Last week, during a talk by my financial advisers, I learned about the 7 Stages of Financial Independence. It covered the journey from financial dependence (reliant on other people to feed you) to financial abundance — rich enough to be a full-time philanthropist.
That led me down a rabbit hole of reading. It turns out the stages of wealth concept has been covered by multiple writers over the years, many putting their own twist on it. My favorite ones are from Nick Maggiulli and Morgan Housel — which I’ll reference later. I guess people will always love status ladders where they can check their level and aim for progress.
Anyway, inspired by those who’ve written before, plus my personal experiences — here’s my take on the levels of wealth:
You’re affected by the levels of wealth, though you’re not actively participating.
This is our childhood, where our parents‘ wealth determined the kind of food we ate and the toys we played with. Most of us transition out of this into a “real” level after university.
Depending on your level of privilege, you might get a longer Demo level — for example if you stay with your parents all the way to a PhD. On the other hand, some get kicked out early — think single-parent families where teenagers have to work.
Where you end up after exiting Demo level also varies. If you’re a trust fund kid who becomes a successful entrepreneur, it’s possible to jump straight to Level 3. If you’re like most of us though, you’ll probably start in Level 0 or Level 1. Don’t hate the player, hate the game.
How Demo level feels like:
You’re either unaware about the levels of wealth, or starting to question lifestyle differences between yourself and others. “Why does my best friend fly to Europe for holidays, while I’m stuck at home playing computer games?”
Regardless, the beliefs about money you develop during Demo level will influence you for the rest of your life.
Level 0: Broke
In terms of assets: You owe more money than you have.
For example, someone who has RM 20,000 (RM 1 = USD 0.24) in student loans and credit card debt, but only RM 10,000 in assets like bank accounts and retirement savings. Negative net worth.
Technically, if the people you owe money to demand for immediate payment, you wouldn’t be able to do it. Not unless you enter the cheat code and borrow more money.
Obviously this is a level nobody wants to be in. The challenge for most people in Level 0 though, is they’re stuck in a cycle of poverty. Level 0 can be a nightmare loop of not making enough money, getting into more debt just to survive, then giving your kids a lousy education + upbringing. Repeat for generations.
The ones who manage to win this level are usually someone like you — educated and employable, young enough to significantly grow your income.
How Level 0: Broke feels like:
I’ve visited Level 0 before, but thankfully had enough privilege/potential to earn my way out. Knowing I was broke lit a fire under my ass — to be more disciplined and work harder.
If you’re down at the deepest, shittiest parts of Level 0 (e.g. you don’t even earn minimum wage, and instead of a degree you have a criminal record), it can feel hopeless. Depression, suicidal kinda level. Typical personal finance tips don’t work at this level of hell too.
Spare a thought for those in Level 0, and see if you can help anyone win.
Level 1: Struggle
In terms of assets: You have more than you owe. But not very much more.
For example, someone who has RM 20,000 debt, but RM 30,000 in assets. That’s a positive net worth of RM 10,000.
Level 1 is way better than the dump of Level 0. But it’s still not comfortable. Net worth is just a snapshot of your current financial situation. Think about it as a report card or a fleeting story on Instagram.
What net worth doesn’t tell you, is how you live — how you feel like on a daily basis. Which is where income level comes in.
People struggling in Level 1 earn low salaries1. In Malaysia, I’d consider this to be people making below the “Living Wage2” benchmark:
- RM 2,700/month for a single
- RM 4,500/month for a couple without kids
- RM 6,500/month for a couple with two kids
How Level 1: Struggle feels like:
Living from paycheck to paycheck. Counting down the days every month to salary day. Spending big (Pizza Hut LFG!) when it comes, only to skimp (Hello economy rice, my old friend) three weeks later before your next salary.
Can feel like a meaningless cycle, filled with existential questions. “Is this all there is to work and life?” And anger: “Eat the rich!”
Susceptible to scammy investment schemes and exploitative companies that promise you “passive income.”
One major emergency away from falling back into Level 0.
Level 2: Financially Stable
Your income is securely above the Living Wage benchmark. You lead a comfortable life — with money for entertainment, friends and hobbies — and can still save/invest >20% of your monthly salary.
You may have loans, but it’s under control. Less than 50% of your gross salary goes towards paying debt.
In terms of assets: You’re on track to retire at 60.
Even if you lost your job today (or some kind of freak emergency), you have enough savings to maintain your current lifestyle for at least six months.
How Level 2: Financially Stable feels like:
You don’t worry about day-to-day expenses. Lazy to cook today, and wanna order some McDonald’s? Sure. Want to do it for an entire week? Go ahead.
The biggest difference between Level 1 and Level 2 though is the mental peace it gives you. You don’t feel rich, yet you know you’re okay. You may not feel financially free, but at least you’re in position to think about it. You have a stable foundation to build the rest of your life on.
Level 2 is a reasonable target for most people. Get here, find work you like, raise a happy family, and that’s a pretty good life.
Level 3: Rich
I once asked my wife what’s her definition of “rich,” and she settled on “net liquid assets of >RM 10 million.” Liquid meaning assets that can be converted quickly into cash, like fixed deposits, stocks and crypto — but excluding property.
At that point, my definition was much lower: net worth of >RM 1 million. (I’m thankful despite not being rich, and the huge disparity between our expectations, she still agreed to marry me.)
It turns out common benchmarks for a High-net-worth individual (HNWI) — which is a rich person’s way of saying someone is rich — are actually:
- In Malaysia: RM 3 million net assets (personal or with spouse) excluding primary home, or:
- RM 300,000 income per year (or RM 400,000 with spouse)
- Internationally: USD 1 million in liquid assets
Riffing on the benchmarks, I’m gonna propose another measure: If you decided to stop working today, you could maintain your current lifestyle for another 10 years. At least.
People in Level 3 are comfortably in the top 10 percent of society by wealth.
How Level 3: Rich feels like:
Your standard of living is more by choice than necessity. Your measurements of wealth are more numbers on a screen than tangible improvements to your daily life.
Often, the most efficient way for you to do something is to pay other people to do it for you. You value time more than money.
Financial Independence and/or Early Retirement is possible, depending on how you control your desires.
Life is good, unless you get into the sadly common habit of comparing yourself with the 1 percent — people who have tens or hundreds of millions.
Level 4: Rich AF
You can stop whatever you’re doing today, and enough money would still roll in forever. Assuming you have some financial skills, you never have to worry about going broke.
Even if you have no financial skills, you have enough money to hire a team of people to manage your money.
Of course, a true Rich AF-er doesn’t worry about what level they fall into, but the pleb in me found out the benchmark for an Ultra-HNWI is >USD 30 million in liquid assets.
Note: there’s big variance within this level. Someone with 30 million might always fly first class, whereas Rihanna (single-digit billionaire) flies private, while the King of Saudi Arabia owns an airline.
If you wanna geek out on the differences between these crazy levels of wealth, check out this Reddit thread:
How Level 4: Rich AF feels like:
Consider the “0.01% of wealth” rule — which is a good estimate of what feels like trivial spending. For a middle-class Malaysian with RM 100,000 of wealth, that’s RM 10. So as the theory goes, spending RM 10 feels like nothing.
Now imagine you have RM 100 million. 0.01% of that is “only” RM 10,000. So buying an RM 10K business-class flight from Kuala Lumpur to London feels the same to you as a middle-class Malaysian buying an economy-rice lunch.
First world problems: “Does this person genuinely love me, or do they just want something from me?” “Will my children be responsible stewards once I’m gone?”
You have more money than you or your family will ever need. Power and influence too.
The only question is, what will you do with that power?
The Psychology of Feeling Rich
Most of the world struggles in Levels 0 and 1. You’re likely someone in Level 1 or 2.
That can be one booster to feeling rich: by realizing your place in the grander scheme of things. Not looking down on others. But being grateful for what you have.
It can feel incredibly hard to get from Level 1 to Level 2. Maybe your income is good, but you’re burdened by loans — feeling like you’ll never escape. If that’s you, understand these are just arbitrary points on a spectrum. People can spend decades moving in the space between levels.
Don’t let this discourage you — focus on progress, not status.
Beyond Level 2, the differences in quality of life start diminishing. Sure, a Level 4 billionaire can live on their own island, whereas a Level 2 normie lives in their own apartment. But both own property. Both are a world of difference from the homeless in Level 0.
That’s why I think Level 2 is good enough for most people. Beyond that, you can experience the benefit of higher levels by levelling up your mindset.
Feeling Rich Beyond Your Current Level
“To me, the highest form of wealth is controlling your time.”– Morgan Housel –
Consider a Level 4 billionaire who only works on whatever they want, with whoever they want, whenever they want.
Could you do that as a Level 3 millionaire? Yes, probably. A financially-independent Level 3 person could choose that too. Though a Level 3 person who’s stuck in a high-stress job due to huge loans can’t.
The “hack” to work in Levels 0-2 is finding a job you like, working with people you like. You can’t resign today because you need the money, but at least most parts of work feel enjoyable. And you have friends.
The other shortcut to wealth is mental: by not wanting very much. Focusing on just the most important things in life. For most people this isn’t a Mercedes and a mansion, but a healthy, balanced life surrounded by loved ones.
Above a certain level of wealth — by my measure somewhere between Level 2 and Level 3 — feeling rich is a choice.
– – –
- Technically you could be living paycheck-to-paycheck even if you earn a lot. If you let your expenses spiral out of control.
- Estimates for living wage in 2016, for people living in Malaysia’s capital: Kuala Lumpur. Study done by Malaysia’s central bank.
– – –