The Wealth Ladder: Proven Strategies for Every Step of Your Financial Life
About this book
Advice that helps someone build an emergency fund may be irrelevant to a household deciding how much concentrated stock to sell. By organizing financial life into rungs, Maggiulli explains why universal rules often fail once income, assets, and risk capacity change.
The book considers earning, saving, investing, housing, taxes, lifestyle growth, and the value of time. Quantitative examples show when a decision matters greatly and when optimization produces more anxiety than benefit.
Maggiulli's approach is practical rather than aspirational: wealth is treated as a tool for increasing options, not a score that confers identity. Moving upward requires attention to the bottleneck at the current level instead of imitating the habits of people far above it.
The Wealth Ladder gives readers a way to locate themselves and choose the next sensible financial priority. It is a framework for sequencing decisions, not a promise that every household climbs at the same speed.
Read a sample
5,055 words
Plain text
From the opening
Introduction
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 twenty-seven 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 realized that the same thing is true when it comes to building wealth. 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.”[1] 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.
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.
Continue reading the sampleClose the sample
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. 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[2] and in the United States[3] as of 2023:
Wealth Level
Share of Adults (World)
Number of Adults (World)
Share of Households (US)
Number of Households (US)
Level 1
(<$10k)
39.5%
1.49B
18%
24M
Level 2
($10k–$100k)
43%
1.61B
21%
28M
Level 3
($100k–$1M)
16%
613M
43%
56M
Level 4
($1M–$10M)
1.4%*
54M*
16.3%
21M
Level 5
($10M–$100M)
0.099625%*
4M*
1.6925%
2M
Level 6
($100M+)
0.000375%
30,000
0.0075%
10,000
*Extrapolated from U.S. data
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. Throughout this book I will refer to these strategies based on the level they will help you in (e.g., this is a Level 2 strategy).
This categorization 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.
Before we start climbing The Wealth Ladder, let me tell you a little bit about my story. We’ll go deeper later, but here’s the highlight reel.
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.
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.
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.
This 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?
Part I
Understanding
the
Wealth
Ladder
Chapter 1
Spending up the Wealth Ladder
When Cleopatra was the queen of Egypt, she was the richest woman in the world. To entertain her guests, she often threw lavish parties. Following a series of such feasts, Mark Antony, the Roman general, remarked that she hosted the most extravagant banquets in the world. Wanting to impress Antony even further, Cleopatra claimed that she could spend 10 million sesterces (about $20 million today) on a single meal. Thinking that such a feat was impossible, Antony made a bet with the boastful Cleopatra. The Egyptian queen accepted and claimed that she would prove him wrong the next day.
To keep her promise, the following day Cleopatra had her servants set up a banquet similar to the ones she and Antony had enjoyed in the previous days. But this time Cleopatra wore one of her most prized possessions—a pair of pearl earrings. These weren’t just any pearl earrings though. They were considered the largest pearls the ancient world had ever seen.
When Antony arrived at the banquet, he joked that there was no way that it had cost 10 million sesterces. Cleopatra replied that he was correct, and that she would consume the 10 million sesterces herself. To fulfill her promise, Cleopatra had her servants bring out a glass of vinegar strong enough to dissolve pearls. With Antony watching, she removed one of the prized pearls from her earrings, dropped it in the glass, and watched it dissolve before drinking it.[1] As Cleopatra began to remove the pearl from her other earring, Antony conceded that he had lost the bet.
The story of Cleopatra and her pearl earrings highlights the lengths people will go to to flaunt their wealth. But it also illustrates how spending money is relative. There are people like Cleopatra, who can consume vast resources without impacting their wealth. Then there are others who must track every dollar they spend in order to stay afloat. It reminds me of the time Jay-Z said, “What’s fifty grand to a mother****er like me? Can you please remind me?” When Jay wrote those lyrics in 2011, he had an estimated net worth of $450 million. This means that, at the time, “fifty grand” represented about 0.01 percent (or 1/10,000th) of Jay-Z’s fortune.
This data point might seem random, but 0.01 percent of your net worth is actually a great proxy for what constitutes a trivial amount of money for you. For example, if you have a net worth of $10,000, paying $1 more (or 0.01 percent more) for something shouldn’t have any long-term impact on your finances. Similarly, if you have a net worth of $100,000, you should be able to pay $10 more for an item without skipping a beat. I call this the 0.01% Rule (“the Point Zero One Percent Rule”).
Using the 0.01% Rule as a guide, we can demonstrate how the Wealth Ladder relates to spending money. To do this, I’ve listed the six levels of the Wealth Ladder below and how they relate to different spending categories:
Level 1. Paycheck-to-paycheck (<$10k): You are conscious of every dollar you spend. This includes people with crippling debt.
Level 2. Grocery freedom ($10k–$100k): You can buy what you want at the grocery store without worrying about your finances.
Level 3. Restaurant freedom ($100k–$1M): You can eat what you want at restaurants.
Level 4. Travel freedom ($1M–$10M): You travel when and where you want.
Level 5. House freedom ($10M–$100M): You can afford your dream home with little impact on your overall finances.
Level 6. Impact freedom ($100M+): You can use money to have a profound impact on the lives of others (e.g., buy businesses, engage in large-scale philanthropy, etc.).
What’s interesting about the intersection of the Wealth Ladder with spending is that you quickly realize that certain sums of money won’t improve your life in any noticeable way. For example, for the typical person in Level 3 ($100k–$1M), an extra $10,000 won’t move them to Level 4. This isn’t enough to free someone from considering the cost of lodging and transportation (i.e., travel freedom) for the rest of their life. However, that same $10,000 given to someone in Level 1 will likely get them to Level 2, unless they are deeply in debt. The same amount of money given to people on different levels of the Wealth Ladder will have a drastically different impact on their lives.
The reason why the Wealth Ladder integrates so well with each spending category listed above is because of the 0.01% Rule. In each level, a single spending decision represents about 0.01 percent of the net worth level shown. For example, let’s say you are at the grocery store deciding whether to purchase a dozen eggs for $3.99 or a dozen cage-free eggs for $4.99. If your net worth is $100, this single choice (paying $1 extra for cage-free eggs) would have a large impact on your finances, as it represents 1 percent of your total wealth. However, if you were worth over $10,000, the decision to spend $1 more on cage-free eggs would be relatively unimportant to your finances. In other words, if you’re worth $10,000, an extra dollar on eggs won’t change your life, but if you’re worth $100, it might.
In this case, by having more than $10,000 you would have reached the initial stages of Level 2 (“Grocery freedom”). You can start to buy whatever you want at the grocery store. As you gain more wealth, you gain more grocery freedom. By the time you have $100,000 in wealth (the beginning of Level 3), you should have complete freedom to buy what you want at the grocery store.
We can continue extending this idea up the Wealth Ladder to ever more expensive spending categories. For example, imagine you are in a restaurant, where you are deciding between a burger for $20 and salmon for $30. If your net worth exceeds $100,000, then that $10 difference in price is trivial (i.e., it’s less than 0.01 percent of your net worth). This means you have reached Level 3 (“Restaurant freedom”). If you continue to scale the logic of the 0.01% Rule upward, you will see that the impact of a single spending decision within each Wealth Level is as follows:
The 0.01% Rule
Level 1 (<$10k). Paycheck-to-paycheck: $0.01–$0.99 per decision
Level 2 ($10k–$100k). Grocery freedom: $1–$9 per decision
Level 3 ($100k–$1M). Restaurant freedom: $10–$99 per decision
Level 4 ($1M–$10M). Travel freedom: $100–$999 per decision
Level 5 ($10M–$100M). House freedom: $1,000–$9,999 per decision
Level 6 ($100M+). Impact freedom: $10,000+ per decision
You can see this in the chart below, which illustrates by wealth level how much additional spending someone could have without impacting their finances.
From this perspective, you realize that many people in the same wealth level have similar consumption patterns. Even people in adjacent wealth levels consume in roughly similar ways. For example, people in Level 4 have a lifestyle very much like those in Level 3. Yes, those in Level 4 may have a nicer car or a bigger house, but they don’t have a chauffeur. They may buy slightly fancier food or upgrade to business class more often, but they don’t fly private. Despite their 10x difference in wealth, people in Level 4 live in a way that is familiar to people in Level 3. This is why Level 4 is considered upper middle class and Level 3 is considered middle class. Both have similar lifestyles, but one is just slightly fancier.
Of course, exceptions to this general pattern exist. Not everyone consumes based on their wealth level. You will find those in Level 6 who still fly economy class and hunt for bargains. And you will find those in Level 1 who regularly splurge on dining and travel even when they probably shouldn’t.
The primary reason is that many people spend based on their income, not their wealth. This can make sense at first glance. After all, if you have more money coming in, you can have more money going out. But spending based on your income won’t necessarily help you climb the Wealth Ladder. For example, if you earn $1 million a year, you can afford to buy cage-free eggs, order fine bottles of wine, and travel first class quite often. However, if you have zero dollars to your name (Level 1), then you shouldn’t be doing any of those things. Until you have demonstrated that you can save money, you shouldn’t be living such an extravagant lifestyle. On the other hand, if you made $1 million in a year and were able to save $200,000 of it, you’ve shown some financial responsibility. As a result, that $200,000 would get you to Level 3 of the Wealth Ladder (“Restaurant freedom”), which would let you splurge a little while dining out.
This is why you should spend based on your wealth, not your income. Excluding inheritances, trust funds, and lottery winnings, having wealth demonstrates financial discipline. It illustrates that you have control over your spending and that you know how to save money. Without such control, you could end up in a bad place financially. For example, if you consume based solely on your income, any disruption to that income could send your finances into a tailspin.
Unfortunately, most people don’t realize this until it’s too late. The truth is that income can be fickle. One day you’re making good money and the next you’re looking for a new job. This can happen to anyone, but it’s even more common among those with higher incomes. As researchers at the National Bureau of Economic Research (NBER) discovered, “Positive shocks to high-income individuals are quite transitory, whereas negative shocks are very persistent.”[2] In other words, sharp drops in income are more likely to be permanent among higher earners. Unfortunately, these large declines are becoming more common over time as well. As one study found:
The share of households experiencing a 50 percent plunge in income over a two-year period climbed from about 7 percent in the early 1970s to more than 12 percent in the early 2000s before retreating to 10 percent in the run-up to the Great Recession.[3]
If your lifestyle is fully financed by your income, experiencing such a steep decline in earnings can be jarring. This explains why some professional athletes end up broke even after making millions of dollars a year while playing. Their problem is that they spent money according to their income, not their wealth. Once that income dries up, their financial problems begin. Though the average annual salary across the four major U.S. sports leagues exceeded $4.5 million in 2020, some of these players will still get into financial trouble because of how they spend money.[4]
This is why the Wealth Ladder suggests that you spend money according to your wealth level. If someone is in Level 2 (“Grocery freedom”), they shouldn’t be splurging at fancy restaurants, which is reserved for Level 3. If they are in Level 3 (“Restaurant freedom”), they shouldn’t be upgrading to business or first class, and so forth. Of course, they may disagree with me and insist that they need the finer things in life. But this is just an excuse. In truth, the most expensive thing some people own is their ego.
Believe me, I don’t like telling people to cut their spending. The data suggests that this isn’t the best way to build wealth in the long run anyway. Raising your income is far more important. We will elaborate on this in future chapters.
On the other hand, people shouldn’t overdo their spending either. Spending according to your level won’t guarantee that you climb the Wealth Ladder, but you are less likely to fall down it. In this way, the Wealth Ladder provides the perfect balance between allowing you to splurge and limiting excess.
The key here is to think about your spending above your necessities. Of course you will need to spend money on food, housing, and a host of other basics. You can’t avoid that. But how much more can you spend beyond your needs? That’s where the Wealth Ladder comes in. There’s a difference between eating for sustenance and buying whatever food you want. There’s a difference between flying coach and traveling in style. If we assume that your income pays for your necessities, then your wealth pays for your upgrades.
This works because of the 0.01% Rule. If we assume that your wealth is invested and growing by 0.01 percent per day above inflation, this translates into a growth rate of roughly 3.7 percent per year. This is a relatively conservative annual return, even after adjusting for inflation. Assuming that your wealth will grow by 3.7 percent annually, you could spend about 0.01 percent of your wealth each day and maintain the same net worth. For example, if you had $100,000 invested and it grew by 0.01 percent daily, that would give you ten dollars that you could spend in excess of your income each day. You could spend this money without reducing your long-term wealth. Unfortunately, if you don’t have any other income, this won’t be much to live on.
This is why spending according to your wealth level generally requires that you have income to live on. For example, if you saved up $20,000 and then suddenly lost your job, you would technically be in Level 2 (“Grocery freedom”). Unfortunately, you won’t have all that much freedom when you go to buy groceries. If you can’t find another job or income source, that $20,000 would only allow you to spend about $2 per day (or $14 per week) while staying in the same level of wealth. This is the most the 0.01% Rule can offer in this case. Unfortunately, that’s nowhere near enough to live on in most developed countries like the United States. As a result, you’d have to either find another income source or spend down your wealth.
This demonstrates that while the Wealth Ladder can act as a guide to how we spend money, we must consider our income as well. Someone with $30,000 in the bank and no job needs to be more cautious about how they spend their money than someone with $10,000 in the bank earning $200,000 a year. The same thing is true for retirees who aren’t working anymore. A sixty-five-year-old retiree with a $1 million nest egg can’t spend money like an employed thirty-five-year-old with a $1 million investment portfolio. Though they are both at the lower end of Level 4 (“Travel freedom”), the sixty-five-year-old doesn’t have that much travel freedom.
But there is an additional layer to this problem that can impact how you spend your money, and it has everything to do with what your wealth is comprised of.
So far, when we’ve discussed spending up the Wealth Ladder we’ve used your overall net worth to determine your wealth level. This is what we will do throughout this book. But there is a special consideration we need to make when it comes to spending money. Because, unfortunately, not all wealth is equal when you go to spend it. For example, imagine someone with a net worth of $1.1 million broken down like this:
$250,000 in a brokerage account
$250,000 in retirement accounts
$600,000 in home equity
Based on the Wealth Ladder, this person would be in Level 4 ($1M–$10M), since they have $1.1 million in net worth. However, only a small portion of their net worth is liquid (i.e., can be accessed immediately). How much exactly? Just the $250,000 in their brokerage account. Their $600,000 in home equity and their $250,000 in retirement accounts cannot be easily accessed, so it doesn’t count toward their liquid net worth. Based on their $250,000 brokerage account, we would classify them as Level 3 ($100k–$1M).