The Wealth Ladder with Nick Maggiulli

Thanks for having me on. I appreciate it.

It's a great question because, you know, growing up, we didn't have a ton of money. I wasn't definitely I wasn't in poverty and everyone went hungry or anything like that, but you know, I was always eating off the value menu or what's now called the value menu. It used to be called the dollar menu if you remember it, like at McDonald's or every fast food restaurant we went to. So I kind of knew, you know, hey, we had to there wasn't a bunch of money so we had to kind of be very careful with that.

My parents declared bankruptcy when I was 6 years old and they divorced and then my mother again declared bankruptcy roughly 10 years later in the Great Financial Crisis. So as soon as it went off a record it went back on kind of sadly. But I saw a lot of different things through that, like seeing the housing crash up close. Like, you know, my parents were or my mom at the time was, you know, doing these home equity refis, pulling money out, we got a big screen TV, we got a sports car, all these things. I didn't know that, oh yeah, we're doing this because the home price just doubled in the last two years, and then it all came crashing down. So, all the I've seen all the bad things and what not to do. And so, that kind of got me very interested in finance just from learning about it. And then I started getting really interested in data after I went to school and everything. And so my first job out of college, I got a job as a litigation consultant, which basically means like we're doing analysis for different companies that they hire lawyers, then lawyers hire us. And I was doing a bunch of data work. And so I really love the data stuff. I love personal finance. And in 2017, I said, "Hey, you know, I'm going to start writing about this. I'm going to use data, that's going to be my edge. I'm going to use data and talk about that." Because I don't have I haven't said, "Oh, I made millions of dollars, you should listen to me." I don't have any sort of social proof from that. But what I can do is summarize all these aggregate data sources in a fun and interesting way. I've been known for my visualizations, etc. And so I did that. I've been writing online for almost 9 years now. And yeah, I put out Just Keep Buying, my first book, in 2022. And then I put out The Wealth Ladder just this year. So, you know, 3 years later. So, it's been a fun ride. It's been cool to kind of see the reactions. And it's just it's slowly growing, but it's taken me a very long time to get here. You know, it's overnight success, but it took nine years. But hey, it's, you know, it's and it's great and I love the reaction. I'm glad people have liked the new book and it's been very fun.

Yeah. So, I started blogging in 2017 and very early on, Michael Batnik, who's like who's the head of the investment stuff, their managing partner, he took notice to my work. He was one of my first 20 followers on Twitter, which is absolutely insane because like 15 of them were my friends. And so, he was like one of the first actual non-friend followers on Twitter. So, the fact that he found me is kind of crazy. But yeah, they just they started following my work. They like my stuff. I met up with them in late 2017. We chatted and I was like, "Hey, you know, I would love" because I was working litigation consulting. It was fine. I was making good money, but at the same time, I was like, there's no growth here. I'm going to get 4% raises the rest of my life and that's it. And I'm not going to there's unless I get a PhD or an MBA, which I didn't want to do. I didn't have an option. So, long story short, they basically said, hey, you know, why don't you come work for us?" And I was like, "Maybe I can do data stuff and like figure it out." And so, I came in as a data scientist for an RIA, which had under a billion dollars in assets. They weren't that large, you know, and now we're over 6 billion. So, it's grown, you know, over 6x since I joined and it was just such an interesting transition and like I was doing a bunch of data analysis and tech stuff and I was helping with operations and so in 2020 I got promoted to the COO and I've been doing that ever since. I've been 5 years kind of in this operations role and my role's changed a lot. I've done different things over time and it's just been trying to help scale the firm and get us to the next level. So, that's that's been it and it's great. I mean, the culture is really nice. Everyone's very fun. It's a great place to be and so, you know, I love that we're all putting out content. We're all trying to help each other win. I think that's another big thing. And yeah, it's just it's just fun to be around. And so we always like to have fun, party, and also but we take ourselves very seriously and we're very serious about our client everything we do with clients and everything that we do, you know, on the client service front.

I think what's happened there was two things I noticed. One, I was noticing it in my personal life. Anecdotally, I was seeing things that just seemed a little odd to me. And then at the same time, I also was looking in the data and was seeing something that matched this. And so I saw it first anecdotally. I remember, you know, I got like the platinum card for Amex like I think in 2023. I only had it for one year because by the end of that year I was like this this wasn't I mean it was fine. I don't want to talk trash on Amex, but like it ended up not being the benefits weren't as great as I thought. And so I basically said, "Okay, hey, I'm just going to downgrade to a gold card." And that was fine. But I went when I when I got my Amex card, I went to the lounge. I'm like, "Oh, I'm finally getting this lounge access everyone talks about." And there are lines and the lines are massive. And I'm like, "Man, the the lounge is more crowded than the airport." And of course, yes, there's food and all these things. I get that, but there were so many people in there. It felt like, yes, I get a free beer, but I got to wait behind eight people before I get it. Or yes, I would get the food, but I got to wait, you know? And so, I just thought it was so crowded and overrun. I'm like, "What's going on here?" Like, that's kind of weird. Like all these people have like Amex platinum cards and I'm like they just and so Amex did a great job as a business but maybe a little bit too too good of a job because now it got a little overcrowded. That was the first thing I saw. Right. Then I saw in the housing market. I have friends who have nice homes, very nice homes. They're not but they're not mansions and they're paying 10 grand a month for their mortgage, you know, and that and they're and these aren't even people with a very high rate. Like yes rates went up and so rates are even higher now but I saw I had friends that get in at like four or five percent but like the house prices just went berserk during COVID and so I'm like what's going on this seems kind of crazy I'm like okay that's another data point that's odd and prices aren't coming down and so like incomes and prices have kind of moved away from each other so it doesn't make sense and the last thing I saw I was at Baha Mar in the Bahamas and you know I go out in the morning to get a beach chair you know I'm sorry a pool chair they're all taken already and I'm like there's people coming out at 7:00 a.m. And I I noticed this and throwing their beach towels and all their crap or a water bottle there to to snag the beach chairs. And I'm like, what is going on? Like these people are these are not like these people are very wealthy. Like these are millionaire. Some of these people are millionaires that are waking up at 7 a.m. on their vacation to grab a pool chair. And I'm like, this is bonkers to me. So I I'm seeing all this stuff happening. And I look in the data and the big thing I saw, so we'll talk about this a little bit later when we talk about the wealth levels on the wealth ladder. But there's one called level four and that's for a net worth of 1 million to 10 million. That's what I consider the upper middle class. And once again, that's location agnostic. If you're in a rural area, you don't need that. You you probably can be upper class with like 5 million. But if you're in like New York City, you need probably over like 10 or more to really like, you know, start to fly private, do all the real real upper class stuff, you know? So anyways, I'm looking at this and I realize that this cohort level 4, 1 to 10 million, in 1989 that was 7% of the population. Today it's 18% of the population. And this is adjusted for inflation. This is after we adjust all the incomes and all the wealth and everything for inflation. You know that group who has 1 to 10 million in wealth. They've almost tripled in size in the course of 35 years or yeah I guess yeah 32 years. So that's what's going on. And I said this is how the and I said at the end like the Amex lounge didn't die because of a lack of activity. It died because of too much. Like it it it's overrun and that's what's happening. And I think because there's so much wealth being made by so many people, whether that's tech, whether that's, you know, there's foreign money coming in, there's all this stuff happening in the US. And there's people with a few million dollars right now that are like, "Wow, I made it to a million bucks. Great." And then they're like, "Wait, my life's actually not that different than someone who didn't make it to a million." And I think that's kind of the I know this is going to sound very first world problems, very privileged thing to say and I get it, but I think it resonated with so many people because a lot of people are like, "Yeah, I did all this. I thought like, oh, I'm a I have 2 million bucks. I should feel like really wealthy." And it's like you go and do all this stuff and then you're like, "Oh, wait. I'm just, you know, maybe I sit on a slightly nicer seat on the airplane or you know, but you're not your life's not that different from the person who's just in the coach seat like anyone else, right?" So, I think that's the big wakeup call is like the the the luxury is not really there even for people who have what would on paper be considered a lot of money. Like $5 million is a lot of money, right? But I don't think that's that buys too much of a luxurious lifestyle.

Yeah, that's it's interesting because every person's going to be different. Depends on your age, depends on a host of factors here. But even when you think about even someone's like, "Oh, I'm young and I let's say you're even what people don't realize like if you're like, "Oh, if I was like 30 and I had 3 million bucks, that would be so much better than being 60 and having 3 million." And I'm like, I see what you're getting at on a relative basis relative to your peers, you're doing better, but you still need to work to get yourself to 60. Technically, the 60-year-old has more financial freedom only because they have less years of liabilities they have to take care of. And no one talks about that, but that's actually the flip side of it. That 30-year-old has another 60 years they're probably going to live. The 60-year-old, let's say, has, let's say, 30 years. So, the 60-year-old has to deal with the next 30 years of of staying alive and, you know, covering their costs, maybe their their family, etc. The 30-year-old may have to pay for their parents. They may have to pay for their children, right? There's all these different costs that they can't plan out. So, as you're in a great position if you have 3 million at 30, but you can't retire. You can't be like, "I'm done." Like, you still have to work. The 60-year-old actually could probably retire with 3 million bucks at 60. And so, I think just thinking through that and realizing like, yes, age matters, but maybe not as much as people think.

Yes. So, Just Keep Buying, the idea behind that book was like if I didn't know anything about you and you said, "How do I build wealth?" Like, what would what piece of information would I give you? What's like the one thing? And I would say the continual purchase of a diverse set of income producing assets. That's the mantra of the book, right? And it's great. It's a great mantra. Works for a lot of people, but it doesn't work for everyone. I realized I was too like one-size-fits-all with this idea. And there were two groups of people I left out. And the first group was what I call in level one in the wealth ladder, which is those with less than $10,000 in wealth. So people just starting out, like if I'm like, you know what your problem is? You're not buying the S&P 500. Like that's not really their problem. They have a lot of other things they need to solve before they get there. So I would say it's not their problem yet. It's a great book for them, but just not yet. Okay. The other group I was missing was those who want to get what I call level five and above. Level five is 10 million to 100 million. Level six is over 100 million in wealth. And those people like buying the S&P 500 is not going to get you there unless you have a massive income. It's just probably not going to happen, right? So the the truth is when you start running these numbers and looking at all this stuff, you're like, "Oh, wait." Like Just Keep Buying is great, but it's not going to get you to extreme wealth and it's not going to help someone who's just kind of starting out. It will help them eventually, but just not yet. And so I was like, I needed to zoom out and kind of create a framework that worked better than Just Keep Buying. Just Keep Buying is just one strategy that exists on the wealth ladder. And it's very tactical. It tells you talks about saving, talks about lifestyle creep, talks about why you shouldn't buy the dip, and it shows the math and all the data behind all this stuff. And don't don't get me wrong, I say math and data, and that can sound scary, but it's very accessible. My 75-year-old grandmother said she understood 75% of it. And so I'm like, "Hey, that's good enough." Like, she did not understand all of it. I'm not going to lie to you, but she understood the vast majority of it and she is not someone who's invested at all in her life or anything like that. She was a stay-at-home wife and everything. So, that just goes to show I try to make it very accessible. So, that was the point of Just Keep Buying. It's like a great strategy for people I would say in, you know, levels two to four in the wealth ladder, but if you want to go beyond that, you kind of need to switch up your strategy. And that was the thinking behind why I got into the wealth ladder. So, we if you want, I can start talking about that. Yeah.

Yeah. So, the big idea on Just Keep Buying was if I know nothing about you, what would I tell you to do? Now, the big idea with the wealth ladder is what if I know one thing about you? And that one thing I know is your net worth. It's just your wealth. And once I know that, that doesn't tell me a ton, right? But it tells me enough that I probably tells me, hey, you're in a given wealth level. And given you're in that wealth level, I can then come up with a better strategy for you going forward. So it's it's like I'm controlling I'm giving a conditional like hey conditional on you having a million bucks this is what I would say versus conditional on you having less than 10,000 this is what I would say right and so I do that by creating six wealth levels each wealth level is just a factor of 10 from the next one so level one is less than $10,000 in net worth that's about 20% of US households by the way level two is $10,000 to $100,000 in net worth that's also about 20% of US households level three is 100,000 to $1 million in net worth. That's about 40% of US households and that's what I would consider like the middle class in the United States. Level four is 1 million to 10 million as we've discussed. That's about 18% of US households. And then level five is, you know, 10 million to 100 million and level six is over 100 million. Those two levels are about the top 2% in the United States. So taking that all together, you know, I say just memorize level three, which is $100,000 to a million dollar in wealth. And then from that you can back the rest out by moving up a level, multiplying by 10, or to move down a level, divide by 10. And so once you have that framework, and it's not perfect, it's not perfect, but it's a good enough framework that I think you can come up with a lot of strategies around income, around spending, around investments. And that's kind of why I did it. I wanted to come up with a framework that then people could jump off of to find other things and look into other books and things like that.

Yeah. So the 0.01% rule is basically how much you can spend like on a daily basis that is considered a trivial amount. Now I don't recommend you spend 0.01% of your wealth on a daily basis, but you could in theory. And let me walk through how I came up with this. So I I'm not going to say the original song lyric, but it came from a Jay-Z song lyric. I'm going to say the censored version of it. He basically says, you know what's 50 grand to someone like me? Can you please remind me? At the time when he made that lyric, he was worth about $500 million. And so 50 grand over 500 million, that's 0.01% or 1/10,000th of his wealth. So I said, hm, that's kind of interesting. If Jay-Z considers that trivial, why can't anyone, right? And so I said, take anyone's wealth. Let's say you have $10,000 in wealth. Okay, what's trivial to you? Well, it's 0.01% or 1/10,000th, which would be $1, right? So you can scale that up. By the time you get into level three, which is $100,000, what's trivial to them? $10, right? And then you just keep scaling it from there. Now, what I did is I said, okay, I now know this like trivial amount for every single level. Now I can apply this to different spending categories. For example, level two, which is $10,000 to $100,000 in wealth, maps onto a by the 0.01% rule, maps on to $1 to $10, right? If you're at 10,000, you're at $1. If you're at 100,000, you're at $10, right? And so the assumption is that your wealth is throwing that off daily, right? So if you have a net worth of 50 grand, you're every day your wealth is throwing off $5, right? Because on a if you actually do that over the course of a year, you know, you know, 0.01% and you do that, you know, 365 days in a row, it's about 3.7% a year, which is a little bit less than the 4% rule. So, it just came out that way. So, it's very nice and round, but it's like a more conservative 4% rule. And the idea here is like, okay, if my wealth's throwing off five bucks a day, I I I don't recommend you spend it every day, but you could in theory say, hey, you know what? I want to splurge on this thing. I'm going to spend this extra five bucks. So, if you're going like, oh, can I get this coffee? Yes, it's five bucks. Who cares, right? You know, or can I get the cage-free eggs? They're $2 more than the regular eggs. Yes. Right. And so what I call level two is grocery freedom. By the time you're in level two and by especially by the end of level two, you can buy whatever you want at the grocery store basically. Right? Level three, which corresponds to a net worth of $100,000 to a million or this marginal spending decision of $10 up to $100 is what I call restaurant freedom. Right? So now when you're at a restaurant, you're like, "Hey, do I get the salmon for 25 or the burger for 15? That's like a $10 difference." It's trivial. Get get what you want. Get the salmon. Right? And so you can keep scaling that, right? By the time you get to level four, I call that travel freedom. That's where you're like, "Hey, you know, can I upgrade my seat on the airplane? Can I stay at a nicer hotel?" That those decisions are going to be anywhere from $100 to $1,000 on that marginal daily spend. And then by the time you're in level five, that's what I call home freedom, where you can basically start to buy a home almost anywhere you want. And by the end of it, like by the time you have 100 million bucks, you can basically live in almost any home you want. Of course, there are a few exceptions to that rule, but in for the most part, you can basically live anywhere in almost any neighborhood. So, that's where we're getting to is this idea of as you kind of build wealth, you're allowed to spend more money. And the reason I like it better than a lot of what I think the traditional personal finance community puts out there is because most personal finance commentators will say, "Oh, no, don't if you make more income, don't spend. Don't spend more of it. Just keep your your lifestyle exactly the same." A I think that's boring and B it's not realistic for a host of people and the because especially you have kids or liabilities go up you're going to spend more right that's one piece of it the other thing is like for those people that are that are spending you know if you are spending more over time you're using income I say use your wealth not income that's another big piece of this so not only does it allow for you to spend more over time but it's doing it only after you've built wealth so it's kind of like a a financially disciplined way of having lifestyle creep. And that's that's what I was trying to solve. I'm like, I want to give people the ability to spend more if they build wealth, but only if they build wealth. If you get a raise, I would say, hey, don't spend that. You can technically my first book, I talk about how much of that you can spend. It's roughly 50%. But in general, I say, hey, if you get a raise, like I'd rather you invest that, build up your wealth, and then you get to spend more because you built the wealth, right? So, it's like it's only after you've shown the financial discipline do you get to spend more money. And that's what I like it because it's a it's much more gradual than a than like an income based approach. And it does still allow for lifestyle creep, which I think is the sorry it's a very long answer, but there's a lot of little, you know, when you go in the text, it explains this a little bit better. But that's kind of the the main idea behind the 0.01% rule.

A good problem. Yeah. I actually had someone just DM me the other day when we were talking about my book and everything and he was like this guy's in level four, deep level four and he's like yeah I my grocery trips take much less time now. I was like you were comparing. He's like, "Yeah, I would always be." I'm like, "And that's that's that helps you get to level four, but just barely, right?" You know, early on you need to do that when you're in level one and, you know, and barely in level two. Yeah. You kind of have to care a little bit about the price by the time you get into level three. Just like don't waste your time and oh, should I get this or that. Just get what you want and move on and focus on the bigger the bigger picture like your income, you know, how your investments are allocated. Those are going to make a much bigger impact than how much you're spending on eggs.

Yeah. So one to two, it's all about safety. I mean that both in a financial sense and a non-financial sense. So financial sense, I mean, everyone's heard this before, you know, have an emergency fund. That's obviously true. You need some sort of financial buffer there. The other thing I would say to consider is consider your non-financial wealth. So, do you have friends or family that can help support you just until you get out of like just till you can get yourself going so you until you have that buffer and you have a little bit of independence, right? I say rely on those networks where you can and obviously if you rely on those networks, someone in that network may rely on you in the future and you need to help them out. So, I think it's a it's a quid pro quo type thing. But the thing I would say in level one is like on every level of the wealth ladder, I talk about this in the book, something's being amplified. And so, in level one, the thing that's being amplified is bad luck, right? And the example I give is imagine you're driving to work and your tire blows out. You have a flat tire. Someone in level three or level four, they call up AAA, they take it to the shop, whatever. It's an annoyance, but their life goes on. They get it paid for. They move on with their life. Someone in level one, if they can't afford that replacement to get the new tire or something, they could they can't get to work, they lose their job, they might have to go into credit card debt, right? And you just see this spiral that starts happening in terms of their finances. And when you look at the data on delinquencies, over half of the delinquencies in the United States, so this is delinquencies and bankruptcies, so financial like say negative financial events, over half of them are committed only by 10% of the households. So it's a very small percentage of people that get caught in these cycles. Now don't get me wrong, some of these people just, you know, they have issues with their behavior and like they can't be helped. I it's not money. You can give them a million dollars and they would still blow it all. But I think a good portion of those people, it's not a behavioral issue and they just got a little bit unlucky and they just got caught in this cycle. And that's something that I think isn't discussed enough. So level one to two, get to safety. You don't want to get caught in a in one of these bad negative cycles. Of course, there's certain circumstances that no one can avoid and there's nothing you can do about it, but try your best to to prevent the bad luck. Going from two to three is a little bit different because there's a lot of people in level two and I would say even a lot of college graduates even if they have less than $10,000 in wealth because they have a good education. They have this like intangible asset that's probably I would say puts them into level two or through the extension of their family I would say they're in level two. And so there's two groups of people in level two. There's those who are just in level two and they're young and they just need time, right? They just enough time saving, investing, etc. They're going to get out of level two. There's a second group who time isn't the issue. It's they're not making enough income. And so the thing I focus on in level two is education and skills. And even if you did just graduate college, that's just the beginning of your journey. It's not like you're like, "Hey, I got my diploma. I don't have to learn anymore." No, now you have to learn how to work in a workplace. You have to learn software. I mean, probably have to learn something like Microsoft Excel. Who knows what it is you're going to have to learn, right? But you have to learn these different systems. So your learning is always going on. It's a continuous process. And so that's the thing I say to focus on is build these skills that you can use to get out of level two and get into level three.

Yeah. So going down a level is rare. It's only about 10 to 12% of households will do it over a I think it's a 10-year period and I think it's it's roughly the same even over a 20-year period. So it's very rare to fall down a level usually. What what types of things can cause that it varies. Divorce is one. So you're like, "Oh, my wife and I have a net worth of $150,000 or level three. Great. Well, now you're both 75. So now you're both you have two level twos, right? So that's one way that can happen. Another way is and bad investment choices can happen. I think that's more in level four or something where that can happen or especially level five. If you're very concentrated, let's say you if you're in level five, you have, you know, $10 to $100 million, you have it all in mostly your one business. If something happens to that business, you can see the value drop very quickly. Same in level four. If you're very concentrated, let's say you're like, "Oh, I've done so well owning Apple stock." and then Apple just happens to really, you know, underperform, you can see a lot of your wealth fall. Now, of course, that hasn't happened yet, but if it does happen, you know, you can imagine all the stocks that don't perform well. If you have a

lot allocated to those and they don't do well, that can happen there. So, I think as you go up the ladder, it's mostly investments that are moving it. Further down the ladder, it's going to be personal things. Losing a job and having to draw down on your wealth, that's one thing. Divorces, other things of that nature. So, those are the things I say to look out for. And I think it's mostly job loss lower on the ladder and it's mostly overconcentration in investments as you go up the ladder is what causes that.

Yeah. So excluding, you know, celebrities, athletes, entertainers who are paid, you know, millions of dollars per year. So assuming you don't have a multi-million dollar per year income, getting out of level four is incredibly, incredibly difficult without some sort of business ownership that ends up selling for a lot of money, right? And so when you do the math on this, it's very clear. Like let's say you start with a million-dollar portfolio, it's growing at 5% a year and you're saving $100,000 a year, which is an insane amount of money. That is a lot of money to save in a year. Even if you do that, do you know how long it takes you to get to 10 million? The answer is 28 years. It still takes almost three decades of grinding and saving 100k, a ton of money. Like you could go on trips around the world with that money, right? And you're doing it every year for 30 years and then you finally make it to level five. So obviously I talk a lot about this in the book, like the goal of the wealth ladder isn't to climb all the way to the top. Trust me, I talk about this and in level four I even say like I think the big decision point is especially those that get to level four is like do I keep climbing? Do I take, you know, or do I chill out, you know, take my foot off the gas and just enjoy life a bit more? And so that's kind of where I direct people's focus when I'm thinking about these things. And I think it is the correct choice to at least frame it that way and go there. And so yeah, so once you're in level four or something like that, you'll get stuck and it's very hard to get out at that point, which is not necessarily a bad thing, but it's just if you are like, 'Oh my gosh, I got to get to $10 million.' Like the math is not your friend, unfortunately.

Yep. That's the no man's land of wealth is level four, unfortunately. But and the math on five million is actually very interesting. Let's say, let's go back to our example. You have a million bucks, you're saving $100,000 a year. When you start there at a million-dollar portfolio, let's say, or net worth, you're impacting your wealth by 10% a year. That's 100,000 over a million, 10%, right? By the time you get to $5 million, that 100,000 is only 2%, right? You're barely moving the needle. And so it's like, why am I working so hard and doing all this when I can't even compete with my own money? Right? And so I saw this tweet recently. It was like, if your investment portfolio earns more than you do, is your job a side hustle? And it's a good place to be in. It's a privileged position to be in to be able to say something like that or even think like that. But it's true. And I think that's why there's a lot of people in the upper middle class who are like, I'm working, doing all this stuff, and it's like, oh my gosh, I can't even make a dent anymore in my wealth. And so it's like why am I doing all this? Maybe I should spend more time with my kids. Maybe I should focus more on my health. And so I think we are going to start to see a lot of that stuff going on in level four. And I think, you know, the death of the Amex lounge is just the beginning of this kind of reawakening that's going to happen for a lot of people who have, you know, built wealth and done well for themselves but are now questioning why am I doing all this still? I don't know why I'm accumulating all these dollars.