The 4 Stages of Wealth

I get a lot of comments on the posts that I make which say things like:

“Rich guy has no friends”

“Broke guy enjoys life more!”

“Rich guy works hard and then dies, who cares”

It makes me realize that many people don’t understand the way you live, spend and behave all change as you advance through different wealth stages. So I thought I’d share my perspective on the different stages to give you some hope that you’re not going to be penny-pinching forever and that you shouldn’t feel guilty about some of the purchases you’re making.

And before you ask, none of these stages have anything to do with income, although that can certainly make advancing easier.

Stage 1: Emergency

This is the least fun stage to be in, and unfortunately where not only most people are, but where most people stay. In this stage you:

• Have consumer debt

• No Emergency Fund

• No Plan

People who stay in this stage typically let life happen to them instead of taking control of their own lives. When I talk about making sacrifices, not eating out as much, and getting a side gig, these are the people I’m trying to inspire.

Unfortunately, these are also the people who will likely make those comments. And I get it, if you’re in this stage, it’s scary and it’s not easy to get out of it. It’s the hardest stage to move on from, that’s why so many don’t.

But I’m here to tell you that no matter where you came from, who you think you are or the limitations that you may have for yourself in your mind - you don’t have to stay in this stage. And the good news is that while it’s the hardest stage to get out of, it’s also the most straightforward. Hopefully some of these next stages can be your motivation to stick with it.

Stage 2: Stability

This stage is a breath of fresh air to anyone in stage 1. You’re no longer worried about broke in this stage and if you do have any worries in this stage, it’s because you have started to realize your potential and you want to make sure you’re not falling short. I still deal with that.

In this stage you:

• Have no consumer debt

• Bills are always paid on time

• Have an emergency fund

While it’s easy to get comfortable in this stage, it’s probably the shortest stage of the 4. Typically this is a stage where people are spending some time on their financial literacy. It’s their first time out of debt and now they don’t know what to do with all of this extra money.

They also probably developed healthier spending habits, so their no longer interested in just spending it all on junk. But paralyzed by making the next step in their journey. This is an exciting stage to be in and if you read this and make it from Stage 1 to Stage 2 I hope you send me a message, I love hearing that.

Stage 3: Strategy

The name is pretty self-explanatory. This is a stage where you create and start executing a plan to put your money to work. It typically looks like the following.

• Investing

• Put money to work for you

• Consciously enjoying your money

You may have invested in the past, you may even be doing that in Stage 1. I personally don’t recommend investing until you’re out of debt. It’s easy to want to invest when the market is having a good year like this year and last year. But when it has years it’s down 10-20% you’ll have wished that you put that money into your debt.

When an emergency comes up and you have to sell your investments at a time that’s not ideal, you’ll wish that you had just paid off your debt and saved up an emergency fund. Don’t skip the steps!

Another key piece to investing in this stage is that you’re doing it automatically. You don’t even think about it. Every paycheck my wife and I automatically put 30-40% of our pay into my 401k, her IRA, a Mommy Fund (so she can take time off after baby), a house fund (for future home), and my brokerage account (index funds). The brokerage account is the only one where I manually put the money in depending on how much we made (our pay varies).

The more that it’s automatically taken out of your check, the more that you’ll get used to living with the money that’s left over. We’re emotional beings, not optimization machines, set your emotions up for success.

This way, you can use money that you have left over to “Consciously” spend on whatever is important to you. This is a stage where you can and should be spending money on the things you love.

My wife and I love coffee shops, it’s where I’m writing this email right now. So we spend money going to get coffee… a lot! My wife has health conditions, so we spend a lot of money on practices and doctors so she can have the best quality of life… a lot! And we both love trying new restaurants, so we spend money going out to eat.

What I don’t do… Doordash because I like going to the restaurant. Online shopping, I rarely shop, it’s just not something that I’m passionate about.

You shouldn’t be careless with your money, but this is a stage where you shouldn’t feel guilty when you spend your money either.

Stage 4: Freedom

This is the holy grail in my opinion.

This is the stage where you get to do what you want, when you want, with who you want. This stage is hard to define because, in reality, freedom looks different for all of us.

For some, this might mean they can quit their job and never worry about income again. For others, this might mean they can finally go all in on a passion project and the decrease in pay doesn’t matter.

It might mean that you spend money on whatever you want all the time. It might mean that you still remain frugal so you can freely enjoy the lifestyle that you want.

The common theme here is that nobody can tell you what you can and can’t do. You’re no longer a slave to your desk.

Conclusion

It’s important to know what wealth stage you’re in. If you don’t you may be overspending when you need to be saving or you may be acting more frugal than you need when you could actually enjoy your money.

None of these stages determine whether you’re a good person and so if you’re in Stage 1 you shouldn’t feel less than and if you’re in Stage 4 that doesn’t mean you’re above anyone.

Just some random thoughts!

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