Speaker 1: Welcome to How to Money. I'm Joel and today I'm
Speaker 1: talking moving up the wealth ladder with Nick Majulie. Yes,
Speaker 1: I am glad to have a friend of the show
Speaker 1: and newly married Nick Majulie back on How to Money.
Speaker 1: He's been given the nickname NICKI Numbers because he has
Speaker 1: a special gift, I would say for conveying wonky money
Speaker 1: information in a straightforward and digestible way. It's kind of
Speaker 1: a tough task. I've been a fan of his blog
Speaker 1: of Dollars and Data for years now, and if you
Speaker 1: want to grow your net worth while finding more spending freedom,
Speaker 1: well that's what we're going to discuss today. So listen up. Nick,
Speaker 1: thank you so much for coming back on the show,
Speaker 1: my friend. Thanks for having me back on. Joel appreciate
Speaker 1: it of course. Okay, we asked you this question three
Speaker 1: years ago when you came on the podcast, which is
Speaker 1: what do you like to splurge on? We ask every
Speaker 1: guest that question. Matt and I spend what some would
Speaker 1: call or say too much money on craft beer, and
Speaker 1: we say, poppycock, we should spend lots of money on
Speaker 1: craft beer because it's totally worth it. What, especially as
Speaker 1: you've moved up the wealth out of these past few years,
Speaker 1: what are you splurging on?
Speaker 2: So previously three years ago I said I splurge on restaurants.
Speaker 2: I still do that. That hasn't changed. But if I
Speaker 2: have to pick, like, what are the two things I'm
Speaker 2: spending a.
Speaker 3: Lot more on.
Speaker 2: One is I'm starting We're gonna get into this when
Speaker 2: I talk about the wealth latter. I'm starting to splurge
Speaker 2: a little bit on travel here and there. So I
Speaker 2: might upgrade my seat to like a emergency row seat
Speaker 2: versus like I never I would always just take whatever
Speaker 2: is available. I might get more lagroom. I still haven't
Speaker 2: gotten to the upgrade to first class yet. That's I'm
Speaker 2: give me a few years and maybe I can afford that,
Speaker 2: But right now I'm not in that spot yet. So
Speaker 2: I'm upgrading to like the slightly nicer seat on the
Speaker 2: airplane splurge. The other thing I'm splurging a lot on
Speaker 2: is health. And it's just like it's the one thing.
Speaker 2: I'm in my mid thirties now, and so I know,
Speaker 2: especially for men after forty, you know, unless you take
Speaker 2: care of yourself, it can really start to slow down.
Speaker 2: And so I know biology is working against me eventually,
Speaker 2: But I'm doing everything I can and I'm splurging on whatever.
Speaker 3: Oh that costs how much?
Speaker 2: I don't care Like health for me is like I
Speaker 2: don't even think about the price tag when it comes
Speaker 2: to this stuff because I think it's one of the
Speaker 2: few things where if you don't have it, you would
Speaker 2: give away all your money to have it, and so
Speaker 2: I think it's that important. I think most people underspend,
Speaker 2: criminally underspend on health. Unfortunately.
Speaker 3: I think you're right entry.
Speaker 1: It's actually when you talk about spending on health, I
Speaker 1: think it's a really smart thing. But also there's a
Speaker 1: lot of things you can do to stay healthy. They
Speaker 1: don't cost that much money, right, And there's just all
Speaker 1: these articles about walking ten thousand steps a day or something,
Speaker 1: and most people can do that and at least hit
Speaker 1: the bare minimum. But yeah, spend money on the health stuff.
Speaker 1: I think that makes sense. And the exit road seats,
Speaker 1: I can sympathize with that. As someone who's six foot six,
Speaker 1: I'm getting to the point where I'm willing to bury
Speaker 1: my frugality just to touch so I can get an
Speaker 1: exit row seat. And you just got married. I mentioned
Speaker 1: that at the top I'm curious how you're thoughts about
Speaker 1: money have changed as you've been in a long term
Speaker 1: relationship and now you're tying the financial not has that
Speaker 1: taught you anything about money that maybe you didn't previously
Speaker 1: know or appreciate.
Speaker 2: Funny enough, I actually wrote about this on the blog
Speaker 2: my wife and I are then girlfriend. We actually started
Speaker 2: officially this year. We started like basically pooling our money.
Speaker 2: Even then we weren't technically married yet, and I knew
Speaker 2: we were going to get married within a few months,
Speaker 2: and so we kind of created this system, which I
Speaker 2: called the separate plus joint method. And the idea is,
Speaker 2: all of your income goes into one joint account, right,
Speaker 2: and then all of your expenses shared expenses go out
Speaker 2: of that account. And then over time, hopefully your income
Speaker 2: is greater than your expenses, so you're saving money, right.
Speaker 2: And then every let's savey quarter, we take an equal
Speaker 2: sized distribution out of the account, and then we invest
Speaker 2: that separately, so we have no joint investment account. The
Speaker 2: only joint property we will ever own is going to
Speaker 2: be a home. Outside of that, if she wants to
Speaker 2: go buy a rental property with her own assets, she
Speaker 2: can do. If I want to go buy something, I'm
Speaker 2: allowed to do that with my own assets. And so
Speaker 2: the thinking here is like, I want to provide full
Speaker 2: autonomy for both partners to invest kind of how they want.
Speaker 2: And of course we talk about it, Oh do you
Speaker 2: think we should be diversified this or that. Like we're
Speaker 2: very level headed about this and we're very open. We
Speaker 2: have discussions and I take her input, she takes mind,
Speaker 2: vice versa. But I think the big change here is
Speaker 2: allowing for autonomy because I know, at least historically, I
Speaker 2: know this was something This is especially for women who
Speaker 2: didn't really have any financial resources. It's controlled by one partner,
Speaker 2: and then they feel like they might be trapped in
Speaker 2: a relationship or something. And so I'm always like, hey,
Speaker 2: we should be splitting our assets over time, and like
Speaker 2: we each have our own assets, but obviously, you know,
Speaker 2: everything comes into the joint account, and so it's basically
Speaker 2: a pro ratus. So if I'm making seventy percent of
Speaker 2: the income, I end up paying seventy percent of the expenses,
Speaker 2: and vice versa. If we're making fifty to fifty, it
Speaker 2: goes both ways. And so this is true of regardless
Speaker 2: of who makes money. So that's it's a very simple system.
Speaker 2: And if you want more details, it's on my blog.
Speaker 2: You can search like probably joint method and you'll find
Speaker 2: the separate and joint method.
Speaker 1: Not to pry too much, did you guys sign a prenup?
Speaker 1: Because I had like pre existing conceptions of a prenup
Speaker 1: and it seemed at least from like my religious upbringing and.
Speaker 3: Stuff like why would you why would you do that?
Speaker 1: You're gonna stay married for life and so that talking
Speaker 1: to people about that and then realizing that, well, they're
Speaker 1: already like there's a prenup in place thanks to the
Speaker 1: state that you basically signed up for, and it varies
Speaker 1: state by state. I don't know, maybe you should be
Speaker 1: able to create your own. I'm curious what route you took.
Speaker 2: Yeah, so we did sign a prenup, and because I
Speaker 2: had a significant amount of assets coming and so did she.
Speaker 2: But she also there was another kind of twist here.
Speaker 2: So her father's a famous sculptor in Europe, and so
Speaker 2: technically all that inheritance, all that stuff, like if we're
Speaker 2: married and she gets that, that's like, you know, that
Speaker 2: would technically fall under marital property. I'm like, I don't
Speaker 2: want any claim on that stuff that's from your family, right,
Speaker 2: just like I don't want you to have any claim
Speaker 2: on anything from my parents' side, et cetera. And so
Speaker 2: everything's joint, it's being pulled and everything. So all that money,
Speaker 2: any money we make from the day we're married, and
Speaker 2: technically we even backdated it to January first of twenty
Speaker 2: twenty five, all that is equally split, right and until
Speaker 2: we ever get if we ever, god forbid, get a divorce,
Speaker 2: at that point, you know, then things would go back
Speaker 2: to separate. But the nice thing is, like over time,
Speaker 2: we're actually already splitting assets like over time. So in theory,
Speaker 2: if we ever were to get a divorce, financially, the
Speaker 2: only thing we'd have to really worry about is any
Speaker 2: sort of alimony. And then if we have a home,
Speaker 2: how do we deal with that? Those are the only
Speaker 2: real two big questions left. Everything else is going to
Speaker 2: be split over time. And I just thought it was
Speaker 2: a better method where she can feel like she has
Speaker 2: her assets, I have mine, and everyone feels comfortable with that,
Speaker 2: and she loves it. And I've had a lot of
Speaker 2: people reach out and said this is a great way
Speaker 2: of doing it. Not everyone does it some people love
Speaker 2: pulling everything. Some like having everything separate where they don't
Speaker 2: pay for anything. They everyone's but it's up, you know,
Speaker 2: tease their own.
Speaker 1: Last question on this, because some of the data does
Speaker 1: seem to point to the fact that couples who combine
Speaker 1: everything seem to be happier, or at least that's what
Speaker 1: they admit to in surveys. So does any part of
Speaker 1: you think that the siphoning off of finances from each
Speaker 1: other at least like kind of creating some barriers could
Speaker 1: lead to less intimacy.
Speaker 3: I don't know, ask me in ten years.
Speaker 2: But the thing though, is we track everything as a group,
Speaker 2: Like I have a Google sheet that has all of
Speaker 2: our assets basically flowing into it, like a rough approximation
Speaker 2: based on the number of shares we own of different
Speaker 2: you know, tickers and all this stuff. So I'm tracking
Speaker 2: and we review it basically, you know, once a month
Speaker 2: or once a quarter at least. We're looking through it together,
Speaker 2: so like we're very on the same page. We know
Speaker 2: about each other's assets. There's nothing that's hidden because when
Speaker 2: we did the prenup, we had to be very open
Speaker 2: about everything, so there's no real issue there. I'm not like,
Speaker 2: oh I wish everything was coming like we're working as
Speaker 2: a unit. This is just like, hey, like, those are
Speaker 2: your assets, and I want you to know that. So
Speaker 2: if God forbid, something happens to your mother, you don't
Speaker 2: have to come ask me for permission to go spend
Speaker 2: ten thousand dollars on your mother. And you never should
Speaker 2: have to do anything of that sort. If you want
Speaker 2: to use your separate assets, you can use them however
Speaker 2: you want.
Speaker 1: Basically, I think that working as a unit is key.
Speaker 1: I think like outlining that and pointing in the same direction.
Speaker 1: Even if you do keep something separate, that's what's going
Speaker 1: to make the difference, I think in your ability to
Speaker 1: care for each other over time, including your finances. All right,
Speaker 1: let's get to some talk about your book. You begin
Speaker 1: the book, you state that we've assumed that more wealth
Speaker 1: is better and then it can solve all our problems.
Speaker 1: And I do think that there is that assumption, maybe
Speaker 1: particularly in America more so than other countries, But is
Speaker 1: more wealth and not the answer for a lot of
Speaker 1: people to a better life.
Speaker 2: So more wealth helps when you don't have a lot
Speaker 2: of wealth, and we can talk about where that is.
Speaker 2: I have these different levels I come up with when
Speaker 2: we can go into that in a moment here, But
Speaker 2: the main idea is as you move up the wealth
Speaker 2: ladder and get into these different net worth tiers or
Speaker 2: wealth levels as I call them, money becomes less and
Speaker 2: less effective for solving your problems. Right, So, if you're
Speaker 2: in level one, which I say is that's less than
Speaker 2: ten thousand dollars in net worth, most of your problems
Speaker 2: are likely money problems. Money would literally solve most of
Speaker 2: your life problems. But by the time you get into
Speaker 2: let's say level five, which is ten million to one
Speaker 2: hundred million, or level six one hundred million plus, money
Speaker 2: is very likely not going to solve most of your problems.
Speaker 2: Your problems are like with relationships with people, business partners,
Speaker 2: et cetera. It's going to be with your health. Maybe
Speaker 2: you weren't taking care of your health, something we discussed earlier. Right,
Speaker 2: you can think start thinking through this. And the reason
Speaker 2: why is because you can't buy those things. You can't
Speaker 2: write your spouse a check and make her love you. Look, okay,
Speaker 2: here's the ten thousand dollars love me forever. It doesn't
Speaker 2: work that way, right, And the same thing's true with
Speaker 2: your health. You can't buy a new cardiovascular system, right.
Speaker 2: So when you start going through the motions of thinking
Speaker 2: through this, you realize money is very useful until you
Speaker 2: have a lot of it, and then it stops becoming
Speaker 2: as useful. It works very well to a point, and
Speaker 2: then everything else you've got to kind of have to
Speaker 2: work for you. There's no shortcut to a great marriage,
Speaker 2: there's no shortcut to being healthy, and you.
Speaker 3: Know, at least not yet.
Speaker 2: Maybe one day AI will solve all this stuff, but
Speaker 2: I just don't believe we can, you know, out engineer
Speaker 2: biology at this point. We're not at that point. We're
Speaker 2: getting better with a lot of the stuff, but you
Speaker 2: can't prevent you know, decay and all the type of
Speaker 2: stuff over time.
Speaker 1: A good example of that, I think is like celebrities
Speaker 1: have the same cell phone that I have essentially, right, Like, yeah,
Speaker 1: maybe mine's a few generations older because I've I haven't
Speaker 1: upgraded recently, but we essentially have the same device in
Speaker 1: our hands that we use fairly regularly. And yeah, maybe
Speaker 1: they've got a private jet, but I still get to
Speaker 1: go where I want to go. And so I think
Speaker 1: here you're talking about gradations of wealth and how how
Speaker 1: that can improve your life, partly in the wealth Ladder.
Speaker 1: And I'm curious too, like, why did you construct the
Speaker 1: wealth ladder the way you did? What made you think that?
Speaker 1: You don't call them wrungs, you call them levels. What
Speaker 1: made you? What made you say these are where I
Speaker 1: think the lines are that separate someone from being level one,
Speaker 1: level two, level three, and level four all the way
Speaker 1: up to level six.
Speaker 2: So I created these levels, and I'll walk through them
Speaker 2: in a second here because they were very easy to memorize.
Speaker 2: But more importantly, the data fit them very well. And
Speaker 2: I had thought of this idea years ago, but the
Speaker 2: data didn't fit them as well, and now they fit
Speaker 2: a lot better. And so that's what makes it useful.
Speaker 2: But even if we move the numbers, we can debate,
Speaker 2: oh maybe level four stops at eight million and not
Speaker 2: ten million in level five. We can sit here and
Speaker 2: if you want to go and hyper analyze it, you can,
Speaker 2: But at the end of the day, like it's about
Speaker 2: the general framework and the general direction of the idea
Speaker 2: and not the preciseness of the level. And that's the
Speaker 2: thing I try and get people to think about. When
Speaker 2: you're in level four, you're going to think a little
Speaker 2: differently than when you're in level three, even if the
Speaker 2: exact number is not there. So let me walk through
Speaker 2: the levels, and I'll also tell you how what percentage
Speaker 2: of US households are in each level. So, by the way,
Speaker 2: this is net worth. So take all your assets minus
Speaker 2: all your liabilities, right, and now that's gonna be everything
Speaker 2: you own. You know, so your car, your house, your cash,
Speaker 2: your stocks, et cetera, your four one K. Subtract out
Speaker 2: everything you owe to others. So any sort of mortgage
Speaker 2: at student loans, credit card, debt, et cetera. That's your
Speaker 2: net worth. Okay, And we're doing households, so that includes
Speaker 2: if you have a spouse whatever. That's called household net worth.
Speaker 2: Level one is less than ten thousand dollars. That is
Speaker 2: about twenty percent of US households. Level two is ten
Speaker 2: thousand to one hundred thousand dollars. That's also about twenty
Speaker 2: percent of US households. Level three is one hundred thousand
Speaker 2: to a million dollars. That's about forty percent of US households.
Speaker 2: That's what I would call the middle class in the
Speaker 2: United States. Level four is one million to ten million dollars.
Speaker 2: That's what I call the upper middle class in the
Speaker 2: United States, and that's about eighteen percent of households. And
Speaker 2: when I say upper middle class, that's supposed to be
Speaker 2: location agnostic. If you've got like five million bucks and
Speaker 2: you're in rural Alabama, you're definitely upper class. Oh, we
Speaker 2: can get into that a little bit too. Lastly, is
Speaker 2: level five and level six. Level five is ten million
Speaker 2: to one hundred million, and level six is one hundred
Speaker 2: million plus. Those two represent just the top two percent
Speaker 2: of households, and in level six there's only about eleven
Speaker 2: thousand of these households, and so they're very there's a
Speaker 2: very long tail, very small number of individuals in that bucket, right,
Speaker 2: And so from this, you know, just memorize level three.
Speaker 2: That's like one hundred thousand to a million. That's like
Speaker 2: the middle class. And also once you know level three,
Speaker 2: you can multiple multiply. I tend to go up a level,
Speaker 2: or divide by ten to go down a level.
Speaker 3: And so it's a.
Speaker 2: Very simple logarithmic scale. And I came up with it
Speaker 2: because I was like, hey, this actually fits the data
Speaker 2: very well and it's easy to memorize, and like, there's
Speaker 2: so many people that have done these wealth level ideas before,
Speaker 2: and none of them are You can't memorize them because
Speaker 2: they're so arbitrary. And oh and this is actually it's
Speaker 2: nine hundred thousand to eight million, and then this one's
Speaker 2: eight million to fourteen million. It's like, great, that's very
Speaker 2: precise and nice, but you're splitting hair so much that
Speaker 2: it's not as spreadable as an idea. Yeah, and so
Speaker 2: this is not I'm gonna admit, this is not perfect.
Speaker 2: There's no way that it's exactly ten million. There's no
Speaker 2: way it's exactly one to ten, right, everyone knows that.
Speaker 2: But as a framework, it's a much better way of
Speaker 2: thinking about the idea and then thinking about, Okay, what
Speaker 2: do I do in level four, and how is that
Speaker 2: different from what I would do if I were in
Speaker 2: level three or level five? And that's kind of the
Speaker 2: idea here.
Speaker 1: Which to your point there, I and I think this
Speaker 1: is one of the things that you're hitting on in
Speaker 1: your book is that maybe personal finance education is too
Speaker 1: one size fits all, and the advice that you might
Speaker 1: give to someone in level on level one of the
Speaker 1: wealth Ladder, you probably wouldn't give that same advice to
Speaker 1: somebody on level five, like, hey, cut your Netflix subscription back.
Speaker 1: That could be impactful at level one, right level five, Sorry,
Speaker 1: it's not even a drop in the bucket. It doesn't
Speaker 1: it doesn't register. So do you see a problem there
Speaker 1: with the advice that people get? And that maybe it
Speaker 1: is kind of like hammer and nail and it's the
Speaker 1: same thing over and over. Like I like to think
Speaker 1: of our audience as probably being either close to level three,
Speaker 1: in level three or aiming for level four. Those are
Speaker 1: the kind of people I'm speaking to, so I kind
Speaker 1: of have an idea of what advice to dish out.
Speaker 1: Whereas if I knew that most of my audience was
Speaker 1: level five and level six, I well, I probably wouldn't
Speaker 1: accrue that audience because that's how the kind of person
Speaker 1: I can speak to.
Speaker 3: You know, no exactly, And that's exactly the point.
Speaker 2: It's people get very good, especially personal finance content creators
Speaker 2: myself included. I fell victim to this as well. My
Speaker 2: first book, Just Keep Buying, is a great book for
Speaker 2: people in level three going to level four or level
Speaker 2: two going to level three. It doesn't work for people
Speaker 2: on level one because me telling them, oh, hey, all
Speaker 2: you need to do is just buy income producing assets
Speaker 2: like they don't have the income to do that. I
Speaker 2: do talk about raising your income. But if you know
Speaker 2: most of the books about investing right, so it's like,
Speaker 2: when you think about it in this way, you realize
Speaker 2: that like just keep buying wasn't great for people in
Speaker 2: level one, it wasn't the right solution for people trying
Speaker 2: to get to.
Speaker 3: Level five or level six.
Speaker 2: So I needed to zoom out and kind of come
Speaker 2: up with the higher level framework to view this through.
Speaker 2: And so you're exactly right in the advice needs to change.
Speaker 2: You need to think about it differently depending on where
Speaker 2: you are in your life, where your wealth is, et cetera.
Speaker 2: And that's that's the main idea here, is your financial
Speaker 2: strategy should change over time. And I think a lot
Speaker 2: of people just get caught in these habits and they
Speaker 2: just keep doing the same thing for a long time
Speaker 2: without reevaluating.
Speaker 3: Does this still make sense?
Speaker 1: So when you say your financial habits need to change,
Speaker 1: do you mean that you need to invest differently?
Speaker 3: Do you?
Speaker 1: And also it seems like one of the things that
Speaker 1: you're highlighting is that you need to at least think
Speaker 1: about spending differently, like as your wealth grows. It's okay,
Speaker 1: Like that term lifestyle create think gets beaten to pulp,
Speaker 1: you know in most personal finance circles. It's okay, Like
Speaker 1: the whole part of growing your net worth is that
Speaker 1: you can enjoy some of the some of the fruits
Speaker 1: of your labor. So how do you think then about
Speaker 1: what needs to change as you are moving up the ladder?
Speaker 2: Right, yeah, exactly, And so on the spending front, I
Speaker 2: can talk about that in particular. So in chapter one,
Speaker 2: which is about spending, right, the intro just tells you
Speaker 2: what the wealth latter is, and then chapter one's on spending,
Speaker 2: chapter two's on income, chapter three's on investment. So kind
Speaker 2: of these three big buckets understanding how the wealth latter
Speaker 2: fits with this, and on spending, the thing I really
Speaker 2: tried to come up with was a rule that allowed
Speaker 2: people to spend more over time without jeopardizing their long
Speaker 2: term wealth.
Speaker 1: Right.
Speaker 2: So that's basically like, how do you solve the problem
Speaker 2: of lifestyle creep? And so what I did for this
Speaker 2: I create something called the point zero one percent rule.
Speaker 2: And the idea is, if you take your net worth
Speaker 2: and multiply by point zero one percent, so that is
Speaker 2: you know, point zero zero zero one, or divide by
Speaker 2: ten thousand, that could be easier. So if you take
Speaker 2: your net worth and divide by ten thousand, that is
Speaker 2: approximately how much your net worth is throwing off daily,
Speaker 2: Like your wealth is just creating this daily. And if
Speaker 2: you do that over three hundred and sixty five days
Speaker 2: in a year, that's roughly three point seven percent. So
Speaker 2: it's even more conservative than the four percent rule, right,
Speaker 2: And this is an inflation adjusted return I'm assuming, right,
Speaker 2: So if we assume that's true, then periodically you can
Speaker 2: spend that point zero one percent because it's a trivial amount, right.
Speaker 2: And where this actually came from there was a Jaz lyric.
Speaker 2: I'm not going to repeat the exactly because he curses,
Speaker 2: but he says, what's fifty grand to someone like me?
Speaker 2: Can you please remind me? And at the time he
Speaker 2: hit a net worth of five hundred million dollars, So
Speaker 2: to jay Z when he wrote that lyric, fifty grand
Speaker 2: was about point zero one percent of his net worth.
Speaker 2: And that's where the idea comes from. And so just
Speaker 2: apply that to your life. And once you do that
Speaker 2: on the well ladder, you'll realize that, oh wow, there's
Speaker 2: different spending categories where I create what I call spending
Speaker 2: freedom right. So in level two, that's a net worth
Speaker 2: of ten thousand to one hundred thousand dollars. By the
Speaker 2: end of level two, your wealth is generating about ten
Speaker 2: dollars a day. And so when you go to the
Speaker 2: grocery store, you know, go a few times a week,
Speaker 2: you will have you know, extra budget in there in
Speaker 2: theory to just buy what you want at the grocery store.
Speaker 2: That's the idea. As you get deeper into level two,
Speaker 2: and once you're past level two, you can buy whatever
Speaker 2: you want at the grocery store, you have grocery freedom.
Speaker 2: Level three is what I call a restaurant freedom right.
Speaker 2: So the marginal spend there is gonna be ten dollars
Speaker 2: up to one hundred dollars right on a daily basis.
Speaker 2: Now I'm not saying you need to spend that daily,
Speaker 2: not recommending it. I'm just saying it's like a trivial amount.
Speaker 2: So when you're at a restaurant, you're like, oh, should
Speaker 2: I get the burger for twenty bucks or the salmon
Speaker 2: for thirty That difference is ten dollars, right, And that's
Speaker 2: where we're making the decision. That's where the lifestyle creep
Speaker 2: comes in, is like that marginal decision. So I'm like
Speaker 2: trying to attack that and say, hey, that's only a
Speaker 2: ten dollars difference. So if you're in level three, like
Speaker 2: who cares, you can spend that ten dollars, No big deal, right,
Speaker 2: And then it goes from their level fours travel freedom,
Speaker 2: level five is house freedom, et cetera. But we can
Speaker 2: take this idea and apply it across the wealth letterer.
Speaker 1: So one of the things I read something recently, an article,
Speaker 1: and one of the people being interviewed in that article
Speaker 1: said something along the lines of like, I'm pretty good
Speaker 1: about my budget, but I don't hesitate to drop in
Speaker 1: a thousand bucks on like a concert I really want
Speaker 1: to go see and I'll do that twenty times a year.
Speaker 1: And so it seems like this person is like really
Speaker 1: blowing their budget. They're going into debt for these for
Speaker 1: these shows, and maybe they're on the level two of
Speaker 1: the wealth ladder, but they shouldn't do that until they're
Speaker 1: level four. So you are big talking, you really think
Speaker 1: that people should focus more on their income even than
Speaker 1: they're spending on those lower rungs. But don't We also
Speaker 1: see a problem by now pay later as indicative of
Speaker 1: that of people spending more than they should when they
Speaker 1: are on those early runs.
Speaker 2: Yeah, it definitely happens at the end of the day.
Speaker 2: Like if the only thing you enjoy in life is
Speaker 2: going to concerts and you have to drop one thousand dollars,
Speaker 2: I mean, and you're doing it twenty times a year,
Speaker 2: Like that's your life. I mean, what can I do
Speaker 2: to Oh, don't ever do that. Don't enjoy your life
Speaker 2: at all. I'm not saying that, but I do think
Speaker 2: if you want to do that, that's fine, but there
Speaker 2: are consequences to that. And that consequence is you probably
Speaker 2: have to work longer, you may not have as much
Speaker 2: money in the future. You know, you're not gonna have
Speaker 2: assets to pass on what it's what you want out
Speaker 2: of your life. So I'm not telling people not to
Speaker 2: spend money. I'm just saying this is a framework. I
Speaker 2: think it's actually more helpful for those that are having
Speaker 2: trouble spending money than the opposite. And I've heard more
Speaker 2: people say, oh my gosh, I don't think about the
Speaker 2: grocery store anymore. I don't think about the restaurant anymore.
Speaker 2: So I'm actually getting more people that have trouble spending money.
Speaker 2: I'm trying to give them the freedom to spend money.
Speaker 2: Everyone who spends a lot of money, they don't need
Speaker 2: this rule. They're not gonna let's be honest, they're not
Speaker 2: gonna use it.
Speaker 3: It's the people that.
Speaker 2: Are having trouble spending money find it really useful to
Speaker 2: kind of free up that mental bandwidth to not worry
Speaker 2: and have anxiety about their spending. That's where I found
Speaker 2: it spend most effective.
Speaker 1: Do you think part of that anxiety stems from the
Speaker 1: fire movement? I don't know. I think at times like
Speaker 1: the more content I consumed in that space, the more
Speaker 1: I was like, but I got to amass this amount
Speaker 1: of money so I can like at least have full
Speaker 1: financial freedom within seven or eight years or something like that.
Speaker 1: It just felt overwhelming and then I was like, why
Speaker 1: am I doing that? Like what's the point? And sure,
Speaker 1: I still want full financial freedom, but if it comes
Speaker 1: at the cost of some of this spending that will
Speaker 1: bring joy to my life now, then it's just not
Speaker 1: worth it. But I see that in some of the
Speaker 1: How of Money audience, some of the other folks, the
Speaker 1: personal finance creators around there. It's like save, save, invest, invest,
Speaker 1: and then somebody you'll get to enjoy your life.
Speaker 3: Yeah.
Speaker 2: I don't want to blame the fire movement because the
Speaker 2: fire movement is very large and very broad and different,
Speaker 2: Like there are certain types. I think maybe lean fire
Speaker 2: would fall under that specific thing where it's like you
Speaker 2: spend as little as possible. But I think it even
Speaker 2: started before that you can think of, like I don't
Speaker 2: want to name names, but there have been personal finance
Speaker 2: commentators out there saying, oh you're and when you drink
Speaker 2: coffee or peeing away a million dollars, you've heard. I
Speaker 2: don't need you know who these people are, right, So
Speaker 2: I'm not trying to attack them. I just think these
Speaker 2: ideas are out there, like don't buy avocado toast. I
Speaker 2: don't know who said that, but like all these little
Speaker 2: things of why millennials don't have wealth is because of
Speaker 2: these these small like purchases, daily purchases, and I don't
Speaker 2: think that's true at all, And so I think that
Speaker 2: is where it started. And I think it's just created
Speaker 2: this anxiety around money and spending that doesn't need to
Speaker 2: be there. So I definitely don't want to trash the
Speaker 2: Fire movement because I think there's a lot of the
Speaker 2: Fire movement that I like, and a lot of good things,
Speaker 2: like telling people, Hey, you shouldn't be spending to some
Speaker 2: crazy amount because that's just more time you have to
Speaker 2: work later. That's a really good idea and that should
Speaker 2: be out there. Of Course, you don't want to take
Speaker 2: that argument to its extreme because it brings up a
Speaker 2: lot of the issues you've brought up. So I think
Speaker 2: it's finding that balance. Everything's about balance, right, And so
Speaker 2: if I have to throw in with one of the
Speaker 2: fire movements, it's Coast Fire. It's like, hey, get to
Speaker 2: a point where your retirement's probably taking care of and
Speaker 2: then you can kind of reevaluate your life. And I
Speaker 2: think that's a far better, far less extreme version of
Speaker 2: fire that I can get behind and I fully support.
Speaker 1: So I like the way you discuss moving up the
Speaker 1: wealth ladder and how that can impact your ability and
Speaker 1: kind of give you a green light to spend in
Speaker 1: some areas that you care about. What about investing? Do
Speaker 1: you feel like our approach to investing should change as
Speaker 1: we move up the wealth ladder? I feel like I
Speaker 1: see people who move up the wealth lader, and then
Speaker 1: you feel like they need to invest in more sophisticated ways.
Speaker 1: I've been doing the index fun thing for a while,
Speaker 1: but maybe I should put on my monocle and invest
Speaker 1: in like a real estate syndication or something like that.
Speaker 1: Does that make sense?
Speaker 2: I think people do it for a host of different reasons,
Speaker 2: and we can kind of get into it if you're
Speaker 2: talking about like a real estate syndicate versus like a
Speaker 2: hedge fund investment or a private equity, et cetera. I
Speaker 2: think the investment stuff does need to change, but it
Speaker 2: really is based on your goals and where you want
Speaker 2: to go. And so there's people I've talked to and
Speaker 2: people that have you know, I've been on other shows
Speaker 2: with like people at my firm and they've asked, like, Hey,
Speaker 2: I have six point five million dollars in the queues
Speaker 2: right all in tech stocks basically, and you know, I
Speaker 2: feel like I'm great, I'm doing well with everything. I've
Speaker 2: two kids, all this stuff, and he's like, should I
Speaker 2: like diversify it all? And it's like, yes, Like you
Speaker 2: need to change if you want to guarantee you're going
Speaker 2: to probably stay in level four. You probably shouldn't have
Speaker 2: all your money, even though yes, that's been a great
Speaker 2: strategy for the last five to seven years. I don't
Speaker 2: know the future, and we've seen what happens when the
Speaker 2: ques turn. We saw twenty twenty twenty two and how
Speaker 2: bad it was, and I'm not saying that's going to
Speaker 2: happen again, but if it were to happen, you.
Speaker 3: Could see how like it could be pretty disastrous.
Speaker 1: You know, you can protect yourself by taking your foot
Speaker 1: off the gas pedals.
Speaker 2: Yeah, and it's like you're something like this person's won
Speaker 2: the game and they're still like, why are you adding
Speaker 2: more risks? So I do think it matters where you
Speaker 2: are in the well ladder to think about risk and
Speaker 2: kind of your also your lifestyle situation. If you're single,
Speaker 2: it's very different than if you have a family in
Speaker 2: terms of how much risk you take, et cetera. So
Speaker 2: I really like to think of it more holistically and
Speaker 2: I don't have any harder fast rules, but I do
Speaker 2: think depending on your goals is going to determine how
Speaker 2: your allocation will change across the wealth ladder.
Speaker 1: All right, I think net worth is a great helpful metric,
Speaker 1: but I think there's also a lot of illiquidity when
Speaker 1: we're talking about our net worth, talking about it invests
Speaker 1: putting money in four oh one case and roth irays
Speaker 1: and stuff like that. Can you tap it well? I
Speaker 1: want to ask some questions about that and potentially falling
Speaker 1: down the wealth ladder. We'll talk about that, would think matually.
Speaker 1: Right after this, we're back still talk with Nick with
Speaker 1: Julie talking about his new book, The Wealth Ladder, And
Speaker 1: Nick I just mentioned illiquidity, Like, when you think about
Speaker 1: your net worth growing, so much of it is inaccessible,
Speaker 1: right so and rightly so, Like that's how you grow
Speaker 1: your net worth. The more liquid it is. If if
Speaker 1: you put all your money in high heeled savings accounts,
Speaker 1: your net worth is going to grow a heck of
Speaker 1: a lot slower than if you've been investing in the market,
Speaker 1: if you bought a home and you've seen that increase
Speaker 1: in value. So what's your take then, when we're talking
Speaker 1: about this freedom to spend and someone's like, yeah, my
Speaker 1: net worth growing, but it doesn't feel like I'm richer
Speaker 1: in the here and now. It feels like I'm building
Speaker 1: for the future.
Speaker 3: Yeah.
Speaker 2: So this is something I did address in the book,
Speaker 2: which is for this spending freedoms, I do recommend using
Speaker 2: liquid net worth to be more conservative because, for example,
Speaker 2: let's just use an extreme example. Let's say someone has
Speaker 2: I don't know, nine hundred thousand dollars in home equity,
Speaker 2: they have, you know, two hundred thousand dollars in a
Speaker 2: retirement account, and then ten thousand.
Speaker 3: Dollars in cash.
Speaker 2: Based on the wealth ladder, they're in level four. I
Speaker 2: still agree with that assumption. However, based on just how
Speaker 2: much cash they have, they're kind of in like level
Speaker 2: one or level basically barely level two, and so they
Speaker 2: don't have a lot of spending freedom like someone who
Speaker 2: maybe had a very different asset profile. And so it's
Speaker 2: just something to think about, is like, I spend based
Speaker 2: on liquid networth, and I say that, and so even
Speaker 2: though I'm talking about networth in general, I think spending
Speaker 2: based on the liquid networth is a more conservative way
Speaker 2: of going about this. So what you do is you
Speaker 2: just take your net worth, You take out, you know,
Speaker 2: any sort of home equity that you have, right, so
Speaker 2: you net that out, and then you also subtract retirement
Speaker 2: accounts because that is kind of future spending that's going
Speaker 2: to be used at a future point in time.
Speaker 1: Okay, I look this up before our conversation. Turns out
Speaker 1: there are five hundred thousand ladder related injuries each and
Speaker 1: every year. So don't clean your own gutters, is what
Speaker 1: I learned from that. It's shocking to think that. But
Speaker 1: what about the wealth ladder are there? Their injuries are
Speaker 1: the people falling down off the wrongs and what typically
Speaker 1: leads to someone and going from a higher rung two
Speaker 1: or level to a lower level.
Speaker 2: So I think it depends on which level you start at.
Speaker 2: So for example, if someone's in level two and win
Speaker 2: to level one, or a level three and win to
Speaker 2: level two. My guess, based on what I've seen in
Speaker 2: terms of data, is the most likely cause of that
Speaker 2: is job loss, right or a health condition that creates
Speaker 2: job loss. It's interrelated to one of these things. Either
Speaker 2: you're spending, especially the United States, you're spending a lot
Speaker 2: on health. Maybe you lose a job, you lose your
Speaker 2: health care, and then you have to spend a lot
Speaker 2: on health. Something like that is like the perfect storm
Speaker 2: for you know, drying down on wealth much earlier than
Speaker 2: you anticipated.
Speaker 1: And that can be a perpetual cycle for a lot
Speaker 1: of people. Too, and then hey, you lose that solid
Speaker 1: job and you're bouncing around from inferior job to inferior
Speaker 1: job after that.
Speaker 3: Yeah.
Speaker 2: Yeah, So it's that's my guess of where that's going
Speaker 2: to happen as you move up the wealth ladder, though
Speaker 2: it changes completely. And of course, can a job loss
Speaker 2: still harm you, yes, but it's more likely going to
Speaker 2: be your investment choice.
Speaker 3: And you can think especially like level.
Speaker 2: Four level five, Like this is where if someone got
Speaker 2: into level four through like concentration or a level five.
Speaker 2: Let's say you have your own business and you sold
Speaker 2: the business or even you still own it, and it's
Speaker 2: worth a lot on paper. If something happens to that business,
Speaker 2: most of your network's probably in that single business. If
Speaker 2: you know, a COVID type event happens and it adversely
Speaker 2: impacts your business, I'll ce you own a restaurant group.
Speaker 3: Right now, you are being you know.
Speaker 2: You can fall down the well flatter because of this
Speaker 2: concentration you have in your portfolio. So if I had
Speaker 2: to pick what's the thing that caused someone to fall
Speaker 2: down from level four to three or five to four,
Speaker 2: it's going to be concentration bias, right, And actually, if
Speaker 2: you look at I actually have a mobility matrix was
Speaker 2: kind of shows, hey, if you started on this level,
Speaker 2: what's the probability you'd be in this other level, like
Speaker 2: in ten years or twenty years. And you see in
Speaker 2: level five there actually is a higher probability of falling
Speaker 2: down the ladder than in like level four for example,
Speaker 2: because I think it's the concentration issue that people overlook.
Speaker 2: They have most of their wealth and that they can't
Speaker 2: imagine anything going wrong because they obviously have built all
Speaker 2: their wealth, so they feel pretty successful. They are successful
Speaker 2: at the same time, they don't hedge that risk and
Speaker 2: then if something happens they could fall down the ladder.
Speaker 1: Yeah, they're not taking those protectionary measures to say like
Speaker 1: let's let's like not screw the pooch here and fall
Speaker 1: down and let's protect what we've got. So and that's
Speaker 1: where you know, what you're talking about is changing your
Speaker 1: the way you think about investing it. It does need
Speaker 1: to change as you as you move up the wealth
Speaker 1: ladder and as you're getting older too, right, you do
Speaker 1: need to de risk. I'm curious to you talk about
Speaker 1: the things that we spend our time doing. Not only
Speaker 1: should moving up the wealth ladder, change how we think
Speaker 1: about spending, change how we think about investing. But it
Speaker 1: should also Hey, what opportunities come our way and whether
Speaker 1: we say yes or no to those opportunities that should
Speaker 1: change as our net worth increases. So what's your advice there?
Speaker 1: And like side hustles, that's like, you know, if I'm
Speaker 1: going to go drive for Uber on the side to
Speaker 1: make some extra money, Well, it doesn't really make sense
Speaker 1: if you're on level five of the wealth ladder, does it?
Speaker 2: Yeah, So it really has to do with you have
Speaker 2: to think about, Okay, where am I on the well ladder?
Speaker 2: And I so instead of using the point zero one
Speaker 2: percent rule that was for spending for income, I say
Speaker 2: use the one percent rule. And of course everything's based
Speaker 2: on you know, how much time it takes to do something,
Speaker 2: But let's just do this approximately.
Speaker 3: If something's not going to move your.
Speaker 2: Net worth by one percent, if the whole project's not
Speaker 2: really going to lead to something like that, then you
Speaker 2: maybe shouldn't even be considering it. And once again, of
Speaker 2: course how much time. If I said clap your hands
Speaker 2: for one hundred dollars, everyone would do it, even if
Speaker 2: you're in level five, because at the time relative to
Speaker 2: the number of second stakes you have to clap your
Speaker 2: hands is very small, but you get the point. And
Speaker 2: so it's not a perfect rule. It's just an idea
Speaker 2: of like, Okay, this is just another way of evaluating something.
Speaker 2: So if something's like, hey, someone wants to pay me
Speaker 2: X dollars to do this, or I'm going to work
Speaker 2: on this side hustle and it might be able to
Speaker 2: get to this one day, like is that going to
Speaker 2: move your net worth enough? And if not, then you
Speaker 2: have to really reevaluate.
Speaker 3: And so it's just.
Speaker 2: Another tool in your toolkit when you're thinking about taking
Speaker 2: on different income opportunities, taking on a new client, et cetera.
Speaker 2: And so if it's not going to move the needle,
Speaker 2: you're like, yeah, I actually shouldn't spend a lot of
Speaker 2: time and resources on that. Another way of thinking through
Speaker 2: that decision.
Speaker 1: And I think that's like when we're talking to listeners
Speaker 1: who are typically probably in roughly that level three area
Speaker 1: and we're talking about side hustles. For most people, we
Speaker 1: think it's a bad idea, like it's not a good
Speaker 1: use of your time, and it's a better idea to
Speaker 1: increase your skills to up your income at your day job,
Speaker 1: or it's a better use of your time to use
Speaker 1: those hours towards starting a business that can ultimately progress
Speaker 1: into something far more meaningful than trading your time for
Speaker 1: money right now. So, like, do you have similar thoughts
Speaker 1: about education, increasing income and not wasting your time maybe
Speaker 1: on side hustles for trading your time for money in
Speaker 1: the moment.
Speaker 2: I think it depends. The side hustle depends where you
Speaker 2: are on the wealth ladder. I mean, if you're in
Speaker 2: level three, the side hustle has to get pretty large
Speaker 2: to start competing with your day job. I'm guessing right,
Speaker 2: if you're in level two or something, And they may
Speaker 2: not necessarily be true, but it really depends on like
Speaker 2: what are your current skills, how much you're currently making
Speaker 2: if you're already at a job, or like you're making
Speaker 2: a decent income and you're like, even if I work
Speaker 2: my tail off this year, I may get a you know,
Speaker 2: a ten percent racine a five percent raise. Okay, how
Speaker 2: much is that five percent difference? And then calculate, relative
Speaker 2: to that difference, how much could I possibly make starting
Speaker 2: a side hustle or doing something. And so I recommend
Speaker 2: that everyone just has a project of their own that
Speaker 2: even if it's not for money, just something they like
Speaker 2: to do because it's it's very valuable. I personally like
Speaker 2: writing about personal finance and investing and doing data stuff.
Speaker 2: And I did that for three years, didn't get paid
Speaker 2: anything on it when I was blogging, and now it's
Speaker 2: become something that is a side hustle that was monetized.
Speaker 2: But that took a very long time. I've been writing
Speaker 2: for almost nine years online, so I've seen it's a
Speaker 2: very long journey. And I didn't do it for money though,
Speaker 2: and so that's another thing too. I think a lot
Speaker 2: of people you just got to follow your interest and
Speaker 2: if you start doing that, it can really lead to
Speaker 2: a lot of great things.
Speaker 1: Yeah, what about real estate investing? How does that impact
Speaker 1: people's ability to move up the wealth ladder? And did
Speaker 1: you find any correlation between people who you've talked about
Speaker 1: people who.
Speaker 3: Own a business.
Speaker 1: Let's say that can be one of those things, especially
Speaker 1: if it's that brings you up to level four, level
Speaker 1: five more quick. But then again, a lot of small
Speaker 1: businesses fail, so there's risk and reward in that. But
Speaker 1: what about investing in real estate? Has that did you
Speaker 1: find any correlation between higher ranks of the wealth ladder
Speaker 1: and real estate ownership.
Speaker 2: So not as much as I would have thought. I
Speaker 2: would have thought we would have seen more. And so
Speaker 2: if you actually look at percentage of assets like within
Speaker 2: each wealth level, like it does increase slightly going into
Speaker 2: like level four, level five, level six, but it didn't
Speaker 2: like see a massive increase. Most of the increase I
Speaker 2: saw was in business interests, which is it's roughly defined
Speaker 2: as like owning some sort of private business that you own,
Speaker 2: and that's kind of how you make your wealth. And
Speaker 2: so people in level six overwhelmingly have way more business
Speaker 2: interests as a percentage of their total assets compared to
Speaker 2: level five. And then level five is more than level four,
Speaker 2: et cetera. Right, And so in the book, in chapter three,
Speaker 2: when I talk about investments, I go through all these
Speaker 2: different assets cash vehicles, your primary residents, real estate, stocks,
Speaker 2: your retirement accounts, et cetera, and I show across the
Speaker 2: wealth latter how much percentage is in each wealth level.
Speaker 2: And the thing with real estate, I didn't see as
Speaker 2: much of an increase as I thought I was going
Speaker 2: to see. But what someone said I showed I had
Speaker 2: this I tweeted this out and someone said, it's very
Speaker 2: possible that someone owns like a real estate like LLC
Speaker 2: and they hold all the real estate in the LLC,
Speaker 2: and so that's being counted as business interest even though
Speaker 2: it's real estate.
Speaker 3: I didn't.
Speaker 2: I haven't looked into that, and that's something I need
Speaker 2: to look into eventually. So I think there's probably a
Speaker 2: little more real estate at the higher end, not just
Speaker 2: obviously an amount that's obviously true, but even on percentage wise.
Speaker 2: But I didn't see as much as I thought I would,
Speaker 2: So that was the thing that was a little bit surprising.
Speaker 1: I think in real estate usually almost most of the
Speaker 1: time to make sense as an investment involves leverage. Do
Speaker 1: you see leverage as a tool that people use to
Speaker 1: move up the wealth ladder? And how risky is that?
Speaker 1: Because leverage can cut both ways?
Speaker 2: I mean, of course, I mean, if you've been levered up,
Speaker 2: you know, in the past, let's say, five six years,
Speaker 2: you probably it depends how levered up you were, obviously,
Speaker 2: but like in general, asset prices have gone up, so
Speaker 2: anyone with leverage has has benefited from that. But as
Speaker 2: soon as it turns like that, can you know it's
Speaker 2: the double edged sword and it comes and gets you
Speaker 2: and right. So I think twenty twenty two is a
Speaker 2: great example of it. I'm just at least in equity
Speaker 2: markets where anyone who was levered up in twenty one
Speaker 2: was absolutely crushing it. And then you just saw this
Speaker 2: dry up so quickly and it just turned so fast,
Speaker 2: and it was really bad.
Speaker 1: You know.
Speaker 2: There's a lot of individual names down eighty ninety percent,
Speaker 2: like stuff that you saw like the dot com bubble,
Speaker 2: you know, exploding. And so I'm not saying that that's
Speaker 2: gonna happen now. I don't know, but that's that's the
Speaker 2: risk of leverage. And I don't have as much data
Speaker 2: on Okay, who's using leverage, how much leverage they're using today,
Speaker 2: and then following them ten years from now and seeing
Speaker 2: how they are. You know, so a lot some people
Speaker 2: just get lucky and then they guess what, they take
Speaker 2: their chips off the table at the right time, and
Speaker 2: the thing collapses it. Oh well, I got lucky, And
Speaker 2: I know people have done that too. So I've seen
Speaker 2: kind of all sides of that type of stuff over time.
Speaker 1: When if let's say someone's listening and they're earlier on
Speaker 1: in their financial journey. When you talk about level one,
Speaker 1: you talk about people who are on level one of
Speaker 1: the wealth latter, you typically refer to those people as
Speaker 1: being unlucky. Wouldn't you suggest, though, that some of those
Speaker 1: people are also just starting their journey off? Right? They
Speaker 1: just graduated, They've got maybe a super low net worth
Speaker 1: because they haven't started accumulating assets yet, and they've probably
Speaker 1: got student loan debt that they're paying off something like that.
Speaker 1: And then what would you say to that person who's
Speaker 1: just starting off if they're like, yeah, I don't want
Speaker 1: to necessarily get to level six of the wealth ladder,
Speaker 1: but I want to move up, and I want to
Speaker 1: do it in a really efficient way, what would your
Speaker 1: suggestions be?
Speaker 2: Yeah, So you bring up a great point, which age
Speaker 2: is very correlated with all with all the wealth levels.
Speaker 2: And so in chapter ten of the book, I walk through,
Speaker 2: like what's the median age in each level? For example,
Speaker 2: in level four, which is one to ten million, the
Speaker 2: median age is sixty two, so it is a.
Speaker 3: Much older cohort. You start looking.
Speaker 2: Through the data, the age stuff definitely matters. I'm not,
Speaker 2: you know, downplaying that whatsoever. So you're right, there are
Speaker 2: people in level one level two right now. They're like, oh,
Speaker 2: I just graduate, I'm in level one, or I just graduate,
Speaker 2: I'm in level two. Like you know, what's the issue.
Speaker 2: You just need time. Yeah, a lot of these people
Speaker 2: just need time to move, move the needle, and obviously
Speaker 2: if you have a decent income that helps you can
Speaker 2: start saving, investing, et cetera. For some people, though, they
Speaker 2: need to build skills and they need so in level one,
Speaker 2: I say, hey, just get to safety. Get to some
Speaker 2: whether that means having an emergency fund that's something we've
Speaker 2: all heard before, or just having a network of a
Speaker 2: friend's family, whoever that you can rely on in case
Speaker 2: something were to happen, Because the last thing we want
Speaker 2: is for you to get stuck in level one just
Speaker 2: perpetually because you're just you're feel like you're treading water
Speaker 2: because like, oh, I this bad thing happened, and then
Speaker 2: I got a new credit card debt, and then I
Speaker 2: lost my job, like whatever. It is, like you can
Speaker 2: imagine just like this financial tail spin happening because you
Speaker 2: just got a little bit unlucky early on. And that's
Speaker 2: that's where I think a lot of people in level
Speaker 2: one are in unfortunately, and I'm saying older people in
Speaker 2: lovel one, they just got unlucky early and maybe they
Speaker 2: couldn't get themselves out of it.
Speaker 1: Yeah. I've got a few more questions I want to
Speaker 1: get to with you, Nick, including the how important is
Speaker 1: the wealth ladder? Are we using it to compare ourselves
Speaker 1: to the people around us too much? We'll get to
Speaker 1: that and more right after this. Okay, back with Nick
Speaker 1: with Julie talking about the wealth ladder, and I think
Speaker 1: it's such a helpful framework for understanding a bunch of
Speaker 1: things about your financial journey, about how you're growing your
Speaker 1: net worth and then what that means to you in
Speaker 1: the here and now as you are accruing wealth, which
Speaker 1: is an important part of getting your finances straight. But
Speaker 1: we're just talking Nick about how the you know, in
Speaker 1: level four, the average person with that one to ten
Speaker 1: million dollar net worth, they're in their sixties, and so
Speaker 1: I think sometimes though people listening to this show or
Speaker 1: other personal finance content, they're like that million dollars. I
Speaker 1: think I'm supposed to hit that in my thirties, and
Speaker 1: maybe the pressure feels really great. So do you think
Speaker 1: that the comparison that we're doing maybe as we're looking
Speaker 1: at these different levels of the wealth ladder that we're
Speaker 1: trying to achieve, can have any negative side effects?
Speaker 2: Yeah, I definitely can. I mean we don't want people to.
Speaker 2: I think as bad as looking at data is, I
Speaker 2: think social media is actually much worse. So I'm not
Speaker 2: trying to defend the data, but like, if you just
Speaker 2: look at social media, everyone's crushing in has this and
Speaker 2: then all this type of stuff. You can't see someone's
Speaker 2: entire balance sheet. If someone buys a home, you don't
Speaker 2: know how much they put down the debt any of
Speaker 2: that stuff, right, You have no clue about any of that.
Speaker 3: I think the data is very.
Speaker 2: Helpful because you get to see, oh, actually less than
Speaker 2: one percent of individuals in their twenties make it into
Speaker 2: level four, right, and it's only five percent of individuals
Speaker 2: in their thirties make it into level four or higher.
Speaker 3: Right.
Speaker 2: So it's like once you know that, you're like, oh, actually,
Speaker 2: like only one in twenty households in the United States
Speaker 2: are going to make it into level four, right, And
Speaker 2: so you start looking through that, and that's on page
Speaker 2: one fifty and chapter ten in the book, right, and.
Speaker 1: So feel a little more normal yeah.
Speaker 2: Yeah, you start. I actually think it's helpful to see
Speaker 2: this because then you realize, oh, it's actually not as
Speaker 2: people aren't as wealthy as I originally thought, even when
Speaker 2: you control for age.
Speaker 3: And so that's a big piece of this too.
Speaker 2: Even in the forties, only fifteen percent of households in
Speaker 2: their forties make it into level four or higher. So
Speaker 2: this is not like you, oh, it's five percent in
Speaker 2: the thirties, but by the forti it's got to be
Speaker 2: what thirty percent, Like, no, it's only fifteen. It's you know,
Speaker 2: it's still increased quite a bit, but it's still you know,
Speaker 2: a small one in six households are in level four
Speaker 2: or higher. So keeping that in mind is incredibly important
Speaker 2: while you're doing this stuff and as you're on your journey.
Speaker 2: So it's like it takes time. It does take a
Speaker 2: lot of time.
Speaker 3: To do that.
Speaker 1: Yeah, so give yourself time. How do you think about
Speaker 1: the quest for moving up the wealth ladder and in
Speaker 1: particular like level five and six we're talking about that
Speaker 1: those are really small percentages of people that ever achieve
Speaker 1: those levels of wealth. Is is it even a good
Speaker 1: goal to have? And maybe for some people it is,
Speaker 1: but I'm curious to hear your take and maybe even
Speaker 1: your goals, like is that something you want to achieve?
Speaker 2: Yeah, So in terms of whether it's a good goal,
Speaker 2: I think it's a bit much. I think you don't
Speaker 2: need it to live a great life, especially in the
Speaker 2: United States. And I think in if you're not living
Speaker 2: in because the US is so expensive, I think you
Speaker 2: can get by and level three in a much better situation.
Speaker 2: So it really depends on where you live, your cost
Speaker 2: of living, amongst other things. In terms of my goals,
Speaker 2: I have no inclination to ever get to level five, right.
Speaker 2: I think I will get there nominally one day, but
Speaker 2: in terms of real dollars, I don't think I will
Speaker 2: ever reach out. By the time my net worth is
Speaker 2: ten million, it won't be what ten million's worth today,
Speaker 2: I'll say that. So that's my thinking on it.
Speaker 3: Right.
Speaker 2: It's going to take many decades before that happens, and
Speaker 2: by then the real purchasing power won't be there. So
Speaker 2: in terms of actual level five inflation adjusted wealth, I
Speaker 2: don't think I'm ever going to get there because I
Speaker 2: just don't have the inclination to go and start my
Speaker 2: own business and do all.
Speaker 3: That, like I have a day job. I do the
Speaker 3: books and stuff.
Speaker 2: And even if I sold, even if the wealth latter
Speaker 2: sells a million copies right after you know, tax and everything,
Speaker 2: I'm not going to make enough money to even it's
Speaker 2: gonna help me, don't get me wrong, But I'm still
Speaker 2: going to.
Speaker 3: Be in level four.
Speaker 2: I'm gonna be in level four for a very long time, right,
Speaker 2: So it is going to take a very and what's
Speaker 2: going to happen, I'm telling you already is I'm gonna
Speaker 2: get to a point where I'm like, Okay, do I
Speaker 2: need to keep doing all this stuff or can I
Speaker 2: take my foot off the gas a little bit and
Speaker 2: like enjoy more time and liked spend more time with
Speaker 2: my family, traveling all this other stuff. I'm going to
Speaker 2: now start spending down my wealth a little bit and
Speaker 2: it won't be growing. And so I think that is
Speaker 2: what's going to happen at some point. I just don't
Speaker 2: know when. And I need to kind of approach that
Speaker 2: within the next probably decade or so. I'm hoping all
Speaker 2: else equal, right, no crazy, you know, worldwide depression or something.
Speaker 1: That's what I would expect. And you have to count
Speaker 1: the costs ahead of time. Like, my uncle tells my
Speaker 1: daughter all the time she's twelve, that he wants her
Speaker 1: to be president of the United States someday. And we've
Speaker 1: talked about it, like at length now because he tells
Speaker 1: her that all the time, and she's like, Dad, I
Speaker 1: don't know, is that a good goal? And I'm like,
Speaker 1: I mean, if that's what she really want, But you
Speaker 1: have to count the cost ahead of time, because if
Speaker 1: you want to be president of the United States, you
Speaker 1: were going to have to dedicate so much of your
Speaker 1: life to.
Speaker 3: Getting that goal.
Speaker 1: And even if you do, there's like the chances of
Speaker 1: actually succeeding in getting that one job it's unlikely. So yeah,
Speaker 1: it might be the goal that you have someday, but
Speaker 1: it also you might realize that it's not even worth pursuing.
Speaker 1: But you got to think about that stuff ahead of time,
Speaker 1: because I think you can get stuck on this treadmill
Speaker 1: of Okay, wealth Ladder, next level, let's go up, I
Speaker 1: gotta I gotta keep moving and realize that you're playing
Speaker 1: the wrong game. You've maybe won the wrong game at
Speaker 1: the end of the day.
Speaker 2: Yeah, And that's and that is one of the there's
Speaker 2: three parts of the book the first part is just
Speaker 2: kind of telling you about the wealth lat or the
Speaker 2: second part I talk about each level and kind of
Speaker 2: different strategies to move up to burn from falling down,
Speaker 2: et cetera.
Speaker 3: And then the.
Speaker 2: Third part I talk about kind of that bigger picture
Speaker 2: like why are you climbing? Should you be climbing? I
Speaker 2: kind of get into all these issues because you're right,
Speaker 2: like most people are never going to make it to
Speaker 2: level five or six, myself included, And so when you
Speaker 2: think about that, like what are the things that really matter?
Speaker 2: And I really try and address that in a in
Speaker 2: a very different way. So that's not just keep climbing,
Speaker 2: that's not the that's not the.
Speaker 3: Goal of the book.
Speaker 1: Well, and you even you even talk about the downsides
Speaker 1: of having megawealth, and you hear from some people in
Speaker 1: that rarefied air who say, yeah, most of the people
Speaker 1: I know that are the unhappiest or some of these
Speaker 1: folks in these upper echelons of the wealth ladder. So
Speaker 1: for people I think in level one and two who
Speaker 1: aspire to have greater levels of wealth, it kind of
Speaker 1: doesn't compute. How is it that having more money leads
Speaker 1: to less happiness? But it's possible it does, right.
Speaker 2: Yeah, And so actually there's a whole chapter in the
Speaker 2: book where I talk about money and happiness and so
Speaker 2: in general. So if I would say, if you're in
Speaker 2: level one or two, more money will probably make you happier.
Speaker 2: Beyond that, I can't make any guarantees, but what the
Speaker 2: research shows is if you're already happy, more money is
Speaker 2: going to make you happier. Right, So, if you're in
Speaker 2: level three or four, you're enjoying life, you're not even
Speaker 2: asking yourself, will more money make me happier? You're probably
Speaker 2: going to be happier if you had more money, which
Speaker 2: is kind of an ironic thing. If you're in level
Speaker 2: three or four and you're like, oh, I don't I
Speaker 2: just don't feel as happy if I had more money
Speaker 2: than I'd be happy. It's not the money. The money's
Speaker 2: actually not going to do it, and the data shows that.
Speaker 2: So I think that's kind of the big takeaway. I mean,
Speaker 2: the big like somemo. How I summarize it in the
Speaker 2: book is if you're happy, more money will make you happier.
Speaker 2: If your poor, more money will make you happier. But
Speaker 2: if you're not poor and you're not happy. More money's
Speaker 2: not going.
Speaker 3: To do a thing.
Speaker 2: So that's kind of the big takeaway from what the
Speaker 2: research shows. And this is the newest research.
Speaker 3: Trust me. They looked at that.
Speaker 2: Everyone's heard that study about well, I heard, I thought
Speaker 2: happiness doesn't increase beyond seventy five thousand dollars in income.
Speaker 2: I look at that research. Someone else addressed it. They
Speaker 2: got together, looked at all the data and they had
Speaker 2: there's a very different conclusion out there now. So it's
Speaker 2: been updated and I discuss it in the book.
Speaker 1: It's an amplifier, right, and so yeah, I can't amplify
Speaker 1: that happiness and offer you more freedom and the ability
Speaker 1: to live the life you want. But it can also
Speaker 1: drag you down, and it can it really can feel
Speaker 1: like more money, more problems.
Speaker 3: Nick.
Speaker 1: Where can our listeners find out more about you and
Speaker 1: more about your new book, The Wealth Letter.
Speaker 2: So my websites of Dollars and Data dot com. I
Speaker 2: blogged there once a week. You can find me on
Speaker 2: LinkedIn at Nick Majulie x, slash, Twitter at Dollars in
Speaker 2: Data or on Instagram at Nick Madoulie and I answer.
Speaker 2: So please send me a DM as long as it's
Speaker 2: not unhinged spam. Like I swear, I answer every DM. Ladies,
Speaker 2: he's married, so not that kind. It's either not that
Speaker 2: type of DM. But no, any sort of no, seriously,
Speaker 2: any sort of financial question. I will try my best
Speaker 2: to answer it. And if not, I've probably written about
Speaker 2: or I know someone's written about. I can just send
Speaker 2: you a blog post you can read and that hopefully
Speaker 2: can help you in some way.
Speaker 1: Love it awesome, Nick, Thanks so much for joining us, tod.
Speaker 1: I appreciate it. Thanks for having me back on Joel,
Speaker 1: appreciate it. Okay, that was a fun conversation with Nick Mejulie.
Speaker 1: I appreciate the way he thinks and writes about money,
Speaker 1: and I do think that this concept of the wealth
Speaker 1: ladder can help you as an individual as you are
Speaker 1: trying to grow your wealth and trying to think about
Speaker 1: preserving your wealth, but also how you can change your
Speaker 1: life as your net worth increases. I think Nick's framework
Speaker 1: is super helpful for that. You'll notice by the way
Speaker 1: that my co host and best friend Matt was not
Speaker 1: on this episode with me and just trying something new,
Speaker 1: especially when it comes to the interview episodes to two
Speaker 1: people need to be asking questions. I don't know. We
Speaker 1: figure we give it a shot at least on this
Speaker 1: one and see if maybe it was better with a
Speaker 1: singular host. But of course he will be back with
Speaker 1: me on Friday. I wanted to give my big takeaway
Speaker 1: for this episode, and you know it just I think
Speaker 1: what Nick is saying. Essentially, it's different structure, different folks,
Speaker 1: and it takes different attributes and attitudes to succeed at
Speaker 1: different levels of the wealth ladder. And so what serves
Speaker 1: you well in rung one and Rong two doesn't serve
Speaker 1: you nearly as well once you move up further. And so,
Speaker 1: for instance, like Charlie Munger said at one point, who
Speaker 1: was Warren Buffett's sidekick who recently passed away, He said, basically,
Speaker 1: to walk everywhere you can and to use coupons every
Speaker 1: time you got to eat in order to reach your
Speaker 1: first one hundred thousand dollars. So he was saying, do
Speaker 1: whatever it takes to get to that point. Were even
Speaker 1: master first hundred k And he basically makes it sound
Speaker 1: like that's the hardest one hundred thousand dollars to get
Speaker 1: in your life, that the second, third, and fourth they
Speaker 1: get subsequently easier. And I think it's true. I think
Speaker 1: it's very true given my experience is that the first
Speaker 1: one hundred K is so much harder to a mass,
Speaker 1: and then really time and the markets, like compounding returns,
Speaker 1: start to work in your favor. So should you stop
Speaker 1: walking and stop using coupons? I don't know. I'm the
Speaker 1: kind of guy who's still prone and to doing those things.
Speaker 1: And maybe it's just because I want to be efficient
Speaker 1: with what's been placed into my life. But do I
Speaker 1: do it less than I used to? And have I
Speaker 1: opened the purse strings more than I did when I
Speaker 1: was in my early mid twenties, really just trying to
Speaker 1: get past wrung one and two? Yes, yes I have,
Speaker 1: And so my life does look different. I think about
Speaker 1: even just Nick's concept of being grocery store, being able
Speaker 1: to spend what you want at the grocery store, and
Speaker 1: then being able to spend what you want at a restaurant.
Speaker 1: Those are just different levels of financial freedom. And I
Speaker 1: think about staying at hostels. Would I not stay at
Speaker 1: I used to stay at hostels? Like would I stay
Speaker 1: at a hostel again? Maybe? But I'm not inclined to
Speaker 1: nearly as much as these days. So but there are
Speaker 1: also things I could learn from this book about being
Speaker 1: willing to spend all the things that matter to me,
Speaker 1: and maybe maybe as I continue to move up, being
Speaker 1: more generous with what I've been given to. So I
Speaker 1: just appreciate Nick's take, and I hope it was helpful
Speaker 1: for you. And unlike Nick, I don't see level five
Speaker 1: or six in my future, but I'm okay avoiding those
Speaker 1: upper rungs and live in a mostly normal life where
Speaker 1: I still have a lot of financial freedom and choice
Speaker 1: over what my days look like. But that's going to
Speaker 1: do it for this episode. You can always find more
Speaker 1: money saving information up on our website at how to Money,
Speaker 1: and you can sign up for the how to Money
Speaker 1: newsletter at howdomoney dot com slash newsletter. I guess I
Speaker 1: can't really do best friends out says my best friends
Speaker 1: out here with me, but I will say thanks for listening.