There are several different ways to view wealth and the “levels” associated with it. Some people like to rank it in three tiers: not concerned with debt, not concerned with restaurant prices, and not concerned with spending on vacation.
I think this is a good place to start, but it can leave out some pretty important details.
In this article, we’ll break down our five levels of wealth, what they mean, and how you can identify where you sit.
Levels of wealth
As I mentioned in the introduction, we identified 5 levels of wealth. Below lists what those levels are, the details about them, and identifying characteristics.
- Pay off debt and save
- You can pay your bills. You may be paycheck to paycheck, depending on what you think that means, but you’re not falling behind. Liabilities are becoming less of a burden and your net worth is improving.
- Development of habits – saving money and paying off debt. You’re probably wary of how much you spend on certain items, groceries, for example.
- Increase savings and use investment vehicles
- Your goals of paying off “high-interest” debt and establishing an emergency fund have been met. Your attention shifts to planning far ahead. Retirement savings and investing are your focus.
- Saving at least 15% of your income for retirement and future goals. Automation implementation. Tracking net worth. Probably a little less concerned about your day to day spending.
- Feeling comfortable and spending changes
- You’re much less concerned about your discretionary spending. Though you’re less willing to spend money on stuff and more willing to spend money on experiences, and/or you’re encouraged to spend money on things that will create memories.
- Financial freedom
- You exceeded your goal net worth or nest egg number. Daily spending and discretionary purchases don’t register. You’re not concerned with how much you spend in most cases. Make sure, however, that how much you spend and how much you have actually makes sense from a mathematical perspective. There’s nothing worse than thinking you have more than you actually do.
- Philanthropy
- One thing to keep in mind: make sure you are making memories and creating quality experiences before you get to this point, as well as after you get here. Time is limited. Make the most of it.
- The quality of the experience matters more than the price. You shift your focus to using your wealth for good. How can you spend to make the world a better place?
What this all means for you
There are three things I would like you to walk away with from this article.
The first two steps in climbing the wealth ladder:
- Discern what level of wealth you are looking for, and what it specifically looks like for you. Everyone has different values and different wants, that means what your Financial Freedom looks like will differ from what Jane Smith’s level will look like.
- Craft a plan to get to your desired level. Figuring out what you want and what it looks like is great, but a goal without a plan or action is just a dream. Make it a reality.
- Financial wealth is great but should be viewed as a tool. It can also be viewed as a relief or peace of mind when you get to YOUR level. However, time is our most precious commodity. Truly wealthy individuals realize this truth and orient their lives accordingly.
Related reading:
Why Financial Literacy is Important
Your Wealth: What You Shouldn’t Do
Jacob Sensible is a financial advisor with decades of experience in the financial planning industry. His journey into finance began out of necessity, stepping up to support his grandfather during a health crisis. This period not only grounded him in the essentials of stock analysis, investment strategies, and the critical roles of insurance and trusts in asset preservation but also instilled a comprehensive understanding of financial markets and wealth management. Jacob can be reached at: jake.sensiba@mygfpartner.com.