Welcome to How to Money. I'm Joel and today I'm talking moving up the wealth ladder with Nick Majulie. Yes, I am glad to have a friend of the show and newly married Nick Majulie back on How to Money. He's been given the nickname NICKI Numbers because he has a special gift, I would say for conveying wonky money information in a straightforward and digestible way. It's kind of
a tough task. I've been a fan of his blog of Dollars and Data for years now, and if you want to grow your net worth while finding more spending freedom, well that's what we're going to discuss today. So listen up. Nick, thank you so much for coming back on the show, my friend. Thanks for having me back on. Joel appreciate it of course. Okay, we asked you this question three years ago when you came on the podcast, which is what do you like to splurge on? We ask every
guest that question. Matt and I spend what some would call or say too much money on craft beer, and we say, poppycock, we should spend lots of money on craft beer because it's totally worth it. What, especially as you've moved up the wealth out of these past few years, what are you splurging on?
So previously three years ago I said I splurge on restaurants. I still do that. That hasn't changed. But if I have to pick, like, what are the two things I'm spending a.
Lot more on.
One is I'm starting We're gonna get into this when I talk about the wealth latter. I'm starting to splurge a little bit on travel here and there. So I might upgrade my seat to like a emergency row seat versus like I never I would always just take whatever is available. I might get more lagroom. I still haven't gotten to the upgrade to first class yet. That's I'm give me a few years and maybe I can afford that,
But right now I'm not in that spot yet. So I'm upgrading to like the slightly nicer seat on the airplane splurge. The other thing I'm splurging a lot on is health. And it's just like it's the one thing. I'm in my mid thirties now, and so I know, especially for men after forty, you know, unless you take care of yourself, it can really start to slow down. And so I know biology is working against me eventually, But I'm doing everything I can and I'm splurging on whatever.
Oh that costs how much?
I don't care Like health for me is like I don't even think about the price tag when it comes to this stuff because I think it's one of the few things where if you don't have it, you would give away all your money to have it, and so I think it's that important. I think most people underspend, criminally underspend on health. Unfortunately.
I think you're right entry.
It's actually when you talk about spending on health, I think it's a really smart thing. But also there's a lot of things you can do to stay healthy. They don't cost that much money, right, And there's just all these articles about walking ten thousand steps a day or something, and most people can do that and at least hit the bare minimum. But yeah, spend money on the health stuff. I think that makes sense. And the exit road seats,
I can sympathize with that. As someone who's six foot six, I'm getting to the point where I'm willing to bury my frugality just to touch so I can get an exit row seat. And you just got married. I mentioned that at the top I'm curious how you're thoughts about money have changed as you've been in a long term relationship and now you're tying the financial not has that taught you anything about money that maybe you didn't previously know or appreciate.
Funny enough, I actually wrote about this on the blog my wife and I are then girlfriend. We actually started officially this year. We started like basically pooling our money. Even then we weren't technically married yet, and I knew we were going to get married within a few months, and so we kind of created this system, which I called the separate plus joint method. And the idea is, all of your income goes into one joint account, right, and then all of your expenses shared expenses go out
of that account. And then over time, hopefully your income is greater than your expenses, so you're saving money, right. And then every let's savey quarter, we take an equal sized distribution out of the account, and then we invest that separately, so we have no joint investment account. The only joint property we will ever own is going to be a home. Outside of that, if she wants to go buy a rental property with her own assets, she can do. If I want to go buy something, I'm
allowed to do that with my own assets. And so the thinking here is like, I want to provide full autonomy for both partners to invest kind of how they want. And of course we talk about it, Oh do you think we should be diversified this or that. Like we're very level headed about this and we're very open. We have discussions and I take her input, she takes mind,
vice versa. But I think the big change here is allowing for autonomy because I know, at least historically, I know this was something This is especially for women who didn't really have any financial resources. It's controlled by one partner, and then they feel like they might be trapped in
a relationship or something. And so I'm always like, hey, we should be splitting our assets over time, and like we each have our own assets, but obviously, you know, everything comes into the joint account, and so it's basically a pro ratus. So if I'm making seventy percent of the income, I end up paying seventy percent of the expenses, and vice versa. If we're making fifty to fifty, it goes both ways. And so this is true of regardless of who makes money. So that's it's a very simple system.
And if you want more details, it's on my blog. You can search like probably joint method and you'll find the separate and joint method.
Not to pry too much, did you guys sign a prenup? Because I had like pre existing conceptions of a prenup and it seemed at least from like my religious upbringing and.
Stuff like why would you why would you do that?
You're gonna stay married for life and so that talking to people about that and then realizing that, well, they're already like there's a prenup in place thanks to the state that you basically signed up for, and it varies state by state. I don't know, maybe you should be able to create your own. I'm curious what route you took.
Yeah, so we did sign a prenup, and because I had a significant amount of assets coming and so did she. But she also there was another kind of twist here. So her father's a famous sculptor in Europe, and so technically all that inheritance, all that stuff, like if we're married and she gets that, that's like, you know, that would technically fall under marital property. I'm like, I don't want any claim on that stuff that's from your family, right, just like I don't want you to have any claim
on anything from my parents' side, et cetera. And so everything's joint, it's being pulled and everything. So all that money, any money we make from the day we're married, and technically we even backdated it to January first of twenty twenty five, all that is equally split, right and until we ever get if we ever, god forbid, get a divorce, at that point, you know, then things would go back to separate. But the nice thing is, like over time,
we're actually already splitting assets like over time. So in theory, if we ever were to get a divorce, financially, the only thing we'd have to really worry about is any sort of alimony. And then if we have a home, how do we deal with that? Those are the only real two big questions left. Everything else is going to be split over time. And I just thought it was a better method where she can feel like she has her assets, I have mine, and everyone feels comfortable with that,
and she loves it. And I've had a lot of people reach out and said this is a great way of doing it. Not everyone does it some people love pulling everything. Some like having everything separate where they don't pay for anything. They everyone's but it's up, you know, tease their own.
Last question on this, because some of the data does seem to point to the fact that couples who combine everything seem to be happier, or at least that's what they admit to in surveys. So does any part of you think that the siphoning off of finances from each other at least like kind of creating some barriers could lead to less intimacy.
I don't know, ask me in ten years.
But the thing though, is we track everything as a group, Like I have a Google sheet that has all of our assets basically flowing into it, like a rough approximation based on the number of shares we own of different you know, tickers and all this stuff. So I'm tracking and we review it basically, you know, once a month or once a quarter at least. We're looking through it together, so like we're very on the same page. We know
about each other's assets. There's nothing that's hidden because when we did the prenup, we had to be very open about everything, so there's no real issue there. I'm not like, oh I wish everything was coming like we're working as a unit. This is just like, hey, like, those are your assets, and I want you to know that. So if God forbid, something happens to your mother, you don't have to come ask me for permission to go spend ten thousand dollars on your mother. And you never should
have to do anything of that sort. If you want to use your separate assets, you can use them however you want.
Basically, I think that working as a unit is key. I think like outlining that and pointing in the same direction. Even if you do keep something separate, that's what's going to make the difference, I think in your ability to care for each other over time, including your finances. All right, let's get to some talk about your book. You begin the book, you state that we've assumed that more wealth is better and then it can solve all our problems.
And I do think that there is that assumption, maybe particularly in America more so than other countries, But is more wealth and not the answer for a lot of people to a better life.
So more wealth helps when you don't have a lot of wealth, and we can talk about where that is. I have these different levels I come up with when we can go into that in a moment here, But the main idea is as you move up the wealth ladder and get into these different net worth tiers or wealth levels as I call them, money becomes less and
less effective for solving your problems. Right, So, if you're in level one, which I say is that's less than ten thousand dollars in net worth, most of your problems are likely money problems. Money would literally solve most of your life problems. But by the time you get into let's say level five, which is ten million to one hundred million, or level six one hundred million plus, money is very likely not going to solve most of your problems.
Your problems are like with relationships with people, business partners, et cetera. It's going to be with your health. Maybe you weren't taking care of your health, something we discussed earlier. Right, you can think start thinking through this. And the reason why is because you can't buy those things. You can't write your spouse a check and make her love you. Look, okay, here's the ten thousand dollars love me forever. It doesn't work that way, right, And the same thing's true with
your health. You can't buy a new cardiovascular system, right. So when you start going through the motions of thinking through this, you realize money is very useful until you have a lot of it, and then it stops becoming as useful. It works very well to a point, and then everything else you've got to kind of have to work for you. There's no shortcut to a great marriage, there's no shortcut to being healthy, and you.
Know, at least not yet.
Maybe one day AI will solve all this stuff, but I just don't believe we can, you know, out engineer biology at this point. We're not at that point. We're getting better with a lot of the stuff, but you can't prevent you know, decay and all the type of stuff over time.
A good example of that, I think is like celebrities have the same cell phone that I have essentially, right, Like, yeah, maybe mine's a few generations older because I've I haven't upgraded recently, but we essentially have the same device in our hands that we use fairly regularly. And yeah, maybe they've got a private jet, but I still get to go where I want to go. And so I think here you're talking about gradations of wealth and how how that can improve your life, partly in the wealth Ladder.
And I'm curious too, like, why did you construct the wealth ladder the way you did? What made you think that? You don't call them wrungs, you call them levels. What made you? What made you say these are where I think the lines are that separate someone from being level one, level two, level three, and level four all the way up to level six.
So I created these levels, and I'll walk through them in a second here because they were very easy to memorize. But more importantly, the data fit them very well. And I had thought of this idea years ago, but the data didn't fit them as well, and now they fit a lot better. And so that's what makes it useful. But even if we move the numbers, we can debate, oh maybe level four stops at eight million and not
ten million in level five. We can sit here and if you want to go and hyper analyze it, you can, But at the end of the day, like it's about the general framework and the general direction of the idea and not the preciseness of the level. And that's the thing I try and get people to think about. When you're in level four, you're going to think a little differently than when you're in level three, even if the
exact number is not there. So let me walk through the levels, and I'll also tell you how what percentage of US households are in each level. So, by the way, this is net worth. So take all your assets minus all your liabilities, right, and now that's gonna be everything you own. You know, so your car, your house, your cash, your stocks, et cetera, your four one K. Subtract out everything you owe to others. So any sort of mortgage at student loans, credit card, debt, et cetera. That's your
net worth. Okay, And we're doing households, so that includes if you have a spouse whatever. That's called household net worth. Level one is less than ten thousand dollars. That is about twenty percent of US households. Level two is ten thousand to one hundred thousand dollars. That's also about twenty percent of US households. Level three is one hundred thousand to a million dollars. That's about forty percent of US households. That's what I would call the middle class in the
United States. Level four is one million to ten million dollars. That's what I call the upper middle class in the United States, and that's about eighteen percent of households. And when I say upper middle class, that's supposed to be location agnostic. If you've got like five million bucks and you're in rural Alabama, you're definitely upper class. Oh, we can get into that a little bit too. Lastly, is
level five and level six. Level five is ten million to one hundred million, and level six is one hundred million plus. Those two represent just the top two percent of households, and in level six there's only about eleven thousand of these households, and so they're very there's a very long tail, very small number of individuals in that bucket, right, And so from this, you know, just memorize level three. That's like one hundred thousand to a million. That's like
the middle class. And also once you know level three, you can multiple multiply. I tend to go up a level, or divide by ten to go down a level.
And so it's a.
Very simple logarithmic scale. And I came up with it because I was like, hey, this actually fits the data very well and it's easy to memorize, and like, there's so many people that have done these wealth level ideas before, and none of them are You can't memorize them because they're so arbitrary. And oh and this is actually it's nine hundred thousand to eight million, and then this one's
eight million to fourteen million. It's like, great, that's very precise and nice, but you're splitting hair so much that it's not as spreadable as an idea. Yeah, and so this is not I'm gonna admit, this is not perfect. There's no way that it's exactly ten million. There's no way it's exactly one to ten, right, everyone knows that.
But as a framework, it's a much better way of thinking about the idea and then thinking about, Okay, what do I do in level four, and how is that different from what I would do if I were in level three or level five? And that's kind of the idea here.
Which to your point there, I and I think this is one of the things that you're hitting on in your book is that maybe personal finance education is too one size fits all, and the advice that you might give to someone in level on level one of the wealth Ladder, you probably wouldn't give that same advice to somebody on level five, like, hey, cut your Netflix subscription back. That could be impactful at level one, right level five, Sorry, it's not even a drop in the bucket. It doesn't
it doesn't register. So do you see a problem there with the advice that people get? And that maybe it is kind of like hammer and nail and it's the same thing over and over. Like I like to think of our audience as probably being either close to level three, in level three or aiming for level four. Those are the kind of people I'm speaking to, so I kind of have an idea of what advice to dish out.
Whereas if I knew that most of my audience was level five and level six, I well, I probably wouldn't accrue that audience because that's how the kind of person I can speak to.
You know, no exactly, And that's exactly the point.
It's people get very good, especially personal finance content creators myself included. I fell victim to this as well. My first book, Just Keep Buying, is a great book for people in level three going to level four or level two going to level three. It doesn't work for people on level one because me telling them, oh, hey, all you need to do is just buy income producing assets like they don't have the income to do that. I
do talk about raising your income. But if you know most of the books about investing right, so it's like, when you think about it in this way, you realize that like just keep buying wasn't great for people in level one, it wasn't the right solution for people trying to get to.
Level five or level six.
So I needed to zoom out and kind of come up with the higher level framework to view this through. And so you're exactly right in the advice needs to change. You need to think about it differently depending on where you are in your life, where your wealth is, et cetera. And that's that's the main idea here, is your financial strategy should change over time. And I think a lot of people just get caught in these habits and they just keep doing the same thing for a long time without reevaluating.
Does this still make sense?
So when you say your financial habits need to change, do you mean that you need to invest differently?
Do you?
And also it seems like one of the things that you're highlighting is that you need to at least think about spending differently, like as your wealth grows. It's okay, Like that term lifestyle create think gets beaten to pulp, you know in most personal finance circles. It's okay, Like the whole part of growing your net worth is that you can enjoy some of the some of the fruits of your labor. So how do you think then about what needs to change as you are moving up the ladder?
Right, yeah, exactly, And so on the spending front, I can talk about that in particular. So in chapter one, which is about spending, right, the intro just tells you what the wealth latter is, and then chapter one's on spending,
chapter two's on income, chapter three's on investment. So kind of these three big buckets understanding how the wealth latter fits with this, and on spending, the thing I really tried to come up with was a rule that allowed people to spend more over time without jeopardizing their long term wealth.
Right.
So that's basically like, how do you solve the problem of lifestyle creep? And so what I did for this I create something called the point zero one percent rule. And the idea is, if you take your net worth and multiply by point zero one percent, so that is you know, point zero zero zero one, or divide by ten thousand, that could be easier. So if you take your net worth and divide by ten thousand, that is approximately how much your net worth is throwing off daily,
Like your wealth is just creating this daily. And if you do that over three hundred and sixty five days in a year, that's roughly three point seven percent. So it's even more conservative than the four percent rule, right, And this is an inflation adjusted return I'm assuming, right, So if we assume that's true, then periodically you can spend that point zero one percent because it's a trivial amount, right. And where this actually came from there was a Jaz lyric.
I'm not going to repeat the exactly because he curses, but he says, what's fifty grand to someone like me? Can you please remind me? And at the time he hit a net worth of five hundred million dollars, So to jay Z when he wrote that lyric, fifty grand was about point zero one percent of his net worth. And that's where the idea comes from. And so just
apply that to your life. And once you do that on the well ladder, you'll realize that, oh wow, there's different spending categories where I create what I call spending freedom right. So in level two, that's a net worth of ten thousand to one hundred thousand dollars. By the end of level two, your wealth is generating about ten
dollars a day. And so when you go to the grocery store, you know, go a few times a week, you will have you know, extra budget in there in theory to just buy what you want at the grocery store. That's the idea. As you get deeper into level two, and once you're past level two, you can buy whatever you want at the grocery store, you have grocery freedom. Level three is what I call a restaurant freedom right.
So the marginal spend there is gonna be ten dollars up to one hundred dollars right on a daily basis. Now I'm not saying you need to spend that daily, not recommending it. I'm just saying it's like a trivial amount. So when you're at a restaurant, you're like, oh, should I get the burger for twenty bucks or the salmon for thirty That difference is ten dollars, right, And that's where we're making the decision. That's where the lifestyle creep
comes in, is like that marginal decision. So I'm like trying to attack that and say, hey, that's only a ten dollars difference. So if you're in level three, like who cares, you can spend that ten dollars, No big deal, right, And then it goes from their level fours travel freedom, level five is house freedom, et cetera. But we can take this idea and apply it across the wealth letterer.
So one of the things I read something recently, an article, and one of the people being interviewed in that article said something along the lines of like, I'm pretty good about my budget, but I don't hesitate to drop in a thousand bucks on like a concert I really want to go see and I'll do that twenty times a year. And so it seems like this person is like really
blowing their budget. They're going into debt for these for these shows, and maybe they're on the level two of the wealth ladder, but they shouldn't do that until they're level four. So you are big talking, you really think that people should focus more on their income even than they're spending on those lower rungs. But don't We also see a problem by now pay later as indicative of that of people spending more than they should when they are on those early runs.
Yeah, it definitely happens at the end of the day. Like if the only thing you enjoy in life is going to concerts and you have to drop one thousand dollars, I mean, and you're doing it twenty times a year, Like that's your life. I mean, what can I do to Oh, don't ever do that. Don't enjoy your life at all. I'm not saying that, but I do think if you want to do that, that's fine, but there are consequences to that. And that consequence is you probably have to work longer, you may not have as much
money in the future. You know, you're not gonna have assets to pass on what it's what you want out of your life. So I'm not telling people not to spend money. I'm just saying this is a framework. I think it's actually more helpful for those that are having trouble spending money than the opposite. And I've heard more people say, oh my gosh, I don't think about the grocery store anymore. I don't think about the restaurant anymore.
So I'm actually getting more people that have trouble spending money. I'm trying to give them the freedom to spend money. Everyone who spends a lot of money, they don't need this rule. They're not gonna let's be honest, they're not gonna use it.
It's the people that.
Are having trouble spending money find it really useful to kind of free up that mental bandwidth to not worry and have anxiety about their spending. That's where I found it spend most effective.
Do you think part of that anxiety stems from the fire movement? I don't know. I think at times like the more content I consumed in that space, the more I was like, but I got to amass this amount of money so I can like at least have full financial freedom within seven or eight years or something like that. It just felt overwhelming and then I was like, why
am I doing that? Like what's the point? And sure, I still want full financial freedom, but if it comes at the cost of some of this spending that will bring joy to my life now, then it's just not worth it. But I see that in some of the How of Money audience, some of the other folks, the personal finance creators around there. It's like save, save, invest, invest, and then somebody you'll get to enjoy your life.
Yeah.
I don't want to blame the fire movement because the fire movement is very large and very broad and different, Like there are certain types. I think maybe lean fire would fall under that specific thing where it's like you spend as little as possible. But I think it even started before that you can think of, like I don't want to name names, but there have been personal finance commentators out there saying, oh you're and when you drink
coffee or peeing away a million dollars, you've heard. I don't need you know who these people are, right, So I'm not trying to attack them. I just think these ideas are out there, like don't buy avocado toast. I don't know who said that, but like all these little things of why millennials don't have wealth is because of these these small like purchases, daily purchases, and I don't think that's true at all, And so I think that
is where it started. And I think it's just created this anxiety around money and spending that doesn't need to be there. So I definitely don't want to trash the Fire movement because I think there's a lot of the Fire movement that I like, and a lot of good things, like telling people, Hey, you shouldn't be spending to some crazy amount because that's just more time you have to work later. That's a really good idea and that should
be out there. Of Course, you don't want to take that argument to its extreme because it brings up a lot of the issues you've brought up. So I think it's finding that balance. Everything's about balance, right, And so if I have to throw in with one of the fire movements, it's Coast Fire. It's like, hey, get to a point where your retirement's probably taking care of and
then you can kind of reevaluate your life. And I think that's a far better, far less extreme version of fire that I can get behind and I fully support.
So I like the way you discuss moving up the wealth ladder and how that can impact your ability and kind of give you a green light to spend in some areas that you care about. What about investing? Do you feel like our approach to investing should change as we move up the wealth ladder? I feel like I see people who move up the wealth lader, and then you feel like they need to invest in more sophisticated ways.
I've been doing the index fun thing for a while, but maybe I should put on my monocle and invest in like a real estate syndication or something like that. Does that make sense?
I think people do it for a host of different reasons, and we can kind of get into it if you're talking about like a real estate syndicate versus like a hedge fund investment or a private equity, et cetera. I think the investment stuff does need to change, but it really is based on your goals and where you want
to go. And so there's people I've talked to and people that have you know, I've been on other shows with like people at my firm and they've asked, like, Hey, I have six point five million dollars in the queues right all in tech stocks basically, and you know, I feel like I'm great, I'm doing well with everything. I've two kids, all this stuff, and he's like, should I like diversify it all? And it's like, yes, Like you need to change if you want to guarantee you're going
to probably stay in level four. You probably shouldn't have all your money, even though yes, that's been a great strategy for the last five to seven years. I don't know the future, and we've seen what happens when the ques turn. We saw twenty twenty twenty two and how bad it was, and I'm not saying that's going to happen again, but if it were to happen, you.
Could see how like it could be pretty disastrous.
You know, you can protect yourself by taking your foot off the gas pedals.
Yeah, and it's like you're something like this person's won the game and they're still like, why are you adding more risks? So I do think it matters where you are in the well ladder to think about risk and kind of your also your lifestyle situation. If you're single, it's very different than if you have a family in
terms of how much risk you take, et cetera. So I really like to think of it more holistically and I don't have any harder fast rules, but I do think depending on your goals is going to determine how your allocation will change across the wealth ladder.
All right, I think net worth is a great helpful metric, but I think there's also a lot of illiquidity when we're talking about our net worth, talking about it invests putting money in four oh one case and roth irays and stuff like that. Can you tap it well? I want to ask some questions about that and potentially falling down the wealth ladder. We'll talk about that, would think matually.
Right after this, we're back still talk with Nick with Julie talking about his new book, The Wealth Ladder, And Nick I just mentioned illiquidity, Like, when you think about your net worth growing, so much of it is inaccessible, right so and rightly so, Like that's how you grow
your net worth. The more liquid it is. If if you put all your money in high heeled savings accounts, your net worth is going to grow a heck of a lot slower than if you've been investing in the market, if you bought a home and you've seen that increase in value. So what's your take then, when we're talking about this freedom to spend and someone's like, yeah, my net worth growing, but it doesn't feel like I'm richer in the here and now. It feels like I'm building for the future.
Yeah.
So this is something I did address in the book, which is for this spending freedoms, I do recommend using liquid net worth to be more conservative because, for example, let's just use an extreme example. Let's say someone has I don't know, nine hundred thousand dollars in home equity, they have, you know, two hundred thousand dollars in a retirement account, and then ten thousand.
Dollars in cash.
Based on the wealth ladder, they're in level four. I still agree with that assumption. However, based on just how much cash they have, they're kind of in like level one or level basically barely level two, and so they don't have a lot of spending freedom like someone who
maybe had a very different asset profile. And so it's just something to think about, is like, I spend based on liquid networth, and I say that, and so even though I'm talking about networth in general, I think spending based on the liquid networth is a more conservative way
of going about this. So what you do is you just take your net worth, You take out, you know, any sort of home equity that you have, right, so you net that out, and then you also subtract retirement accounts because that is kind of future spending that's going to be used at a future point in time.
Okay, I look this up before our conversation. Turns out there are five hundred thousand ladder related injuries each and every year. So don't clean your own gutters, is what I learned from that. It's shocking to think that. But what about the wealth ladder are there? Their injuries are the people falling down off the wrongs and what typically leads to someone and going from a higher rung two or level to a lower level.
So I think it depends on which level you start at. So for example, if someone's in level two and win to level one, or a level three and win to level two. My guess, based on what I've seen in terms of data, is the most likely cause of that is job loss, right or a health condition that creates job loss. It's interrelated to one of these things. Either you're spending, especially the United States, you're spending a lot
on health. Maybe you lose a job, you lose your health care, and then you have to spend a lot on health. Something like that is like the perfect storm for you know, drying down on wealth much earlier than you anticipated.
And that can be a perpetual cycle for a lot of people. Too, and then hey, you lose that solid job and you're bouncing around from inferior job to inferior job after that.
Yeah.
Yeah, So it's that's my guess of where that's going to happen as you move up the wealth ladder, though it changes completely. And of course, can a job loss still harm you, yes, but it's more likely going to be your investment choice.
And you can think especially like level.
Four level five, Like this is where if someone got into level four through like concentration or a level five. Let's say you have your own business and you sold the business or even you still own it, and it's worth a lot on paper. If something happens to that business, most of your network's probably in that single business. If you know, a COVID type event happens and it adversely impacts your business, I'll ce you own a restaurant group.
Right now, you are being you know.
You can fall down the well flatter because of this concentration you have in your portfolio. So if I had to pick what's the thing that caused someone to fall down from level four to three or five to four, it's going to be concentration bias, right, And actually, if you look at I actually have a mobility matrix was kind of shows, hey, if you started on this level, what's the probability you'd be in this other level, like
in ten years or twenty years. And you see in level five there actually is a higher probability of falling down the ladder than in like level four for example, because I think it's the concentration issue that people overlook. They have most of their wealth and that they can't imagine anything going wrong because they obviously have built all
their wealth, so they feel pretty successful. They are successful at the same time, they don't hedge that risk and then if something happens they could fall down the ladder.
Yeah, they're not taking those protectionary measures to say like let's let's like not screw the pooch here and fall down and let's protect what we've got. So and that's where you know, what you're talking about is changing your the way you think about investing it. It does need to change as you as you move up the wealth ladder and as you're getting older too, right, you do need to de risk. I'm curious to you talk about
the things that we spend our time doing. Not only should moving up the wealth ladder, change how we think about spending, change how we think about investing. But it should also Hey, what opportunities come our way and whether we say yes or no to those opportunities that should change as our net worth increases. So what's your advice there?
And like side hustles, that's like, you know, if I'm going to go drive for Uber on the side to make some extra money, Well, it doesn't really make sense if you're on level five of the wealth ladder, does it?
Yeah, So it really has to do with you have to think about, Okay, where am I on the well ladder? And I so instead of using the point zero one percent rule that was for spending for income, I say use the one percent rule. And of course everything's based on you know, how much time it takes to do something, But let's just do this approximately.
If something's not going to move your.
Net worth by one percent, if the whole project's not really going to lead to something like that, then you maybe shouldn't even be considering it. And once again, of course how much time. If I said clap your hands for one hundred dollars, everyone would do it, even if you're in level five, because at the time relative to the number of second stakes you have to clap your hands is very small, but you get the point. And
so it's not a perfect rule. It's just an idea of like, Okay, this is just another way of evaluating something. So if something's like, hey, someone wants to pay me X dollars to do this, or I'm going to work on this side hustle and it might be able to get to this one day, like is that going to move your net worth enough? And if not, then you have to really reevaluate.
And so it's just.
Another tool in your toolkit when you're thinking about taking on different income opportunities, taking on a new client, et cetera. And so if it's not going to move the needle, you're like, yeah, I actually shouldn't spend a lot of time and resources on that. Another way of thinking through that decision.
And I think that's like when we're talking to listeners who are typically probably in roughly that level three area and we're talking about side hustles. For most people, we think it's a bad idea, like it's not a good use of your time, and it's a better idea to increase your skills to up your income at your day job, or it's a better use of your time to use those hours towards starting a business that can ultimately progress into something far more meaningful than trading your time for
money right now. So, like, do you have similar thoughts about education, increasing income and not wasting your time maybe on side hustles for trading your time for money in the moment.
I think it depends. The side hustle depends where you are on the wealth ladder. I mean, if you're in level three, the side hustle has to get pretty large
to start competing with your day job. I'm guessing right, if you're in level two or something, And they may not necessarily be true, but it really depends on like what are your current skills, how much you're currently making if you're already at a job, or like you're making a decent income and you're like, even if I work my tail off this year, I may get a you know, a ten percent racine a five percent raise. Okay, how
much is that five percent difference? And then calculate, relative to that difference, how much could I possibly make starting a side hustle or doing something. And so I recommend that everyone just has a project of their own that even if it's not for money, just something they like to do because it's it's very valuable. I personally like writing about personal finance and investing and doing data stuff.
And I did that for three years, didn't get paid anything on it when I was blogging, and now it's become something that is a side hustle that was monetized. But that took a very long time. I've been writing for almost nine years online, so I've seen it's a very long journey. And I didn't do it for money though, and so that's another thing too. I think a lot of people you just got to follow your interest and if you start doing that, it can really lead to a lot of great things.
Yeah, what about real estate investing? How does that impact people's ability to move up the wealth ladder? And did you find any correlation between people who you've talked about people who.
Own a business.
Let's say that can be one of those things, especially if it's that brings you up to level four, level five more quick. But then again, a lot of small businesses fail, so there's risk and reward in that. But what about investing in real estate? Has that did you find any correlation between higher ranks of the wealth ladder and real estate ownership.
So not as much as I would have thought. I would have thought we would have seen more. And so if you actually look at percentage of assets like within each wealth level, like it does increase slightly going into like level four, level five, level six, but it didn't like see a massive increase. Most of the increase I saw was in business interests, which is it's roughly defined as like owning some sort of private business that you own,
and that's kind of how you make your wealth. And so people in level six overwhelmingly have way more business interests as a percentage of their total assets compared to level five. And then level five is more than level four,
et cetera. Right, And so in the book, in chapter three, when I talk about investments, I go through all these different assets cash vehicles, your primary residents, real estate, stocks, your retirement accounts, et cetera, and I show across the wealth latter how much percentage is in each wealth level. And the thing with real estate, I didn't see as much of an increase as I thought I was going
to see. But what someone said I showed I had this I tweeted this out and someone said, it's very possible that someone owns like a real estate like LLC and they hold all the real estate in the LLC, and so that's being counted as business interest even though it's real estate.
I didn't.
I haven't looked into that, and that's something I need to look into eventually. So I think there's probably a little more real estate at the higher end, not just obviously an amount that's obviously true, but even on percentage wise. But I didn't see as much as I thought I would, So that was the thing that was a little bit surprising.
I think in real estate usually almost most of the time to make sense as an investment involves leverage. Do you see leverage as a tool that people use to move up the wealth ladder? And how risky is that? Because leverage can cut both ways?
I mean, of course, I mean, if you've been levered up, you know, in the past, let's say, five six years, you probably it depends how levered up you were, obviously, but like in general, asset prices have gone up, so anyone with leverage has has benefited from that. But as soon as it turns like that, can you know it's the double edged sword and it comes and gets you and right. So I think twenty twenty two is a
great example of it. I'm just at least in equity markets where anyone who was levered up in twenty one was absolutely crushing it. And then you just saw this dry up so quickly and it just turned so fast, and it was really bad.
You know.
There's a lot of individual names down eighty ninety percent, like stuff that you saw like the dot com bubble, you know, exploding. And so I'm not saying that that's gonna happen now. I don't know, but that's that's the risk of leverage. And I don't have as much data on Okay, who's using leverage, how much leverage they're using today, and then following them ten years from now and seeing
how they are. You know, so a lot some people just get lucky and then they guess what, they take their chips off the table at the right time, and the thing collapses it. Oh well, I got lucky, And I know people have done that too. So I've seen kind of all sides of that type of stuff over time.
When if let's say someone's listening and they're earlier on in their financial journey. When you talk about level one, you talk about people who are on level one of the wealth latter, you typically refer to those people as being unlucky. Wouldn't you suggest, though, that some of those
people are also just starting their journey off? Right? They just graduated, They've got maybe a super low net worth because they haven't started accumulating assets yet, and they've probably got student loan debt that they're paying off something like that.
And then what would you say to that person who's just starting off if they're like, yeah, I don't want to necessarily get to level six of the wealth ladder, but I want to move up, and I want to do it in a really efficient way, what would your suggestions be?
Yeah, So you bring up a great point, which age is very correlated with all with all the wealth levels. And so in chapter ten of the book, I walk through, like what's the median age in each level? For example, in level four, which is one to ten million, the median age is sixty two, so it is a.
Much older cohort. You start looking.
Through the data, the age stuff definitely matters. I'm not, you know, downplaying that whatsoever. So you're right, there are people in level one level two right now. They're like, oh, I just graduate, I'm in level one, or I just graduate, I'm in level two. Like you know, what's the issue. You just need time. Yeah, a lot of these people just need time to move, move the needle, and obviously if you have a decent income that helps you can
start saving, investing, et cetera. For some people, though, they need to build skills and they need so in level one,
I say, hey, just get to safety. Get to some whether that means having an emergency fund that's something we've all heard before, or just having a network of a friend's family, whoever that you can rely on in case something were to happen, Because the last thing we want is for you to get stuck in level one just perpetually because you're just you're feel like you're treading water because like, oh, I this bad thing happened, and then I got a new credit card debt, and then I
lost my job, like whatever. It is, like you can imagine just like this financial tail spin happening because you just got a little bit unlucky early on. And that's that's where I think a lot of people in level one are in unfortunately, and I'm saying older people in lovel one, they just got unlucky early and maybe they couldn't get themselves out of it.
Yeah. I've got a few more questions I want to get to with you, Nick, including the how important is the wealth ladder? Are we using it to compare ourselves to the people around us too much? We'll get to
that and more right after this. Okay, back with Nick with Julie talking about the wealth ladder, and I think it's such a helpful framework for understanding a bunch of things about your financial journey, about how you're growing your net worth and then what that means to you in the here and now as you are accruing wealth, which
is an important part of getting your finances straight. But we're just talking Nick about how the you know, in level four, the average person with that one to ten million dollar net worth, they're in their sixties, and so I think sometimes though people listening to this show or other personal finance content, they're like that million dollars. I think I'm supposed to hit that in my thirties, and
maybe the pressure feels really great. So do you think that the comparison that we're doing maybe as we're looking at these different levels of the wealth ladder that we're trying to achieve, can have any negative side effects?
Yeah, I definitely can. I mean we don't want people to. I think as bad as looking at data is, I think social media is actually much worse. So I'm not trying to defend the data, but like, if you just look at social media, everyone's crushing in has this and then all this type of stuff. You can't see someone's entire balance sheet. If someone buys a home, you don't know how much they put down the debt any of that stuff, right, You have no clue about any of that.
I think the data is very.
Helpful because you get to see, oh, actually less than one percent of individuals in their twenties make it into level four, right, and it's only five percent of individuals in their thirties make it into level four or higher.
Right.
So it's like once you know that, you're like, oh, actually, like only one in twenty households in the United States are going to make it into level four, right, And so you start looking through that, and that's on page one fifty and chapter ten in the book, right, and.
So feel a little more normal yeah.
Yeah, you start. I actually think it's helpful to see this because then you realize, oh, it's actually not as people aren't as wealthy as I originally thought, even when you control for age.
And so that's a big piece of this too.
Even in the forties, only fifteen percent of households in their forties make it into level four or higher. So this is not like you, oh, it's five percent in the thirties, but by the forti it's got to be what thirty percent, Like, no, it's only fifteen. It's you know, it's still increased quite a bit, but it's still you know, a small one in six households are in level four or higher. So keeping that in mind is incredibly important while you're doing this stuff and as you're on your journey.
So it's like it takes time. It does take a lot of time.
To do that.
Yeah, so give yourself time. How do you think about the quest for moving up the wealth ladder and in particular like level five and six we're talking about that those are really small percentages of people that ever achieve those levels of wealth. Is is it even a good goal to have? And maybe for some people it is, but I'm curious to hear your take and maybe even your goals, like is that something you want to achieve?
Yeah, So in terms of whether it's a good goal, I think it's a bit much. I think you don't need it to live a great life, especially in the United States. And I think in if you're not living in because the US is so expensive, I think you can get by and level three in a much better situation. So it really depends on where you live, your cost of living, amongst other things. In terms of my goals, I have no inclination to ever get to level five, right.
I think I will get there nominally one day, but in terms of real dollars, I don't think I will ever reach out. By the time my net worth is ten million, it won't be what ten million's worth today, I'll say that. So that's my thinking on it.
Right.
It's going to take many decades before that happens, and by then the real purchasing power won't be there. So in terms of actual level five inflation adjusted wealth, I don't think I'm ever going to get there because I just don't have the inclination to go and start my own business and do all.
That, like I have a day job. I do the books and stuff.
And even if I sold, even if the wealth latter sells a million copies right after you know, tax and everything, I'm not going to make enough money to even it's gonna help me, don't get me wrong, But I'm still going to.
Be in level four.
I'm gonna be in level four for a very long time, right, So it is going to take a very and what's going to happen, I'm telling you already is I'm gonna get to a point where I'm like, Okay, do I need to keep doing all this stuff or can I take my foot off the gas a little bit and like enjoy more time and liked spend more time with my family, traveling all this other stuff. I'm going to now start spending down my wealth a little bit and it won't be growing. And so I think that is
what's going to happen at some point. I just don't know when. And I need to kind of approach that within the next probably decade or so. I'm hoping all else equal, right, no crazy, you know, worldwide depression or something.
That's what I would expect. And you have to count the costs ahead of time. Like, my uncle tells my daughter all the time she's twelve, that he wants her to be president of the United States someday. And we've talked about it, like at length now because he tells her that all the time, and she's like, Dad, I
don't know, is that a good goal? And I'm like, I mean, if that's what she really want, But you have to count the cost ahead of time, because if you want to be president of the United States, you were going to have to dedicate so much of your life to.
Getting that goal.
And even if you do, there's like the chances of actually succeeding in getting that one job it's unlikely. So yeah, it might be the goal that you have someday, but it also you might realize that it's not even worth pursuing. But you got to think about that stuff ahead of time, because I think you can get stuck on this treadmill of Okay, wealth Ladder, next level, let's go up, I gotta I gotta keep moving and realize that you're playing
the wrong game. You've maybe won the wrong game at the end of the day.
Yeah, And that's and that is one of the there's three parts of the book the first part is just kind of telling you about the wealth lat or the second part I talk about each level and kind of different strategies to move up to burn from falling down, et cetera.
And then the.
Third part I talk about kind of that bigger picture like why are you climbing? Should you be climbing? I kind of get into all these issues because you're right, like most people are never going to make it to level five or six, myself included, And so when you think about that, like what are the things that really matter? And I really try and address that in a in a very different way. So that's not just keep climbing, that's not the that's not the.
Goal of the book.
Well, and you even you even talk about the downsides of having megawealth, and you hear from some people in that rarefied air who say, yeah, most of the people I know that are the unhappiest or some of these folks in these upper echelons of the wealth ladder. So for people I think in level one and two who aspire to have greater levels of wealth, it kind of doesn't compute. How is it that having more money leads to less happiness? But it's possible it does, right.
Yeah, And so actually there's a whole chapter in the book where I talk about money and happiness and so in general. So if I would say, if you're in level one or two, more money will probably make you happier. Beyond that, I can't make any guarantees, but what the research shows is if you're already happy, more money is going to make you happier. Right, So, if you're in level three or four, you're enjoying life, you're not even
asking yourself, will more money make me happier? You're probably going to be happier if you had more money, which is kind of an ironic thing. If you're in level three or four and you're like, oh, I don't I just don't feel as happy if I had more money than I'd be happy. It's not the money. The money's actually not going to do it, and the data shows that. So I think that's kind of the big takeaway. I mean,
the big like somemo. How I summarize it in the book is if you're happy, more money will make you happier. If your poor, more money will make you happier. But if you're not poor and you're not happy. More money's not going.
To do a thing.
So that's kind of the big takeaway from what the research shows. And this is the newest research.
Trust me. They looked at that.
Everyone's heard that study about well, I heard, I thought happiness doesn't increase beyond seventy five thousand dollars in income. I look at that research. Someone else addressed it. They got together, looked at all the data and they had there's a very different conclusion out there now. So it's been updated and I discuss it in the book.
It's an amplifier, right, and so yeah, I can't amplify that happiness and offer you more freedom and the ability to live the life you want. But it can also drag you down, and it can it really can feel like more money, more problems.
Nick.
Where can our listeners find out more about you and more about your new book, The Wealth Letter.
So my websites of Dollars and Data dot com. I blogged there once a week. You can find me on LinkedIn at Nick Majulie x, slash, Twitter at Dollars in Data or on Instagram at Nick Madoulie and I answer. So please send me a DM as long as it's not unhinged spam. Like I swear, I answer every DM. Ladies, he's married, so not that kind. It's either not that type of DM. But no, any sort of no, seriously, any sort of financial question. I will try my best
to answer it. And if not, I've probably written about or I know someone's written about. I can just send you a blog post you can read and that hopefully can help you in some way.
Love it awesome, Nick, Thanks so much for joining us, tod. I appreciate it. Thanks for having me back on Joel, appreciate it. Okay, that was a fun conversation with Nick Mejulie. I appreciate the way he thinks and writes about money, and I do think that this concept of the wealth ladder can help you as an individual as you are trying to grow your wealth and trying to think about preserving your wealth, but also how you can change your life as your net worth increases. I think Nick's framework
is super helpful for that. You'll notice by the way that my co host and best friend Matt was not on this episode with me and just trying something new, especially when it comes to the interview episodes to two people need to be asking questions. I don't know. We figure we give it a shot at least on this one and see if maybe it was better with a singular host. But of course he will be back with me on Friday. I wanted to give my big takeaway for this episode, and you know it just I think
what Nick is saying. Essentially, it's different structure, different folks, and it takes different attributes and attitudes to succeed at different levels of the wealth ladder. And so what serves you well in rung one and Rong two doesn't serve
you nearly as well once you move up further. And so, for instance, like Charlie Munger said at one point, who was Warren Buffett's sidekick who recently passed away, He said, basically, to walk everywhere you can and to use coupons every time you got to eat in order to reach your first one hundred thousand dollars. So he was saying, do
whatever it takes to get to that point. Were even master first hundred k And he basically makes it sound like that's the hardest one hundred thousand dollars to get in your life, that the second, third, and fourth they get subsequently easier. And I think it's true. I think it's very true given my experience is that the first one hundred K is so much harder to a mass, and then really time and the markets, like compounding returns, start to work in your favor. So should you stop
walking and stop using coupons? I don't know. I'm the kind of guy who's still prone and to doing those things. And maybe it's just because I want to be efficient with what's been placed into my life. But do I do it less than I used to? And have I opened the purse strings more than I did when I was in my early mid twenties, really just trying to get past wrung one and two? Yes, yes I have,
And so my life does look different. I think about even just Nick's concept of being grocery store, being able to spend what you want at the grocery store, and then being able to spend what you want at a restaurant. Those are just different levels of financial freedom. And I think about staying at hostels. Would I not stay at I used to stay at hostels? Like would I stay at a hostel again? Maybe? But I'm not inclined to
nearly as much as these days. So but there are also things I could learn from this book about being willing to spend all the things that matter to me, and maybe maybe as I continue to move up, being more generous with what I've been given to. So I just appreciate Nick's take, and I hope it was helpful
for you. And unlike Nick, I don't see level five or six in my future, but I'm okay avoiding those upper rungs and live in a mostly normal life where I still have a lot of financial freedom and choice over what my days look like. But that's going to do it for this episode. You can always find more money saving information up on our website at how to Money, and you can sign up for the how to Money
newsletter at howdomoney dot com slash newsletter. I guess I can't really do best friends out says my best friends out here with me, but I will say thanks for listening.