“That’s the whole idea behind the wealth ladder, is your financial strategy should change as you kind of move up the ladder.”

Climbing the wealth ladder might sound simple, like all you have to do is take it one step at a time.

But according to Nick Maggiulli, the chief operating officer for Ritholtz Wealth Management and a financial author, it’s more comparable to playing chess.

“The strategy you use at one point is not necessarily the strategy that’s going to get you to that next level,” Nick said on a recent episode of our podcast, Common Cents on the Prairie™.

That’s why Nick is sharing three solutions for climbing the wealth ladder, which can help you improve your financial life while growing your wealth.

What is the wealth ladder?

The wealth ladder, as Nick laid out in his new book, comprises six different levels of wealth based on your household net worth.

“That’s all your assets minus all of your liabilities,” Nick said. “So that’s going to be everything you own: your house, your car, cash in your bank accounts, your stocks and retirement accounts…minus any debt you have.”

The six levels he outlined are:

• Level one: less than $10,000
• Level two: $10,000 to $100,000
• Level three: $100,000 to $1 million
• Level four: $1 million to $10 million
• Level five: $10 million to $100 million
• Level six: more than $100 million

What does ‘climbing the wealth ladder’ mean for me?

“Every wealth level has what I call some sort of spending freedom,” Nick said.

To calculate yours, you can use the 0.01% rule.

“You take your net worth, you multiply by 0.01%…and that is the amount of money that your wealth is generating every day,” he said.

For example, a net worth of $100,000 would give you $10 of spending freedom, meaning you could spend $10 every day without thinking about it.

“I think following the 0.01% rule is an easy way to say, ‘Hey, if I want to spend more, if I want to get to what I call travel freedom in level four, then I need to have the financial discipline to build a million dollars in wealth,’” Nick said.

3 solutions for climbing the wealth ladder

If you’re looking to attain that next level of spending freedom, such as grocery freedom, restaurant freedom, or travel freedom, Nick has a few ideas on how you can climb the wealth ladder.

Increase Your Income

“All the data I’ve seen in all of personal finance suggests that it’s your income that is building wealth, not how much you can cut your spending,” Nick said.

Don’t take that the wrong way; saving is still a major aspect of a healthy financial life.

But if you’re looking to level up on the wealth ladder, your best chance is by increasing your income rather than trying to save more.

“You can only cut spending so far,” Nick said. “…With your income, there is, in theory, no limit.”

Exercise More

The typical advice for someone who is behind on their retirement savings, according to Nick, is naturally to start saving more.

“That’s just, like, the mathematically obvious answer,” he said. “If you don’t save any money, you’re not going to have anything for retirement, so it’s obvious that you have to save more. I don’t think that’s an insightful answer.”

Nick’s solution?

“I think you should actually start exercising more,” he said.

Not only is exercise good for your health and lifespan, but it can help you increase your working years so you have more time to earn money.

“You didn’t save early on in your career for one reason or another — don’t beat yourself up over it,” Nick said. “You can’t change that now. You’re here, so what can you do now? Exercise more to improve your health, so that you can work more years later.”

It might not sound like a great solution, having to work until you’re 70 rather than 60 or 65.

To that, Nick says, “There’s no shortcut here. There’s no magic wand I’m going to have that’s like, oh, just do this and all that money is going to show up. …The only way I know how that’s basically guaranteed to work is to give yourself more time.”

Let Go of Your Ego

“I think there [are] a lot of times when it comes to building wealth where an individual’s ego is actually preventing them from either building more wealth or keeping the wealth that they have,” Nick said.

Appeasing your ego often equates to spending on things you don’t need or can’t really afford, like a luxury car or designer clothes.

According to Nick, these behaviors lead to lower savings rates and, therefore, lower wealth accumulation.

“When you think about that, like the people in level three that try to spend as if to show like they’re in (level) four…they could end up holding themselves back because they don’t have a sufficient income to support that lifestyle,” he said.

By letting go of your ego and turning spending behaviors into saving habits, you can give yourself a better chance to move up a level on the wealth ladder.

To learn more about Nick Maggiulli’s tips for climbing the wealth ladder, watch the full podcast episode at the player below. Or, you can listen on Apple Podcasts or your favorite streaming app.

If you’d like help from a financial expert on leveling up your wealth, send a note to our team at First National Wealth Management. We’d be happy to have a conversation!

Any comments, insights, or strategies discussed in this article are intended to be general in nature and, therefore, may not be suitable for you and your situation, whatever that may be. Before acting on anything written here, please consult with your attorney, CPA, and/or your financial advisor.