Like it or not, the wealth ladder phenomenon affects everyone, and we cannot change that. What we can change, however, is our place on the ladder. In other words, people can choose to climb the ladder or stay where they are. Most would say that they are content with the way life is. Although, that statement is often followed by a wish or desire that has not been fulfilled. Many say that if they could have that one small thing they want, life would be better.
If you want to figure out how our unavoidable financial ladder operates and how you can benefit from it, read on. We will try to point out the ideas behind the different levels of wealth and how they affect you. But most importantly, you will become more aware of your goals and which level of wealth they are locked behind. So, where to start?
Step 1: Analyze
Initially, the analysis depends on one factor – your place of living. At its core, you are dealing with a wealth ladder. Every country has its economy, which means that you will have to be aware of your country’s economy before you begin your journey. Let us take a look at the statistics to show you why this step is so important. According to Inshorts’ Krishna Veera Vanamali, the differences can be drastic.
For example, to become one of China’s top earners, you would need an annual income of $107,000. For the UK, you would need to earn $248,000 per year – more than double, compared to China. On the other hand, in India, you would need only $77,000, which is significantly less. In contrast, the UAE’s top earners can only be reached with an annual income of $900,000, while in Singapore, you would need $722,000. These differences in levels of wealth are more than enough to warrant careful planning when climbing the wealth ladder.
To put it simply, you will have to become more knowledgeable when it comes to the economy.
Step 2: Learn
Why does knowledge matter so much regarding the wealth ladder? Well, take the US, for example. According to a study by SmartAsset, your specific place of living will initially affect you more than anything else. The four highest top 1% by income happen to be Connecticut, Massachusetts, New York, and New Jersey. In all four of these states, you would need to earn more than $750,000 to reach the 1%.
On the other hand, the four lowest top 1% by income are West Virginia, Mississippi, New Mexico, and Arkansas. In these four places, earning over $350.000 would guarantee your place among the 1%. These states serve as examples of why you will have to read up on the local economy to understand the wealth scale.
But by no means should you stop there. In order to learn, you must be realistic when it comes to how much you know about the different levels of wealth. Similar to how a rock climber must read and understand their route to improve, you will have to learn to read your economic environment to climb your wealth ladder. If you are willing to improve your position, start by filling the gaps. Ask yourself whether there are any economy-related concepts you are unsure of, and start from there.
Step 3: Evaluate
Only a handful of people globally on the highest wealth level can say they are entirely debt-free. By now, you are probably thinking about whether this can be true, especially when not everyone is in debt. Well, that ties in with how you look at debt and the many levels of rich you can be at.
People generally believe that you are free of debt when you have no credit card debt or student loans you need to pay off. That is not to say that paying off student loans and credit card debt are small achievements. For anyone currently in debt, getting rid of it should be towards the top of their list of priorities. The problem is that once most people pay off their debt, they think they are free.
What follows is a different kind of debt. Although you have paid off your student loans and credit card debt, you are still not free of the wealth scale. You are no longer living paycheck-to-paycheck, but you are still not free from grocery and restaurant expenses. In a way, you are now faced with a debt that you are paying off whenever you go grocery shopping or decide to dine in a restaurant.
As long as these two noticeably impact your finances, you are not free of debt. Yet, managing these expenses, as well as your finances, will help you climb the wealth ladder.
The last kind of debt is the one you will start to feel along the upper levels of wealth. It is no secret that there are different levels of rich, but these levels are also constrained by a notion known as freedom of spending. The next type of debt is connected to your ability to spend on travel, housing, and even philanthropy.
Most of those who have climbed the wealth ladder still cannot travel whenever they want and however they want. And even less can afford the home of their dreams. Although this is not the type of debt that can ruin your life, it will affect your quality of life.
Not all debt is equal, and as a result, it does not impact everyone equally. All that is left to discuss is how to climb the wealth ladder efficiently.
Step 4: Climb
To climb, you must first do two things – maximize your income and minimize your spending.
Regardless of whether your next goal is to travel freely, stop worrying about groceries, or buy your dream house, you will have to spend more carefully. The sooner you analyze your spending habits and focus on additional income streams, such as passive income, the sooner you will reach your goal.
Nevertheless, passive income is not the end-all and be-all of additional revenue. Investment and wealth creation go hand in hand, especially for those on the higher wealth level. Even when lower on the wealth ladder, investing is always an option. You might not be able to invest as much as a person whose next goal is buying a dream house, but you can still invest relatively well within the different levels of wealth. As your portfolio improves, you will be able to invest more and will inevitably start climbing.
So, what should you do first? It all depends on where you are in life, and by extension, the wealth ladder. If you are on a lower wealth ladder, it is worth analyzing your economic environment and learning more about financial management. You could also start with a solid plan on how to minimize and eliminate your debt.
As you start to climb the financial ladder, you should start thinking about investing and creating more wealth. You may have reached a level where you cannot climb any further without other sources of income.
The more you climb, the harder it gets. Although the brackets become smaller, you will have to take greater steps to reach the next level. It will undoubtedly require commitment and dedication, and only you can judge whether the climb is worth it. But one question remains – why not try?