The Wealth Ladder - Strategies For Every Step of your Financial Life | Interview With Nick Maggiulli

Every chapter in the wealth ladder for each level has a strategy. I'm never telling anyone to not start investing. I think it's where do you focus your attention? And I think that's the big thing. There are people out there that have $5,000 in a brokerage account and they check the balance all day because they're invested in different things. And it's like that's not where your attention should be. If you're poor, more money can make you happier. If you're happy, more money can make you happier. But if you're not poor and you're not happy, more money is not going to do a thing. At some point, more money can actually make things worse for people.

Good. How you doing? Thanks for having me on.

Yeah. So, I was an economics major in college. So, after I graduated, I went into something called litigation consulting or economics consulting, which is a little bit different than management consulting, which a lot of people know. And the difference is that I was doing a lot of like, you know, backward-looking analyses. I was doing a lot of historical analysis. I wasn't trying to predict the future. And as a result of that, I used a lot of data. So I did a lot of data science. I learned how to use R. I learned a little bit of Python, you know, SAS, etc. And as a result of doing that, I really kind of built up my analytical chops. And so as much as I enjoyed doing that, it wasn't really my favorite interest. And so I knew I loved, you know, personal finance and investing. I said, "What if I could use this skill set I learned with, you know, analytics and I apply that to the world of, you know, finance?" And so I started doing that with personal finances, started writing in 2017. Shortly thereafter, about a year thereafter, I recruited with a wealth management firm in New York City. Wealth management. At the time, we had less than a billion dollars in assets. And now it's been, you know, seven years and we're at over $6.5 billion. So the firm has grown very quickly. Over that time, I've been writing the whole time. So nine years, every single week, I've been putting out a blog post. You know, I haven't missed a single week. I came out with my first book in 2022, which was called Just Keep Buying, and then I came out with The Wealth Ladder this year, which is in, you know, 2025. And so why I wrote this book, The Wealth Ladder in particular. Just Keep Buying was a great book. It's a great, you know, one-size-fits-all strategy that just says, hey, you know, just keep, you know, acquiring assets, you know, over a long period of time and, you know, just buy every month and, you know, you'll do fine. And I showed a lot of historical analyses that proved that and like index funds and things like that. But this book says, hey, you know, that's a great strategy for some people, but it doesn't include everyone. So I kind of zoomed out a bit and I said, what if you, you know, are deeply in debt or something? How might the strategy need to change, right? It's not necessarily just buy income-producing assets. You don't really have income, right? So there's other things you have to do first. Secondly, what about those people that want to get super rich? And I said, how I define super rich in this case is like 10 million plus. You want to get really extremely wealthy in that case, you know, just buying an index fund in your, let's say, in the United States, in your 401k, your retirement account is not the way to get there. And I show that with math. So I think once I realized that, hey, there were some limiting factors here. The solution for me was to come up with a better framework to view wealth, and that's what I did in The Wealth Ladder.

Yeah, so that actually is the last chapter of the book. It's like chapter 13, where it's like, hey, here's my journey. And I didn't have the wealth ladder as a framework at the time. I just happened to make, you know, some of the right decisions around the right times, right? As I was transitioning wealth levels, which we can talk about, I was kind of making those strategic changes. I was saying, hey, first I was getting skills early on, you know, when I was in college, and then, you know, right out of school, I started thinking more about investing. And then I also, you know, later in my career, which is when I started the blogging stuff, was kind of my big side hustle thing. This is all like the side hustle, so to speak, right? And so it's kind of been that progression over time, and these are the decision points as they happened throughout my life, and it just happened that way. But now when I have the framework, it actually makes sense. I kind of followed it before I even knew I'd come up with it.

Yeah. So the 0.01% rule basically says like 0.01% of your net worth. Just take your net worth and multiply by 0.01% or divide by 10,000. That works as well. That will tell you what a trivial amount of money is for you, right? And it actually came from a Jay-Z lyric where he said, I'm not going to say the exact lyrics because he curses, but I'll say he said, "So it's 50 grand to someone like me. Can you please remind me?" At the time when he said that, he was worth about $500 million. So to him, that was 0.01% of his net worth. And I was like, "Ah, that's actually kind of a good, you know, he didn't realize it, but he was saying, 'Hey, this is trivial money to me, right?'" And so that I think is a good reflection of what's trivial is like 0.01%. So that applies to anybody, any net worth level, right? And so then I take that rule and I apply it to the wealth ladder, and based on which level you're in, it determines kind of different levels of spending freedom. And I think we need to kind of understand the wealth ladder. I need to talk through those levels, and then we can come back to what the spending freedoms are.

Yeah, so level one is less than $10,000 in wealth. So it's not even zero. It technically includes people that have debt, right? So it's like less than 10k in wealth is level one. Just, I'm going to go through the levels quickly, and then I'll jump back to your question. Level two is $10,000 to $100,000. Level three is $100,000 to $1 million. Level four is $1 million to $10 million. Level five is 10 million to $100 million. And finally, level six is 100 million plus. Now, this framework obviously is arbitrary, but the data actually fits there pretty well in the United States. And I can kind of get into that later, but just if you want to memorize it, just remember level three is 100,000 to $1 million. That's what I call the middle class in the United States. And that's roughly 40% of US households. So that is like the biggest cohort. And so if you just memorize that, level three is 100,000 to a million, then if you multiply by 10, you go up a level. If you divide by 10, you go down a level. And so to get back to your question, level one, I've never been in level one, even though technically my net worth was less than 10,000. Through family, you know, I basically have had support. I could have stayed at someone's house if I didn't have money. So I had these assets that were not necessarily on the balance sheet. I had a good education, etc. So, I think because of that, I've never actually been in level one, but I've read a lot of books on this stuff. I've kind of tried to understand what it's like in abject poverty and or just being like paycheck to paycheck where you just don't have money. And I think one of the things there, the thing to focus on is like getting to some sense of safety. So, obviously that means like an emergency fund, having like financial safety, but I also think about like who in your network do you know that can help you out? So if you are in level one, like do you have friends or family you could rely on to get yourself out of that level and get to a place of safety? I think that's so important because, you know, the thing I say across the wealth ladder, across each one of these six levels, something is being amplified, right? And in level one, the thing that's amplified is bad luck, right? You have just a common annoyance for someone higher on the ladder could really send your life down a different path if you're in level one. For example, you get a flat tire in your car. Now you have to go, it has to go into the shop. Let's say you don't even have money to repair it. You can't get to work. You lose your job, right? You can imagine like this, you know, one little thing, which is not that big of a deal to most people with more wealth, is going to possibly really just derail you if you're in level one. And so the whole point is to get out of level one so you don't experience any sort of bad luck. Or if you do experience bad luck, it's not as detrimental to your financial journey.

Yes, that's exactly the issue, right? And so because in general people in level one don't have high incomes, and so they're always kind of just trying to, you know, make ends meet, so to speak. And so because of that, you know, the thing you got to do is get that safety. So if you ever, you know, fall behind a little, you have something to kind of for a buffer. And then after that, the goal is, you know, increase your income. What can you do to kind of help with your career so you can earn more over time?

Not initially. That's not my initial advice. Like yes, if it's possible, but usually that takes a much longer time. The way to get out of level one is to do your... you do have to, I think of all the places where you have to try and cut back, it's there. You might have to be extreme. I don't... I'm not a fan of cutting spending as a general advice. I think if you're in an extreme scenario it can make sense to do it, but you have to be really careful about when you think about that because I don't want you to stress yourself out about every time you spend money. At the same time, like if you're in a really bad place where like you're literally one missed paycheck from like going into a financial tailspin, I also think it can make sense to just build that safety. Once you get to the safety, you don't have to worry as much. So that's what I would say. It's like the main thing to do is like create safety. Whether that means financial safety, whether that means through your network, friends, family, etc. Get to some place where you have some sense of stability. And that's the key there. And it's obviously very difficult. It's not easy just to like have all that, but it's like if there's ways to do that, build that into your life so that you can get out of level one.

Yeah, I agree. And trust me, I'm not the person to say cut your spending. It is not the way to build wealth. I think it is a way to get to safety. After that though, you have to raise your income because just you can only cut so much.

Yeah. So, I think there's two types of people in level two. There's people who are only in level two because they haven't had enough time to get out of level two, and then there's people who are in level two, and they're unlikely to get out without kind of some change in their career to raise their income, right? And so, I know I keep coming back to this idea of income, but, you know, I've looked at the data, I've sliced it everywhere you can, and income and wealth are the most correlated, positively correlated things in all of personal finance. I've not found a stronger relationship in the data than income and wealth. What that means is the higher your income in general, the higher your wealth. And it's like the best leading indicator. If you have a high income, you're very likely going to have a high wealth. And so it's very rare to have high income and low wealth or, you know, high wealth and low income, right? One or the other. They're usually paired together. And so because of that, I emphasize that. So once again, if you're in level two, let's say you just graduated school, like you just graduated college, you have like a decent education, you have a good job, right? And you're like, "Oh, I'm still in level two or I'm maybe just, you know, barely level one going into level two." I think your issue is not like, "Oh, something you need to change." It's just you haven't had enough time to get out. So like young people in level two doesn't really tell me a ton yet, you know, without knowing more about their situation. But if you're like a bit older, if you're in your, you know, let's say you're mid to late 30s or you're in your 40s and you're in level two, then it's most likely that you are not earning enough or saving enough from your earnings to get out of there, right? And so I think the way up is to focus on building more skills. Whether that means getting an education, whether that means just learning a different type of skill set so that you can earn more and then kind of move up the wealth ladder and into level three and beyond.

Yeah. And I don't think it necessarily needs to be a salary per se. That's how most people earn is through a 9-to-5. But there are other ways to make money. And so exploring those opportunities, what fits your skill set, and kind of going from there. I know people that have started businesses. I'm not saying that's the only way to go. That is a possibility though. So, think about what's your skill set. What value can you provide to people that they're willing to pay for? You know, kind of work from that starting point and then move forward from there.

Yeah, so I think you can definitely start investing that $5,000 if you're going to be successful. This $5,000 is nothing compared to what you're going to build in the future, right? And so, especially if you start raising your income, that $5,000 will be trivial. You'll be saving that hopefully every month if you do quite well, right? So my whole thinking when I'm, you know, talking to people about this or I'm thinking through this, especially for young people, is like you focus so much on that because it's all you have, but at the same time like that is for most people that is not where you're going to build your wealth. At least initially. Yeah. Once you have a portfolio, yeah, if you have, you said $100,000, that's a decent size, but once it gets to 200, 300, once you get to a million-dollar portfolio, that's where the needle really starts moving. So my focus is like, hey, what can you do to increase your income so that you can save more? Because that's going to make a far bigger impact than what your investments are going to do in a given year.

Exactly. Right. And so that is the perfect transition into level three because in level three investing is where, you know, every chapter in the wealth ladder for each level has a strategy. And so the strategy of level three is just keep buying, which is like the subject of my first book, right? And so that is the idea there because at that point your investments can really start to compete with you and your labor in the sense of they can start earning, you know, almost as much as you can when you go out and, you know, work and save money. And so I think that is the big, you know, realization in level three. It's like, wow, my investments can be making as much money as I do, which is great. And that's kind of that's where you want to get to. And that's if you do this right over time, you should get to that point. And if you keep doing it, you'll get to a point where your investments are actually earning you even more than what you were earning, right? Which is kind of crazy, but that can happen, right? If the portfolio size gets big enough.

Definitely. It's incredibly important there. And then if there's anything else you can do to keep increasing income, right? Because at the end of the day, like I know I keep talking about income, but that is where it's at. And so whether you get that income from investments, whether you get it from a side hustle, whether you're getting it from your main job, it's about kind of prioritizing which one of these is going to be, and it's going to vary for some people. For example, in my particular case, I got to a point where I was in level three. I was at my first job and I wasn't like... there was... I was peaked out. I was capped out. I was not going to earn more money. Every year I was getting like a 3%, 4% raise. I saw that out for forever. I was just going to get these little tiny raises. Maybe some years I wouldn't even get raises forever unless I went back and got a PhD or an MBA. I was not going to get paid more. So, I knew I couldn't do anything through that lever. So, I said, "Hey, I have to do something else." And so, for me, the solution to that was I'm going to start writing about stuff and I don't even know how I'm going to monetize. I have no clue. I'm just not going to worry about it. And I didn't make any money for three years. My first three years of writing, I didn't make any money. And then eventually, you know, I started running web ads and all this stuff. And so I did start making money, but it took... I took the long road to get here. And I really just got better at writing, got better at my craft. And so for me, it was a very long road before I started earning money. But that was the right solution for me. It was, hey, you know, don't worry about your career as much and earning more there. Let's focus on what we can focus on, which is, you know, all the writing and all the other thing, which is my side hustle in this case. And so I think every person's going to be different. For some people, it's like, oh, I need to work harder so I can make partner or so I could do this or get this promotion. That's great. For other people, they might realize that they're kind of maxed out and they need to kind of come up with a different income opportunity.

Yeah, 40%. So now that we've talked about level one and two, so roughly 20% of households are in level one, 20% are in level two, 40% are in level three. So that's 80% of households have anywhere from, you know, negative net worth all the way up to a million dollars. And then level four, which is 1 to 10 million, that's about 18% of households. And then the top 2% of households are level five and above, which is 10 million plus. So and then level six has like 10,000 households. There's very few in that level because centimillionaire, it's just so hard to reach that, that it's just... it's not impossible. It's just very difficult to get there. So I don't even really talk about that too much.