How to Fast Track Your Path to FIRE | The Wealth Ladder

Thank you guys for having me on once again.

So, the wealth ladder is the idea that your financial strategy should change over time and more specifically as you build wealth. And so to do this, I created six individual wealth levels which are based on your net worth. And so as your listeners probably know, net worth is assets minus liabilities. So everything you own, your car, bank account, home, cash, etc. minus everything you owe to others. Take off your mortgage debt, student loans, credit card. You net those out, you get a number. Hopefully it's a positive number, and hopefully it's a large positive number. From there, we can put you in one of the six levels. Level one is less than $10,000 in wealth. Level two is $10,000 to $100,000 in wealth. Level three is $100,000 to a million. Level four is $1 million to $10 million. Level five is $10 million to $100 million. And finally, level six is over $100 million. And the nice thing about this is these actually map onto the US economic classes pretty well. So 20% of households are in level one, that's less than $10,000. 20% are in level two, which is $10,000 to $100,000. About 40% are in level three, that's $100,000 to a million. That's like your middle class basically. 18% are in level four, one to 10 million. And then the top 2% is, you know, over $10 million in wealth. And so the easy thing if you want to know like how do I memorize these levels, just remember level three, that's like where most people are anyways, you know, in the United States as a whole. That's $100,000 to a million. And then you can just divide by 10 to go down a level, multiply by 10 to go up a level. And so it makes it very simple to kind of remember which level is which.

Exactly. And I think whether you call them levers, strategies, whatever, there's a lot of different words, but we're all saying the same thing, which is like over time, like you need to shift where you focus, right? I think someone with, you know, in level one, for example, me telling them my first book was called Just Keep Buying. For me to say, hey, all you need to do is just keep buying income producing assets. That's not what they need to hear. That's good advice later, but not yet, right? And so sometimes we're talking over each other because we're talking to different people on the different levels on the wealth ladder. And so realizing that, hey, maybe the advice should change based on where you are. And so that was my big insight with this book is like, hey, I realize, you know, maybe this is the lever you need to pull at this point. And then when you get to that other point, then you can pull that other lever.

So, I think that's about getting to safety. And that means like building up some sort of buffer of emergency savings. And I know that's and it doesn't just have to be safety in a purely financial sense. It's like yes, having a few thousand dollars for a rainy day is one thing, but having a network of people you could rely on, friends, family, etc. There's something amplified in each level of the wealth ladder. And in level one, what's amplified is bad luck. Like a simple annoyance for someone in level three or level four, like let's say your tire blows out on your car. That's an annoyance. Like, oh gosh, I have to go call AAA or take it to the shop, whatever. Someone in level three or four would just do it and move on with their life. Someone in level one as a result of that could lose their job and then if they don't have a job they can go into credit card debt and then they just start spiraling. And this explains why over half of the financial distress events in the United States are experienced by only 10% of households. It's a very small number of people that are just getting caught in these financial tailspins. And my whole goal is like, hey, don't get into a bad spot. If you are there, do whatever you can to get out. So that might mean cutting spending. I'm usually not a fan of like, oh, cut your spending all the time, but if you're in a, you know, a drastic situation, you may need to take drastic action and sacrifice to get out.

I think the thing to focus on there is going to be education and skill building. And that doesn't just necessarily mean, oh, getting a degree. I think if you can build a skill set that's useful, you can really change the trajectory of your life. Now, for those people that like, oh, you just graduated college and like, okay, you're just starting to save money. You're kind of like level one, level two. I think those people have those skills. They just need time to get out of level two. That's how a lot of people are. But for some people, they don't have those skills yet. So, time is a big factor here. And we can get into that in terms of like ages and levels. But the one thing I want to keep in mind here is like getting those skills is important. And there's a lot of different skills you can get like, you know, credentialism, getting a professional degree, lawyer, doctor, etc. getting sales skills. Like people are talking about AI is going to take over everything. It's not going to take over sales. I promise you they're not we're not going to have a robot realtor selling a house, right? Like if you can sell stuff very well, you're going to make money doing that. Technical skills. I know people are saying that's all going to be by AI. And a lot of it probably will be, but there's still going to be value to having some sort of technical skills. Um so I think these are just a couple different areas you can focus on to try and get those skills so you can earn more in the future.

I think it's the educational choices you make because eventually that is it's like your trajectory, right? You can imagine like a slope of a line and the higher that slope because of that educational resource or skill you build that's going to impact everything much later on, right? And so I think there's a lot of people that like, well, hey, I just graduated. I'm in like level two, you know, it's like, okay, well, you just haven't had time to get to level three or level four. It's just that's a lot of it. It's just waiting, earning money, investing it, etc.

In level three I think it's all about investing cuz that's the point where if you just think about your portfolio like okay now let's say I have a $100,000 portfolio that's like on the cusp of level three. That's the part where your portfolio can now earn you as much wealth as maybe you can. I don't know. I'm making a lot of assumptions about how much you can save in a year. But let's say you could save $10,000 in a year, like a little less than a thousand a month, right? Your portfolio, if you have a $100,000 portfolio, you get a 10% return. And I'm not assuming that every year, but now your portfolio is competing with you in terms of how much it adds to your wealth. And as you get deeper and deeper into level three, it may even surpass you. And by the time you're in level four, unless you have a very, very high income, your portfolio is going to more likely generate more wealth than you can, right? And so it's like you're almost in like this race against yourself. And so early on when you're in level one, your portfolio can't do anything. By level two, it's starting to build a little bit. By level three, it's starting to compete with you. And then deep into level four, you can't even compete with it, right? Unless you have an insane income, right? Which is a whole separate story.

It's your investment choices really. Level three and into four, both of them kind of. It's like the amplification is like what investment choices you make because those things are going to impact how quickly your wealth grows over time and how you could lose wealth as well. If you're very concentrated and things go well, you can move up a wealth level, but at the same time, if you stay concentrated and things go badly, you can just fall back down. So, there's a lot of like your investment choices, I think, matter a lot more there. And a little bit with your spending, I don't try to demonize spending too much, but one thing I found in the data, I compared households that were in level three today to those that got into level four versus those that were in level three today and stayed in level three over the course of a decade. So, there's the 3-to-4s versus the 3-to-3s over a decade. There were two big differences. The ones that made it to four had a higher starting income. So income definitely matters. There's no debate there. But the second thing I noticed was those that stayed from three to three spent almost as much as those that made it to level four. So like everyone in level three was like spending basically the same amount, but those that made it to level four just had a much higher income. And so I think overspending on big ticket items, housing, cars, etc. can hold you back a little bit. But I try not to focus too much on like cutting spending. But it does matter for sure.

I think the big decision point here is, do you want to get to level five? Does that matter to you at all? There's like a lot of motivational and kind of, you know, self-reflection you have to do. And if so, you have to completely change your strategy. Like the strategy to get into level four is not easy, but it's relatively simple, right? It's like get a decent income, have your spending under control so you can have some savings, invest that money, and then just give it time, right? So, it's really like savings, you know, decent income, returns, and time, right? Those four things put together get you into level four. To get out of level four, to get into level five, which is 10 million plus, you have to do something completely different. You have to have some sort of business that you sell for tens of millions of dollars. And I can just prove this with simple math, right? If you get to a million bucks, let's say you're saving $100,000 a year, that's a lot of money to save, right? And you're earning 5% a year. Guess how long it takes you to get to 10 million. 28 years. And this is after you already made it to a million. So this is after like you've done all this work to get to a million dollars and then you still have to wait another three decades of just non-stop grinding to get there. It's bonkers. Even if you're saving $300,000 a year, an insane amount of money, right? $300,000 after tax, it still takes you 17 years to get to level five. So, I think the big decision point in level four is like, hey, do I want to get to level five? How much do I care about that? I probably don't. So, you can kind of take your foot off the gas and chill out. And I think that's where this idea of coast FIRE, like, hey, I don't necessarily need to keep working as hard. I can kind of do different things and I can kind of take my foot off the gas and chill out a little in my career by the time you're in level four. And I fundamentally believe that is the choice cuz you either say, 'Hey, I'm going to start a business and try and sell it for a lot of money to get into level five.' Or you say, 'Hey, I'm kind of done climbing the wealth ladder and I'm cool just coasting in level four.' Basically, those are the two options you have.

In level six, it's like incredibly small. I mean, it's in the book. I can't even remember the number right now, but it's there's only like 11,000 as of 2025. I just looked at the updated data. There's only 11,000 households in the United States that are in level six.

Yeah. 100 million plus. Very few households make that. Those that are in level five, which are 10 to 100 million, there's probably about maybe a million maybe to 2 million households. I'm not exactly sure how accurate that is, but there's quite a few households in the plus over 10 million. Over 100 is a completely different game though. And so that number drops off very quickly.

Ironically. And so even when I was writing the book, I'm like, most people aren't going to ever be in level five or six, myself included. So like why do I care about this? Why do I write it? Because I think the things that are actually amplified in levels five and six are non-financial things because those are the things you can't buy anymore. At that point, you can buy almost everything that can be sold, right? Almost everything. Not everything, but almost everything. Yet you can't buy true friendship. You can't make your spouse love you. You can't just buy a new cardiovascular system, right? Like all the other parts of your life, that's what gets amplified. And of course, those things matter regardless of where you are in the wealth ladder. But I think people in levels five and six especially are probably not paying enough attention to those things because they're so focused on like, oh well, I got to get to, you know, if I have 10 million, I get to 20. If I got 20, I got to get to 50, etc. Right? And so I think that thinking can blind you so much that you overlook just very obvious life wins, which is like, hey, you should probably exercise more. Hey, you should pay attention to your kids. All these types of things are way way more important once you're in level five because the money can't buy them at the end of the day, right? Most people in level one, most of their problems are money problems. By the time you get to level five and six, money is not your problem. It's something else in your life. And so that's why it's quote amplified in that way.

The 0.1% rule is this idea that your spending can go up over time, but it's got to be based on your wealth and not your income, right? And so where the 0.1% rule comes from, it's like I'm assuming that 0.1% of your wealth or 1/10,000th of your wealth is a trivial amount of money, right? So this actually came from a Jay-Z lyric. I'm not going to say the actual lyrics because he curses, so I'm not going to curse on the podcast, but he says, 'What's 50 grand to someone like me? Can you please remind me?' At the time, his net worth was like roughly $500 million. So 50 grand to him was, you know, one basis point, 0.1% or 1/10,000th of his wealth. It was trivial to him. And I said, 'Oh, that's kind of interesting.' And I kind of started thinking about this a little bit more and I was like, 'That's actually true for everybody. Like that number is relatively trivial. So if you have a $10,000 net worth, you're basically on the cusp of level two. $1 to you is nothing, right? You can lose that and you'd be okay, right?' And so I think how this works is your marginal spending decision should be based on this type of rule. So what I call level two, I call that grocery freedom because from $10,000 to $100,000 that means your marginal spending decision is going to be from $1 to $10, right? If you divide both of those numbers by $10,000, right? So you have this $1 to $10 decision. So when you're at the grocery store, you're like, 'Oh, do I buy eggs or cage-free eggs?' Like, 'Oh, the cage-free eggs are like a dollar more. I can afford that. Not a big deal.' Right? And so that's where that thinking comes from. And this scales up the wealth ladder. So in level three, I call that restaurant freedom, right? So now your marginal decision is between $10 and $100. And so when you're at a restaurant, you can go buy a more expensive entree or, you know, get a few glasses of wine, whatever. That pushes you up into like, hey, I can pay that without having to worry about it, right? And then level four is what I call travel freedom. That's where the marginal decision is between $100 and $1,000. And by the way, this is assumed to be on a daily basis. And the underlying assumption is that your wealth is growing by 0.01% per day, which on an annual basis is 3.7% per year. So that's kind of where it comes from.

You can spend up from $100 to $1,000 a day on the marginal decision. This is not, oh, I can only spend $100 a day for my whole life. Like, no, that's not it. Cuz you obviously have income coming in. This is your marginal spending decision because everyone makes spending decisions on the margin. No one in level one is saying, 'Oh, should I buy a Maserati today?' No, they know they can't afford that, right? They are saying, 'Oh, can I buy this latte? Can I buy this thing at the grocery store? Can I buy this thing at a restaurant?' It's that little marginal decision is where you're making the spending decision. And my argument is that marginal decision should increase as your wealth increases, right? And so once you're in level two, you can go to the grocery store without worrying about it, right? Once you're in level three, you can eat at a restaurant more regularly without worrying about it and get what you want at the restaurant. And then it goes up from there. That's the point of this rule and the thinking behind it. It's not that you can only spend $100 a day as a millionaire. Of course not. But your wealth is generating that. If you have a million dollars, your wealth is generating that every single day. If I have a million dollars in net worth, I can spend $100 a day and not worry about it.

That assumes your wealth is generating that every year. That's just the underlying assumption. It's like less than the 4% rule. It's like 3.7% roughly. It's like even less than the 4% rule is kind of what this is if you really think about it.

No. No, no, no, no. I'm not saying that. This doesn't work for retirees.