"Climbing the Wealth Ladder" (Why Affluence Increases in Steps)

[thedigitalone]

Interesting read on how your perception of money changes in relationship to how much you have accumulated.

https://ofdollarsanddata.com/climbing-the-wealth-ladder/

[DadJokes]

I'm not sure that I follow his logic. Even when I'm FI, I won't meet what he calls level 3.

Some of that may be that I tend to approach things from a scarcity mindset, but I think the belief that your spending should increase just because your net worth does can be dangerous. He addresses that just like we might expect:

Lastly, you might argue that you shouldn’t increase your consumption with your net worth, but I would counter that some lifestyle creep can be highly rewarding in terms of maximizing your leisure time and long-term life satisfaction.  In other words, there is a lot more to life than saving money.  Live a little.

Apparently, you aren't living if you care about the prices at restaurants or getting good value on vacations.

[bacchi]

There's a disconnect between the 2nd scale and the 3rd scale (the one with money). This is pretty common among those who connect 1:1 what you spend with the value you gain.

[ixtap]

Apparently, you aren't living if you care about the prices at restaurants or getting good value on vacations.

On bogleheads, that is a pretty common determination of wealth.


However, I think we all know people who aren't too worried about the costs of restaurants and travel that are still stressed by their debts

[Bloop Bloop]

I will always care about restaurant value or holiday value because that's just how I'm wired. I don't like paying more than I have to. It's why when I go to flea markets I still bargain, even though the difference between a $3 trinket and a $8 trinket could make no possible difference to my overall finances.

0.01% of my net worth would be $120 and I sure as hell would care about that. Not if it was on something I considered well-spent, but if I got a $120 fine I'd be writing in to contest it.

Because the sort of behaviours that get you to financial security are also the sort of behaviours that tend to be long-lasting even if you could make a case that they're no longer needed.

I also disagree that just because you have more, you should be more inured to spending more. Sure, if you find it fun to spend more. Not all of us do, and some of us are happy with our usual routines.

[Freedomin5]

It's so weird that he scaled wealth based on spending. I usually tie wealth to savings.

I kind of get what he's saying though. It's about how much spending that extra amount would impact my overall financial well-being, and my willingness to spend more for convenience/preference. For example, when I had a net worth of less than $100k, when considering which flights to take, I would take the cheapest flight even if it meant two layovers and needing to get to the airport by 4AM. Now that net worth is a lot more than that, I'll take the direct flight leaving at a decent time even if I have to pay an extra $200. I'll still price compare between direct flights offered by other airlines, but I won't forgo the convenience in order to save a few bucks.

Or in the past, I might decline a dinner invitation if friends were going to an expensive restaurant but now, we will go once in a while without stressing about how much it costs.

[YttriumNitrate]

I find it interesting that the sometimes richest man in the world is at level 1 on the first scale.
https://www.cnbc.com/2017/02/17/warren-buffett-once-paid-for-bill-gates-mcdonalds-meal-with-coupons.html

[TVRodriguez]

I will always care about restaurant value or holiday value because that's just how I'm wired. I don't like paying more than I have to. It's why when I go to flea markets I still bargain, even though the difference between a $3 trinket and a $8 trinket could make no possible difference to my overall finances.

0.01% of my net worth would be $120 and I sure as hell would care about that. Not if it was on something I considered well-spent, but if I got a $120 fine I'd be writing in to contest it.

Because the sort of behaviours that get you to financial security are also the sort of behaviours that tend to be long-lasting even if you could make a case that they're no longer needed.

I also disagree that just because you have more, you should be more inured to spending more. Sure, if you find it fun to spend more. Not all of us do, and some of us are happy with our usual routines.

Well put.  I think he's off by at least a decimal point or three in his "0.01%" argument.  I think for anyone on this forum that 0.001% is still enough to care about, tbh, depending on the purchase, even if negligible in your net worth. 

For example, I'll separate my purchases at CVS into two groups to get the $5 extrabucks coupon from the first purchase to use on the second, and $5 is way less than 0.001% of my net worth.

[bluebelle]

I think it is a poorly phrased article.....author equates "doesn't care" with what we'd say "doesn't impact".....I will never have so much money that I DON'T CARE what something costs, but I certainly have enough now that many purchases don't impact my wealth or even cash flow.  Spending $200 at a restaurant doesn't impact my wealth or ability to pay my bills, but I probably won't get $200 worth of value from it.  I'd probably be happier at home with a $50 meal that includes a cut of dry aged beef, good bottle of wine and sweat pants.....I decided long ago that I don't get value out of 5 star hotels, but I'm not staying in a dive either.

by the author's definition, I'll never get to level 2 because I'll always 'care' what something costs.....I get a certain glee out of price matching at the grocery store and getting cash back points, it's a game for me.

Level 1. I’m not stressed out about debt: People who no longer have to worry about their credit card debt or student loans.
Level 2. I don’t care what stuff costs in restaurants: How much you spend on a particular meal isn’t impacted by your finances.
Level 3. I don’t care what a vacation costs: People who don’t care how expensive the hotel is or which flight they go on.

[moof]

...
Apparently, you aren't living if you care about the prices at restaurants or getting good value on vacations.

Recent experience has often shown me an inverse relationship between cost of a vacation and how much I got out of it.

A week at Disneyland to appease the kid/spouse left me tired, stressed, and with an aching hole in the bank account.

A week doing a back-roads bike trip across the state probably cost under about a grand if I am fully honest with myself about the gadgets I bought to support it, and left me physically destroyed and smiling ear to ear for a good while after.

I would also argue that you don't get/stay wealthy if you are a) eating out a lot and b) not paying attention to prices when you do.  Preaching to the choir here I know...

[Maenad]

I agree that the "one basis point" number is a good gauge for what will no longer have a substantive impact on net worth. From a Mustachian standpoint, I'd say that when an expense gets down to that level, it may not be worth the time it takes to optimize and one should focus on larger categories. With the caveat that a large number of "one basis point" expenses can sum up to a whole lot more, so keeping an eye on those things is still a good idea.

But this:

Lastly, you might argue that you shouldn’t increase your consumption with your net worth, but I would counter that some lifestyle creep can be highly rewarding in terms of maximizing your leisure time and long-term life satisfaction.  In other words, there is a lot more to life than saving money.  Live a little.

really chaps my ass.

"Living" and spending money are not synonymous. "Living" to me is spending time with my loved ones, and most of the things we do together cost very little. For instance, my mom and aunt are coming to my house this weekend to teach my brother and I how to make some old family recipes. For the cost of groceries we get to spend an enjoyable afternoon with each other, learn something new, and strengthen our ties with our ancestors. That is worth so much more than a dinner at an expensive restaurant.

[Bloop Bloop]

I agree with most of the above, but money spent on menial or unpleasant tasks (having a cook, cleaner, accountant etc) can be put to good use in freeing up more time. It depends on how much money you have, what the relative expense is, whether it's tax deductible etc. I have a car but frequently take Uber because I'm tired and want to get some meditation time in the car. Paying someone about 1/10 of my hourly wage to drive me, then writing off the bill as a tax deduction, works a treat for me. Spending certainly can help increase wellbeing if you do it right.

[Sailor Sam]

I found the article pretty accurate for my own accumulation phase. I remember being on level 1, and envying the carefree grocery carts of my fellow shoppers.

I didn’t necessarily notice the restaurant freedom, but at some point I stopped looking at the price of the meal I want.

I’d say I’m approaching travel freedom. I upgraded my legroom a few inches on a trans-Atlantic flight without blinking at the $100, but I just laughed at the $900 to upgrade to the next step.

But eh, I’m not particularly in a rush towards FIRE. I might be an outlier.

[scottish]

Well this is my favourite quotation from the article.

the best way to climb the wealth ladder is to spend money according to your level.

I think it should be amended to read

the best way to climb the wealth ladder is to spend money below your level.

[Fomerly known as something]

I found the article pretty accurate for my own accumulation phase. I remember being on level 1, and envying the carefree grocery carts of my fellow shoppers.

I didn’t necessarily notice the restaurant freedom, but at some point I stopped looking at the price of the meal I want.

I’d say I’m approaching travel freedom. I upgraded my legroom a few inches on a trans-Atlantic flight without blinking at the $100, but I just laughed at the $900 to upgrade to the next step.

But eh, I’m not particularly in a rush towards FIRE. I might be an outlier.

I'm with Sailor Sam.  I do no longer blink at restaurant prices, if it is a restaurant I want to go to.  However, I get irritated if I have to spend more at a restaurant I'm not into because it was someone else's choice.    I also will pick flights in part based by price but also based by preference so not always the cheapest.  (I like normal timed layover of 1-2 hours, minimum amount of layovers but I don't mind a 6am flight probably a product of my NY years when those were the flights that didn't get fucked up). 

I also didn't blink when I broke my last phone and laptops respectively.  I didn't get the top of the line but I didn't worry about price either I got the one that was the best value for me. 

I can see some scaling of consumption in some manner as I gain more wealth because I can but it won't be uber extreme.

[StarBright]

I thought of this post over the holiday!

We definitely made (inconvenient and annoying) holiday travel plans based on the cost of flights.

My BIL on the other hand, paid way more for his family's air travel based on convenience and personal preference. He and SIL make a lot more than our family.

I was conscious of how the discrepancy in our "wealth rungs" affected our holiday travel.

[fattest_foot]

I guess I'm just wired differently (probably why I'm here).

From the article:

For example, imagine you are in a restaurant where you are deciding between a burger for $15 and salmon for $25.  If your net worth > $100,000 then the $10 difference is trivial (<0.01% of net worth).

In contradiction of the posts above, when I go out to eat I will almost always be price sensitive. If the choice is between the two, I'd almost always go for the $15 meal even if the $25 is one I want more. And our invested net worth as of today is over half a million. That $10 is about .002% of our net worth, but it's not trivial in my mind.

[ixtap]

I guess I'm just wired differently (probably why I'm here).

From the article:

For example, imagine you are in a restaurant where you are deciding between a burger for $15 and salmon for $25.  If your net worth > $100,000 then the $10 difference is trivial (<0.01% of net worth).

In contradiction of the posts above, when I go out to eat I will almost always be price sensitive. If the choice is between the two, I'd almost always go for the $15 meal even if the $25 is one I want more. And our invested net worth as of today is over half a million. That $10 is about .002% of our net worth, but it's not trivial in my mind.

For us, this boils down to lifestyle creep: we want to keep within a budget that will allow us to pursue our goals. That ten dollars may not make a dent in my wealth, but making a habit of ignoring ten dollar increments will wreck havoc with my overall budget.

[zolotiyeruki]

For us, this boils down to lifestyle creep: we want to keep within a budget that will allow us to pursue our goals. That ten dollars may not make a dent in my wealth, but making a habit of ignoring ten dollar increments will wreck havoc with my overall budget.

Bingo.  You don't get rich by spending money :)  I have a whole list of small purchases that I'd like to make, but they add up to much more significant amounts.

One of the tenets of MMM's philosophy is that some measure of inconvenience or discomfort or self-limitation is beneficial, and helps maintain perspective.  The problem with not worrying about small expenses is that eventually you run out of inconveniences that can be fixed by spending $10, and now the $20-to-solve inconveniences start bugging you.  The point is that there will always be inconveniences in life, whether you're making $10k per year or $100M.  That's where tiny details exaggeration syndrome creeps in, and you end up spending hundreds of thousands of dollars to renovate a home into something substantially less functional that you only use a couple weeks out of the year.

The trick is to be conscious about what you're spending money on, and realize that "I am spending $X to resolve Y inconvenience, and this expense will have Z opportunity cost," where Z is another wished-for item, or additional time before FIRE, or whatever.

[Wolfpack Mustachian]

Not needing to stress over purchases you need is because of overall control in things. I don't know if I'm a carefree grocery shopper, because what I buy is dictated by what fruit is on sale, if chicken is on sale so I can stock up for when it's not, etc. On the other hand, I was taken by a friend to Trader Joe's recently for the first time and spent my general weekly grocery bill on random crap I wanted to try for fun and didn't worry about it because I don't have to. Similarly, I don't have to worry when I break a phone, getting a new one because I don't get a new one every year to upgrade.

[mm1970]

I found the article pretty accurate for my own accumulation phase. I remember being on level 1, and envying the carefree grocery carts of my fellow shoppers.

I didn’t necessarily notice the restaurant freedom, but at some point I stopped looking at the price of the meal I want.

I’d say I’m approaching travel freedom. I upgraded my legroom a few inches on a trans-Atlantic flight without blinking at the $100, but I just laughed at the $900 to upgrade to the next step.

But eh, I’m not particularly in a rush towards FIRE. I might be an outlier.

I'm with Sailor Sam.  I do no longer blink at restaurant prices, if it is a restaurant I want to go to.  However, I get irritated if I have to spend more at a restaurant I'm not into because it was someone else's choice.    I also will pick flights in part based by price but also based by preference so not always the cheapest.  (I like normal timed layover of 1-2 hours, minimum amount of layovers but I don't mind a 6am flight probably a product of my NY years when those were the flights that didn't get fucked up). 

I also didn't blink when I broke my last phone and laptops respectively.  I didn't get the top of the line but I didn't worry about price either I got the one that was the best value for me. 

I can see some scaling of consumption in some manner as I gain more wealth because I can but it won't be uber extreme.

Very much true for us too.

I planned my last plane trip (to Europe), and while yet, it was Norwegian, we spent extra to actually sit together and have no layovers.
For our upcoming trip to Hawaii, I shopped around and had specific requirements: 1. a kitchen. 2. NO RED EYE I DO NOT SLEEP ON PLANES. 3. A really awesome pool, water slides a bonus.  So for sure, I paid attention to the overall cost, but I didn't blink at the $5500 price tag (for 4) compared to what I could have gotten (different island, condo with a normal pool, and a red-eye back) for $3800.

Likewise, when our fridge died, or the computer died, or my phone went kaput...I just replaced them.  With reasonably frugal choices ($350 fridge, ?? computer, $250 phone).

[Omy]

Yesterday we checked our net worth and realized it had gone up $200k(!) in the past 5 months (since becoming FIREd in August.) We "celebrated" by going out to eat instead of trying to create yet another meal from holiday leftovers. But even then, I chose to save $3 and got chicken when I would have preferred the shrimp. There is probably something wrong with me since the entire meal was less than .001% of our net worth.

I still watch the grocery bill like a hawk (unless I'm cooking for a party - I splurge a little then without thinking about it.) I watch my restaurant choices carefully. I watch vacation prices but have loosened the reins a tiny bit since FIRE. I've lived in my dream house for a decade (I bought it well below market value, so maybe that's why I don't deprive myself there.) I'm trying to be more philanthropic, but last year's contributions were just over .01% of TNW.

I do need to start living a little...just not sure how to do that after 5+ decades of being a squirrel.

[Morning Glory]

I found the article pretty accurate for my own accumulation phase. I remember being on level 1, and envying the carefree grocery carts of my fellow shoppers.

This. I was so happy when I got my first real paycheck after college and I could buy whatever I wanted at the grocery. I still looked at prices and bought reasonable things, but I didn't have to mentally add up what I was putting in the cart to make sure I had enough money to pay.

This concept could apply to money coming in as well:
Up until recently I knew my hourly pay rate to the penny, and now I know it to the closest dollar. Pretty soon I might only know to the closest $10.

[BMP2CPM@gmail.com]

Interesting article. The article focuses more on price and less on frequency.

At a net worth of just over 1 million, my wife and I budget everything. In reality, YNAB makes every spending decision for us  Restaurant prices do not  matter, but frequency in a month does.

For vacations, my wife and I both work, so some years taking even 1 week off is impossible. Last year we took 5 days off and did not care about about the price. Great vacation, budgeted months in advance and my step son had the time of his life. Well worth the money.

I imagine the wealthier, the more frequent in spending.  I would suspect at any wealth level frequency of spending matters.

[LWYRUP]

I'm not sure that I follow his logic. Even when I'm FI, I won't meet what he calls level 3.

Some of that may be that I tend to approach things from a scarcity mindset, but I think the belief that your spending should increase just because your net worth does can be dangerous. He addresses that just like we might expect:

Lastly, you might argue that you shouldn’t increase your consumption with your net worth, but I would counter that some lifestyle creep can be highly rewarding in terms of maximizing your leisure time and long-term life satisfaction.  In other words, there is a lot more to life than saving money.  Live a little.

Apparently, you aren't living if you care about the prices at restaurants or getting good value on vacations.

I agree.  Until I am FI, I try to be reasonable in all my purchases, groceries included.  I'll skip expensive things (smoked salmon, etc.) and use them as special treats to save money even though we've got plenty saved.  But I'll also spend a lot on things that matter to me (e.g., a house closer to work). 

After FI I will probably care a bit less but I think I'll always try to use resources efficiently just because I think it's a better way of living. 

[clarkfan1979]

In his example, if you have a net worth greater than 100K, then you do not care about a $15 burger or $25 salmon. My wife and I used to live on Kauai for 4 years. We rarely ate at restaurants because it was incredibly expensive and it really wasn't that good. Our net worth is 740K and we refused to buy $24 burger and fries and causal restaurants near the beach.

We would fly around 30,000 miles a year on planes. Most of it was with points. Would the flight feel like we were "living a little" if we spent $800 on the flight, instead of using points?

I think our FI number is somewhere around 1.75 million. As a result, in order for our lives to be different, tomorrow. I would need an additional one million. If someone gave me 200K, I do not think my life would change, other than getting to my FI number quicker.

[marty998]

In his example, if you have a net worth greater than 100K, then you do not care about a $15 burger or $25 salmon. My wife and I used to live on Kauai for 4 years. We rarely ate at restaurants because it was incredibly expensive and it really wasn't that good. Our net worth is 740K and we refused to buy $24 burger and fries and causal restaurants near the beach.

Agree. And you will definitely care if you find yourself spending that every week or every day. A millionaire is made $10 at a time.

[ixtap]

I will say, the pandemic has made me more of a carefree grocery shopper, even though our NW has increased by less than our savings...

[Michael in ABQ]

  You don't get rich by spending money

Well put. I might have to use that talking to my Soldiers who are just itching to spend the money they've saved on deployment on a vehicle or some other toy.

[Chris@TTL]

Yea, I don't know that I'm really feeling this one, either. Tying "levels" to how much you care about the decimal point location of purchases seems...silly. Folks who build wealth slowly (which is most people with wealth) do so by making a ton of tiny decisions that make a difference in the long run.

More important than each singular decision is the ability to build up a "frugality muscle". I just wrote a related Reddit response that is appropriate, here:

Personally, the little $5/day expenses really wouldn’t affect our finances in the longterm. And more, if they made me a little happy or reduced some difficulty, they may be worth it.

The important part is that managing those little, frequent expenses give you practice:

Is this expense worth it to me?

What would it take to stop this?

That—Frugality Muscle—practice builds longterm into resilience to make it easier, more second nature, to do that evaluation and avoid non-worthwhile costs.

As important as making a housing or car decision is, it’s a rare decision. You don’t get to practice those big ones.

In my mind, thinking about wealth is a bit more abstract and looks like this ladder of financial freedom steps: