← The Personal Finance Podcast
The Personal Finance Podcast
E440 Level Up Your Finances with The Wealth Ladder Framework (with Nick Maggiulli)
00:44:11
Loading summary
Transcript69 lines
- [00:01]
Nick Maggiulli
Close your eyes, exhale, feel your body relax and let go of whatever you're carrying today. Well, I'm letting go of the worry that I wouldn't get my new contacts in time for this class. I got them delivered free from 1-800-contacts. Oh my gosh, they're so fast. And breathe. Oh, sorry. I almost couldn't breathe when I saw the discount they gave me on my first order. Oh, sorry. Namaste. Visit 1-800-contacts.com today to save on your first order. 1-800-contacts. With the Venmo debit card, you can Venmo everything. Your favorite band's merch.
- [00:34]
Andrew
You can Venmo this or their next show.
- [00:35]
Nick Maggiulli
You can Venmo that. Visit Venmo Me Debit to learn more.
- [00:39]
Andrew
The Venmo MasterCard is issued by the Bancorp bank and a pursuant to license by MasterCard International, Inc.
- [00:42]
Nick Maggiulli
The card may be used everywhere.
- [00:43]
Andrew
MasterCard is accepted. Venmo purchase restrictions apply on this episode of the Personal Finance Podcast, we're going to talk about the Wealth Ladder with Nick Maggi. What's up everybody and welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of MasterMoney co. And today on the Personal Finance Podcast, we'll be talking about the Wealth Ladder with Nick Magiulli. If you guys have any questions, make sure you join the Master Money newsletter by going to MasterMoney code slash newsletter. And don't forget to follow us on Spotify, Apple Podcasts, YouTube, or whatever your favorite podcast player is. Now today we're going to be diving into the Wealth Ladder by Nick Magi. Now, Nick wrote this amazing book called the Wealth Ladder that I think really is going to reshape a lot of the ways that you think about money. And in this episode today we're going to be talking through the wealth ladder framework and what that actually means, you know, what the different levels are and there are different levels of net worth. And we're going to talk through some key philosophies and rules because Nick has some really important ideas that I think a lot of people need to understand. When it comes to the way that you spend your money, when it comes to the way that you actually think about cutting back when it comes to how to grow your income, we're also going to talk about your career, your income and leveling up, how much money you make every single year and why that is so powerful. And we're going to be talking through mindset and long term success. So this is an episode that I think is really, really powerful. For a lot of people, this is the second time Nick has come on this. Love it. Every single time he comes on. So without further ado, let's welcome Nick back to the Personal Finance podcast. So, Nick, welcome back to the Personal Finance podcast.
- [02:37]
Nick Maggiulli
Thank you for having me on. It's been a few years, so I.
- [02:40]
Andrew
Am really excited to have you back on because first of all, you're one of my favorite authors to read. I mean, Just Keep Buying was absolutely amazing. And now you have a new book coming out called the Wealth Ladder that I just read through that I absolutely love. And there's some really cool stuff that we're going to kind of talk through today and dig out of it. But you've already made a huge impact with Just Keep Buying. It sold hundreds of thousands of copies. So what kind of inspired you to write the Wealth Ladder and how does this differ from your first book?
- [03:03]
Nick Maggiulli
Yeah, so it just Keep Buying. My goal was like, what's the one financial strategy that has the highest probability of success, right? So if I know nothing about you, I have nothing about your background, I literally have no information, what would I tell you to do? And I tell you to, you know, just keep buying a diverse basket of income producing assets, right? That's like the short version of the book. However, I said, what if I had some information about you? What if I just knew, like your current net worth, like all I have is your current wealth, then I would give very different information, right? I may not say, like, I still think just Keep Buying is a great strategy, but if you, like, if I know your current wealth, and even more importantly, if I know where you want to go, I might give you different advice, right? If you're like, oh, I want to be a billionaire, I wouldn't tell you to buy the S&P 500. I would tell you very different advice, right? So. And of course most people don't want to be billionaires, but you get my point, right? And I think the analogy that I use with the Wealth Ladder is like, think about a fitness coach. They're going to give very different advice to someone who's like morbidly obese versus a well trained athlete, right? You're going to. The principles will be the same, right? Diet, exercise, all the things we know, sleep, all that stuff. However, the main difference is they're going to give different tactics and strategies to follow for different people. And it's the same thing. I think this is what I'm trying to do with the Wealth Ladder is I'm trying to give different Strategies based on where you currently are and more importantly, where you want to go.
- [04:17]
Andrew
Absolutely. I think the book kind of envision shows all of that coming out. And I think there's some really cool stuff that people can take away from that. So what personal experiences? And you kind of lead to some of these in the book. But what personal experiences or data led you to the six levels of wealth?
- [04:30]
Nick Maggiulli
So for the six levels, I think I just realized that you need ever, as you get more wealth, you need even more and more wealth to, like, change your lifestyle. Like, for someone that has like $0, like $10,000 can be transformational. You can, like, you're not worrying about money. Like, oh, you know, if you're paycheck to paycheck, like, I'm not saying you're financially free with $10,000, but you just have a weight lifted that's not going to be there anymore. You now compare that to a millionaire, give them $10,000, they're probably not going to feel any different. They may not even notice it. It's like a rounding error. Right. So that's a case where the amount of money you need to change your life changes as you get more wealth. And so that's the core concept behind all of this. I mean, mathematically it's called like a, you know, log wealth, but the whole idea is just a 10x change is what matters. So every wealth level is 10x higher than the level before. So level one, as I say, is less than $10,000 in wealth or net worth. And once again, just a quick aside, net worth is all of your assets minus all of your liabilities. So if that's, that includes home equity, that includes your retirement accounts, everything. That's all your assets minus any debt you owe, any of those things. Right. Your student loans, et cetera. So once you have your number, you don't need to even know your exact number. You just need to know what range am I in? And that's your wealth level. So level one is less than $10,000. Level two is $10,000 to $100 in wealth or $100,000 in wealth. Level three is 100,000 to $1 million in wealth. Level four is 1 million to 10 million in wealth. Level five, 10 million to 100 million. And then the last level, level six is 100 million plus. Right. And we can go into all of those wealth levels, different strategies and things related to that, but that's kind of the breakdown.
- [06:03]
Andrew
Exactly. And I think this is a really great way for a lot of people to kind of think about their wealth building because like you said, there is a lot of differences between, you know, if you want to get to level six, for example, you're going to take a lot of different actions than someone who is going to go, you know, maybe level three or level four, who really just want to build wealth, kind of retire, spend time with their family, those types of things. And so it's a big, big, drastic difference on how you actually act, how you spend with your money, how you actually look at income, how you look at your investments. Everything begins to change, which is what we'll start to talk about here today as we go through this. So a lot of people will come to me on this show, for example, and they'll say, hey, I just feel stuck. I always feel like I'm trying to get ahead and I just really can never get ahead. What do you think, you know, causes most people to get stuck when they're trying to do everything right financially?
- [06:49]
Nick Maggiulli
I think the issue isn't effort, it's strategy. Now what do I mean by that? I think there's a lot of people out there and when you say doing everything right, like they're working hard, they're going to their job, they're doing everything they're supposed to do and they're not seeing the progress. And so the issue isn't their effort. I think a lot of people just say, well, if I work hard, then I'm going to get whatever I want in life. And that's not necessarily true because it's like, what are you working on? And the simple example I give is, is imagine you're working 50 hours a week in a minimum wage job. Like you're working hard, but like you're not going to build that much wealth relative to someone who's working less hours. But those hours are just earning them so much more. Right. And so I think it's more about, okay, what am I working on? What's the strategy I'm trying to follow to get to where I want to get to? So I don't want people. I'm not saying effort doesn't matter. Of course effort matters. Everyone knows effort matters. But effort is not sufficient to get to your financial goals. You need to have the right effort on the right strategy as well. And so it, and it takes time to build that. We can get into what strategies? What do you mean? And we can kind of get into those in a second here, so.
- [07:49]
Andrew
Absolutely. And that's true. So there's a different strategy for each level of wealth and you kind of dive into some of these on the book. But can you talk about how they kind of build upon each other when you're trying to level up? We kind of walk through each of those stages and what they mean. But can you talk through just, you know, how each level of wealth kind of builds upon each other?
- [08:05]
Nick Maggiulli
Yeah. So I say with each level of wealth, there's a certain thing you're trying to, like, accomplish or there's a certain thing you want to maximize. And so, for example, let's just start in level one, some with less than $10,000 in wealth. For them, it's mostly safety. Like, it's like getting to a place where bad luck is not going to derail your financial life, right? Where, oh, I got a flat tire, now I can't get to work, now I lose my job. Like, you can imagine, like this, like, cycle, a bad cycle from something that's relatively trivial for someone with more wealth. Like for someone in level three, level four, oh, a flat T or something like that is not a big deal. Like, yes, it's annoying, but it's not going to derail your financial life. For someone in level one, it could be catastrophic. And so that's where I think the thinking needs to change. Okay. In every level, you have something to focus on. Level one, that's like safety. I just need to get to a place where I have enough resources, where I don't have to worry so much about bad luck. Level two, that's where I started talking about education skills. What skills can you build to kind of change, you know, your trajectory so that you can start building more income and actually get to level 3. Etc, right? And we can go through each one of these levels. Level three, I talk about, about investing, right? And like, that's where I'm like, you really need to invest because over the long term, not only are you earning income, but you need your money to earn income, right? So it's like, now that you've actually built wealth, how do you get that wealth to build more wealth for you? Right? And then in level four, that's where we start getting into, like, once you're in level four, you're basically in level four for the rest of your life unless you make a big shift and do something like. And by the way, level four is 1 million to 10 million. Unless you make a big shift, like, oh, I'm going to start a business, I'm going to go and get a lot of equity in a business, or I'm going to join a startup that has a chance of, you know, growing a lot. And I'll have an exit where I have over $10 million at the end. Right. So the strategies change, but they build on each other and, like, you don't have to complete. Like, I don't have to go through these, like, in order. But I think if you actually look at how most people succeed, they actually do end up going through them in order in a lot of different ways, and we can definitely get into that. Like, I think most people actually look at the data. Most people that start businesses aren't in their 20s. They're in their 40s, 50s, like, they've had experience, they've done all the other things. And so the most likely age of someone starting a business is actually, like, in their 40s. It's not someone in their 20s that's exceptional. So just when you look at the data on who's actually succeeded at doing this stuff, it's like, oh, yeah, some with experience, someone that went through and kind of built some wealth and then use that. Use their resources to kind of start a business, etc. So.
- [10:20]
Andrew
And how do you see that, you know, when they go through those stages, I think that's super interesting to kind of dive into a little bit because I think for. I just look at my life alone, and I'm in my 30s now, my mid-30s, and I just look at kind of the stages that I went through. I went through that very early stage of just trying to get, you know, my first 10 grand and my first 100k saved up. And we talk about that a lot in the show too. Just people ask, hey, how do I get my first hundred K? So we kind of go through the process of, you know, the things that I did. And the biggest thing was obviously, and we'll talk about this even more, but the biggest thing was increasing my income. And you write about that all the time. On how powerful your income is. You and I kind of agree on that. I think it's the most powerful thing that you can do when it comes to building wealth is growing that income. And then sequentially, you know, you start to build up that income over time. You can start to invest your dollars and you get to level two. And as you start to build up some of that money, you can see a drastic impact where it reduces your stress and anxiety as you start to go through that process, and then you start to build up enough confidence, oh, maybe I should start a business. And or two, as I start to level up even further and, you know, I Think there's a really, really, you know, compelling case to actually go through each of these stages because you learn so much along the way. Where. And maybe the data tells you this, maybe it doesn't. But my feeling is that sometimes the probability is much higher that you would fail with a business if you have not gone through some of these stages to kind of see, you know, and have some of that experience going forward. But what does the data say about that is have you seen more success when people kind of go through these stages? Is it something that, you know, experience does really matter and. Or is it something that it doesn't really matter and it kind of just depends on the person.
- [11:47]
Nick Maggiulli
The one thing there is like, if you actually look at the data on entrepreneurs, like the entrepreneurs that have already started a business and done it, they are more likely their next business is going to be much larger. Like, the revenue is going to be much larger. So it's just, it's building on this thing over time. And so they find, once again, as I said, like, entrepreneurs are more likely to be older, more likely to have experience in their industry. It's not like, oh, hey, I'm going to go and, you know, disrupt this industry. I've never worked in. No, it's like people that have been in the industry, they know how it works, they've seen the issues and they're like, I can make this better. And that's what they do. So I'm not saying you can't start a business if you're in level one or level two or whatever. It's just a lot of the people that do start businesses are probably further up the wealth flat. I'm not saying they're in level four already where they have a, you know, a million to $10 million, but they're probably at least in level three, where they have, you know, a hundred thousand to a million dollars, where they have some financial resources they can use to start their business and kind it from there.
- [12:38]
Andrew
I love that. I think that's a true indicator of just kind of what you see a lot of people go through. Obviously you can start the business early as well, but it's just that experience, I think is pretty interesting to look at. At what level do you see a lot of people get stuck? Because I think there's a lot of. It's pretty important for a lot of people to kind of think through. Is there a level that you see that, you know, a lot of people just plateau?
- [12:57]
Nick Maggiulli
Yeah, I think generally, I mean, overwhelmingly, if you actually look at the Data, they followed households over time. So a lot of the wealth data out there is snapshots of like society at different points in time. So it's different households. There is a data set, the Panel Study of Income Dynamics from the University of Michigan, and they look at the same set of households over time. So it's like really following like life cycle, like what's going on throughout your life. And I looked at every, I categorized the wealth levels, adjusted for inflation, all this stuff, and followed them over time. And basically over a 20 year period. Which wealth level, if you start in, are you most likely to stay in the same wealth level? And it's level four. Like getting into level four, which is 1 million to 10 million, 64% of those households will still be in level four 20 years later. Right. And only 8% will make it out to level five. Right. Or above. And the remaining 25% or more will fall, or I guess it's 28% will fall below level four. So it's very interesting to see that data. But what that means is like, people get stuck in level four. Now, once again, there's nothing wrong with getting quote, stuck in level four. It's like level four is great. One to ten million is great. That's where people, you know, a lot of people, it's on purpose too. They're like, I don't want to keep working. Like, I'm good, I can coast, I can chill out, I can take my foot off the gas and it's fine to get stuck. I don't want to say, oh my God, you're stuck. But if you're like, I want to keep making it. When you get to, you know, level four, that's where the math starts to get really tough in terms of getting out of level four. Like, you know, if you just think about, okay, if you have a million dollars and you're saving 100k a year, you're adding 10% to your wealth every year.
- [14:19]
Andrew
Right.
- [14:19]
Nick Maggiulli
100,000 on a million or 10%. Once you have $5 million, that $100,000 in savings, which is still a great amount of savings, is only adjusting your wealth by 2%, like over time is just less effective. And so the stuff that got you into level four is not like the strategy that gets you in there is not the strategy that gets you out. And that's kind of the big thing I saw in the data.
- [14:40]
Andrew
And that makes complete sense because that obviously that level four is where a lot of people just try to land when it comes to if they want to just have a traditional retirement. You know, you want to make sure that you, you know, you follow the 4% rule, you know, 25, extra income, whatever else, and you're just looking to go towards, you know, you have your nine to five, you're building wealth over time. A lot of folks will kind of go to that level four, which makes a ton of sense why they would plateau there just because they don't really want to go further. They just want to be retired, they want to spend more time with their family, that type of stuff. And so I think that's super, super interesting. Now I want to dive into one of my favorite parts of the book. And I think this is something that could flip the script for a lot of people on how they think about their money and their money psychology. And you kind of challenge the idea of spending based on income, and instead you suggest spending based on wealth. And I think this, when I started to read this part, I thought this was just such a powerful mind shift for a lot of people, and it made so much sense. So why is this shift so powerful to you?
- [15:33]
Nick Maggiulli
I think it's because income is fickle, and it's more fickle than people realize. And so, you know, if you. There's this, the study they did where they say 1 in 10 households, or roughly 10% of U.S. households, are going to experience a 50% decline in income in the next two years. And they check this over time, and it's roughly around 10%. Right. All that means is imagine you had 10 couples, one of those, 10 couples, one of those partners is going to lose their job. It's not that crazy. I have 20 people, you know, you have 20 people, one in 20 people are going to lose their job in the next two years. That's not that crazy of a stat, but that's kind of the math. And so if you think about that, incomes move around a lot and they're fickle in that sense. And because of that, wealth is less so.
- [16:11]
Andrew
Right.
- [16:11]
Nick Maggiulli
And of course, wealth can decline and stuff, but those are rare. Like, how often do we have a 50% decline in stocks? It's rare. It happens. But it's like once a generation, it's not once every few years. Right. So this is one of those things where when you actually look at the data, like income just can shift so much. If you spend based on your income, you can get into a bad spot. Now, of course, you have to spend based on your income, right? You have to survive in something. But my idea with spending based on wealth is Saying, okay, once you've built some wealth, then you can kind of free up your spending a little bit more. We can kind of talk about the rule that does that, the analogy I want you to think about. Just imagine a professional athlete, right? They have five to seven years of really, really good income, and then it drops off a cliff, right? If those people spend based on their income, they end up broke. It happens time and time again. What they should do is not spend a lot, build, you know, save some of that money, build up wealth, and they'll build wealth relatively quickly and then they can start to spend a bit more. But that's like the big difference, right? Because if you know your income's going to drop off in five years, you have to like, let that. That income has to last your whole life, right? And that's a thing that a lot of these, you know, athletes don't necessarily think through. And it's really tough because, I mean, how. Imagine getting, not having much and then getting dumped, you know, millions and millions of dollars every year. You're not used to that. No one's used to that. So that's where like, you have to shift your mindset and like, spend based on your wealth, not on your income.
- [17:21]
Andrew
Absolutely. And I think this is something. I did this in my 20s, even, like early on where, you know, and I didn't even understand this concept fully. I was just trying to retire as fast as I possibly could. So I remember early on just saving a huge portion of my income, becoming extremely frugal in my 20s. And now I'm way more relaxed than I used to be. And my kind of mindset has shifted. But it's after, you know, your net worth starts to grow over time. And I think it's just really cool when you kind of read through this, it just opens up your mind to the difference making when it comes to spending. So that kind of leads us to the 0.01% rule. And I think this is, you know, a difference maker to just think through for a lot of people, you know, how should they spend their dollars based on this concept? So how does this allow people to spend more freely without sabotaging their future?
- [18:03]
Nick Maggiulli
So, yeah, the 0.01% rule basically means you can spend.01% of your wealth every day and your wealth will remain the same, all else equal, right? So imagine, let's just make this very simple. Imagine you're spending all of your income. All your spending matches your income. So you have no savings right now. On top of that, you could, in theory spend.01% of your wealth, which is roughly 1/10,000th. So if you have $10,000 in wealth, you could spend $1 a day and your wealth would stay, would roughly stay the same over time. And how do I come up with that? 0.01% a day. If you do that on an annualized basis, you got 0.1, 0.1% per day, every single day for a year. That's roughly 3.7%. It's very conservative. It's basically saying your wealth conservatively is going to get at least a 3.7% return, right? It's just a simple rule that we use. So take your wealth, divide by 10,000 and that's how much you can spend per day. And so if you say, well, my wealth is 100,000, Nick, okay, then you can spend $10 per day. And so how I lay this out in the book is every wealth level has a level of what I call spending freedom, right? So in level two, which is 10,000 to $100,000 in wealth, I say you have grocery freedom, right? So if you start with 10,000, you can spend a dollar extra a day. By the time you have $100,000, you can spend 10 bucks extra a day. And what I mean by that is you go to the grocery store, you don't got to look at the price. You're like, oh, I want to get the cage free eggs instead of the non cage free, that little 2, $3 difference, it doesn't really matter, right? In the grand scheme of things. So by the time you're really at the end of level two, you can kind of buy what you want, the grocery store. Level three, which is a hundred thousand dollars to a million dollars in wealth, that's going to what I call restaurant freedom. So by the time you, as you start to go through level three, like hey, I can go and spend more, I can, I don't have to debate, try to get the burger for $25 of the salmon for $35, like that $10 difference is small. So you can start to spend more at restaurants. And I say by the time you have a million dollars in wealth, you don't really have to look at the restaurant prices, maybe the wine menu you stay away from, but everything else, like you can kind of just buy what you want at a restaurant, right? So that's kind of where as you start to go through each level, you get different levels of freedom. And so why I like this rule is because it allows for some lifestyle creep, but it only allows for it once you've demonstrated financial discipline and built wealth. So you're like, hey, look, I've actually built this wealth, so I've shown I've actually been able to save money. So it kind of takes the pressure off. So you can spend a little bit more, right? So once you're in level four, that's what I call travel freedom. So obviously, travel freedom means different things to different people. I'm not saying you can fly private, but, okay, you know, you have, you know, $1.5 million in wealth. You can probably upgrade your seat a little. I'm not saying you have to fly business class, but, okay, maybe you get a better seat with a little more leg room or something, right? You can just do little things. And that rule is going to grow with your wealth over time. And so it's just a different way of thinking about it. Once again, every. All our spending decisions are on the margin, right? We're always looking like, what am I spending? This marginal thing. No one's, like, going to buy a car, and they're like, oh, do I want to get a Toyota Corolla or a Maserati? No, it's like, you're either getting a Corolla or a Camry. That's the marginal decision you're making. And so on that margin, I think your wealth should determine that spending decision and not necessarily your income. So that's kind of how I want you to think about these types of things, for sure.
- [20:58]
Andrew
And I think overall, you know, a lot of people listening right now. If you have certain things, just think about, like, your dream lifestyle that you want to have. Does it include some of these things? I remember, like, the first time I could read a menu from left to right instead of right to left. That's when I kind of started to feel rich or wealthy. It was one of those things where I didn't have to look at prices anymore. You could just kind of go to a restaurant, you could order what you wanted. And that's where I started to realize, hey, maybe I should make a list of some of the things that I want out of life and some of the things that just don't matter as much to me anymore. And that can help you kind of target some of these levels to see where exactly where you want to land. Because many people out there, you know, are talking about, hey, cutting back on lattes. I think the old traditional personal finance advice was, hey, just cut back on your latte. The latte effect, or stop spending so much dining out, or stop spending so Much extra, you know, on your groceries, those types of things, and you push against that. You and I kind of agree on this big time. So what should people actually be focusing on?
- [21:48]
Nick Maggiulli
Growing your income, like, at night and day. Like, if you look, it's the strongest relationship in personal finance. And especially, like, I actually have this, this in the book, which Each wealth level, what the median income, household income is for each wealth level. And it's overwhelmingly obvious that the more wealth you have, the more income you have, and vice versa. There's very few households with low wealth and high income or high income and low wealth. They're very correlated. So basically it's like, oh, I built my wealth by cutting spending. There are people like that, but there are few and far between. Most people overwhelmingly just got their through income. So I'm not saying you shouldn't care if you're in level one and you're in a tough situation. I think you do have to really look at your spending and say, where you can cut back, right? But once you get into level two, like, okay, you built some wealth, you're kind of moving along. You really got to focus on income because income is the lever. It just makes it. You don't have to budget, right? Like, I'm not a good budgeter. Like, there's people right now in level one that are far better budgeters than me because they have to budget. They need to know. They don't have the resources. So they're very good at tracking every penny, coupons, all that type of stuff. I don't know how to do any of that crap because I've been very fortunate that I've had a decent income since I graduated college and I haven't had to worry about those types of things. Right? But that's the difference. That difference is the income, right? And so it's like, well, how do I build income? That's a whole nother conversation. But you can start to see that's where I want you to focus on. I don't want you to focus on, I need to spend less money. I need you to focus on how can I build more income.
- [23:06]
Andrew
Exactly. The income is the catalyst to building wealth. It just increases your delta so much. We call the difference between your income, your expenses. We talk about the gap there. And that gap is so incredibly important because the larger you grow that gap, the more you can spend it on things that you love. In addition, the more you can spend on growing your net worth so that you can have that time frame, that financial freedom that most people kind of go after. And I think it's just such a powerful strategy. Now you kind of talk about this too, where your financial strategy should evolve over time as your life starts to. It begins to evolve. People get married, people have kids. A lot of things will change throughout their life as they go throughout time. So what changes should someone make, you know, when they're moving on from their early career to maybe their mid career?
- [23:45]
Nick Maggiulli
I think mid career is the point where you need to kind of make some decisions about am I going to stay on this path, like the path that I'm currently on, Am I going to start a side hustle or something like that as a possible other thing I could do, or am I going to break away and kind of go on my own? I'm not saying that those are the only three options. There's obviously more than that. But for example, I'll just tell my story. When I was 27 years old, I was like, I could project out all my future raises, what my bonuses are going to be and everything. I'm like, okay, this is nice, but there's a limit to this. Unless I go and get a PhD or an MBA or something like that, I'm not going to get paid more at my current company. That was my old company that was at and they were fine. Everything was great there. But I could see there was no more growth for me. Like there was just the standard growth. And I could just see that I'm like, that's not going to work. So I'm like, I need to start doing something else. I love personal finance. Maybe I'll write about this. And I did that for three years, didn't make any money. And then I started running ads on my blog. That's I started to monetize and I wrote a book and everything else came from that. But like, it took a long time to get there. But it was this focus on, okay, what else can I do besides just, just my nine to five to kind of change my career? And now I'm obviously in a different company. So like I moved my career as well to match kind of what I really care about, which is investing, personal finance, managing money, et cetera. So I think the thing to focus on is like, okay, what should I be doing next to kind of get where I want to go? And that's where I tell people, like, that's what's so important about raising your income.
- [25:01]
Andrew
So is there anything that you would do? Like if someone's looking at their career right now and they feel like it's just stagnating and they feel like, you know, they're just really not getting that much farther. Maybe they get the 3% raise every year, the 5% raise, whatever it could be at their company. Is there anything that you can think through to how they can break through to the next level? Should they look at different companies, should they look at different outlooks, or is there any tips that you have for that?
- [25:23]
Nick Maggiulli
Yeah. So with stagnation, the things I like to think about is like, am I learning? Am I getting more responsibility or am I getting paid more and paid more like in a significant way. Not like, okay, 2, 3% raise. That's not gonna really move the needle, right? So the answer to all those questions is no. If you're not learning, if you're not getting more responsibility, you're not getting paid more, you're stagnating in some way, right? And if you're. And then you have to really ask yourself, like, is this where I want to be or do I want to do something else? And so the big thing I like to think about, the framework I think about for really like supercharging your income over time is leverage. Now what do I mean by that? That this is not my idea. It comes from Naval Ravikant. And the idea is leverage is like the more output per unit of input, right? So most people, like as I said, the minimum wage worker, they don't have a ton of leverage. Every hour they work, they get their wage, right? And that's how most people are. Even if they're not minimum wage, maybe they make more, but like they're getting paid on an hourly basis. And question is, what can I do to divorce my time from my earnings, right? And so the leverage framework has. There's four different ways, the four different types of leverage. One is labor. That means, hey, I own a business, I'm hiring other people to do the work. So I'm paying them less than the value they're creating for the business as a whole. That's one piece of that another's capital. I can use someone else's money. They don't want to take a risk. I'm willing to take the risk. And I think it's going to pay off and use that money to build a business. So that's another piece of, of leverage, another type of content. That's the one I do or you as well. We create content that people enjoy in some way. And so you can scale that to lots of people, like there's nothing stopping, you know, millions of people from buying my book tomorrow. There's nothing stopping millions of people from listening to your podcast. Right. This is because of the Internet. It scales. And that that also goes with the last type of lever, which is code, which is like software type stuff. Like I can build something that can scale to lots of people at once. And so once you can divorce your time from your earnings, that's when you can really start to see your earnings increase. Now you're like, nick, how do I do that? Like, it's not going to happen overnight. Like, it takes a long time. Like, as I said, I took three years of earning nothing, just writing this stuff because I loved it. So follow your passion, follow your interest, figure out where those go and see if there's a way to eventually monetize that type of stuff. And so it's going to take time, but there are ways to use one of these types of leverage to build something that can actually earn you more money.
- [27:28]
Andrew
Agreed. And I think that's just where, you know, a lot of people just have to have that consistency based on, you know, some of the things that we do. Same thing here where we started this show, like for months and months and over a year, like nobody listening. And then over time it just started to grow more and more and more. And I think you just have to kind of stay consistent with it in whatever your passions are to try to kind of break through some of those barriers, which is really, really powerful. Ryan Reynolds here from Mint Mobile. With the price of just about everything going up, we thought we'd bring our prices down. So to help us, we brought in a reverse auctioneer, which is apparently a thing.
- [27:58]
Nick Maggiulli
Mint Mobile unlimited premium wireless. 30, 30. Better get 30. Better get 20.
- [28:02]
Andrew
20, 20.
- [28:02]
Nick Maggiulli
Get 20. 20, 15. 15. 15, 15.
- [28:05]
Andrew
Just 15 bucks a month. Sold. Give it a try@mintmobile.com Switch upfront payment of $45 for three month plan equivalent to $15 per month required. New customer offer for first three months only. Speed slow after 35 gigabytes of networks busy. Taxes and fees extra.
- [28:17]
Nick Maggiulli
See mintmobile.com this message is sponsored by Greenlight. With school out, summer is the perfect time to teach our kids real world money skills they'll use forever. Greenlight is a debit card in the number one family finance and safety app used by millions of families helping kids learn how to save, invest and spend wisely. Parents can send their kids money and track their spending and saving while kids build money, confidence and skills in fun ways. Start your risk free Greenlight trial today@greenlight.com Spotify. That's greenlight.com Spotify. Summer's here and Nordstrom has everything you.
- [28:51]
Andrew
Need for your best dress season ever.
- [28:53]
Nick Maggiulli
From beach days and weddings to weekend getaways in your everyday wardrobe, discover stylish options under $100 from tons of your favorite brands like Mango Skims, Princess Polly, and Madewell. It's easy, too, with free shipping and free returns in store.
- [29:08]
Andrew
Order, pickup and more.
- [29:09]
Nick Maggiulli
Shop today in stores online@nordstrom.com or download the Nordstrom app.
- [29:18]
Andrew
Race the rudders.
- [29:19]
Nick Maggiulli
Race the sails. Race the sails.
- [29:22]
Andrew
Captain, an unidentified ship is approaching.
- [29:24]
Nick Maggiulli
Over. Roger, wait. Is that an enterprise sales solution?
- [29:30]
Andrew
Reach sales professionals, not professional sailors. With LinkedIn ads, you can target the right people by industry, job title, and more. We'll even give you a $100 credit on your next campaign. Get started today at LinkedIn.com results. Terms and conditions apply for a lot of people out there. Let's say, for example, they're just starting out and they're just trying to survive. They're just trying to get by very early on. What mindset shifts would be required for them to kind of, you know, get from just that survival mode to kind of getting to the next level of wealth? Where would you start if you were starting all over?
- [30:06]
Nick Maggiulli
The main thing I would focus on is income. And once again, we, I know we've already talked about this as like, you know, beating a dead horse here, but really realizing that that's the lever is the most important thing. And I think, you know, I've spent so much time, even when I was starting, I spent so much time thinking about investments and all these other things which are, and all. But investments really matter. Once you have wealth, then they really, really matter. Right? But like, when you don't have much. When I had $1,000, you know, in my 401k, it didn't matter what the market did. It didn't, like, it had no impact like, relative to like my wealth. Right. Even 30% return is $300. That's not that crazy. I could spend that in a week going out with friends. Right? So like my whole annual return was eaten away in like, what, you know, in one week, basically. So that's where it's like, what should I be focusing on to income and buying income producing assets. So you have to really think about, like becoming an owner. Like we're in a capitalist society. Love it or hate it, that's what we're in. And capitalism is about owning capital. It's about owning, you know, owning the means of production. That's the society we're in. That's how economic rewards are gathered over time, so to speak. Right. So basically you have to be a capitalist. You have to own income producing assets. And that's the long term goal. And whether you create those assets yourself, whether you buy them and you know, index fund s and P500 or whatever, or a diversified portfolio, it doesn't really matter. The idea is to own income producing assets. So that's the big mindset shift. Of course, you can't do that until you have income. So once you have enough income, then you start doing that stuff.
- [31:29]
Andrew
And as they start to build income, let's say, for example, they start to get higher up on that, that wealth ladder and they start to kind of grow their wealth over time. How do you think? Through balancing, enjoying life right now, but then in addition, being able to also contribute to your financial future, making sure you're on track for your financial goals in that future.
- [31:47]
Nick Maggiulli
That's where I'm not just, once again, I'm just trying to plug the book. But that's where the 0.01% rule comes in. That rule really does. I believe it really works. Like, this is what happened to me when I was young. I, when I went to a restaurant, I, oh my God, I never ever, I was like always, oh, I gotta get the cheapest thing or get the thing or, you know, I was always very cognizant of that. And then obviously, as I built wealth, once I started getting into level three, I didn't even know this at the time, but I started kind of taking, you know, I could spend a little bit more restaurant. And now to this day I go and I get whatever I want at the restaurant, right? Because I don't, you know, I have restaurant freedom. I've gone past level three free, but I'm in level four now. And I, even though I have some travel freedom, I always fly coach. At most maybe I will pay for like a window seat. If sometimes they don't allow that. They only allow like the, you know, you can only book the middle seat. You can have to pay for the window seat. Sometimes I'll pay for that or I'll pay for more legroom, but that's it. I haven't had a business class flight. The only time I did, I did during COVID because It was like 400 and I was like, I got to fly business class for 400. That was so cool for me. So I did it once, but that was because it was Covid. No one was flying. It Was a very weird time. Right. So. So, you know, I got Covid business class, so to speak. But my point is, like, I am restricting myself. I'm following this rule. Like, I don't have travel freedom. I still take coach. I try and find deals on everything I can in that, you know, sector of my spending. Yeah, if I had 10 million bucks, I'd be like, sure, I could buy whatever. I, you know, I could get a, you know, first class every time. But I don't do that. So I really believe that allows. And it doesn't have to be these spending categories. You can find other spending categories. But I'm trying to come up with a framework that's like, hey, I can spend more overtime after I've built wealth. Right. And so that's kind of what I've tried to follow that path, and I'm going to continue following that path going forward. So it allows you to enjoy life, but you kind of have to be restricted in certain areas of your life. That's the difference.
- [33:21]
Andrew
Absolutely. And I couldn't agree more. I think. Is there a certain level of wealth that you found from other people, maybe just from the research or just talking to other people, that you think that people start to begin to kind of feel some financial peace, or does it depend on the specific person and kind of their upbringing and their, their money psychology there? Is there like a level that you see kind of, there's less stress and anxiety with those folks when it comes to their finances than maybe with other folks?
- [33:43]
Nick Maggiulli
Yeah. So I don't have a study on this. Obviously I can create the levels we don't have, like him bucket, these types of things. But in general, I would say it's like level three and level four. At that point, you can kind of. You don't have to worry as much about money and. But at the same time, you don't have so much money that you're like, it can create stresses in other ways. And I talk about this in the book and we can get into that as well. But I think the thing with like, like level three, especially in the United States, if you're in like a low cost of living area, you can have an amazing life in level three. I think if you're in a high cost of living area, if you're like New York City and you're level three, it's a hundred thousand to a million dollars in wealth. It's not gonna feel as nice as once you're in level four, we have one to 10 million. And even then, like, you Might have to be at the upper end of that so you can really like completely relax and have to worry about anything. But it varies a lot by based on. Also, as you said, your psychology matters, like how you're raised. If you're always worried about money, you're probably always gonna be worried about money. Like you think about like Scott Galloway, he talks about this a lot. Like he just never had money and has more. He spends so much money every month, he still has struggles with it. I think that's, this isn't a good example of like psychology at the end of the day matters a lot in these things. But I think like you can live an amazing life where you don't have to worry as much about money. In level three and level four, especially level four, I think by the time you get to like, that's why I call it the upper middle class United States. Once you're there, like I tell people, don't keep pushing, like it's not necessary anymore. But obviously not everyone's going to listen. Not everyone cares. And so this is where we can have bigger debates around, around so, and.
- [35:04]
Andrew
I agree, I think for a lot of folks and for most people out there, when you keep pushing, you know, in those levels, and this is just my opinion, but when you keep pushing, you know, above some of the level fours, the stress, the return on time of stress you have, you know, when you're trying to build a business or when you're trying to do some of these other things, sometimes for most people it's just not worth it. And I think that's just something to think through for a lot of people because your stress levels can go so incredibly high that it's just, it's a big difference maker for sure. What surprised you most while researching or writing this book?
- [35:32]
Nick Maggiulli
How hard it is to get out of level four. Like the math is insane. When you run the math, you're like, what? Like how? So let's say you start with a million dollars, right? You have, you've already made it to level four. That's already not easy in itself. Like takes people their lifetimes. This is not an easy thing to do. You just made to a million dollars. If you're saving a hundred thousand dollars a year after tax and you're earning 5% on your money while doing it, how long does it take you to get to level five? To get to $10 million? It takes 28 years. This is after you've already accumulated a million dollars, which is already probably took you a few decades, right? So it's like, it's insane. And then, well, Nick, what if I, you know I'm going to save $300,000, right? If you triple that. Saving $300,000 after tax is a ton of money. You have to be making probably double that at least, right after taxes. And you're paying for your lifestyle, all this stuff. Even if you're saving 300k a year, it takes you 17 years. Like, you have to be grinding for so long to get to like, like, it just goes to show, like, it's so difficult to break out of this wealth level. And the only people that do it have to do something very different. It's like you start a business, you have to sell it for a lot of money. Right. And so obviously it's very difficult to do. Less than 2% of the United States is in level 5 or level 6. Right. So it goes to show it's difficult to do and it's not something I recommend for people to do. But once you run the math on that, you start to realize, like, there is a fundamental shift there that I think a lot of people don't talk about or don't think about. And once you get there, you're like, oh, wow, like I really like working that extra five, ten hours a week is not going to get you out of that. It's going to help with your current wealth, but it's not going to get you to like, oh, I'm going to fly private and have Lamborghinis. Like, it just doesn't happen. Right. You need to do something fundamentally different to get there.
- [36:59]
Andrew
Absolutely. And the book goes deep into that and it's just fascinating. Just some of the stuff that you talk through in the book and just it makes you kind of rethink, you know, some of those levels, those upper tier levels and how hard it truly is to get there for sure. So I want to shift gears to just some rapid fire questions that we like to ask. And I think we got some cool ones for you this time too. But what's a belief about money that you've held in your 20s that you completely change your mindset around?
- [37:21]
Nick Maggiulli
Oh yeah, so it's the investing idea. Like when I was very young, I focused so much on my investing, but it just didn't matter like what? You know, I just give a quote like this. A 10% return on $10,000 is smaller than a 2% return on $100,000. Right. It's just like the math. You're like, it doesn't matter. Like, you need to get wealth before the returns actually matter. And so I was spending all this time focusing on this, that and I'm like, I wasn't focusing on my income at all. And so I wasn't thinking about my career. I was thinking about like, oh, what's my 401k? What's my investment? Make sure I 15% bonds or 20% bonds. Like, I was over obsessed on stuff that had very little impact on my life and not obsessed at all or not focusing at all on the things that did, which is my career. It's not like I've had a bad career, but like, if I had really optimized and focused on that, I think, you know, things could have been very different. Not that I'm complaining or I have regrets and want to go back, but it's just I bet there's people out there listening to this and they're young and they're like, oh, I want to get started on this. I'm gonna listen to all these podcasts. Oh, this is a great podcast. I'm gonna listen to it. It. And they're like, you know, they have like 10 grand in their investment account. They're obsessed about what their allocation is. And like, no offense, like, don't obsess on that. Like, it just set something and then move on. And folk like, you really need to focus on other things. It can. It's such a time waste in my opinion. Like, it's good to learn and learn this stuff, but don't obsess. It's not necessary, especially with that amount of wealth.
- [38:34]
Andrew
For sure. Especially, you know, early on, you know, your first 100k, your contributions matter so much more than, you know, any return that you would ever have. You just got to build up that, you know, we're focused on that income so you can have more of that delta to put into your investment accounts to grow it over time. It's just so incredible important. What's the most underrated financial decision you've ever made?
- [38:51]
Nick Maggiulli
Not selling any of my index funds. I've literally never sold. I've only sold individual investments. I've never sold an index fund. Except, you know, obviously rebalance. That's like a tax thing. But like, besides that, I've never sold anything. So yeah, I think. And you got to see diversified. That's the only way this works. You can't just be like, oh, I'm 100% S&P or 100 levered S&P. Like that's a little risky. But if you stay diversified, like, this is Just, it's incredible how well it works over time.
- [39:12]
Andrew
What's your, your go to splurge when you have a big financial win?
- [39:16]
Nick Maggiulli
I'll go out with my fiance by the time this drops with my wife. I go out with my wife and we go to dinner. So it's like a nice restaurant. That's our thing. We like to go to nice restaurants.
- [39:25]
Andrew
Absolutely. What is a financial rule that most people follow that you think is flat out wrong?
- [39:29]
Nick Maggiulli
I don't think most people follow it, but I think they believe it. Always max out your 401k. I think that's not a great rule. I think for some people it makes sense, but I think a lot of people need more optionality, especially where housing prices are. You need money for a bigger down payment. I think maxing a 401 is not the thing to do if you young.
- [39:45]
Andrew
I love it. And then what does. This is the last one that we always ask everybody, but what does wealth mean to you?
- [39:50]
Nick Maggiulli
I think wealth means living life on your own terms. Now that doesn't mean that you're financially independent. You don't have to work for money. That doesn't mean you can buy whatever you want, but you can choose what opportunities you want to work on. You can say, hey, I really don't want to do this. If you really have like a moral opposition to something, you can say no and do something else. Right? And I think that's where you have to get to. Building wealth is allowing you to do that. Choosing who you want to work with, you know, choosing how you want to spend your time doesn't mean you spend every second of your day exactly as you want. But it's giving you some of that freedom. Say, hey, I'm willing to work and sacrifice these times so I can spend my other time like this, right? So I think it's finding that balance and it takes time to get there. I think like when you're young you've got to work a lot. It's just how it is. Like that's just the nature of it. I did it too. I was doing 50, 60 hour weeks, you know, because you build that wealth and then you have that flexibility and freedom. So I think it takes time to get there. But that's what I would say. It's the ability to choose and live the life on your own terms.
- [40:46]
Andrew
I love that answer. I think that's fantastic. So, Nick, thank you so much for coming on here. This is absolutely amazing. Your book was absolutely incredible. I encourage everybody to go out and get it so where can they find out more about you and where should they go get the book?
- [40:57]
Nick Maggiulli
My blog is ofdollars and data.com I'm writing every week. Obviously I write about all sorts of different stuff. But yeah, the book you can find anywhere books are sold. Amazon, Barnes and Noble, et cetera. And you can also find@wealthladderbook.com if you want to just see the landing page and all that. But yeah, also I'm on social media, Twitter, Instagram, LinkedIn. Feel free to DM me. I respond to every DM. If it's a legit DM, it's not trying to pitch me on something. I will respond to every single one. So thank you for your time.
- [41:23]
Andrew
Awesome. Thank you so much, Nick for coming on here.
- [41:25]
Nick Maggiulli
We truly appreciate. Thanks for having me on again, Andrew. I truly appreciate it. Thanks.