Having published Just Keep Buying [1] to rave reviews – not least our own [2] – bestselling author Nick Maggiulli is back with The Wealth Ladder [3] (alternative link [4] to the US edition). Here Nick explains why he believes his Wealth Ladder concept is the ideal framework for tracking and improving your financial life.
When I was five years old my father taught me how to play chess. For fun, he’d invite his friends over and have them challenge me to a game. They were always shocked when I won.
Picture it. You’re 27 years old and a kindergartner just crushed your self-esteem with a single word – checkmate.
Jokes aside, I wasn’t a future chess prodigy. My father’s friends were simply terrible at the game.
I stopped playing chess a few years later when my parents split up and didn’t pick it up again until my junior year of high school. I found a renewed interest in the game after playing against a friend, and we decided to start a chess club. To improve my skills, I spent hours studying openings and the best ways to respond to them. My first five to ten moves in a game were often automatic, pulled from memory. My strategy worked and I got better.
But it wasn’t until I entered my first real chess competition that I learned an unforgettable lesson.
When amateurs learn chess, many of them do the same things I did. They memorize openings and hope that their opponent makes a mistake along the way. They win based on good initial positioning and by avoiding simple blunders.
But Victor, one of the star players at my first chess competition, was different. He didn’t play chess like an amateur. Sometimes Victor would start a game with a traditional opening and sometimes he wouldn’t. He’d accept a gambit (the sacrifice of a piece) with one opponent, but completely ignore it with another.
It was like he wasn’t playing the same game as the rest of us.
Here’s the puzzling part though – no matter how much I watched him play, I couldn’t figure out how he did it. I had no frame of reference for his decision making. You’d think that if I kept practicing, I’d eventually be able to compete with Victor, but you’d be wrong. I could not simply take my approach of going through chess openings, do it for hundreds of additional hours, and get to his skill level. My strategy plus time did not equal Victor.
No, what I really needed was to find a different way to play chess altogether.
This is the lesson Victor taught me: Sometimes effort alone doesn’t determine your results. How and where you apply that effort does.
Years later, I realised that the same thing is true when it comes to building wealth.
Thinking different
Having the wrong framework when trying to get ahead financially can leave you spinning your wheels with little to show for it.
Many people try to fix this by working more hours or following the latest financial advice, but they still don’t see a big change. Then they attribute their lack of success to their work ethic, their boss, or bad luck, when their problem has been their approach all along. They’re trying to memorize openings while the Victors of the world pass them by.
As Andy Grove, the former CEO of Intel, once said, “There are so many people working so hard and achieving so little.”
Their problem isn’t effort – it’s strategy.
But what if there was a better way? What if there was a new framework for understanding how to build wealth, one that actually worked? Not a get-rich-quick scheme or a one-size-fits-all solution to your money problems, but a new philosophy for thinking about money altogether. What if this system didn’t tell you what to do, but taught you how to think about your finances?
Telling people what to do works fine when they face the same problem again and again. But, this approach doesn’t work with money and wealth, where things are constantly in flux. Interest rates change, our careers change, and our desires change, so why should our strategy for building wealth stay the same?
It shouldn’t. Instead, a better approach would be to have a solid framework to rely upon throughout our long and varied lives.
That framework is what I call the Wealth Ladder.
Introducing the Wealth Ladder
If I gave you $100, would that change your life?
How about $100,000? What about $100 million?
Your answer will depend upon a variety of factors, but most importantly, how much money you have today. For most people, $100 million would fundamentally transform their lifestyle. But for someone like Jeff Bezos, $100 million wouldn’t even register. This simple observation has profound implications for understanding wealth, and how our view of it can change as we acquire more of it.
For the record, when I say ‘wealth’ I am referring to your net worth, or your assets minus your liabilities. That is everything you own (i.e., property, financial assets, cash, etc.) minus everything that you owe to others (i.e., mortgage, student loans, credit card debt, etc.).
The problem is, we’ve been looking at wealth in the wrong way. We’ve assumed that more wealth is better and that it can solve all our problems. We’ve also assumed that more wealth means more personal consumption.
Unfortunately, this is only true in the extremes.
The person with $100,000 can afford a lifestyle that is quite different from the person with only $1,000. However, the person with $500,000 lives nearly identically to the person with $400,000. Though these two people are separated by $100,000, they likely shop at similar stores, drive similar cars, and live in similar homes. In this sense, our enjoyment of wealth isn’t something that goes up with every additional dollar (or $1,000) we get, but something that increases in steps.
From this perspective, wealth isn’t a straight line, it’s a ladder. And each rung of this ladder corresponds with a wealth level that will impact nearly every facet of your financial life.
From how you spend money, to how you earn it and how you invest it, each level of the Wealth Ladder is unique.
What are these wealth levels?
- Level 1 (<$10,000)
- Level 2 ($10,000–$ 100,000)
- Level 3 ($100,000–$ 1 million)
- Level 4 ($1 million– $ 10 million)
- Level 5 ($10 million– $ 100 million)
- Level 6 ($100 million+)
The levels are separated by a factor of 10, because this corresponds with the increase in wealth needed to create a large lifestyle change.
Wealth around the world
You can see these wealth levels with their respective net worth ranges in the chart below.
For example, Level 1 is for those with a net worth less than $10,000, Level 2 is for those with a net worth of $10,000 to $100,000, and so on.
From this we can infer that each level up the Wealth Ladder is exponentially more difficult to reach than the one before it. This explains why the number of people around the world in each level tends to get smaller as we go further up the ladder.
For example, the following chart is a breakdown of the percentage of people in each wealth level around the world and in the United States as of 2023:
[5]As you can see, the majority of people around the world fall in Levels 1-2, with increasingly smaller groups of people in each level above that.
There are roughly 1.5 billion adults in Level 1 (<$10k), but there are only about thirty thousand adults in Level 6 ($100M+). Given the amount of wealth concentrated in the United States, the distribution of people across the Wealth Ladder is shifted upward here. As a result, most households in the U.S. are in Level 3 ($100k-$1M), not Levels 1-2. Despite this upward shift, there are still far more households lower on the Wealth Ladder than higher. For example, there are 56 million U.S. households in Level 3, but only about 10,000 U.S. households in Level 6.
Since such immense fortunes are rare, some people have warped perceptions of wealth and what it means to do well financially.
If we map the different economic classes in the U.S. onto the Wealth Ladder, we can see this more clearly:
- Level 1. Lower class (<$10k)
- Level 2. Working class ($10k–$ 100k)
- Level 3. Middle class ($100k–$ 1M)
- Level 4. Upper middle class ($1M–$ 10M)
- Level 5. Upper class ($10M–$ 100M)
- Level 6. The superrich ($100M+)
From this perspective, you can begin to understand why some people with lots of money don’t feel rich – it’s because they’re looking at higher economic classes or Wealth Levels. People in Level 4 look at people in Levels 5-6 and say, “I’m not rich, they are rich.” Though people in Level 4 are millionaires, they can’t afford to live like the stereotypical rich person depicted in the media and popular culture. Those people, who are in Levels 5-6, can actually afford to fly in private jets and own supercars.
From this simple categorization of wealth into levels, we can also imagine how your financial strategy might change as you move up the Wealth Ladder
For example, the strategy to get you from Level 1 to Level 2 will be fundamentally different from the strategy to get you from Level 5 to Level 6.
How to climb the ladder
This categorisation of wealth into levels also explains why different financial experts give seemingly contradictory advice.
One may argue that budgeting is the key to financial success, while another claims that starting a business is more important. Who is right?
The Wealth Ladder teaches us that both of them are, they are just talking to people at different levels on the Wealth Ladder.
While budgeting can be useful for someone in Level 1 of the Wealth Ladder, it likely won’t make a difference for someone in Level 6. This would classify budgeting as Level 1 strategy. Similarly, starting and scaling a business could help someone in Level 6 build more wealth, but probably isn’t the right strategy for someone in Level 1. This would classify running a business as a higher- level strategy.
Just like a fitness coach would provide different diet and exercise advice to an obese person than to a well-trained athlete, the Wealth Ladder will provide different financial advice based on where you are on your financial journey.
In this way, the Wealth Ladder is a grand unifying framework that will fundamentally change how you think about wealth and how to build it.
Once you’ve grasped the concept of the Wealth Ladder, it will be difficult to look at your finances the same way again. As the saying goes, “Once you see it, you can’t unsee it.” Your shift in thinking will influence how you choose a career, how you take risks, and, ultimately, how you live your life. You’ll see that the difference between those who build wealth and those who don’t isn’t necessarily how hard they work. Rather, it’s what strategies they follow and where they focus their time and energy.
Thankfully, you won’t need to guess about where to focus yours. The Wealth Ladder already has the answer.
The Wealth Ladder works
Before we start climbing The Wealth Ladder, let me tell you a little bit about my story.
I grew up in a working-class family in Southern California. My mom was a loan processor. My dad bounced between jobs – limo driver, insurance agent, and more. They divorced when I was young and declared bankruptcy multiple times before I turned eighteen.
This unfortunate set of circumstances meant I had no financial role models. No road map. I had to figure out money on my own. I became the first in my family to graduate from college – and not just any college. I went to Stanford, an elite private school where I met people from different walks of life, many wildly different from my own.
From there, I started my career in litigation consulting, working alongside high-powered professionals across the business world. For a few years, I even played in a band with a handful of lawyers.
Now, I work at Ritholtz Wealth Management, a firm that manages more than $5 billion in assets for thousands of clients. I’m also a financial writer and author of the bestselling book Just Keep Buying [6].
Because of these experiences, I’ve seen wealth from every angle. I’ve met people at every level of The Wealth Ladder. I’ve also analyzed an enormous amount of financial data – everything from the Survey of Consumer Finances (run by the Federal Reserve) to the University of Michigan’s Panel Study of Income Dynamics, and more. These datasets contain financial information on tens of thousands of US households over the span of five decades.
The Wealth Ladder distills what I’ve learned from this research along with my own journey with money.
Time to step up
Most importantly, I’ve built life-changing wealth – for myself, my family, and for thousands of people around the world – because of it.
The Wealth Ladder is the framework I’ve developed to help you do the same. And while I’m not at the highest wealth level, I know many who are. Some are my mentors. Some were colleagues. Some I’ve met online. I’ve seen the benefits of great wealth – but also its pitfalls.
My book is both a guide and a warning. It’s about how to build wealth – and knowing when enough is enough.
My goal? To help you climb The Wealth Ladder in a way that actually improves your life.
The only question left is: Are you ready to climb it?
[3]Obviously the first step on this ladder is to grab your own copy of Nick’s book – which is available in UK [3] as well as US [4] editions. On that score, I’m curious… how do you think Nick’s Wealth Ladder levels map to the UK? Are our rungs closer together? Share your thoughts below. You could also let us know where you’ve reached – and whether you’re done climbing!