old Secretary Quietly Amasses Fortune, Then Donates $8.2 Million - https://www.nytimes.com/2018/05/06/nyregion/secretary-fortun...

esotericn13• 7 years ago

It can give you the breathing room to actually _do_ something that can change your status and allow you to have a decent shot at "own the means of production", though.

I've probably had hundreds of conversations with people who will say "well, not everyone can afford to move town" or "not everyone can afford to take a week off work" or whatever else.

That's an enormous handicap - you're basically a slave to your current job, and if it tires you out enough that you can't train/learn/do other productive work outside of it, then you're stuck.

Personally I grew up with essentially zero, and pretty much self-enforced level 1 upon myself until this chart would have me at level 4.

People talk a lot about how certain startup founders aren't really risking anything because they start out with a safety net. You can create that safety net for yourself, with a little luck along the way, provided that you're sensible.

philwelch3• 7 years ago

Here's the thing: if instead of spending your money, you invest it, guess what you end up doing with that money? Owning the means of production. Period.

atwebb• 7 years ago

Gotta disagree, I have personally watched people spend away 2-300k a year for decades. It's easily millions, especially considering the ROI of the markets since the 80s.

wonderwonder4• 7 years ago

I would argue that this overlooks the factor of time and compound interest. Lets say I make 60k a year and am 25 years old. If I am living paycheck to paycheck due to bad choices (partying, eating out, etc.) and then I switch my spending habits and can now live comfortably on that 60k and I can save / invest. Lets say my take home after taxes and health insurance (32% reduction) is $3,400 a month. If I can invest $1,200 a month of that, and assume a safe 7.5% return by the time I retire at 67 I have ~$4 million which is considered wealthy, but not really wealthy.

But yes in the short term the only way to gain wealth is to earn more money.

Edit: This assumes a perfect scenario, 98% of the time, that person making 60k a year ends up on social security barely making it at 67.

mnky9800n• 7 years ago

i feel like by definition spending decisions only make you less wealthy.

pathseeker9• 7 years ago

Outside of real outlier status where you're paid really, really large amounts of money for your services (like notable entertainer or cardiac surgeon) the way to wealth is to own the means of production. Period.

This is a lazy view, or a really privileged one at least. I know a couple of people in their fifties who have retired from putting as much money into the market as possible (post-tax and pre-tax) while living modestly through their younger years. Having enough money to retire early is having wealth.

Views like the one you espouse are insidious because they give people a justification to stop trying and spend everything they make. Why not get the $1500/mo apartment instead of the $900/mo one? If you can't build wealth, what's the point in trying to accumulate it at all?

leetcrew7• 7 years ago

saving your entire salary won't make you as rich as Jeff bezos, but the end of your life will look a lot different if you save $1000 every month instead of $500.

if you have any disposable income, you can save for a decent retirement. it's useful to have a framework for deciding what indulgences you can pay for in the present without crippling yourself in the future.

josephdviviano• 7 years ago

Well, there are always ways to make yourself more wealthy. You spend less on consumables and spend more on investments.

People who typically become extraordinarily wealthy do so via high-risk, high-reward activities like business ownership.

Now you can argue that the risk reward equation isn't the same for people who have 20 million in the bank and 200 dollars in the bank, and that is very true, but it doesn't make the advice to spend as much as you can on investments incorrect.

slothtrop2• 7 years ago

Exactly, we can't even save our way to retirement (we need to invest), let alone expect frugality to translate to wealth. If you aren't in business for yourself, pay raise is the way up.

chooseaname• 7 years ago

No, but you can change your spending habits such that you can save up an emergency fund. That will give you some breathing room in case something happens. This alone would be a game changer for most people.

duxup• 7 years ago

I'm reminded of when Radiohead sold their album for whatever folks wanted to pay on the internet and someone wrote an article about how all bands could do that too:

Step 1: Be Radiohead...

The idea being that the hard part is getting to where you can even use the advice, and after that you're all but done.

_Microft• 7 years ago

Same category: Musk's "The Boring Company" merchandise. You need millions of followers in first place to be able to sell out 50000 basecaps for a million dollar in total or even 20000 not-a-flamethrowers for $500 each in a few days.

hultner13• 7 years ago

I wouldn't fully agree with this, I'd say income that non-linear to amount time spent it the highest driving factor.

Let's take an example. I'm going to use Swedish living conditions and salaries as an example as that's where I live but they are close to most European/western countries. We have a frugal grocery store cashier who makes $2000 USD/month after taxes. We have a high level executive in a medium-sized company who makes $5000 USD/month after taxes.

The grocery worked lives like a student (student loan/benefits in Sweden is about $1000 USD/mo) and saves the rest on the stock market (assuming average yearly yield with reinvested dividends at 8.5%), efficiently saving $1000USD/month for future non linear income. The cashier plans to stop working early at 55, at a net worth of about $2 900 000 USD. This allows for a safe withdrawal rate at about $10 000 USD/month. At this level travling/vacation expenses isn't a problem for the cashier. Housing probably does but they can most likely live comfortably even if they decide to rent. They can also easily increase monthly spending allowance by 10% if they decide to continue working half time.

At the same time our executive have been burning through every pay-check, and have effectively no net worth at the same age, sure there's plenty enough to lease a nice car, don't care about restaurants bills but more expensive traveling will still be a setback and vacation time per year is certainly limited as income is still linear to time spent.

So in this example we have a cashier ending up as a multi millionear set for life at 55 with no need to work a day more and a high level executive who'd be back at 0 without the job and a strictly linear income.

Sure salary increase does matter, but in the long run underspending matters more. With a longterm plan it's possible to become a multi millionaire with an entry level job, for instance there's a famous Swedish railroad worker who recently passed away who ended up with somewhere around $17 000 000 USD net worth at the time of his death, and achieved this by living under his expenses with a low salary and investing the rest, he initially turned to the stock market because he couldn't afford a house in his youth. Not Jay-Z levels for sure but well beyond what most people would consider very wealthy.

bronco210163• 7 years ago

I think you’re both right. The combination of multiplying income while also saving more and more of that income is the key to jumping wealth levels.

It’s certainly possible to live a comfortable life on the cashiers plan but if the executive spent just half of their career living like the cashier then he would quickly pass up the cashier on the wealth ladder.

arkh2• 7 years ago

grocery store cashier who makes $2000 USD/month after taxes

Not "close" to most European/western countries. You may be really disconnected from normal people revenues.

assuming average yearly yield with reinvested dividends at 8.5%

That's a big assumption.

At this level travling/vacation expenses isn't a problem for the cashier

Inflation over 30 years then 20 more years of retirement may change this.

account734667• 7 years ago

> a cashier ending up as a multi millionear set for life at 55

Except that the most interesting part of life is over

kevinqiu1• 7 years ago

I think the problem is in America the frugal clerk makes 3000/month, a white collar professional makes 8000/month and a high level executive makes 14000/month after taxes. And I wonder if I'm being too stingy with our executive here...

leetcrew7• 7 years ago

does a swedish exec really make just $5000/month post tax? that's not much more than I net at my first software gig out of college (and not in SF or NYC).

AlexanderNull2• 7 years ago

No family? Also if we were talking about the US (which the article was) then you have to factor in healthcare, average of $200 a month for the insurance IF it's sponsored (mostly covered) by their employer. If the grocery worker is living in any major city then rent is bare minimum of $600 a month for the privilege of living with at least 2 other flatmates or around $1000 for a pretty small apartment. So this person's already out half their monthly income. Let's say transportation costs are low and that this person only takes the bus to get everywhere, that's an extra $100 a month (assuming lack of adequate transportation doesn't also ending up costing them their job due to frequent late starts). Now this person also has to pay at least some utilities depending on where they're living so a rough estimate would be around $120 a month for that. Now we look at food, average grocery costs per person in the US is $220 a month. This person also needs clothing obviously, if they go on the super low side they could get by on ~$100 a month over all. If this is it for their spartan life style, meaning no cell phone, no internet, no eating out, no leisure activities that cost money, no hobbies, no children, no trips to the doctor (where medical deductibles kick in), no car, no netflix etc. This person has potentially $460 a month to save.

That's 100% best case scenario living a lifestyle that basically consists of going to work, going home, eating food, sleeping on the floor of their apartment (we didn't budget for furnishings but w/e it's better for the back) using the public library and walks around the park for sole avenues of entertainment. ALSO: THERE'S NO KIDS IN THIS SCENARIO. Some of those estimates I lowballed also (like food as that's average cost of groceries for people who also get calories from eating out at restaurants) so this is really not a realistic estimate here.

In reality though there's plenty of hidden costs that this person will incur and even assuming they do manage to stay kidsless they'll be lucky to put away $100 a month giving them a best case scenario of $250k in savings by 55. Not terrible for them, but not enough to retire on in the US when you think of medical expenses incurred later on in life.

kangnkodos• 7 years ago

My guess is that it would be almost impossible to save 1K/month if your take home pay is only $2K/month. There are minimum requirements for food, shelter, transportation, etc.

A pre-tax yearly salary living wage to cover the minimum in the US would be $45K - $68K depending on location. Let's look at a low end, low cost of living state. $45K pre-tax translates to about $3K per month take home pay. Which means that if you had $3K per month take home, you would just be covering the basics for a family. If you are trying to get by on $2K per month, you're already making some difficult trade-offs to survive.

So, I don't think it's realistic to say someone with $2K per month take home pay can save $1K per month.

dirtyaura• 7 years ago

Being frugal and saving everything for 30 healthier years of your life to be able to spend money only when your body seriously starts to fail you.

I’m not sure why people see that an attractive way of spending their life.

icedchai6• 7 years ago

Most people have it wrong. While salary increases are necessary, they are not sufficient. You need to save and invest aggressively. I'm not talking saving 10%. I'm talking 30%, 40%, maybe even more, if you want to achieve financial independence in under 15 to 20 years.

The first few years, maybe the first decade, are tough. After that, it becomes self sustaining: you eventually make more in gains (unrealized, ideally) than you do working.

plughs• 7 years ago

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.

For a lot of educated types, the best chance of really climbing the wealth ladder is early involvement in a startup. The startup founders I know have a single unifying factor, they come from the sort of wealth that allows them to go completely bankrupt and still live comfortably.

We have good incomes and live pretty frugally, and for us that translates to a decent amount saved for retirement and college funds. I would never knock that, that we are incredibly lucky and a lot of people work very hard for less. But it doesn't move us up a class such that we have a house overlooking the beach and kids in 20k/year private schools. I know people who have those, and they didn't work their way up a ladder. Their ladder started on the 10th floor.

giggitytex• 7 years ago

I agree with you, and this flies in the face of Kiyosaki-isms.

tonyedgecombe3• 7 years ago

I'm not totally convinced. It seems to me the further you get up the greasy poll the greasier it gets.

Sure if you are on minimum wage then there are probably some easy gains to be made but for someone in the middle of their career they are far more likely to improve their situation by saving rather than getting promoted. That's not to say they shouldn't try but you have to realise the odds are against you getting to the top.

If you are looking at it from the perspective of starting a business then having some savings is going to make it far more likely. You aren't even going to have the mental energy for it if you are spending all your time thinking about how much to pay on the credit cards each month. This is the reality for many people, possibly even the majority.

enraged_camel• 7 years ago

> It seems to me the further you get up the greasy poll the greasier it gets.

Quite the opposite: the pole is greasy at the bottom, but becomes easier to climb the more you manage to climb.

The reason it's greasy at the bottom is because there are fundamental systemic factors at play that make it very difficult for poor people from making their way up. For example, here in the USA you cannot open a bank account if you don't have a permanent address, and you're likely to work multiple jobs with constant changes in schedule, and lack of easy transportation options to travel from one to the other.

Once you reach middle class though, the relative stability it provides can allow you to make decisions to climb the ladder further, if you choose to do so.

taneq• 7 years ago

The undisputed "best way" to climb the wealth ladder is to receive large amounts of cash from some external source.

I agree with most of what you say here but I'm not so sure of this bit. Of course, if you get handed huge amount of cash by a rich relative, that's the easiest way to live comfortably for some time, but it won't come with the financial skills to make the cash an asset instead of just a possession.

Assuming you don't win that lottery (or indeed win the actual lottery, $100 million powerball style), I think the best way to climb the ladder is to own a business (as per your 'small business owner across the street with the McMansion and the gaudy Christmas decorations'). Receiving cash is like getting a push on your billy cart, it's nice but it doesn't, in itself, give you a way to get more. A business is like an engine for the billy cart, maybe it won't be going as fast right away but it'll keep on going and generating money.

Either way, as you say, scrimping on groceries will never make the difference between wealthy and not. Wisely investing your salary in real estate or stocks won't help either, except over timescales too long to have any fun with it or unless you're at the very top tier of a FAANG-type company. A business is a machine to make money and unless you own one, you're highly unlikely to end up in the same financial class.

r0fl• 7 years ago

Your example of a person with $10,000 accumulated wealth and no job makes perfect sense. However this does not hold true higher up the scale.

People with mid 8 figure liquid net worth, ex: $50-70,000,000 do not need to have any income for extremely long periods of time without having any large negative effect on their spending ability.

leetcrew7• 7 years ago

these people get income from capital gains or take loans against their assets. even very rich people try hard not to spend their principal.

grey-area• 7 years ago

Capital is more powerful than income.

It is harder to accumulate capital but still worthwhile even if you can only do it slowly.

frogpelt• 7 years ago

I think you can get from level 1 to level 4 just by being careful and wise. You might even get to level 5 by the time you die.

But level 6 will require taking risk and that risk paying off big-time. Usually it requires taking several risks. Jay-Z got from level 1 to level 6 by taking the risk of going public with his craft. He decided he would put in the work, make the connections, and not fear the rejections.

The reason entrepreneurs get rich is they take the risk.

There is some luck involved but most people (me included) aren't willing to risk their current level to level up.

mcguire5• 7 years ago

I think you misspelled "a very great deal of luck". How many rappers aren't Jay-Z?

bboygravity• 7 years ago

Summarized: nobody in the history of humanity ever got wealthy from having a job. If you want to get rich you have to learn how to invest other people's money and make it work for you.

This is also my main take away from "rich dad, poor dad" (the book). It is so simple, yet I was so blind to this for a long time.

umeshunni• 7 years ago

Nobody in the history of humanity ever got wealthy from having a job

I think thousands of people in the valley who made their money from stock options / RSUs will disagree with this

mcguire5• 7 years ago

Depends what you mean by "wealthy". In these comments, it's a motorized goalpost on wheels.

yawboakye• 7 years ago

Totally agree. But here's a thought: could wealth accumulation be a feedback loop? What I mean is, can the earning part benefit from a "reckless" spending side? Speaking from experience, I've been in the business of making more money because (1) I don't believe in saving (I've bought a few insurances here and there, because of course, health isn't guaranteed) (2) I love nice things and will get them at all cost.

I don't know what feeds into the other. Is my taste for recklessness a result of my implicit knowledge that I can generate a good sum of money when I need. Or am I waking up everyday and putting in the work in order to satisfy my reckless side? What I know for sure is that one can deliberately climb the ladder. And the undisputed "best way" to climb the wealth ladder is to generate (not receive) income. There are many ways to do that. Usually employment isn't one.

mcguire5• 7 years ago

"I understand this isn't the point of the article, but it seems like a roundabout way of saying "don't overspend"."

Well yes, but...that's completely useless advice and the article is considerably more concrete and useful. (On the other hand, I'll dispute his 1-basis-point: I think it should be closer to .1 basis point.)

You are right about the difference between income and net worth. To a point, anyway.

baking2• 7 years 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• 7 years 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• 7 years 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.

Pfhreak6• 7 years 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.

lazyguy2• 7 years 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.

icedchai6• 7 years ago

Yep. "The Millionaire Next Door" should be required reading for high school students.

thatfrenchguy3• 7 years ago

Anybody with a middle class income can do it

Median income in the US per person in 2018 is 35000$. 500$ a month is 6000 a month, or 17% of that before tax. At that income level you probably don't have any income to spare after housing + food + car + health care.

sangnoir• 7 years ago

While you're at it, here are other things to avoid if you're middle class and want to get wealthy: having kids, and getting medical attention.

I'm all for saving and spending responsibly, but I don't there's a thin line between doing that and being miserly. Everyone needs to have a goal for themselves for how much "enough" is, work towards it while still living their lives (even if the goal is asymptotic)

Pfhreak6• 7 years ago

I mean, I agree about envelope budgeting and smart saving. Avoid debt is essential to financial health.

Anybody with a middle class income can do it.

This seems obviously false to me. Let me construct a reasonable case for someone who is middle class income but who I do not believe will be able to meet your savings goals.

Let's assume a single parent, at the median income level of $31,000/year living in Seattle. That gives them $2,500/month to cover food, housing, clothing, childcare, medical care, etc. Rent and health insurance probably eats 1,500 of that alone. To say nothing about saving for a kid's education, buying them school supplies, etc.

Even if you scrimp on food, clothes, etc. you are going to have a real hard time consistently setting aside $500/month.

issa2• 7 years ago

As long as you don't have kids, don't get sick, and don't do anything fun, you'll definitely be a millionaire in 30-40 years.

auiya2• 7 years ago

it would take you about 26 years to make your first million dollars

Try again. In 26 years your $1 million in today's money is worth $526,235 assuming 2.5% inflation, and is easily vanquished in the U.S. with any major health emergency. On an average salary you'd have to save and invest 40-50% of your income to have any sort of meaningful effect long term and even then you have to hope you don't hit any unexpected emergencies. The penalty in the US for being poor is to pay more for everything and always be poor. The privilege for being rich in the US is to pay less for everything and always be rich. There is no upwards economic mobility via savings on an average salary in the US. Not even close. The only path to serious wealth in the US is by owning a ridiculous amount of capital, typically by birth-lotto, and leasing its usage.

jmchuster• 7 years ago

You might be able to jump by a million with the right job alone, but it's impossible to jump by a hundred million, unless you found a unicorn. Hence why people here are trying to do so.

Pfhreak6• 7 years ago

Yeah, I'd say that a great job, putting you in the top maybe 5-10% of Americans, could get you to level 4. Levels 5 and 6 (tens of millions and hundreds of millions of liquid assets) will not happen for any appreciable segment of the population, but they are given equal weight on the diagram.

isoskeles2• 7 years ago

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.

My experience directly contradicts this. Large increases to your wages allow you to save money into the next level or make a move that increases your wages further. I doubt it works for everyone, but it worked and continues to work for me. Although I don’t think I’ll get to their level 5, and even if I do, I’m going to be cautious about spending on vacation.

The defeatism that follows from, “I can’t possibly ever afford a home, etc.” is one of worst parts of American culture these days. People use this to make poor decisions throughout adulthood and then pretend it’s evidence that it must be impossible for anyone to get ahead by not blowing money on “avocado toast” and travel.

Pfhreak6• 7 years ago

Sorry, I meant that without wage increases, saving alone won't bump you. If you get a wage increase, of course you'll be able to move up this ladder. (To a point. You won't reach all the levels with wages alone, no matter how hard you save.)

jackcosgrove• 7 years 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• 7 years 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/

yboris3• 7 years 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/

hk__23• 7 years ago

Join others who give at least 10% https://www.givingwhatwecan.org/

You should disclose your affiliation with this website.

yboris3• 7 years 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__23• 7 years 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• 7 years 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.

greedo3• 7 years ago

A mortgage for a $1M property is roughly $4-$5k depending on credit etc etc.

jdashg• 7 years 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.

maire2• 7 years 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• 7 years ago

I would steer clear of the bullshit peddled by Kiyosaki... 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• 7 years 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.

maire2• 7 years 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• 7 years 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• 7 years 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• 7 years 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• 7 years 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• 7 years 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• 7 years 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• 7 years 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.

yboris3• 7 years 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• 7 years 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• 7 years 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• 7 years 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.

thatfrenchguy3• 7 years 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.

wonderwonder4• 7 years 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.

tonyedgecombe3• 7 years 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.

wonderwonder4• 7 years 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.

shantly9• 7 years ago

Poor people with shitty, cheap, old cars have these problems more than others. Because they're poor.

vd84• 7 years 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• 7 years 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• 7 years 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• 7 years 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

[2] https://www.wolframalpha.com/input/?i=solve+0.51*ln%5Bx+%2B+...

tempsy2• 7 years 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.

shantly9• 7 years 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?

tempsy2• 7 years 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.

issa2• 7 years 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• 7 years 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• 7 years ago

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

npip99• 7 years 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• 7 years 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.

Climbing the Wealth Ladder

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