Why 62% of Americans Never Break into Millionaire Status

Dave:
There is no one size fits all investing advice. Realistically, a dollar means something different to you if your net worth is $10,000 than it does if your net worth is a million dollars, and that is where the Wealth Ladder comes in. It’s a concept to help guide financial choices at the different levels of wealth and stages of an investing career. And today I’m speaking with the author who invented the Wealth Ladder concept about how it can help any investor in any market conditions. Hey everyone, I’m Dave Meyer and this is On the Market. Our guest on the show today is Nick Maggiulli. He’s the Chief operating Officer at Writ Holt’s Wealth Management and the New York Times bestselling author of Just Keep Buying. He also just released a new book called The Wealth Ladder. Nick has been on the show before about three years ago, but I wanted to bring him back to talk about his wealth ladder concept and how investing in real estate can fit into an investing career at many different stages. Nick is a true thought leader. I listened to him on all kinds of economic topics, including the housing market and this wealth ladder concept that he has is an innovative and really useful framework for organizing, investing ideas no matter what ad asset class you’re investing in or where you’re starting from. So let’s bring on Nick. Nick, welcome back to On the Market. Thanks for being here.

Nick:
Thanks for having me back on. Appreciate it.

Dave:
For those of our audience who didn’t catch your first appearance here, which was three years ago at this point, can you fill us in on your background and how you’re sort of related to the world of finance and investing?

Nick:
Yeah, so I was an economics major in college. I went into litigation consulting shortly thereafter, which is kind of like, it’s different than management consulting, it’s data-driven, a lot of programming and stuff. And so I had a very analytical background, but I also love personal finance, so I started writing about it in 2017 and then I eventually left the consulting world and I joined up at a wealth management firm where holds wealth management where I’ve been ever since. And so I’ve been writing about personal finance and now I’m actually the COO at a wealth management company. We have over 6 billion in assets, and so it’s just been quite a journey, just everything, the transitions that have happened over the past few years.

Dave:
We had Nick back on in September of 22 talking about his first book. That was your first book, just keep buying.

Nick:
Yeah. Yeah, first book,

Dave:
Which is an awesome book. I think you mostly wrote it in the perspective of equities investing, but on this show we talk a lot about just the concept of dollar cost averaging even in real estate investing. So a really applicable lessons and information there for our audience as well. You do have a new book which we want to talk about, but Ian and I are producer on your blog earlier looking at a article you wrote called It’s the Housing Stupid, and I obviously had to click on that and look at it. And so it sounds like reading through this, you think housing is sort of what are the epicenters or what are the things that’s causing just all this weird sentiment, all this weird behavior in the broader economy? Right.

Nick:
Yeah, I think there’s two things that are going on right now that seem very off. One is that there’s like meme stock kind of activity. Again, crypto prices are up a ton, not just Bitcoin. I mean I think this is across the board. We’re seeing stuff like the open door thing where open doors price just went through the roof. So we’re seeing kind of 2021 esque levels of not mania, but a little bit of craziness. And at the same time there’s tons of money in treasury bills and money market funds. That money is just piling and piling up. So it’s like why is this happening? Why is there so much? I know rates are higher, that’s one thing,
But
There’s just money just keeps piling up. And my answer to this is money that would normally be going to buy housing and to buy houses is not going there. So that’s a large expense for most people. I mean, the typical American has over half of their assets in their home. So when you think about that, they’re funneling money toward that. And now there’s a lot of people, there’s a cohort of people who are not buying homes that normally would be buying homes, and so that money is either chasing meme stocks or if that person’s more conservative, it’s probably sitting in a money market fund, which is what’s happening. In my case, I’m rolling treasury bills every few months because I’m like, well, I’m waiting for rates to come down. And they said they would’ve been down by now, but they’re still not down. And so we’re waiting and waiting. And so I think that the housing, it’s a bigger issue. I think obviously people are delaying marriage and there’s a lot of other things people are choosing not to buy houses as early, but I think because of prices and rates, it’s just the perfect storm of very difficult to get housing. Now, even for people that could easily afford it, they’re like, why am I going to go pay 7% for money? This is kind of crazy. So I think it’s distorting a lot of things.

Dave:
It makes so much sense to me because you do look at these almost conflicting ideas, this extreme risk taking on one end of the spectrum and then this move towards conservative investments and wealth preservation on the other side of the spectrum and what you just said is the first thing that can help me make sense of how those two things can be going on simultaneously. Even though there’s a lot of data that suggests the average American consumer is struggling, the people who do perhaps have some money that they would normally put in a down payment, renovating a home, whatever it is, maybe they’re putting their money there at the end of the article. You also go into three scenarios that you think how this could sort of resolve itself. Can you give us an overview of those?

Nick:
Yeah, so one of the scenarios is that there’s some sort of melt up because as rates come down, everyone starts trying to buy, prices go up, and then there’s a crash. So it’s kind of an oh eight again, it’s possibility.

Dave:
Yeah.

Nick:
Another scenario is I’m thinking we see what I call a long fizzle where maybe house prices don’t keep going up, but in real terms inflation kicks up and then house prices kind of stay flat, and so there’s kind of a negative real return over time that’s a possibility. And then there’s just the possibility of just a massive crash. We build a ton, and then that because of all the extra supply house prices come down of those three, I think that build a ton and house prices come down is the least likely for a host of reasons. It’s a political nightmare. We can talk all about that. But of the three, I think either a boom and crash or a long fizzle seems most likely, as much as I would love the Austin Texas story to happen where we built a lot of units and then prices come down and now more people can afford homes, I don’t see that happening on any sort of national scale, especially given all of the political holdouts there are for that which we could definitely get into.

Dave:
All right, well, I’m with you on that. I think what you’re calling the long fizzle is the most likely scenario. We have a lot of housing economists who come on their show, and that does seem to be what the data suggests. Obviously there are other things that can happen, but when you look at the data, that does seem to be the most likely scenario. So I’m with you on that, but let’s start to the book because I just picked it up and have been sort of fascinated by just the concept and this rethinking of different levels of wealth and the purposes of wealth that you write about. So maybe just give us a high level overview of the wealth ladder.

Nick:
So the wealth ladder is a new framework for thinking about building wealth, and the main premise is that your financial strategy should change over time and especially as you build wealth or you should consider different strategies at least. And so I took wealth and I broke it into six distinct levels based on your net worth. I’ll get into those levels in a second, but once you have these six distinct levels, you obviously figure out which level you’re on, and then from there there’s different spending income and investment decisions you would make across the ladder depending on which level you’re in. And so these six levels are, once again, this is all net worth and this is household net worth. So if you have a spouse or something, include all of their assets and their liability. So take all your assets minus all your liabilities, that’s your net worth based on that, you’re one of these six levels.
Level one is less than $10,000. Level two is 10,000 to $100,000. Level three is 100,000 to $1 million. Level four is 1 million to $10 million, level five is 10 million to a hundred million dollars, and level six is 100 million plus. Now about these levels, they actually break up US household wealth quite well. About 20% of US households are in level one that’s less than 10,000, 20% are in level two, which is 10,000 to a hundred thousand. 40% are in level three, which is a hundred thousand to a million. About 18% are in level four, which is one to 10 million, and then the top 2% is levels five and six and mostly level five. There’s only about 10,000 households in level six. And just the easy way to remember this, just remember level three is a hundred thousand to a million dollars in total net worth, and from there you can just multiply by 10 to go up a level or divide by 10 to go down a level. And from that, there’s all sorts of conversations that can be had about spending income investments within each level and different strategies and things to think about to move up and things to avoid to prevent yourself from falling down the ladder.

Dave:
And so is that how you divide this up? Were you looking to make equal buckets or are the cutoffs for these levels in the latter more functional in that this is you get to a hundred thousand dollars and your life changes in X, Y, Z ways?

Nick:
Yeah, I tried to do it more as a useful framework and less of a precise framework. I could have been like, okay, actually if we want to make everyone the same size bucket, we then come up with some sort of framework for that. The problem with that is the numbers are going to be hard to memorize. It’s going to be hard for that idea to spread. I think there’s a tradeoff between precision and usefulness, and I kind of gave up some of the precision. Obviously this is an arbitrary, I’ll be the first to say this is an arbitrary framework, but using the 10 x thing, it actually makes sense when you think about spending categories and a host of other things, which we’ll get into. But I think it’s very useful because it’s like, yeah, most of the people in level three have roughly similar lives. I would say a lot of the people in level four can have similar lives. Obviously this is not true in the extremes. The person with $1 million is a very different life than the person with $9.9 million, right?

Dave:
Yes.

Nick:
But closer to the center of the person with four and six probably are very similar, even though there’s 2 million difference there. It’s not like that’s like, okay, I can now fly private jets. I can have caviar every day. It’s like that doesn’t really change your consumption. It doesn’t change your lifestyle all that much. And for those people that are in those levels, they will know even if by the time you’re 4 million bucks, another a hundred thousand dollars is not going to change your life at all, even though that would fundamentally change someone’s life who had nothing, it would really change someone’s life at zero. So I think people understand this, the usefulness of money kind of drops over time, and that’s kind of built into the system or the framework here.

Dave:
Now the numbers that we’re using, whether it’s a hundred thousand or a million dollars, you’ve chosen to use liquid net worth as the measurement, not income or total net worth. So why did you choose that?

Nick:
I use overall net worth for the latter when we’re talking about spending decisions, which we can get into. I use liquid net worth for that particular thing, and we can get into why I don’t think you can’t really eat your home equity, I really don’t think you should be spending based on your retirement assets. Those are kind of allocated for future spending. So if we take those out when we’re talking about spending decisions, that’s where I think liquid net worth matters. Outside of that though, I think when I’m just talking about the levels, I was using total net worth and I think you should use total for that reason.

Dave:
Okay, got it. So tell me, you said earlier that a big premise of this is that where you fall on this ladder should impact your spending decisions and your investing decisions. So let’s just start at the bottom 10,000 or less. What should people at that level be doing?

Nick:
So for someone in level one, I think the most important thing is getting some sense of safety. And I don’t just mean financial safety, okay, have an emergency fund. People kind of have heard that advice before. It’s still true. That doesn’t change. I think you need to think about safety more broadly. So are there people in your network you can rely on? Do you have family? Do you have friends you could rely on? If you’re in level one and you’re struggling for those people who are not in level one, are there people in your life that are in level one that maybe you can help them out? And I don’t mean give them money, I don’t think that’s the solution here. You need to provide them support so they can do it on their own. I think that also builds the skills and all the things you need.
Just handing people checks is not the way to do this. It doesn’t solve the long-term problem, which is like how do they get income? How do they save money? How do they build their own wealth? That’s what we ultimately want for everybody. We don’t just want people just getting checks as great as that is. And that can be helpful in certain times and for certain circumstances, for the most part, we want people doing it on their own. And so I think the thing to think about in level one, if you know someone in level one or if you are in level one, it’s like, well, I need to get to some sense of safety. And so that means having financial resources, that means maybe having friends or family you could rely on in case you get into a difficult spot financially

Dave:
That’s $10,000 or less. Clearly,

Nick:
Yeah,

Dave:
You’re not in a position especially for our here to be making investments, particularly in real estate capital intensive industry as it is, that’s probably not going to make sense to you when you move to level two. As someone who invest in real estate and helps people invest in real estate on the low end, very difficult to invest in real estate. Just as an example, on the high end, you can start thinking about buying a duplex triplex. So for me, this is a super broad range, but what commonalities exist in this level to range for people of 10,000 to a hundred thousand?

Nick:
There’s different types of people in level two. And so I think it’s the hardest level just to straight up classify only because there’s people in level two now that are just, they’re just temporary visitors. They’re on their way to level three or level four. They just need time. They had high income, they probably have a good career trajectory, they’re going to work hard, they’re going to get themselves into level three or level four. And then there’s people in level two who maybe their income’s not as good, they’ve saved some money, maybe they have a 401k, they have something set up, they’re just starting. Maybe they got a property or something, but their income doesn’t allow them to save enough money. And so I think the big thing there, it’s like if you’re in the group of the level two where you’re not earning a lot and it’s not time, time’s not your issue, it’s more about just your earning power.
You need to find ways to raise your income, and that includes different education, getting skills. This is a very broad, when I say education, I mean that very broadly. I don’t think everyone needs to be going to college, but what are the skills you can learn that can help you raise your income over time? And I really focus on that. I think that’s true of everyone in level two. But for example, when I graduated from college, even though my net worth was technically below 10,000, I would say through because of my education, because of family and stuff, I was in level two, not level one, just through proxy. And so I started my wealth journey in level two. And going from there, I was just a temporary visitor because I was planning to work hard. I obviously didn’t get unlucky with any things thankfully. So I was able to get into level three within a few years of just saving money, working hard, and doing that. And so I think the thing to think about in level two is what’s the education? What’s the skills I can get so I can change my trajectory? You can imagine you’re earning potentials like a slope and you want to do whatever you can to increase that slope so that in the future all you need is time. So you kind of
Change from, as I said, there’s two groups in level two, those that are temporary visitors and those that are probably going to stay there permanently unless they change their skills or something. The goal is to go from the second group and become the first group because then it’s just like, oh, I already got the skills. I just need time now to get out of this level.

Dave:
That makes a lot of sense to me. One of the things we come across in the real estate investing industry a lot is people are in this group too. I think that’s probably where most people start paying attention to BiggerPockets or thinking about real estate investing and they ask themselves questions, should I go full-time into real estate or should I stay at my job and keep investing? But it sounds like your recommendation is just maximize your income potential. So educate yourself whether that’s you’re going to get really good at being a real estate agent or maybe you have a good job or a career trajectory that’s going to allow you to maximize whatever it is for the next 20, 30 years that will allow you to then invest into other things, but you don’t need to make investing or real estate your full-time job as long as you are able to focus on building and maximizing that earning potential over time.

Nick:
Yeah, exactly. And I think the thing to think about here is what are your strengths? What are those things that you’re very good at? For some people it might be real estate, real estate investing, and that’s great, and if you can start working on that and get better at it and build it, that’s great. But I think there’s a lot of people that can just stay in their current trajectory, have that job, as long as they’re getting the promotions kind of, they have a path forward. If you’re capped out, you may want to say, okay, I’m going to do a side hustle. I’m going to do something else. Maybe I will start really learning real estate to the point where I’m making more off of it so I can make a transition. But I think it’s really situation dependent. Some people would be much better suited to keep doing what they’re doing. Others would be better suited to make that jump into real estate.

Dave:
All right. Let’s move on to level three, which is another really interesting group that you talk about, but we got to take a quick break, but we’ll be right back. Welcome back to On The Market. I’m here with author and analyst and investor Nick Majuli talking about his new book, the Wealth Ladder. We’ve been talking about just how these different broad buckets of wealth influence how you should be thinking about money, the investing strategies, the income earning strategies that you should be thinking about. If we talks about one and two, I want to get to three because I think this is where a lot of people get stuck, at least in my experience, and it’s not a bad place to be. I mean having a hundred thousand to a million dollars in net worth is a fantastic place, but a lot of people dream about that, but I don’t know if you’ve seen this, but in my experience, coaching people in real estate, getting from three to four is a really big jump. Is that something you see as well?

Nick:
Yeah, so actually in chapter 10 of the book, I kind of look through the mobility data. So if you start in this level, what percentage of people that start in let’s say level three, make it to level four over a 10 year period or a 20 year period? And in that chapter, the two levels that are the hardest to break out of are level three and level four. Level four is actually harder over a longer period of time. So let’s just use over a 20 year period. If you start in level three, roughly 62% of households will still be in level three 20 years later. But for those that start in level four, it’s 64%. So that is the highest number in the little matrix here that’s on page 1 54.

Dave:
So going from a million to 10 million is harder than going from a hundred thousand to 1 million.

Nick:
Yeah, this is obviously based off historical data using following the same set of households over time within the United States, and this is going from 1984 to 2021. So we’re looking at all those changes overall. Every 20 year period, we can get in there. So there’s not a lot of data, I admit, but regardless, it is harder and we can explain. I mean, it’s just the amount’s bigger, it’s harder to get there. But I think one of the things to think about in level three, the difference between those that stayed in level three over let’s say a decade versus those that made it to level four, the biggest difference is their income. So I talk about income a lot and I know I’m kind of beating a dead horse with it, but it’s so true. The difference between the households that stayed in level three over a decade versus those that started in level three and made it to level four is their income and those that have a much higher income and that allows them to save and invest more.
And so I think the thing to focus on in level three obviously besides income is investing. And so whether you do that through real estate, whether you do that through a stock portfolio, retirement account, et cetera, it’s adding money and having that money grow over time. And that is by far, I think the most effective way to do this type of thing to get into level four, if you’re trying to go past level four, that’s a completely different conversation. And your 401k is not going to do it for you. And we can talk about why.

Dave:
I mean it sounds obvious, yeah, just increase your income, but are you saying that is a bigger variable than the returns on your portfolio, whether that’s in real estate or stocks?

Nick:
It really depends. So when you say the return, I mean, because obviously we can take this to an extreme. If you’re getting a hundred percent return a year, then it doesn’t matter what your income is, right? Of

Dave:
Course. But within a normal range, if you’re getting 7% versus 12% annualized returns or

Nick:
Whatever, and if you can get so 7% nominal, which is probably like let’s say a four to 5% reel versus getting 12% nominal, which is going to be like an eight or 9% reel, that does make a difference, especially over, you could have a much lower income and with that extra 4% more per year on a nominal basis, that is no joke. That is a serious amount of money. But the thing is, I don’t try to, okay, all you got to do is just get 4% more than the market average. That’s very difficult. All you got to do is beat the market. It’s a very difficult thing to do. I’m not saying it can’t be done, but to bank your strategy on that, there’s a little bit more luck involved in my opinion
Than just trying to raise your income. You can do some sort of work and create value and then get paid money for that value. That seems easier and more likely for most people than like, Hey, we need to assume that the price of these assets you’re buying go up or they generate enough income for you to have a higher return. Obviously no one knows the future. We go through another COVID scenario, we could all sorts of things happen outside of your control, which as much as I, trust me, I love investing, I love talking about it. I always assume like a market portfolio, like an index fund or just like a broad-based REIT as my way of thinking about investment returns because I don’t know what the market’s going to do, and so I just have to assume the average

Dave:
Return. Absolutely. Yeah, I think that’s a really wise way of thinking about this, and it is not a popular opinion in the real estate investing world. I think in our world, a lot of it’s like hustle, go maximize returns, get that extra deal, go figure it out, get creative, which is true in real estate. You could go from a 7% nominal return, you could get 25% nominal returns. If you’re flipping houses, you get 40% nominal returns. There is ways to do that, but it is super hard to forecast if those are going to exist well into the future. And my personal philosophy about real estate has always been just try and hit doubles. Don’t try and do something super crazy. I still work. I am past the point where I think a lot of real estate investors would stop working, but I just want to keep earning as much money as I can to just reinvesting into my real estate trying to hit doubles. And sometimes they turn into home runs and that’s amazing, but sometimes as long as you’re just sort of protecting the downside, especially in real estate, I think that’s relatively easy to do. If you buy well, you protect your downside and just keep investing, you’re going to do well. And I think that’s for me, always been this path. I haven’t put it in such a helpful framework like this, but it’s sort of the way I’ve been able to create a sustained momentum upward even market cycles and trends.

Nick:
And I think that’s what you have to do is you have to say, Hey, I’m just trying to be consistent and get a decent return and not try and beat the market go all out because it’s a double-edged sword. The types of behaviors you take to have a 40% return in a year are the same type of behaviors that are going to get you a negative 40% return in year. Of course. I mean, that’s still unlikely, but you get the point.

Dave:
Okay, cool. Now let’s talk about group four. This is I think a group most of us aspire to be in at some point with a million dollars in 10 million in net worth. You said that this is the hardest one to get out of. Do you have any idea why?

Nick:
Yeah, because in level four, which is as you said, one to 10 million, the strategy to get into level four is very different than the strategy to get out of level four. Level three and level four have more or less the same strategy. The only difference is one of ’em has a higher income. You could imagine someone has a decent job in the United States, maybe a blue collar job. Let’s say they’re making 80, 90 KA year, doing well, they’ll just take time, save, invest. They’ll get into level three right
Now, you take that same person and you put them in maybe a slightly more higher compensated role. Let’s say they’re a lawyer or a doctor or something. Now they’re more likely to get into level four. But once again, it’s the same thing. You go out into the society, you work, you collect a paycheck, you save, invest, right? That’s the same thing. I mean, obviously some lawyers and doctors can own their own practices and really kind of get beyond level four, but that’s kind of getting into my next point, which is the difference between those that get into level five, which is 10 million plus is some form of business ownership.
They
Actually own equity in a business, so they’re not just working for money, but they have their business which they own, and they kind of own some of the labor of the individuals in the business as well. And so that through the capitalist system and using, we’ll just call it entrepreneurship, they’re able to either have a higher income, which really kind of ramps them up through level four into level five, or they sell the business eventually and have a large liquidity event that creates that wealth. And so that’s why it’s different because getting into level four, I’m not saying it’s easy, but the strategy is pretty simple, right? It’s like have a decent income, save that income over time, invest it, and just kind of wait. So it’s like time savings, investing, and a decent income.

Dave:
So in level four though, I guess, yeah, you’re asking people to sort of shift their approach because you’ve gone, you’re going from this maximize your current income, you’re active income into becoming an entrepreneur. And I would imagine for a lot of folks, whether you’re working in tech, you’re a doctor, you’re a lawyer, that’s just outside of your comfort zone, whereas, I mean, again, I am framing a lot of this through the lens of a real estate investor. For our audience here, I wonder if real estate investing the way you’re framing it to me sounds like a potential solution to some of this because it is both an investment and entrepreneurship.

Nick:
It definitely is. I didn’t cover this as much in the book, but I think thinking about it this way, it can be, the only issue I have with real estate is because of the leverage. So it kind of makes, it can be riskier at times depending on how exactly, how leveraged you are, how many properties, the devil’s in the details here. So you have one property, okay, put 20% down on top of let’s say you have a primary residence or something that’s different than, okay, put 5% down or nothing down or something. You hear about people that can work out these deals, and I think it just fundamentally changes. Yeah, you do have a business now in some ways, and so it is possible, and especially with leverage, it makes it even more possible, but there’s also the risk of falling down the wealth, losing everything.
You hear about Dave Ramsey say he lost his whole real estate portfolio early on because he was a little too levered. He had debt, he had a lot of stuff that he now doesn’t recommend. But I think thinking through that is the key here. So yeah, I do really believe besides celebrities, athletes, entertainers, those people that have really, really high incomes, the only other way I know of getting into level five or beyond, which is 10 million plus is through some sort of business ownership where that business is paying you just an exorbitant income or you own the business and you just sell it one day for a lot of money.

Dave:
And is there any theme to what kind of businesses tend to work outside of real estate, or is it just any kind of business that winds up being successful?

Nick:
So I haven’t looked into this data in particular, but I know there’s a book coming out in the future called the Stealthy Wealthy or something, which is a play on, it’s like an extension of Millionaire Next Door. And a lot of these people are like beverage distributors. You’re the biggest beverage distributor in a certain area, or it’s not always the most glamorous businesses. It’s not like tech companies all the time, but there’s a variety of businesses where this can be done. And so people can do it in real estate, people can do it in blue collar things. You hear about, oh, I own a bunch of laundromats. That happens too all over the place. And so there’s different ways of doing this. I don’t necessarily think that it’s necessary to escape level five. That’s another thing I want to talk or escape level four. I apologize. I don’t think that’s necessary, but I’m saying if you want to, the tactics and the strategy are quite different. So just keep that in mind if you are thinking about that. I don’t think everyone wants to do that. I don’t think it’s necessary. I think you can be very, very happy in level four and just chill out. But unfortunately not a lot of people want to listen to that.

Dave:
I do want to talk to you about that more, Nick, because I feel like this idea that you need to make linear or even exponential progress through these levels is not necessarily what a lot of people want. And I want to dig into that, but we do have to take one more quick break. We’ll be right back. Welcome back to On The Market. I’m here with Nick Majuli. Where we left off was talking, Nick, you made a comment about whether some people might just want to stay in one of these levels, and I just as an analyst, always find it really interesting to dig into that data that talks about how at certain points getting wealthier has diminishing or almost even no value in terms of happiness or contentedness in your life. Did you look into that at all as you were researching this book?

Nick:
Yeah. So chapter 11 is the chapter called Does Money Buy Happiness? And the answer is a little complicated and I’ll just summarize the result and then we’ll talk about it. So if you’re poor, more money will buy happiness.
If
You’re happy, more money will buy happiness. But if you’re not poor and you’re not happy, more money won’t do a thing. So how I translate that to the wealth levels, I like that. If you’re in levels one or two, I do think more money can bring more happiness, period. If you’re in levels three or four and you’re not happy, money’s not your issue. I’m pretty convinced money is not the problem that needs to be solved. It’s something else in your life. It might be, oh, I don’t feel motivated, I don’t like my job. I mean, it’s not that things can be related to money, but it’s not money per se. But in general, people that are, if you’re really happy and just having a great time already and you found more money, you would be happier. But if you’re unsatisfied with your life and you think money is the solution, it is not the solution. It’s kind of a weird, it’s a bit ironic, right? It’s like if you’re already feeling great, it’s like, yeah, more money would actually make you happier,

Dave:
Yeah, scaling. But if

Nick:
You’re chasing it because you’re not feeling great, then it’s actually not your solution. So it’s very funny, but that’s what the data shows. Everyone’s probably heard that study from Kahneman and Deaton, which is like after $75,000 a year in income, there’s no more happiness. Well, they went back and looked at the measure again. There’s a guy named Killingsworth came and they reanalyzed all the data. And that’s actually not the correct conclusion from that original study. It’s that more money doesn’t prevent unhappiness. I know that’s a double negative. More money doesn’t prevent unhappiness beyond 70 5K, but basically it’s like after 70 5K, you can still be unhappy. It does prevent unhappiness below that. So going from 20 K to 50 K to 70 5K does actually prevent unhappiness. Beyond that, you can’t stop unhappiness basically. And so the new data was like, hey, the more income, we keep looking up further up the income spectrum, and they even looked into wealth as well.
And the more wealth or income people have, the happier they tend to be all else equal, assuming they’re happy. If they’re already happy, when they get more, they’re even happier. There are those unhappy people where they didn’t see that though. If you’re unhappy, it didn’t matter how much you had. So it’s a very interesting flip of the script there. And so that’s what I talk about. And so I’m like, Hey, if you’re in level three or four and you’re chasing money because you think that’s going to make you happier, that’s not the solution. If you happen to be in those levels and you happen to get more money, then great. But it’s really about your motivation around that is I think the more important thing.

Dave:
Yeah, I’ve obviously heard that study. A lot of people cite it and it makes total sense if you are just stressed about paying your bills and your life is wanting for convenience and flexibility because you’re just constantly working to make ends meet. I could imagine very easily, I’ve been there at points in my life where it makes you unhappy, it stinks, it’s not fun. But I guess when you reach a certain point, would it be fair to say basically at a certain point you just need to be a happy person and then if you happen to make money, you can scale that happiness, but it’s not going to be a solution for you. And I think that’s a really important lesson for our community. And really, I don’t know how much you follow the real estate investing education world, but there’s a lot out there about scale into a hundred doors or getting a thousand units.
And I honestly think it’s crazy. I think much more modest schools are probably better for the average person, or you’re going to be running a massive company and you’re going to be back to having no time or anything like that. And so I just hope everyone listening to the podcast takes what Nick is saying here to heart that, yeah, real estate investing can be an amazing tool for moving throughout these levels, but you don’t necessarily need to. And getting to level three or four is an accomplishment in itself, and for a lot of people it might just be enough to stay there. And that’s totally fine, especially if you’re a happy person, then you have it all.

Nick:
Yeah, I agree. I think a lot of this is, I talk about this in part three of the book, it’s like the kind of zoom out, talk about what is wealth really, what other types of wealth are there thinking through all these things. And one of the things that I argue is that the reason people chase money is not even for money and obviously for what it can buy and stuff, but it’s easy to measure. That’s the thing. You have a scorecard, you have something, can I have a tangible thing I can look at, I can pull out of the bank, do things with it. It’s much harder to measure your social wealth or your time wealth, how much free time do you have your health? Even I can get a lipid panel once a year. I can get my blood drawn, I can go do a VO two max test or something, but I can’t check it every day. I could check my bank balance. And so I think there’s something to that where, because it’s so easy to measure, people chase it so often, and I think that’s a big piece of what’s going on here and
Just, I think people need to realize that, especially those people like, oh, you make it. Oh, I want to get to this or that. That’s great. And that’s fine. If you really want to do it, you can. But there are trade-offs associated with that. And I dunno if that’s going to be your health. I dunno if that’s going to be your relationships. I dunno if that’s going to be your time. I wrote this blog post a long time ago called The Liabilities of Success, which is like, imagine, so I just write a blog post once a week. And so people ask me, why haven’t you started a YouTube? Why haven’t you started a podcast? Let’s say I start this podcast or I start a YouTube channel and I go, I have to get an editor. I have to film myself. I have to spend so much more work than I spend now just running my once a week blog post. Now let’s say it actually succeeds, so it does the thing that I’m hoping it to do, right? Oh my gosh, it’s doing exactly what I want. Well, guess what? Now I have to keep producing this content. I am now on this hamster wheel where I have to keep giving my fans what they want and all this and all that. I technically have that right now with my writing. But one blog post a week for me is relatively easy. I’ve been doing it for a long time. It’s not too hard to write a thousand words,
Compare that to a YouTube show or a podcast. There’s a lot more work that goes into that. At least for me, I’m not that experienced with that. So if I get what I want, which is the success, I am now trapping myself in this liability of this success. And it’s not like I can just sell it because, oh, the YouTube or the podcast can be based on me. It’s not a business. I can go sell to someone. Oh, hey, you can have my podcast. It doesn’t work like that. Or at least I haven’t heard of many podcasts where that’s worked out. So me thinking about that, it’s like, okay, you want to have a hundred doors, you want to have a thousand doors. Do you know what it’s like to have that? Do you realize what the demands on your time are going to be like? You’re going to have to run that business. You’re going to get that. Okay, let’s say you get there, you have that success now, but now you’re trapped with that level of success. And so you have to think about, is that what you really want in dealing with that? So only thing I push back a little bit on when we discuss these issues.

Dave:
I just want to circle back to what you said earlier just about the measurability of wealth. I think that’s super true. It’s easy to check in on, and one thing I think about a lot is just how there is no other quantifiable metric that societally we value. If people want to feel good about themselves in our society, for better or worse, they look at their wealth. And there are obviously other things that I believe are more important than wealth, but how do you quantify contentedness or wellbeing or a sense of purpose? It’s very difficult to quantify net worth, super easy to quantify. So there’s this saying in business that I always follow, it’s like what gets measured is what gets done. So you measure wealth, people pursue that because it’s something that they can benchmark against. It’s something that they can track and the other things that might actually make you have a better life just lack that measurability, and it probably leads to a lot of unhappiness or discontentedness in our society. People don’t know how else to evaluate themselves.

Nick:
Yeah, I also think it’s very school-based like, oh, I got a score of 80 on my test or 95 or a hundred. It’s numeric. It’s easy to jump through. Those hoops do well, trust me, I did all this stuff. I had straight A’s in high school. I was valedictorian. I did all this stuff over time, I know what that’s like. I’ve been down that road. I started to see myself going there and I said, Hey, this is not the way to do this. I’m trying to do less stuff now. As much as I have a job, I write the books and stuff, but I’m not trying to go all out and have a YouTube and a podcast and this and that. And I’ve seen people do that and it’s great. If they love it, that’s great. But I think for me it’s like I’m really trying to say more nos now than

Dave:
Yeses. One more question, Nick, and then we’ll let you get out of here. A lot of the ideas that you have in this book are geared towards younger people getting into college, getting out of college, starting to figure out chart their path through their career wealth building. Can you provide maybe some of the high level advice that you think our younger listeners should heed from your research and your thinking around this topic?

Nick:
Yeah, so I think the biggest thing in chapter two, I talk about the relationship between income and wealth and it’s the strongest relationship in all of personal finance. And so I know it’s very easy to be like, oh, just raise your income. I wish we all had a magic wand, and we can do that. That’s definitely not the case, but I think it is easier than people think if they are thinking about it over a multi-year period. If you’re like, okay, you have to raise your income in the next month or two, it’s very difficult. But if you think about a very long time period or a longer time period, it is doable and you have to just figure out, okay, what are the steps I need to take to start moving in that direction? Does that mean a side hustle? Does that mean getting different types of skills or an education or something?
And I don’t think everything just has to be, once again, I say education. Everyone probably just thinks college sales is a skill. Can you sell something? Can you sell me something right now? I think that’s a skill that’s also AI is not going to be able to automate a way. I don’t imagine a world where we’re buying houses from robot AI realtors. I really believe it’s going to be people there that are selling. People are going to be selling you most of your stuff. That’s just one example. There’s other types of skills out there. I use that one because it’s one that’s scales very well. You can sell one thing, you can go sell another thing, and eventually you make your way up the sales spectrum. And there’s really no limit on sales income in terms of you just have to sell more expensive items to people. And that’s how it works. But that’s an example of something where you got to really grind, learn the skillset, and you can do it, but it just takes time. And so what is a multi-year plan you can put together or start thinking about to start raising your income over the next few years?

Dave:
It’s great advice. And just to bring it back to real estate investing, I’ll just tell a little bit of my personal story here. In 20 14, 20 15, I had been working in tech, had a decent job and had gotten, I think I was seven units as a real estate investor. And I sort of had this decision point of should I go all in on real estate? It was a good time to be an investor in 2014, it was in Denver. It was a great place to be doing it. Ultimately, I decided not to. And instead I went back to graduate school and took two and a half, three years going to school at night, working a full-time job, managing my portfolio all at the same time because I decided I am a good real estate investor, but the parts that I’m good at, which is analyzing deals, looking at markets, that kind of stuff, I could still do not being a full-time investor.
And in fact, the thing that I needed most was just more money to put into the deals that I was already having an easy time finding. I just, like you said, Nick looked at it in a long-term perspective and said, the best thing I can do for my real estate career is actually to supercharge my W2 job. That actually worked out quite well for me. I got a graduate degree. My salary went up 50 or 70% when I finished graduate school, and that’s what really supercharged my investing, not me all of a sudden quitting my job and having more time to go look at deals. It was just having more money. I was more lendable. I was able to go and build my portfolio a lot more aggressively because I took that sort of long-term approach. So really appreciate all the research and stuff you’re talking about, Nick, and just kind of wanted to bring that back to real estate investors and how this could apply to you and your own portfolio as well. All right, Nick, thank you so much for being here. This was a lot of fun. Really enjoy talking to you. The new book is The Wealth Ladder. Where can people find it and where can they follow you?

Nick:
Everywhere books are sold, Amazon, Barnes and Noble, target, apple Books, you name it, we’re going to have it there and they can follow me and on Twitter at dollars in data on LinkedIn at Nick Majuli or Instagram at Nick Majuli. And by the way, I answer every dm, so if you send me a DM that’s not absolutely unhinged or crazy, I don’t think that’s going to be your listeners, but very rarely do I not answer a dm. I answer basically every dm. So

Dave:
I’m going to copy that from you. I also answer pretty much every dm, but I never say that publicly because sometimes they’re unhinged and that I don’t respond. They’re like you said, you answer every dm. I just need to add that caveat

Nick:
When I start talking. If someone accused me of I answering a DM and I find their dm, I will. I’m like, you said it. You called me out. I’m going to put your DM out here and let’s see why we wouldn’t answer it.

Dave:
So yeah, would anyone in the right mind answer this dm? So if you answer, ask a reasonable question, Nick will answer your dm, as will I. Thanks again, Nick.

Nick:
Yeah, thanks. Appreciate it.

Dave:
And thank you all so much for listening to this episode on the market. We’ll see you next time.