Levels of Wealth
You’ve sold your business and received a windfall. Net worth wise, where do you stack up with others? How should you feel?
I know it’s unhealthy to compare, but it’s hard not to. What does the money really mean?
Here are a few segments of wealth to think about from Shaan Puri, Tony Robbins, Nick Maggiulli, and my thoughts:
Level 1 - Paycheck-to-Paycheck: $0-100k
Life (rent, medical bills, car repairs) is stressful.
No point in considering investing yet.
Most people in this are working a job that will keep them trapped here (ex $20-30/hour job). They are too busy to find something else. And too broke to quit. They get stuck on the treadmill.
Next Step: Create a plan to get out of this level ASAP (eg. “I’m going to save $35k/yr for 3 years” ). Try selling something on the side, food, gifts, or any type of trinket.
Level 2 - Grocery Freedom: $100k - $1M
How much you spend on specific grocery items doesn’t impact your finances.
This is the financial security realm. Food, mortgage, transportation, and extras and covered.
You’re not stressed about rent, medical bills, etc.
Larger purchases have to be considered and thought through (house, vacation, etc)
You’re doing something right, whether it’s saving, a well-paying job, low cost of living — it’s working.
If you’re not investing yet, do it. If you have a long time horizon, simple, low-cost Vanguard ETFs, S&P 500 work.
Next Step: Keep doing what you’re doing. You don’t own your own time yet. You have a nice house & car but don’t get comfortable here.
Level 3 - Restaurant Freedom: $1M - $7M
You probably still look at restaurant menu prices, but you don’t need to. It doesn’t affect your wealth whether you order 10 or 100 avocado toasts.
You can buy what you want, within reason. Clothing, restaurants, new car. Psychologically it may suck and feel like a waste, but again doesn’t change much financially.
You mentally are in Stage 2 and are hustling still.
Being smart with investing matters. This doesn’t mean making it complicated. Just that you have a plan, regular dollar cost averaging, and tax optimizations that apply.
You still work or run a business. But you can take 1-2 years off if you wanted to explore or start something new.
Next Step: You have great momentum to have gotten here. Appreciate that. Make sure you’re not mentally killing yourself just to get to Level 4.
Level 4: Financially Free ($7M - $25M)
You’ve done something outsized. It’s difficult to reach this wealth without a business exit or a large W2 income. I’d guess most are the former.
You have enough to afford all of the needs and luxuries you have now without working, plus two or three bigger luxuries you want in the future (second home, boat, luxury car).
Convenience is the name of the game. Prepped meals, concierge services, etc.
You have freedom from doing what you don’t want.
You can travel how you want, and stay where you want (not private jets).
If this net worth is invested, dividends from your investments generate $100k+ of income. Ex. $15m invested in a 60/40 portfolio produces ~$300k in dividends alone. This is ignoring asset growth. Neat right?
If this came from a windfall, it’s difficult to adjust spending for a while. But you should enjoy it more. Make your life wonderful and fulfilled.
Next Step: Learn to enjoy your money. Use it as a tool, learn to spend it to make your life awesome. Awesome is different for everyone, awesome house, awesome travel, awesome donations, anything.
Level 5: Absolute Rich ($25M -$200M)
Everything above except you can fly private
Do anything or buy anything you wanted, forever, without working.
You can make large contributions (donate millions to charity etc.)
“Optimimal money for happiness is $50 million. Where you don’t worry about where or how to live.” — Chamath Palihapitiya (link)
Level 6: Unnecessarily Rich ($200M+)
Level 5 plus…
You have philanthropic freedom
You’re able to give away money that has an impact whether to charity or political motivation
Multiple homes with staff, can’t take care of 10,000 sq ft homes yourself
Your net worth is a status symbol, or is used to buy status symbols (think private jet, pro sports team, etc)