3 Tiers of Wealth: How I Think About Money

It’s easy to fall into a “more is more” relationship with money.

But why do we want more money? How does it actually impact our life? Is there an end game?

For me, having money is all about freedom. You can’t create more time, but you can use money to buy at least some your time back.

I don’t really want tons of money so I can buy more stuff, or more expensive stuff.

I just want money so I can live the life I want to live without worrying about money.

In other words, having money = not worrying about money (as long as you keep your spending in check).

That means that, at least for me, having money is better than spending money.

3 Tiers of Wealth

Let’s look at wealth like we’re playing an RPG game, trying to level up. Here are the levels:

1. Struggle – Poverty
   • Not enough money (or no extra money)
   • Living paycheck-to-paycheck
   • Building debt; not building wealth
2. Comfort – Middle Class
   • Enough income to cover expenses
   • Extra money to build savings
   • Able to take care of self and dependents
3. Freedom – Top 15%
   • Healthy emergency fund
   • Sufficient savings for retirement
   • Able to work less (or stop working completely)
4. Excess – Top 1%
   • Enough passive income to comfortably retire
   • Can buy extra assets and/or luxuries
   • Extra money to invest, donate, etc.

Everyone starts their life in one of these tiers, based on their parents’ situation, and while it doesn’t seal your fate, it has a huge impact on your trajectory.

And as we move through life, we may move through these tiers.

Generally, people want to move up and become more wealthy. If you’re born into Struggle, you’d like to at least have Comfort. If you’re born with Excess, you don’t want your kids to slide backwards into Struggle.

But the point is, every child and adult exists along this spectrum.

1A: Struggle Without a Safety Net

The least fortunate among us are born into Struggle without a safety net.

Their parents have no money and either living paycheck-to-paycheck or depending on others (family, church, government) for survival.

These kids will have no advantages in life, and it will be risky for them to make any decisions about their life, education or career that aren’t strictly pragmatic.

(E.g., they can’t take on debt for a degree in art history, or get a loan to open a clothing boutique; instead, they’ll have to focus on the ROI of education and actually making money.)

This is where generational poverty comes from. It’s really hard to break this cycle.

1B: Struggle + Safety Net

There are many people in the Struggle phase who have a safety net. This is like a poor college kid from a middle class family.

She doesn’t have any money right now, but she’s getting a degree (and probably getting some help paying for it), and she can live with her parents after graduating if she needs to. Maybe her parents will even buy her an old used car.

The Struggle is way different with a safety net. You can get a less obviously useful college degree. You can take a risk by starting a business.

If things don’t work out, your family and network have enough resources to make sure you land on your feet.

2: Comfort – Middle Class

This is a large swath of people. You’re making enough money to not constantly worry about money.

You know how your checking account balance, approximately but not exactly. You’re not worried about overdraft fees.

You can provide a safety net for your kids. You can save for your retirement. You have some cash to cover emergency medical expenses. You can take some vacations.

You probably treat yourself to small luxuries, like the occasional Uber or date night, or a new watch.

Many people are born into Comfort and will die in the same tier. This is okay because, well, it’s a comfortable way to live.

But some people want more freedom. They aim to get to the next tier…

3: Freedom – Top 15%

At the very least, you’re “coast FIRE” or “barista FIRE” (learn about the different types of FIRE here).

• You have a healthy emergency fund (12 months of living expenses covered).
• You have ample retirement savings, like $500k in a 401K or Roth.
• Your house is paid off, or at least it could be, but maybe you’ve secured a low interest rate, so you’re still paying down your mortgage.

Small purchases are no big deal. You could Uber everywhere for month, and it wouldn’t really impact your checking account balance.

You don’t have to look at the prices on menus anymore, but you still do because it’s that kind of frugality that got you here in the first place (assuming you weren’t born into financial Freedom).

You could stop working for a while, take a sabbatical. Or maybe your partner could. Maybe both of you.

You could afford a high cost of living city, but maybe you prefer living like a king in a LCOL city.

At the upper end of the Freedom tier, you’re literally financially independent. This means you could stop earning income at any point, and you’d never run out of money.

You have enough money saved up and enough investment earnings to cover your annual expenses forever.

You likely have a wealth manager who professionally handles your finances.

You’ll die with more money than you have now. Your kids will inherent at least a million, if not substantially more.

This is true freedom. You can do whatever you want with your time.

4: Excess – Top 1%

You’re well past “fat FIRE”. You were either born into generational wealth or have created it for your kids and grandkids (if no one effs it up).

You never have to work. You don’t think twice about fancy dinners or flying first class. Maybe you even fly private most of the time.

You have some sort of family office set up. We’re not talking about Edward Jones here. We’re talking boutique.

You probably own more real estate beyond the home you live in. You might be involved in some sort of philanthropy.

You can buy boats and businesses. You can probably buy political power if you want to.

At this point, unless someone makes some huge mistakes, your family’s wealth will grow steadily from one generation to the next.

Game over, you win (or you inherited the first place trophy).

So what should you do?

Most people want to improve their station in life. They want to advance to the next wealth tier.

And I think this makes sense. If you’re born into the Struggle, especially without a safety net, day-to-day life is going to be very stressful.

If you can eliminate money stress and afford the things you want, your life will be better.

Money actually does buy happiness, at least in part by reducing unhappiness. You can’t be happy if you’re sad, right?

Thing is, there are diminishing returns to wealth because the marginal utility of money decreases the more you have.

Being able to comfortable pay rent objectively makes your life better in every way. Being able to afford business class instead of coach is just kinda nice.

So, going from Struggle to Comfort is HUGE!

And I’d argue that going from Comfort to Freedom is worth the effort. I spent most of my 30s working on this, and I finally got there.

It’s great!

But beyond that, I’m not sure it makes sense to spend your limited time trying to build more wealth.

The Hustle Habit

Here’s one problem I see:

People hustle like crazy to move up the wealth ladder. Then they reach Freedom or Excess, but they can’t stop hustling.

I see this all the time in the online entrepreneur and content creator community.

I think some people are just wired this way, to keep working crazy hard until the day they die.

And there’s nothing wrong with work. I’m never going to stop being productive in some way. Producing is fulfilling. Mastery is enjoyable.

But I think some people develop a hustle habit that becomes so ingrained, they can’t turn it off, even when it’s no longer useful.

Lifestyle creep is part of the problem, of course. The FIRE goalposts keep moving.

But I know many people who have more than enough money to do whatever they want with their time, and yet they can’t slow down, and they don’t seem relaxed or happy.

They got addicted to hustle. They can’t turn it off now.

How I Feel Right Now

I felt this addiction. I spent 10 years building a blogging business, saving money along the way, then eventually sold it.

It was the most impactful single transaction of my life. In an instant, my wife and I were wealthier than ever before.

If we maintained our relatively modest lifestyle, we were FIRE. You’d think I could relax, right?

Instead, I started to worry about money more than I used to.

After a brief celebratory break during which I played ToTK and did a lot of BJJ, I started working more on my Youtube channel, not less.

It was one of the most anxious years of my life, and I think it had a lot do with the fact that my monthly income dropped like 80%.

I got used to seeing a certain amount of revenue each month, and when that went away, it was scary.

I also became convinced that if I just had a little more money stowed away, then I could finally relax.

I kept doing the math over and over. I hired a wealth manager. I asked Chat GPT to review my finances one more time and tell me again that things will be okay.

And I went to therapy (not just for money anxiety, but it was definitely a big focus).

Now, finally, I’m actually starting to relax.

• I don’t have to say yes to every money-making opportunity.
• I can spend a work day exercising and playing drums and catching up with friends.
• I can be very picky about what projects I take on. I can prioritize passion over profit.

This feels good. It feels like the point of having money.

It’s worth mentioning…

I’m a lucky guy. I was born into a middle class family that became upper middle class during my college years.

• I got a college degree debt free. My first car paid for by my parents.
• When I bought my first place, my parents helped with the own payment.
• I will probably inherit money.

I’m very fortunate compared to most people, in many ways (not just money).

So most of my effort went toward climbing from Safety-Net Struggle to Comfort to Freedom.

It’s a priviledge to be able to focus on this, to never experience real financial hardship.

And if you have this privilege, it’d be a shame not to take advantage of it.

My Advice For You

Think about what you really want. It might not Excess, top 1% wealth.

Maybe you just don’t want to worry about money. Maybe you want to go from Comfort to Freedom and stop there.

These are worth goals. Just make sure you know where to stop, and never forget that, at the end of your life, you’ll want more time, not more money.