Understanding the Wealth Ladder

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Guest: Nick Maggiulli is the Chief Operating Officer and Data Scientist at Ritholtz Wealth Management. He is the best-selling author of Just Keep Buying: Proven Ways to Save Money and Build Your Wealth, and his latest book is called The Wealth Ladder. Nick is also the author of OfDollarsAndData.com, a blog focused on the intersection of data and personal finance.

Notes:

• Money works as an enhancer, not a solution: Like salt enhances food flavors, money amplifies existing life experiences but has little value by itself without relationships, health, and purpose. "Money by itself is useless... without friends, family, without your health, it doesn't add much... it enhances all the other parts of life."
• Nick beat his dad’s friends at chess when he was 5 years old because he practiced more than they did. He got more reps. He did the work. It’s not that he was a chess prodigy. He just worked harder than his opponents did. And he still does that today.
  • Practice creates expertise beyond intelligence: At five years old, Maggiulli could beat adults at chess not because he was smarter, but because he had more practice. Consistent effort over time can outcompete raw talent. "I could beat them, not because I was smarter than them, only because I had practiced something... In this very specific realm, I could beat them."
• Consistent writing builds compound advantages: Writing 10 hours every weekend for nine years created opportunities including book deals and career advancement. The discipline of regular practice compounds over time. "I've been writing for nine years... I spend 10 hours a week every single week for almost a decade now, and that helps over time."
• The most expensive thing people own is their ego.
• How do you add value when you're in a job that doesn't have a clear scoreboard (like sales)?
  • Think... What gets accomplished that otherwise wouldn't have without you?
  • Add value through time savings and efficiency: In roles where impact isn't immediately measurable, focus on how much time and effort you save others. Create systems that make your colleagues more efficient. "How do I save our operations team time? How do I save our compliance team time... I'm designing better oars that'll give us 10% more efficiency."
• Money amplifies existing happiness: Research shows that if you're already happy, more money will make you happier. But if you're unhappy and not poor, more money won't solve your problems. "If you're happy already, more money will make you happier... but if you aren't poor and you aren't happy, more money's not gonna do a thing."
• Ego is the most expensive thing people own: Trying to appear wealthier than you are prevents actual wealth building. Focus on substance over status symbols. "People in level three that wanna look like people in level four end up spending so much money to keep up with the Joneses."
• Follow your interests for long-term success: Passion sustains you through inevitable obstacles and rejection. Maggiulli wrote for three years without earning money because he genuinely enjoyed it. "Follow your interest because when you follow your interest, you're more likely to keep going when you face obstacles."
• The "Die with Zero" philosophy, advocated by Bill Perkins, encourages people to prioritize experiences and fulfillment over accumulating maximum wealth, suggesting spending money strategically to maximize lifetime enjoyment.
• Nick defines six levels of wealth based on net worth, ranging from $0 to over $100 million. These levels are: Level 1: $0-$10,000 (paycheck-to-paycheck), Level 2: $10,000-$100,000 (grocery freedom), Level 3: $100,000-$1 million (restaurant freedom), Level 4: $1 million-$10 million (travel freedom), Level 5: $10 million-$100 million (house freedom), and Level 6: $100 million+ (philanthropic freedom). 
  • Nick also notes a shift in asset allocation as one progresses through the levels. In the lower levels, a larger portion of wealth is tied up in non-income-producing assets like cars, while higher levels see a greater emphasis on income-producing assets like stocks and real estate.
  • Wealth strategies must evolve by level: The approach that gets you to level four ($1M-$10M) won't get you to level five ($10M-$100M). Higher wealth levels typically require entrepreneurship or equity ownership. "The strategy that you use to get into level four is not going to be the strategy that gets you out."
  • Know when "enough" is enough: Level four wealth ($1M-$10M) may be sufficient for most people. The sacrifices required to reach higher levels often aren't worth the marginal benefits. "The rational response for an American household once they get into level four is... maybe I take my foot off the gas and just enjoy life more."
• As a data scientist, Nick leverages data to provide business intelligence insights at Ritholtz Wealth Management, where he also serves as Chief Operating Officer. His work involves analyzing data to answer business questions, identify trends, and build predictive models. For example, he might analyze lead conversion rates, client attrition, or investment patterns to inform business decisions.
• Financial independence requires separate identities: Maintain individual financial accounts within marriage for independence and easier asset division. Pool resources for shared expenses while preserving autonomy. "Everyone needs to have their own accounts. They need to have their own money... especially important for women."
• Nick and his wife have a joint + separate bank account(s).
  • Here's how it works:
    • All of your income and your partner’s income flows into this joint account.
    • That income is used to pay for all shared expenses.
    • Any excess left in the account (above a certain threshold) can either be left in the account or distributed equally between you and your partner (to your separate accounts).
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