On this week's Stansberry Investor Hour, Dan and Corey are joined by Nick Maggiulli. Nick is the chief operating officer of Ritholtz Wealth Management and founder of the financial blog Of Dollars and Data. His new book, The Wealth Ladder, comes out next week.

Nick kicks off the show by discussing The Wealth Ladder, including the six different levels of wealth and why income is a more crucial factor to building wealth than behavior. He also talks about jobs that will be a safe haven once artificial intelligence ("AI") becomes more prevalent, the mistakes people make when buying income-producing assets, the importance of diversification, and why he prefers to invest in index funds...

If you had put all your money in Nvidia 10 years ago, you'd be doing quite well today. But for every Nvidia that has done well, there's so many other stocks that haven't. And so, really, diversification matters so much. Like I'm benefiting from Nvidia because I own it through an index fund. And that's how I think most people should be investing... I think the vast majority of their wealth should be indexed.

Next, Nick goes in depth on the spending mistakes people make that prevent them from moving up to a higher wealth level. He touches on diversification again, using Elon Musk versus Bill Gates as an example. Plus, he covers the different strategies for different wealth levels, why it's important to still focus on the nonfinancial things in life, statistical data for whether money can buy happiness, and the significance of money being a quantifiable thing...

Money is the most measurable thing. Like we can all open our bank-account app on our phone right now and there's going to be some number there... Anyone can tell you their bank balance. Not everyone can tell you their cardiovascular fitness or [how strong their relationship with their family or children or spouse is] because all these other things are not quantifiable. It's very easy to focus on the quantifiable thing. Money has created a very simple game for humans.

Finally, Nick discusses the things that financially successful people may be overlooking, why the strategy for success may vary on a case-by-case basis, and the different levels of spending freedom. He says that level two allows freedom in the grocery store, level three allows freedom at restaurants, and level four allows freedom for traveling. And he shares a handy formula for people to use when it comes to nonessential spending...

The idea is, your wealth is generating a certain amount every day. Let's just make an assumption. I assume that's 0.01% per day, which, on an annualized basis, you do that 365 days in a row. And that's roughly 3.7%, which is a conservative annual return, right? So if you assume that's true, throwing [off this amount of wealth is] like a trivial amount of money to you.

Click here or on the image below to watch the video interview with Nick right now. For the full audio, including Dan and Corey's post-interview thoughts, click "Listen" above.

Additional past episodes are located here.)

This Week's Guest

Nick Maggiulli is the chief operating officer of Ritholtz Wealth Management and author of two books: Just Keep Buying and The Wealth Ladder. Before joining Ritholtz, Nick worked in litigation consulting and data analytics. In 2017, he founded the successful financial blog Of Dollars and Data. His work has been published in the Wall Street Journal, the Los Angeles Times, Money magazine, and on CNBC. Nick graduated from Stanford University with a bachelor's degree in economics.

Dan Ferris:                 Hello and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin:    And I'm Corey McLaughlin, editor of the Stansberry Daily Digest. Today we talk with our colleague Nick Maggiulli ofdollarsanddata.com and author of the new book Wealth Ladder.

Dan Ferris:                 This is a little different from our usual discussion, but I think you'll agree that this is something that you have to talk about if you have important wealth-building goals in your life. And who doesn't? It's somebody everybody needs to talk about, isn't it? Well, let's do it. Let's talk with Nick Maggiulli. Let's do it right now.

Dan Ferris:                 Nick, welcome to the show. Thanks for being here.

Nick Maggiulli:          Thanks for having me on.

Dan Ferris:                 Yeah, you bet. I think, Corey, Nick was your idea to have on the show, wasn't he?

Corey McLaughlin:    Well, I suppose so, yeah. Well, it was Nick's idea, too. He reached out [laughter] doing some promotion on this new book he's got out, and I gave it a read and it's stuff I think that our listeners, viewers, can benefit from. So, happy to have you here. And I followed his work for a while, too, on ofdollarsanddata [crosstalk].

Nick Maggiulli:          Yeah, thanks for having me on. I appreciate that.

Dan Ferris:                 So, ofdollarsanddata, that's our guest's handle on x.com, as well. And the book that Corey referred to, I believe, is called The Wealth Ladder. That's the one you're talking about, right?

Nick Maggiulli:          Yes, correct.

Dan Ferris:                 And I noticed that you got a little blurb out of Scott Galloway, no less.

Nick Maggiulli:          Yes, I did.

Dan Ferris:                 Pretty heavy hitter.

Nick Maggiulli:          Yeah, well, I think because – so The Wealth Ladder is about how you have to change your financial strategy over time, and there's different wealth levels. And the reason I thought Scott would be such a good blurb for this is because he's someone who grew up in Level One, Level Two, which is lower class, lower middle class. And then now, he's ascended to – he's worth over $100 million which is Level Six, right? So, he's kind of seen both sides of that spectrum, and so, I think having his experience and him reading about it, I think getting a positive blurb from him was the thing I really wanted.

Beause he's someone who's actually kind of experienced it across the wealth ladder. Not everyone's done that. So, yeah, that was the thing I really was happy about.

Dan Ferris:                 OK, well, let's get into it. I'd like you to give our listeners a real flavor of what's in here, because it sounds like it's pretty darn useful information. I was having this conversation with my wife recently – maybe just in the past day or two here – and I told her, I said, "My experience is that, of course, people handle unearned wealth, like lottery winnings or inheritances, extremely poorly. Extremely poorly. But the thing that really kills me is how many people handle the wealth they get from working their tails off for decades, extremely poorly."

And it's just, it's nothing you would expect, because you'd think they would appreciate what they had to do to get it and they'd want to keep it. But a surprising amount of the time, that is not the case. So, this topic, if we're doing our jobs right and we're helping make our listeners wealthy, they're going to need a dose of whatever you've got going on in this book. And, you know, you've already intrigued me with these levels, sound like socioeconomic levels that you described.

So, I don't know, dive in anywhere. Give me the bullet points [crosstalk].

Nick Maggiulli:          Yeah, let me just introduce the framework with all the levels, and then we can go from there. So, the wealth ladder has six distinct wealth levels. Why didn't I call them rungs? Because rungs don't sound as good, it's this whole marketing thing, so they're six levels instead of six rungs. But each rung, it's based on your net worth. And so, as your listeners probably already know, that's all your assets minus all your liabilities, that's everything you own, like your car, your cash, and your bank account, your stocks, your home, etc.

That's all your assets, you subtract out any mortgage debt, student loans, credit-card debt, etc., all your liabilities, that's your net worth, right? And you don't even need to have your exact number, you just need to know approximately where you are, because the ranges are quite large. So Level 1 is less than $10,000 in net worth, that's Level One. Level Two is $10,000 to $100,000 in net worth. Level Three is $100,000 to $1 million in net worth. Level Four is $1 million to $10 million in net worth. Level Five is $10 million to $100 million in net worth. And lastly, Level Six is over $100 million in net worth.

Now obviously, just memorize Level Three, which is $100,000 to $1 million in net worth. That's the middle class in America. That's about 40% of U.S. households. From there, you can just divide by 10 or multiply by 10 to get to the rest. And I came up with this framework and the data, by chance, just happens to map onto this quite well. There's roughly 20% of households are in Level One, 20% are in Level Two, which is the lower middle class, 40% are in Level Three, which is $100,000 to $1 million.

About 18% of households are in Level Four, that's $1 million to $10 million, that's the upper middle class for you. Now, I know some are going to say, "Well, $8 million is not upper middle class." It depends where you are. I think in New York City that is, definitely, you're doing very well, but you're still upper middle class, I wouldn't put you upper class yet. And then, $10 million to $100 million, that's upper class, and then 100 million-plus is the super-rich, right?

And so, the top 2%, that's Level Five and Six, and Level Six in particular, over $100 million, there's only 11,000 people or households in the U.S. that have that much wealth. It's very, very small, so there's a very long tail. This is a high-level context for understanding this, and within the wealth ladder, depending on which level you're in, your strategy might need to change, to get to the next level, right? And so, I think thinking through that and figure out, "Well, where do I want to go and where am I at now?" and then thinking through what's the right investment strategy, spending, income, all these different things we can talk about within that.

So I'll let you guys, I know this is an investment channel, we can definitely talk about the investments across the wealth ladder and which levels tend to own which investments, etc. I can kind of dig in wherever you want.

Dan Ferris:                 Yeah, I'm less interested in that, which levels own which investments. I'm more interested in the, I don't know what to call it, the change in behavior, just the change in lifestyle and what it does to people and what advice you have for handling it. Scott's a great American story – Level One to Level Six, amazing. There have to be – you go Level One to Level Two, maybe that's not a big change. Level Two to Level Three strikes me as a fairly substantial change for most of the people who can swing it.

It also strikes me as a change which would really require some dramatic change in how you behave, to make sure that you can hang on to this and progress beyond it. You know what I'm saying? The difference in the amount of money, when you go 10x, from two to three, that seems like you need a serious helping of Nick Maggiulli – you need to get your Nick on, to make it through there and to stay there, is what [crosstalk].

Nick Maggiulli:          Yeah, I think it really depends – timing is also a big issue in here. For example, when I talk about households in Level Two, which is $10,000 to $100,000 in net worth, I really see two groups of people. I see people that are on their way to Level Three and Level Four, they just haven't had enough time. You could imagine someone maybe came out of college, has a good job straight out of college, starts doing well, starts getting promoted within the first three years. They may not have more than $100,000, very unlikely, even within a few years of saving, right?

They don't have that money yet. But give them enough time, saving, investing, etc., with all the compounding, they're going to get into Level Three, maybe even Level Four, depending how long we wait, right? The second group is a group of people where they just don't earn enough income, and so, it's very hard for them to save. And so, they may be even slightly older, maybe they're in their 40s or 50s already, and they're not seeing that progress.

I think, "What's the driver of that?" It's income. And I can go into that, in terms of the median income of a Level Two household is around $50,000 a year, which is – that's below the median household income in the United States, which is $70,000 a year. So it goes to show, really, income is the driver of a lot of this stuff, and that's what the data shows. And so, of course behavior matters, and we can get into that, as well, but I think income is the driving factor.

Dan Ferris:                 OK, that's a great point, that's exactly the kind of important thing, because you might not know that, if – we sort of sense that, as Americans, getting a job, make a lot of money, income is the driver. But to hear a guy like you say it, who's done the research, is a little different and carries a little more weight. So, tell me about that, how do I think about my income, to get from Two to Three, or Three to Four, or whatever, in that medium range from doing OK or not so OK to doing really well. I just have to spend less than I make, right? That's all there is to it, right?

Nick Maggiulli:          Well, that's for the saving piece of it. I think the problem with – there's not a problem with that argument, it's just, you can only cut so much. It's really tough, especially right now with rising prices and everything, to say, "Oh, I'm just going to keep cutting," it's really difficult to keep cutting spending. And so, because there's kind of like a lower limit on how much you can spend to survive, your income doesn't have the same limit. I'm not saying it's easy, there's no magic wand that just raises your income, but if you work on something or spend time, etc., you can kind of work toward that.

And in terms of how you raise your income, there's a lot of different ways we can discuss this, right? There's a couple skills that I think are going to keep being valuable even in the future, and people are saying, "Well, AI is going to take all the jobs." It's going to take some jobs, don't get me wrong, but it's not going to take everything. For example, sales. I think sales jobs are still mostly going to be done by people, right, especially in person. I can't imagine a world where your realtor is a robot and you're, like, "Oh, perfect, the robot just showed me."

No, you're not going to get that feel, you're not going to have that personal connection, that touch that I think individuals are going to have. So I think high-level sales is still going to be a very valuable skill to have in the future, and that's not something you can necessarily go get a degree for, but it's something you can learn how to do sales, learn how to get better at it, and go from there. That's one example. Another, I think, is credentialism, and so that means getting a professional degree. I know they're saying, "Oh, we're just going to use ChatGPT for lawyers and doctors and everything," and I think it's helpful.

But I think at the end of the day, you're going to go hire a professional, because you can't risk some legal loophole or some massive medical decision on an AI chatbot, in the hopes that it didn't get something wrong. And so, I'm not saying that they're not useful and they can't help with the opinion of a doctor, but I think as of right now, trusting them completely for a legal opinion or something is not the way to go. Because experts out there have used them and they still make mistakes.

So these are just as couple examples of, if I'm trying to raise my income, what are the types of things I can look into, what are the types of skills I can learn. And there's far more than that. I just want to give you guys a taste of how to think about this in terms of raising income.

Corey McLaughlin:    Yeah, and from reading the book, once you get above that $100,000 net worth, one of the things I think you point out is this important shift to income-producing assets. So, I guess, what are the challenging or common mistakes maybe people face when they're encountering this for the first time? Or what do people not understand about that shift?

Nick Maggiulli:          Yeah, so, in addition to raising your own income from labor, you're right in that you can also buy income-producing assets, which will give you income. That also helps build your wealth. It's the whole idea of compounding, investing, etc., your money is making its own money. And in terms of the mistakes people make, in my first book, Just Keep Buying, the mantra of the book was the continual purchase of a diverse set of income-producing assets. So I think all the mistakes are things that go against that mantra.

So the continual purchase means just keep buying over time. That's literally the title of the book. I think when people start to market time and stuff like that, it can get very difficult to try and beat the market and you can actually make really bad mistakes. I think we've seen that, this year, with the Trump tariffs, everyone was, like, "Oh, my god, the market's going to hell in a handbasket." And it came back. No one would've predicted all that, the fastest reversal ever or whatever they're saying. And think about 2020, 2022. There's so many different pieces of history or evidence I have where it's very hard to predict the market and it's very hard to market time. So that's one of them.

The next thing, concentration. As I said, the continual purchase of a diverse set of income-producing assets. If you're all concentrated into one asset class or one particular individual ticker, it can be very difficult to build wealth, because that thing can go down a lot. And, of course, there are exceptions to that rule. If you had put all your money in Nvidia 10 years ago, you'd be doing quite well today. But for every Nvidia that's done well, there's so many other stocks that haven't.

So, really, diversification matters so much. I'm benefiting from Nvidia, because I own it through an index fund. That's how I think most people should be investing. Now, I'm not saying there's anything wrong with having a small amount of money and picking stocks and all that, I think that's great, it's fun, I actually encourage people to do that. But I think the vast majority of their wealth should be indexed. And then lastly, income-producing assets.

I said the continual purchase of a diversity of income-producing assets, I think people can also get in trouble when they start buying, putting most of their net worth into non-income-producing assets. So things like you're just trying to play crypto and altcoins and all this, and don't get me wrong, bitcoin is the one exception to this. But if you had started, you keep day trading in all these many other altcoins, you could've lost a lot of money. I hear so many stories of people who have lost 70%, 80%, 90% in these random other cryptocurrencies.

So, if you want to do that, you can. Keep it a smaller percentage of your portfolio and then let the most of it be indexed and just keep buying over time. And I think that is the fundamentals to build wealth, and when you move away from that, you start running into problems.

Dan Ferris:                 I agree. I'm not sure I agree about the indexes, but I completely agree 100,000% about, especially at this time, the absolute need for a well and truly diversified portfolio. We just recently talked with our colleague, Alan Gula, about this very thing. This is my style of investing, and we talked about things like your stocks, your compounders, your sort of get-rich stocks, your stay-rich stocks, T-bills, managed futures, bitcoin even, bonds, all kinds of things, just to make sure that you are sort of loading up, as you say, constantly loading up on these income-producing assets.

Gold's not income-producing, but holding them can sure feel good when they're performing well and other things aren't. [Laughter] So, that's the point, of course, is the correlation, less so than the income. But income is an interesting idea and you're not the first person I've heard really advocate for constantly picking up income-producing assets. What about things like real estate or privately held things, not necessarily a publicly traded company that is income-producing? Do you own real estate yourself? What do you tell people when they ask you about it, I think, is the real point of this question?

Nick Maggiulli:          Real estate falls under income-producing asset for me. I own it through [real estate investment trusts ("REITs")], just because they're diversified. Obviously, the diversification's nice, because you can get a broad exposure. The bad part is if everything's going down, right now – a lot of my REITs own commercial real estate. A lot of that's struggling a lot more than maybe residential would have, because of not that many people are coming back to office, COVID, all that stuff. I owned REITs pre-COVID, right, so.

When I think about that, those are the types of things. So I think real estate, owning your own business, having your own products, private businesses, all that stuff counts as income-producing, in my opinion. So, there's just different flavors of it, so I have nothing against any of those methods. So it's a very broad definition on purpose, because I've seen people get rich in real estate, I've seen them do it with individual stocks, I've seen them do it with index funds. And so, it's really – I prefer index funds and I have nothing against those who want to go and pick stocks and do that, that's fine.

I just know for myself in particular, it's not my thing I'm good at. And so, I'm far better at spending my time putting out financial content to help people and writing and doing all that versus trying to beat the actual stock pickers who are good. And so that's just my personal counter to that is I can't do it, so I don't spend the time, and I think that advice would suit most people. But those who still think they can do it or are decent at it, they should do it, right? We need stock pickers to help the indexers. We free-ride off you guys, so...

Dan Ferris:                 All right, so, I didn't want to deemphasize the individual investments, though, like I said. Because one thing I'm really interested is what Corey touched on, a moment ago, for example, I'm a big believer in via negativa, the learning of life is about what to avoid. And you're nodding your head. And that's really, to me, once you get to Levels Three and Four and etc., you really are focused a lot on keeping what you have, at least as much as building. You may be a very growth-oriented, building-oriented person, but you still have that responsibility of keeping what you have.

So, actually, with both of those goals in mind, the growing and the keeping, are there some obvious mistakes, maybe, or not so obvious mistakes that people make when they get into Level Three or they get into Level Four or something? Is it as simple as don't buy a Ferrari right away? [Laughs] Or what's the advice?

Nick Maggiulli:          I think every level is different. So, what I think the mistake is, the spending mistake in Level Three, I think it's probably spending too much on big purchases. So I think someone in Level Three is probably not getting a Ferrari, but maybe they're buying a car that's nicer, trying to look and show off a certain lifestyle, I think that's a piece of it, getting a house that's too expensive. And in The Wealth Ladder, in Chapter 10, I kind of talk about mobility, and so, how people change wealth levels over time. And I compare the people who were in Level Three that stayed in Level Three over a decade, to those who were in Level Three and made it to Level Four over a decade.

And say, "OK, what's the difference between these groups?" just based on the data I have. The one thing I saw was, those that made it to Level Four had a higher starting income, so that's a piece of it. But the other thing I noticed was, those that stayed in Level Three spent almost as much as those who made it to Level Four. So those who made it to Level Four had a higher income and they did spend a little more than those that stayed in Level Three. So there is some general correlation between income and spending, as income goes up, spending tends to go up, just a little bit more slowly.

But the people that stayed in Level Three over the decade, right, they ended up spending almost as much as the people who made it to Level Four, despite the fact that they had a much lower income, right? So, I think it's that that overspending can creep up on people, and I think that's why I say Level Three is the middle class, Level Four is like the upper middle class, and I think they're actually very similar lifestyles. The only difference is, in Level Four, people are just kind of getting the slightly fancier thing.

It's like the Lexus versus the Toyota, or the slightly nicer seat on the airplane. If you're in Level Four, you're not flying private. You can't afford that. So, if you start thinking through all that, it's, like, "OK, I can upgrade all these things and look like I'm in Level Four, even though I'm in Level Three," and that can actually hold you back, ironically. So that's one of the things I think about there. And Level Five and Six, I think the big issue is just the overconcentration.

Usually, to get to Level Five or Six, you need some sort of a large amount of business ownership, or you owned one individual stock and it just became a 100-bagger or something and now you have over $10 million in it, etc. So, something like that where you really just put a lot of money into something and now it's just a huge part of your portfolio, and if you don't diversify and something happens to it, you could end up losing a lot of your wealth. So I think those are the types of things to think about in those higher levels.

Dan Ferris:                 Well, this is interesting. I'm glad you brought this up, because it seems to me like every single person I know who's Level Five or better did get there absolutely by focusing. And focusing their wealth and their time and their energy and not doing a whole lot of other stuff. Which I know you've written a recent piece about that, I want to get to that, too, but – and yet, we're saying hold a diversified portfolio. There seems to be a contradiction, there, to me, especially the trip from Level Three to Level Four.

Nick Maggiulli:          Yeah, so, no, I think you can make it to Level Four while being diversified. I don't think that's the issue. I think I agree with you if we're talking Level Four to Level Five, because I think you're correct in that it's very hard to have a diversified portfolio and be in Level Five or Level Six or something like that. The only people I know who've done that already made it there and then sold out of those positions and then diversified. You can think, like, compare Bill Gates to Elon Musk, right now.

Bill Gates is very rich, but he's massively diversified. I actually think he's richer than Musk, and I know on paper Musk is much richer, but he has so much concentration in just Tesla, if Tesla gets cut in half, or even worse, he is going to lose most of his wealth. While Bill Gates would be fine even if Microsoft were cut in half, etc. So I think because of that diversification, Gates actually has a lot more wealth, no matter what scenario happens. So that's kind of how I like to view it, because he's diversified, and even if Musk tried to sell all his stuff to diversify, he would end up crashing the stock price and causing all sorts of other things.

So I think thinking through that is the big thing to focus on, and so I think you need to have diversification to stay rich, basically. But if you want to get incredibly, incredibly rich, you probably need to be concentrated, at some point.

Dan Ferris:                 So that has to be, correct me if I'm wrong, that must be a major theme for you, in your advice and your writing and research of getting to Level Five and Six. I think we agree, maybe, mostly, you can only get so far by having a good job and having a diversified portfolio that you never stop buying, right, never stop buying. Or just keep buying, sorry, I had the title wrong. [Laughter] That you just keep buying this diversified portfolio, you got a great job, you spend less than you make. That is very different than what it takes to get $10 million, $100 million.

Nick Maggiulli:          Oh, it's very different. Besides celebrities, athletes, entertainers, who just have really high incomes and can make it into Level Five, you basically have to do business ownership. And if you do the math on this, it's actually insane. For example, let's say today you had a $1 million portfolio, right, so you already have to get to $1 million, which is not an easy feat. It usually takes people their whole lifetime to get there, sometimes. So let's say you have a $1 million portfolio, let's say you're adding $100,000  a year to it, after tax, right?

And on top of that, you're getting 5% a year. I'm just doing that because it's a conservative, say, diversified portfolio return, right?

Dan Ferris:                 Sure.

Nick Maggiulli:          Do you know how long it would take you to get to $10 million? The answer is 28 years. This is while you're adding $100,000  every single year, and that's a lot of money. And so you're, like, "Nick, well, what if I got a really good-paying job and I'm saving, let's say, $300,000 a year?" You're saving $300,000 a year after tax, an incredible amount of money, you're saving that, you start with a million bucks, you're earning 5% a year, it still takes 17 years to get to $10 million.

So you can see, you're basically in the no-man's land of wealth. It's like in Succession, where he's, like, "You know, five to ten's a nightmare, 'cause you can't get out of there." And I think it's true, once you get in there, it's very difficult to get out. There's nothing wrong with getting out, I don't think you need to get out, that's a whole philosophical debate we can get into, but I think the tactics that got you into Level Four are not the tactics to get out of Level Four. And a lot of people may not necessarily realize that, and so, that's a big theme in The Wealth Ladder.

Dan Ferris:                 Yeah, you bring up a good point. At some point in this discussion, you have to get to the "how much do you really need." And I know you wrote a recent piece, I think it's hours old as we speak and record here, about this, about the desire for financial independence is the topic that you addressed. And what about that? Is it simply a matter of saying most people would be happier if they just had a well-balanced life, good job, save, have a diversified portfolio, and don't worry about what level you're in? Is that the message?

Nick Maggiulli:          I think that's closer to the message. I'm not saying don't worry about what level you're in. I think if you're in Level One, you have get – I think you've got to get out of Level One.

Dan Ferris:                 Worry about it, yeah.

Nick Maggiulli:          It's only because you don't have the safety, you don't have – but once you get out of Level One, you have a little bit more calm, and I think most people, at least in the United States especially, should be in Level Three. I think that's where you can really not worry as much You're going to probably have savings for your retirement, you can have other wealth you can pass on, etc. And then by the time you get to Level Four, that's when you can really chill out and be like, "Yeah, I don't really need to worry about money, anymore," in the traditional sense, unless you have a really high spending habit or something.

So I think my favorite level is Level Four, because I think that's the spot where you can have enough money to not have to worry about a lot of different things, you can have a good life, all these different things, and you don't have to go for more. I really believe it's the enough area. Obviously, depending on where you live. If you're in a low cost-of-living area, you can do that in Level Three easily. If you're in a high cost-of-living area, you probably need to be Level Four.

And so, just thinking through that is where I started to think about these themes, and when does it matter, when do we move forward. And in terms of that blog post you talked about, which is – I said why financial independence is overrated. It's not that I'm against financial independence, it's just, I think some people chase that as a goal and, like, "Oh, I have to get to financial independence," without thinking through, like, "OK, what are you giving up along the way?" And so, I have all these examples of people that don't hang out with their friends, don't talk to their family, just because they don't want to spend money or anything like this.

And a lot of those things don't even cost money, but they're still, they're so focused, "Well, I have to work," "I have to work," "I'm working," so they end up overlooking all these other parts of their life. And so, yeah, even in the wealth ladder, when you get to Level Five and Six, the things I focus on aren't money-related at all. It's actually all the nonfinancial things. And so, that's how I keep the book interesting for some, because I don't think I'll ever make it to Level Five, and yet, I still want to make that chapter interesting to people. Because it's, like, "What are the things that actually people in Level Five should focus on?" And I really believe it's all the nonfinancial parts of their life, because they already won the money game.

You can't buy your spouse's love, you can't buy a new cardiovascular system, right? So money, at some point, stops becoming as useful, and so you still have to put in the time and effort to make the rest of your life very meaningful. And so, that's the thing I like to focus on there.

Corey McLaughlin:    Yeah, that was one of the things I love that you got to in the book, just that age-old question: Can money buy happiness? And you address that and we don't need to give away all of the answers, but the – part of me also thinks is, the people in Level Three who might be spending more than they should, if they want a higher net worth into that Level Four, maybe it's OK if people are just happier at that level, too. There's something to be said for that, you're just – I know a lot of people that aren't as into or thinking about money or investing as much as we are, so maybe that's part of it, too. But I guess, what's maybe one or two takeaways from that discussion about, like, "Can money buy happiness?" that you might be able to share?

Nick Maggiulli:          Yeah, so I'll just walk through research. It's fine if we give a little away. So, thank you for listening, everyone. So, the original research was, like, "Hey," you guys have probably heard it, like, "Once you make over $75,000 a year in income, happiness doesn't increase anymore." A guy named Matthew Killingsworth came back and he put out a difference piece, he did a different survey and he found that, actually, no, happiness keeps increasing, but the jumps get bigger and bigger.

It was a logarithmic, so a 2x, 3x, 3x, almost like the wealth ladder, a 10x jump, to see more happiness, right? The dollar amounts to get more happiness just kept increasing. But he kept finding more happiness up the scale and so he was, like, "OK, what's going on, here?" So he looked at the original data, they went back and forth, and they basically determined that the first study was only looking at unhappiness, preventing unhappiness. So I know that's a weird kind of double negative, but the idea is, after $75,000 a year, making more is not going to prevent more of your unhappiness. You can still be unhappy making more than that.

And everyone knows that. It doesn't matter how much money you make, you can still be unhappy at any level of income.

Corey McLaughlin:    This is that – [crosstalk].

Nick Maggiulli:          Yeah, that's the [crosstalk] original study, exactly. So, they went back, they looked at it again, and now, basically, it's been settled, they looked at their data and they agree. So the new research is, basically, I'll just give you the punchline. If you're happy, more money is likely to make you happier. So if you're already happy, more money is likely to make you happier. If you're poor, more money is likely to make you happier. But if you aren't happy and you aren't poor, more money is not going to do a thing.

And I think that third category of people is the category who can be chasing for more and more and they're already unhappy because of something else in their life, and they think money is going to fill that hole and it doesn't, then that's the real kind of wakeup call that they don't realize until maybe it's too late.

Dan Ferris:                 Well said. We've all heard of that, the $75,000 limit, in some form or another, but it's usually that particular one. And it makes a lot of sense, right? Levels One and Two, you're getting out of that to avoid unhappiness, to avoid misery, right? And once you've done that, you've met all the basic needs and it probably gets harder to make yourself happier. Like you said, it's 10x or something, for the next jump in happiness. But not being happy at any level, no amount of money is going to do it. That's the one.

Corey McLaughlin:    Right, exactly, Dan. That was the takeaway from that whole section that was, if you are happy, money will help. But it's not going to – it's not the solution, it's not the answer, I think.

Nick Maggiulli:          Yeah, I think a lot of people that look at this research, I'm not saying a lot of people are unhappy, but I'm saying that people, like, "Oh, I'm not happy. Would more money solve my problem?" If you're poor, the answer is probably yes. But if you're not in Level One, let's just say, the answer is probably no. So that's my at least minimum, if you're not in Level One and you're, like, "Oh, I'm not happy," it's probably not money that's the issue.

That's the simplest way of looking at this. You're, like, "Oh, I'm in Level Three, I need to get to Level Four, then I'll be happy." I'm, like, "No, that's not going to do it for you, sorry." I don't think that's the difference, so.

Dan Ferris:                 Yeah, this is a funny topic, because I'm sure a lot of people are nodding along. But I would bet – and I don't know this for sure. It's just based on being 63 and running into many, many people for 63 years of life [laughs], and knowing myself and those around me – this is the sort of thing that we know and might not act on as much as we would like to think. The knowledge is there. We know it's not going to make us happier, and yet, we continue to strive for it. Humans are a funny species. I think it was Nathaniel Branden who said we're the only species that can think about the right thing, learn the right thing, know the right thing, understand completely the right thing, and go and do the exact opposite.

Nick Maggiulli:          I have a theory for this, at least in the money department. I can't say that on everything out there, but I think with money, my theory, which I kind of put forward a bit in The Wealth Ladder, is money is the most measurable thing. We can all open our bank account app on our phone right now, and there's going to be some number there, or your brokerage account. You can see that. If I said, "Hey, what's your cardiovascular fitness, right now?" OK, maybe you did a VO2 max test or something, recently, maybe you worked out – you could start to figure it out, but it's not as easy.

Anyone can tell you their bank balance. Not everyone can tell you their cardiovascular fitness or how well is your relationship with your family or your children or your spouse or whatever. Because all these other things are not quantifiable, it's very easy to focus on the quantifiable thing. It's almost just a very – money has created a very simple game for humans, which is, "Do things, make number go up." If I could really dumb it down, that's literally it. Versus, like, "Oh, hang with friend, make myself happy."

It's not as clear-cut, but that is technically a better solution to get at a lot of these things. And we don't think about that, but that's because it's not as measurable, you can't just be, like, "Oh, look at how tight my friendships are." It's kind of hard to measure that, so.

Dan Ferris:                 Modern life is, it has this aspect to it where you think that anything measurable matters more. But the truth is, not everything that matters can be measured, and not everything that can be measured matters. And again, though, there's an availability bias. The numbers are in your face, your bank account and so forth, it's all in your face, and factual data can be just – you're pummeled with it, nowadays, via Internet and any other source. Go online, you're pummeled with data of all kinds, and those other things, they do feel very soft. It's like, "No, I'm not going to maximize my portfolio or whatever. I'm going to go hang out with my friends."

It sounds like a mistake, even though we know, yeah, hanging out with your friends is good, and striving for money, after some point, is not good, it's still, the factual data-oriented nature. People like to say they're data-driven, as investors and thinkers in general, but there are plenty of things that can't be measured, aren't there. I mean, that seems to me like a big lesson that a set of ideas like The Wealth Ladder would have to relay to people. I wonder how many Level Fives and Sixes are in desperate need of that message.

Nick Maggiulli:          Yeah, and the funny part is they probably won't listen, but I think I understand why, though. I understand why, because they look at me putting out this message and they're saying, "You never built a business, you've never done all this successful stuff." And they're right. I have not done any of those things, I am not successful at doing those things, I'll be the first to admit that. But just because you've had success in a field doesn't mean someone else can't help you realize the things you're overlooking. That's all I'm saying.

I'm not against people building businesses. I think a lot of these people enjoy it, that's why they do it and that's why they don't stop. Very few people are like, "Oh, I just want to get to, let's say, 20 million bucks and then never work again." Very few people that get there, those are the people that want to keep going. They don't want to stop at 20. They want to build a bigger business, and it's a challenge for them. So a lot of them enjoy that and that's fine. I do think you need to focus on other things in life, too, because there's more to life than just that.

And so, I think overlooking that is the – every wealth level has a sin of the level, and so, Level Five and Six, it's overlooking the nonfinancial parts of your life. Which, those are important everywhere, but they're the thing you can't replace with money in any capacity, at Level Five and Six, and that's the scary part.

Dan Ferris:                 Right, you've gotten where you are based on focusing and, frankly, sacrificing some of those moments, and then all of a sudden, you're going to change that and that's going to feel right? That's got to be incredibly difficult. And I know we could probably all tell stories of our wealthiest friends getting divorced and so forth, or worse, and it's difficult. Like I said, unearned wealth, people handle it poorly, but even earned wealth that people work their lives for, it's not just a matter of handling the money poorly. It's a matter of not being able to step back and say, "OK, when is enough enough, financially?"

But then you run into people like Warren Buffett, who is certainly a hyper-focused person, who has said, "I realize that I gave up a lot of other stuff." I've never heard him say he regrets any of it. Maybe I'm not reading the right books about him, but I think that's highly unusual, and I think most people do learn to regret some of the experiences that were forgone in favor of the focus and the drive and all the rest of it.

Nick Maggiulli:          Yeah, and I think Warren Buffett has a certain image that I don't know if he's doing it on purpose to come across, but he doesn't talk about his personal life as much, even in the documentaries, talk about his family, his children. Obviously, him and his wife were estranged at one point or something, and then he had the second wife – so there's a lot of stuff and I'm not here to talk badly about Warren Buffett in any means. But I think he's kept that close to the vest, because it's his private life, and I think he doesn't want people talking about it and stuff like that.

So I understand why he doesn't talk about that, because I think he wants to be remembered as the greatest investor of all time, which he will be remembered as. But I think he doesn't want as much of personal life in there, and that makes sense. No one wants their personal life out there for everyone to judge and dissect and all that, so I completely understand his perspective.

Dan Ferris:                 Yeah, but I suppose the point for me was that, an individual like that who, let's say I'm right about this and he doesn't – he really seems like a happy, he does not seem like a man filled with regrets, at all. But we know that a good Saturday night for him is to get a good stack of annual reports and a Coke and just stay up till midnight reading them, or whatever. And over and over again, for years and years and years. He has taken in probably more financial information than any living human being ever. Just endlessly, constantly, relentlessly.

And he says, "I tap dance to work. It makes me happy." So, what I want to underscore is the extreme rarity of that and the high unlikelihood that that kind of drive and focus and these folks who work these crazy I-banker, investment banker hours and lifestyles, I think many more of them are headed for a burnout and a reckoning than realize when they're 25 or 30 or something. It's just highly, highly unusual, and maybe that's why it's highly, highly unusual to get to Level Five or Six [crosstalk].

Corey McLaughlin:    Yeah, and I guess it's different for everybody. And everybody's different, too. The measurables are the same, if you're measuring by net worth and dollars, but how everybody goes about it is different. And I'm guessing if you ask Warren Buffett's family members or friends or some other people that are closer to him, they might give different answers about what he was like to them or – and you get that with anybody, really. So, you have an image, especially public figures, you have that public image.

And a lot of business owners have this, too. A lot of business owners, or some, and we have them in our audience, are big personalities, some aren't, you know, everybody's different. So, I don't know, I just thought this was a fascinating framework that you had in terms of how each of the levels have their different trademarks or signatures and-or advice for how to get to the next one. And then, as you get older, or as you get higher, really, the money's not solving whatever deep-seated issues that you have.

And if you want to protect it, at some level, that becomes important. That's an important thing. Or what you want to do with it once you have it.

Nick Maggiulli:          Exactly, yeah, what type of impact do you want to have, I mean, that all matters everywhere. But, yeah, I just wanted to come up with a different framework, I mean, I wanted to come up with something new, because I don't want to just put a book out just to put a book out, right? And Just Keep Buying, that's not a new idea, telling people to keep buying into the market, that's a very Vanguardesque Vogelism-type thing. But I did it with new data and tried to show, "Hey, look, I analyzed all these other markets and it works here, too," and this and that.

And so now with this, I'm like, "Hey, let's look at the wealth data, let's see how people actually build wealth, let's look at it over time, and let's go and create some sort of framework that makes it easy for people to realize when they should consider changing strategies, etc." And so, it just happened to fit so naturally with the actual economic data of wealth in the United States, which I love. So, yeah, that's kind of the way I came up with it.

Dan Ferris:                 So, let's each do this. We're not going to give away details about our personal net worth or anything, but let's each tell our audience what mode we're in with this. I'll go first. I'm never going to be Porter Stansberry. I'm never going to build this company that's worth hundreds of millions of dollars, and really consolidate a crazy, fragmented, insane industry. When he started in it, it was ripe for dramatic change, and thank God he came along, because it was a mess.

And he did incredible work, really focused, and I'm just, I'm not that guy. I'm more of a balance-of-life person, knock wood, I've been successful, hopefully I'll continue to be successful, hang on to what I've got, in large part thanks to Porter believing in me, and that's where I am. No matter what my number is, I'm more of a life-balance guy. Corey, you seem like you might fall into that category, too.

Corey McLaughlin:    I am, and ideally, I want to be. I also have, I'm on the younger end, here, and have a young family, and so I'm trying to – you have pressures, there. It's just, inflation is what it is, and, I knew about inflation before COVID, but I really know about it now. And from where I started was essentially knowing nothing about money, at all, and was definitely at level – I wasn't in poverty, but I was not in Level Three or anything like that. And I grew up comfortably, but I didn't know what it takes to actually – these things that Nick outlines in his book, I had no idea about it.

And I'm still learning a lot. And so, that's kind of where I am. I also, I like to have a stable kind of, for whatever reason, whatever psychological reason, I like to have some sort of stable foundation first, before embarking on something new. So, when I first got into investing, I was like, "All right, maybe I'll just make a ton of return in whatever I invest, here." But I was starting with such a small amount that that really didn't make a difference, or eventually hasn't made a difference. But eventually I got to a point where, "Hey, I need to make more income, here, to facilitate all this stuff that I think I know anyway."

I can have the greatest stock pick in the world, but if I can only put 500 bucks into it, that's not going to really be a lifechanging decision. So, that's kind of how I look at things. Now, I like to build up that foundation of stuff, of assets that you can, through income-producing assets, and just kind of keep compounding that way, over time. And thankfully, I've learned this stuff as I'm relatively young, so hopefully it pays off in the longer run. But there's a lot of pressures, I think, on the younger end, having kids now and a wife and trying to figure out all that stuff, too, and keep everybody happy.

But, yeah, that's why I think this book, or a framework, whatever framework you have, it's important to have one, to kind of get yourself on some sort of path. Whatever path you want, just to know how to get there.

Dan Ferris:                 So what about you, Nick, are you obsessed, are you on your way to Level Six? Or are you more balanced?

Nick Maggiulli:          [Laughs] No, unless I end up selling 100 million books, which is not going to happen, that's the only way I would end up making it to Level Six. So, unless every household in the United States bought this book. But, no, I'm very similar to Corey in that sense. I just got married. I'm 35 years old, I'm now about to start the family process and all that, God willing. And as a result of that, there's going to be pressures, there to help with that. My parents are a little bit on the younger side, so they're barely, I think, 59, 58, something like that, so they're going to be 60 next year, so because of that, they're a little bit younger.

And so, I'm going to probably have to help some of them a little bit, financially. And then, in addition, I'm going to have my children and stuff, so I'm going to have this kind of squeeze thing going on, not yet, but in the next probably decade or so. And so, thinking about all that and my liabilities are about to increase significantly, so, it's more for me just, I'm working just – I enjoy it, I love what I'm doing and everything. But, yeah, I'm not trying to get to Level Five or Six – just trying to do my thing and enjoy the work I produce and try and help people, so...

Dan Ferris:                 Right, and keep your family well cared for, yeah. We're just too sane. If there's Level Sixers out there, aspiring Level Sixers, they've probably turned us off 35 minutes ago or something.

Nick Maggiulli:          I mean, I need those people, because those are the people that create businesses that help change the world in positive ways. And I benefit from that by owning an index fund that would, assuming they go public in some way, then I get some benefit from that. So, I'm freeriding off these people creating these ideas and putting this stuff out there, so I appreciate those people, deeply. But, yeah, that's how it works.

Dan Ferris:                 Yeah, this discussion, it's such a healthy one to have, it really is. It really is good to – because we think we know these things, but we say, "Yeah, yeah, I know, but I want a nicer car." And those moments, and you said something I've told my wife many times, it's the big stuff, the big spending is where you go wrong. People don't get this. I remember, years and years ago, I wanted to buy a bottle of wine that was, like, 70 bucks, at dinner. She was, like, "$70?" and I said, "Hon, it's the big things where people go really, really horribly wrong."

And so, pennywise and pound-foolish, right, that saying makes sense. So, next time that comes up, by the way, I'm going to definitely say, "Nick says so. It's not just me," right, because spouses don't listen to each other, so, "Nick says so."

Nick Maggiulli:          Yeah, we actually didn't talk about the spending stuff much. So basically, every wealth level has a level of spending freedom, so I'm, like, hey, once you're deep into Level Two, I call that grocery freedom, so you can kind of buy what you want at the grocery store. Once you're in Level Three, deep into Level Three, I call that restaurant freedom, you can buy what you want at a restaurant. Level Four is travel freedom, etc. But the idea is, like, your wealth is generating a certain amount, every day.

Let's just make an assumption, I assume that's .01% per day, which on an annualized basis, you do that 365 days in a row and that's roughly 3.7%, which is a conservative annual return, right? So if you assume that's true, your wealth's throwing this off, that's a trivial amount of money to you. So, in the example you gave with the $70, that would be like, if you had a $700,000 total net worth, your wealth would be generating $70 per day, you can buy that bottle of wine one time and it's not going to bankrupt you at all.

So, that's the way I like to frame it and that's kind of what I talked about it in the book. So, I like using that framework when I'm thinking about things and it's, like, "But I don't want to spend the 20 bucks or the 50 bucks," and I tell, sometimes, my wife, I'm, like, "Baby, using the .01% rule, we should not worry about anything below this amount," right? And that's kind of what I like to talk about, there.

Dan Ferris:                 Yeah, man, just don't buy the Ferrari and you'll be OK. [Laughter]

Nick Maggiulli:          Yeah, you have to have a lot of money to do .01% on the Ferrari.

Dan Ferris:                 Yeah, exactly. Just don't buy the Ferrari, don't buy too much house, don't buy too much car, those are the big ones, right? Too much house, too much car. And if you can keep that under control and spend less, just generally spend less than you make otherwise, that – avoiding big mistakes, we can't say it enough, right? You start out, when you're young, thinking about wanting to get a good job and invest and do things that add positive, make positive contributions to your wealth creation ability, your net worth.

And so, at some point, especially if you're me and you had a really tumultuous 20s and 30s, you go, "Oh, yeah, don't spend way too much on all the wrong stuff, and don't focus on one asset, and don't – " don't, don't, don't, there's a million of them, right? And I'm very pleased that part of that discussion in this book is part of that, avoiding doing the wrong stuff. So, well, now that we've stablished that we're just a bunch of boring wealth-compounding people in search of life balance, let's get you into our final question, which is the same for every guest.

No matter what the topic, even if it's a nonfinancial topic, same identical question. If you've already said the answer, please feel free to repeat it. But it's a simple question. It's, you know, for our listeners' benefit, if you could offer them just one takeaway, just one idea today, what would you like it to be?

Nick Maggiulli:          Income is the foundation upon which all of your wealth is going to be built. That's the key, right? And just, it's the strongest relationship in all of personal finance. I have just looked through very dataset I could, and don't get me wrong, spending matters, all these other things matter, but if you can get enough income, if you have enough income, your budgeting doesn't matter, right? It's the – [crosstalk]

Dan Ferris:                 Yeah, Nick, that is an awesome takeaway. We're constantly, like, some people think, "Well, I didn't get rich this way, but I'm going to get rich in the stock market." No, focus on your job and your career and the value that you add, build your career, build your income. And you can build it many ways, right, you can build it through investments, but build your income. Excellent, thank you so much, and thanks for being here. I'm really glad you could join us and spend some time talking about The Wealth Ladder.

Nick Maggiulli:          Thank you so much for having me on. Appreciate it, Dan and Corey. Thank you.

Dan Ferris:                 I'm glad we talked about all that stuff. It's important. We don't need to do it every week, but we need to do it, right?

Corey McLaughlin:    Yeah, obviously, a little different than our usual fare, but I think it's interesting, important things to think about. And really, if you go through the book and if you get the book, also, he runs his website, ofdollarsanddata.com, so he's very data-driven in everything. And so, when you break it down and go through all of the examples of or the data that supports this framework that he's talking about, it is really compelling. And then, I did like how you get to the end of it and kind of the last third is really about more philosophical about money, what can it do for you, what can't it do.

If you're poor, it helps, obviously. If you're not, it helps less. And so, those sorts of things, too, so I wasn't expecting that, but that was cool to see and to hear him talk about, too.

Dan Ferris:                 Right, so if you're poor, what do we say, if you're poor, it can make you happier, up to a certain point. But I think we said if you're rich or poor – if you're unhappy, it's not going to fix you. If you're poor, good. You'll get out of Level One or Two or whatever, out of Level One, certainly. But then, beyond that, it's really about managing your own happiness. But then he added another idea to that, he said, "Well, actually, it's logarithmic, it's 10x or whatever it is." [Laughs]

If you're worth, whatever it is, just say $200,000, and then you're worth $2 million, well, that'll make you happier. So, yeah.

Corey McLaughlin:    And at some point, too, it matters for your family. If you have children or whatnot, it should matter to that, or whatever you're doing while you're alive, too, with your children, too. But if you're donating to charities or whatever, these things matter, that matters, it matters if you can donate $10,000 versus $10 million. That's a big difference, so.

Dan Ferris:                 Yeah, that's a little different, yeah.

Corey McLaughlin:    So it's all – as my dad would say, it's all relative and that seems to be the case here.

Dan Ferris:                 Yeah, it is, it is relative. And I'm really glad that he gave us the takeaway, right, your income is what's important. All the data that he looked at, and he's obviously looked at a lot of it, tells him that your primary driver of your wealth is your income. Which makes all the sense in the world. That's where you spend all your time at work, getting an income, and hopefully you put that extra money into securities that'll get you even more income when your money makes money, as you mentioned.

Corey McLaughlin:    Right. And it does make a lot of sense, of course. I feel like it took me several years, at least, to get to that point, after dabbling in investing the first time and being like, "Oh, here, I'll get rich this way." And then, realizing, like, "Well, the way you really do it is if you have more money to invest," and you do that by having more income and – anyway, so that's why this book, I feel like they're shortcuts – if I had this book 15 years ago or 20 years ago, it'd be a shortcut. I probably would do things a little differently.

But I didn't and that's fine, but you can save yourself a lot of time by reading stuff like this and learning about it, so. And ultimately, it will help your investing, too, I think, so, yeah, hopefully, got something out of that conversation.

Dan Ferris:                 Yeah, I'm glad we had it. Like I said, we're not going to do this every week, folks. We're not even going to do it every month or every quarter. But we will do it occasionally, from time to time, and I'm glad we did it with Nick Maggiulli this time. It was really good.

So that's another interview and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we really truly did.

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For my co-host, Corey McLaughlin, till next week. I'm Dan Ferris. Thanks for listening.

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