Going Through Levels of Wealth
Level 1 - NGMI
Welcome Avatar! For those that have read us for years, you know that we recommend a basic journal for all people. This isn’t a “dear diary” journal but rather 4-5 sentences per day. Not a tall task for anyone to do.
Two sentences on what you accomplished, two sentences on what you think is going right vs. wrong. Then a sentence on your general mental state of mind.
This has evolved over the years but you’ll notice in your own writing that you’ve “changed” in terms of how you think, act and feel. As always, when you level up in life you’ll get haters telling you that “you changed”.
Which of course is true. Why would you work so hard to stay the same?
Part 1: Qualitative Overview
Starting At/Near Bottom
At/Near Bottom: No matter what you do, people will say they had it harder than you. There is always a “lower bar”. For example, being born in a 3rd world country with no internet access.
This is why our focus is on the USA. No room for excuses if born in the USA
On that note, the #1 way to tell if someone started at or near the bottom is simple. *Do they display wealth*. If the answer is yes the chances are slim they actually started from the bottom.
The only exception to this rule: pro-athletes and celebrities. Since they are already famous, they can’t hide anything and on top of that typically don’t even need to purchase anything (endorsements etc.)
Outside of Pro-Athletes/Celebrities the *one* thing people at the bottom have in common with people at the top? Avoiding displayed wealth.
At the lower rungs of society, you hear of a “come up” ie. someone gets $50,000. This same person is robbed relatively quickly if word gets around fast enough.
At the top, the idea is similar. No one wants to catch a lawsuit or be stalked so it is best to obfuscate wealth.
On that note here are some signs you’re at the bottom: 1) you have zero people to listen to. Since you’re at the bottom rung there is no real individual access to good info. You’re forced online (arguably the greatest invention in the world), 2) you are embarrassed to have anyone visit. In fact, no one even wants to visit where you live and 3) loads of alcoholics, drug addicts and visiting prisons.
At this level of the heirarchy, quite literally anything moves the needle. Get any job, search pay phones for change (back in those days) and even recycling cans/plastics is a good use of your time.
Enough of that though.
We’ll go onto where most people start and how your brain slowly changes.
Most will never make it out of the middle. There are too many traps and too many people who refuse to have self-awareness. While it is true that the vast majority of people have talent. It is also true that the vast majority refuse to put in the work to find that talent (requires tons of self reflection and admission of weakness. Note, we’re probably one of the worst places in the world to ask for “emotional support” and realize that negative trait).
This is the most common trait of people in the middle. Taking any sort of risk is bad. It’s XYZ person’s fault (govt, friends, family, teachers, coaches etc.).
“Everyone else did something wrong to them, they’ve done everything right” is the general theme.
Mind Virus: There is a general “mind virus” here. People believe experience trumps results. They believe that rich people are “mean” (see Upper Middle Class for explanation) and on top of this, they have a time for money exchange belief system.
Common tells of the middle class belief system
If someone is richer they got it by “luck” or by “knowing the right people”. The excuse here is clear, effort or intelligence isn’t something they lack. What they lack is some magical door into the right events. Hence the obsession with "networking”
Constant discussions of dollars per hour. “Bill Gates makes X dollars per hour”. Which makes little sense. If the market is down he actually loses X million that day.
Obsession on doing the bare minimum. To be clear this means bare minimum for every single dollar or accolade earned. Does not refer to maximizing the results and moving on. IE. getting an A- (90%) is not what they would do, they would try to get just enough to “graduate”.
Obsession with status goods. There is a reason why Gucci has after pay check outs. There is also a reason why shoe culture is big in the middle. Anything to appear richer than they are. Anything to “feel” rich
The biggest tell is they watch motivational videos. Instead of doing anything to actually accomplish something the goal is to simply feel like they accomplished something
The last one is they say “If i had X million dollars I would do Y” . This is by far the craziest since they spend their paychecks on sports games, netflix, sneakers etc. The same people paying to appear rich are saying they know what they would do if they *were* rich. Makes little sense. No one knows what they will do until it happens. Dopamine is an insane drug
The Upper Middle
The key trait of the upper middle class is a single word: Status. They will do anything to make sure that you stay below them (status) and will do anything to feel like they are above their peers.
This took a long time to recognize but once you see it you can’t unsee it.
If you worked in Wall Street you know the obsessions with “comp day” “prestige” and “rankings”. These are absolutely hilarious once you jump to actual wealth. Why anyone cares about having a Goldman business card versus a Citigroup business card when they make the exact same amount of money (+/- 5%) is comical.
Common tells of the Upper Middle Class belief system
Absolute obsession with being seen as important. Ranking matters. Prestige matters. Zip code matters. Your job title matters. Even the gym you go to matters.
Insecurity. Walk around financial districts and you’ll find many men with their hands in their pockets. Nervous and unwilling to make eye contact
Passive aggressive behavior via politically correct means of communication. Writing proper sentences with large words to make them feel smart. Pointing out your “bad points” in a joking manner to make it seem like it was “just a joke”. Constant emphasis on how “high they are up the chain”.
Obsession with “comp”. Even when comp season is over people obsess over which firms raised their base salaries. Paid out $10-20K more than other firms etc. It’s hilarious (in hindsight). If you want to see how annoying it can get, go check out the app Blind. Oh btw, since they are extremely obsessed with “comp” in every industry it is common for them to prod and try to figure out how much you make. Just like those YouTube people! Note: before anyone gets upset, used to do this as well. Figuring out which firm would pay more, which stock package was better in the future etc. It’s all part of the game. That said, once you see your first WiFi biz money exit you realize you were wasting valuable time
Unwillingness to take any risk after age 32-34 or so. Once again this is *general*. Some people do take risks later but typically when you reach VP/Director in banking or anyone making $400K+ in a W-2… the risk taking drops off a cliff
How does the Upper Middle Class get Trapped? Pretty easy actually. If you’re in the high-income space and never start a business it looks something like this in terms of your net worth after 10 years: 1) $40-50K, 2) $100K, 3) $175K, 4) $275K, 5) $400K, 6) $600K; 7) $800K, 9)$1.2M - but you buy a place!, 10) $1.0-1.5M + mortgage + starting a family with high income + high expense
This is typically what it looks like. While many reading here are sure that it wouldn’t happen to them, it is the most common chain of events.
When you have a $5-8K monthly mortgage payment, walking away from a $200,000+ salary is unlikely.
At this point we’d draw a hard line at $10M+ *liquid*. Does *not* include a paid off property and does not include people over the age of 50. This is a good range of people from age 30 to 50 who 9/10 times got there by starting a business.
At this level your “income” doesn’t really matter that much. For illustrative purposes, we’ll say that you were a stellar engineer, sales person or banker. You are making $800,000 a year on a W-2. Well in that case you have a bunch of deferred stock, you have more volatility in earnings (if in sales) and the kicker…. It’s closer to $450K after tax which is only 4.5% to your net worth (same return as 1-year treasuries)… If you live for *free* (hint: you don’t live for free)
The upper class have some general tells
Usually not interested in meeting a lot of new people. If you’re already set for life, you end up “taking time off to spend with your family”. You end up networking less since you already know the right people in your niche
Generally *respectful* of anyone they are meeting in person. This does not mean a thing in terms of actual help though. They will chat with you for as little time as possible and wish you the best of luck. This is a standard strategy.
In terms of appearance a common tell is a guy with a plain white t-shirt and jeans but a $50,000+ watch. Another one is where they live. Hard to walk into the Four Seasons Residencies and claim you’re making $400K a year
Common obsession with taxes. Not income taxes but business income taxes. Legal structures, trusts, inheritance, insurance policies, new tax deduction benefits etc. Living in a tax haven is a huge flag of course.
In private, these individuals will tell you to never reveal how much you make to anyone. Yes this includes family members. The ideal situation is no one knows how much you have or make otherwise more people will come and ask for “help”. Even people you’ve barely interacted with
Part 2: Quantitative Overview
Ah yes. Since we likely ruffled a lot of feathers with the Upper Middle analysis (obsession with comp/earnings per year), we’re going to break it down in terms of numbers for everyone as well.
Per usual, this assumes you live in a Tier 2 major US city. This is likely a good starting point.
This analysis will also explain why people get stuck. No mans land is generally $1.5-3M net worth and earning $400,000-$500,000 a year. At that point you can “see” the upper class but the chances of making it there with “another two years” is impossible. You know it, your friends/family know it and reality slowly sinks in over time.
How much does working a year move your net worth
How much do investment returns impact your net worth
How you’re attempting to move your net worth
These three metrics will show you clearly that it is extremely hard to move from upper middle to upper class without Equity and without risk.
While this table is small it explains everything pretty clearly:
At the Lower Class, simply saving money moves the needle. If you have nothing but save $3,000-5,000 per year. If you repeat that the following year it’s a 100% move
Lower middle class, this typically represents multiple hourly paid positions. You can get to high-six figures by simply grinding it out in hourly positions
Middle class is where many “stick”. Typically a decent white collar job paying $60-100K and most of your net worth just tracks home equity
Upper Middle Class is a great “track” for about 6-7 years. Since you’re getting promotions and income raises pretty quickly in the careers (Sales, Wall St. and Tech) it feels like you’re getting ahead until you hit age 30-35 or so
No Man’s land. At this point you’re likely a millionaire particularly if you include home equity. The problem is that your ability to move the net worth range is collapsing. While you may be making $400K instead of $200K (a few years ago), when you factor in some lifestyle inflation, higher taxes and likely more responsibilities (unless single), it’s tough to save more than $100-150K *post tax*. This would be a 5.0-7.5% move to your net worth if you have $2,000,000. Only 10-20 more years of grind!
Upper Class. If you pierce the upper class, the math is clear as day. If you return 10% on $10,000,000 that is *more* money than an upper middle class person can earn in *two years*. This also assumes you have *no* income. Highly unlikely situation.
The Real 4% Rule: Now you can see why people get stuck in No-Mans land. If you want a phrase for this… it is HENRY (High Earning Not Rich Yet).
When you work for an entire year and struggle to *save* a 5% move to your net-worth… de-motivation sets in.
You ever wonder why your boss or your boss’s boss has decided to “chill”. Now you know
Your boss is actually making the logical decision. If he knows he will make between $400,000 and $500,000 (no matter how he performs) and already has $2,000,000 to his name… why would he work hard? $50,000-60,000 extra after tax would only be 2.5% to his total earnings. He’s better off just investing in stocks for the long-term and enjoying his personal life.
Life has a strange way of showing you the answer *after* a bad calculation is made. You may think your boss is lazy but he isn’t. He knows that his career has peaked. The extra effort is not going to change his life at all. Put up good enough numbers for the least amount of effort and off to the Hamptons for the weekend.
Oh. This also explains why they have no interest in jumping firms. Unless it’s a big financial move, there is no point in taking that type of risk and ruining their comfortable lives. Which also explains why they don’t care about starting a business either!
Side Note: For those that know the OG Felix Dennis and want to aim even higher, he has a numerical one not based on ability to move your net worth with effort alone
Part 3: Good News and Bad News
No matter where you are starting today, you can see that practically anyone can get into No Man’s land. This does not require any equity. It does not require any significant risk. You hit the ball down the fairway for years and you’ll be living a perfectly comfortable life. Nothing wrong with that if *you* are happy at that level.
The bad news? Well you’re reading this website and are likely putting your own numbers into an excel sheet. You’ll see the number don’t lie!
Even if you save exactly 33% of take home income for 15 years the chances of getting into the Upper Class before you’re 35-40 is slim.
Assumes Zero Layoffs, Perfect 10% Wage Increases for 20 years, Perfect 33% savings rate, Perfect Returns and Perfect Adaptation to Any Lifestyle Inflation. Also assumes $2.8M buys the same stuff as $2.8M today!
IE. Extremely unreasonable.
Exception to the Rule! Yes. There are rare people who make it to CFO. Who make it “Head of Investment Banking”. Notice. These titles are so slim that there is only *one* person. This compares to Managing Directors who are still within a Cohort/Pool. You typically have to be the best MD within all the insanely competitive MDs.
Conclusion and Making a Choice
Are you okay with that decision? Or. Are you going to ask yourself “Should I have taken more risk” when you’re 40-60 years old doing the same work you did at age 35?
You’ll know the answer after you look in the mirror now that you’ve read this post!
Autist Note: Yes. The next post for Wednesday is set up for E-com hence the focus on equity vs. Career trajectories. For those that realize you can sell your biz but you can never sell your career, you can watch live as a cartoon Deer and cartoon Gator created a $200,000-400,000 business in 6-months selling toothpaste (assumes ~1.5-3.5x P/E valuation).
Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are *opinions* written by an anonymous group of Ex-Wall Street Tech Bankers and software engineers who moved into affiliate marketing and e-commerce. We’re an advisor for Synapse Protocol 2022-2024E.
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This post is spot on. Have had several hit the wall and just say, “its not worth the risk and busting my ass doesn’t move the needle anymore.”
If someone is an A player it really chaps their ass. They know that they didn’t leave it all out on the field.
I suspect this is a big factor in mid-life crises. Coping mechanisms break down as illusions fracture.
There is something to be said about recognizing you are in nomans land, and simply relying on your WiFi income to maintain lifestyle IMO. Good year...awesome. Bad year...who cares. Just gotta get off the treadmill of trying to keep getting more rich. Its a hard one...deciding you are rich enough that is. Rich enough + unlimited flex from wifi income = winning.