A few years ago I decided to create a road map while I slowly climb my way up a financial pyramid, trying to acquire more wealth! I see such a climb as a struggle towards building wealth! A pyramid (based on Maslow’s Pyramid of Needs) seemed to be a great representation of such a wealth pursuing journey. In many ways, it helps me visualize the various levels and created milestones for me to watch for since I love feedback! So without further ado, here is my update on my progress climbing my “Personal Finance Pyramid“!
Asset Accumulation Phase
Yes! After spending too much time stuck at the “Action Plans For Wealth Development” phase, I can finally state that I’ve crossed the threshold and that I’m firmly in the “Asset Accumulation” level on my Financial Pyramid!
Why was I stuck at the “Action Plans For Wealth Development” for so long?
Originally, I expected to only spend a short time in the “Action Plans For Wealth Development” phase, but the “The Great Recession” took its toll on my planning and caused me to spin for a while, trying to decide what to do. Fortunately, my money was still swelling from the fact that we paid off the mortgage on our house early, and so I had a small pool of cash available for investing and purchasing other assets.
Upper Middle Class still at a Distance!
I had hoped to be closer to this level by now, but the economy and work haven’t worked out according to my plans. I could also make the excuse that my wife is a SAHM and even point out this article “Income Loss From My Wife Being a Stay at Home Mom” that makes a great case that we should have been millionaires by now, but really if I wanted it bad enough, I could have worked harder all along.
How Things Are Different on my climb up my “Personal Finance Pyramid”
Having a personal finance pyramid for the goals in combination with personal finance spreadsheets (homegrown), really helps me keep my eye on the ball. Another big thing that has changed is that I want to start having bigger and better experiences by traveling more often, especially overseas! And finally, a huge change is that I totally believe that it’s possible for me to get to some of those higher levels on my personal finance pyramid. You see, most people don’t even try, so just believing and continuing to work harder and smarter puts me at a huge advantage!
I decided to review my progress on the Wealth Pyramid (also called my Financial Pyramid) that I created below. You can also view the pyramid as levels, or even a journey down the sidewalk of success.
Back to me! So far, I’m still at the “Action Plans For Wealth Development” level! While I have some of the elements automated (401k, Life Insurance, etc), I’m still working on the non-retirement wealth accumulation part. I’ve been waiting for my tax return to be deposited in my checking account before I start this piece, but that has happened this past weekend. Now I need to focus on where to put that money. Hopefully, I’ll blog about my decision by the end of the month.
Once I get the “Action Plans” level running, it will be a short jump to the “Asset Accumulation” phase, where unfortunately, I’ll be stuck at this level for at least a few years. Now that my house is paid off and I’m totally debt free, I’ll have extra money for Asset Accumulation!
I don’t expect to get to the Financial Independence level for at least 10 years, and that’s if everything goes well.
Realistically, I don’t even expect to get to the top two levels (Gates and Wealthy), but the picture wouldn’t be complete without them, so I added them just to be whole.
For a better analysis of each level, check out my original post which explains each level in greater detail… Click “here on My Financial Pyramid“.
Now on to my “Wealth Strategy Pyramid”!
I like to think of things from different angles, it helps me get a more three-dimensional feel for abstract thoughts.
Just for fun, I thought I’d create my interpretation of a hierarchical “Financial Pyramid” (modeled after Maslow’s Hierarchy of needs).
Financial Pyramid Level Details (Top Down analysis):
Uber-RICH Warren Buffet, Bill Gates, and similar people dwell here! I don’t know what it would be like to have a Net Worth greater than the GDP (Gross Domestic Product) of entire countries, but these people do… This is (for the most part) a practically impossible level for the vast majority of us to obtain.
Wealthy I would define this level in my financial pyramid model as those (in current 2010 dollars) having at least $20,000,000 million and above (if you live in a city like New York, perhaps $100,000,000 would be a better entry-level marker for you…). Another hard level to conquer… You would need the perfect combination to obtain and stay at this level (such as considerable luck, personal drive, income, investment mix would have to be perfect).
Rich Depends where you live, but you would need at least enough money to travel overseas whenever you wanted (up to 4 time a year), without decreasing your net worth. I would define this group as people having at least $5,000,000 in financial assets. If you had the money invested in an investment that would yield 4%, that would provide you $200,000 in income per year… The key idea here would be that the passive income (interest/dividends) generated off of your financial assets would earn you enough income to be above the top 2% of similarly worked for (earned) income by the non-rich.
Financial Independence This is the break even point, this is where your investment and other passive income(s) earn you enough to cover your current life style expenses and inflation. You’ll still want to contribute money to increasing your wealth though. After all, recessions and inflation happens!!!
Upper Middle Class Interesting level, many people can make it to this level by improving themselves and increasing the amount of money they have via investments, hard work, being frugal and continuous learning. I personally don’t believe that getting a degree like an MBA is the magic ticket for inclusion in the Upper middle class (although it certainly can help!). I think to be a part of this level, you’d have to either have a net worth of $1,000,000 or at least manage that much at a personal level. Upper middle class is more than money though. This is the level where IMHO, you should have developed some traditional sense of class, and people should ask you for your opinion on matters. So respect or prestige (at least a little) comes into play.
Asset Accumulation This is the strategic years, where you have already implemented or are following your plans developed in the lower level. Time (hopefully) is your greatest ally. Keep doing what you are doing and hopefully Lady Luck will also join your team and become an ally as well.
Action Plans for Wealth Development At this stage, you have to think and really hustle to get ahead. At this stage you have most of your core needs managed, and you are now trying to build your wealth for the future. I almost called this the Battle Plans level, because you must develop strategies to conquer future expenses (kid’s college, kids cars, kids braces, retirement, car replacements, home repairs, increased life style, better vacation, etc). At this level you must start the plans for these future financial concerns. Even if they seem impossible to beat, at least start the process… If you don’t, then the saying (by my #1 financial hero Benjamin Franklin) “By failing to prepare, you are preparing to fail” will happen!!! These are the hustle years, think and move quickly and wisely!!!
Money Control Basics You have money to cover your shelter needs: Housing, real estate taxes, Utility costs and so forth… This can be a monkey on your back that is slowing you down. Personally, I started the Action Plans level above while still working on this level too. By doing so, it took me a little bit over 10 years to conquer this level, but I think the way that I did it worked out well in my case. Most people just make their mortgage payment as planned out by the banks, and that is fine. The key is to have money (from some source) to cover this basic need. Ideally, you want to have this paid off or have invested assets that can cover the mortgage payments in case you get laid off or something else happens…
Financial Survival Strategy This is the most simple level, you need to have some way of getting food and clothes! The preferred way is saving up your money so that if something horrible happens you can use that money to buy cheap foods and clothes for survival. Of course, if you are really at this level you could get food stamps, or try growing your own food. Having an Emergency Fund of some sort would go a long way to covering this level. Perhaps $20,000? I cheated this level, I had money but it was in investments. This was risky, but I was young and the economy was strong… If I were a college graduate today, I’d most likely consider a high yield saving account or government bonds for my emergency needs.
If you haven’t noticed in my previous posts, I like to measure things and create milestones and other markers to help me judge where I’m currently at on my financial goals. Such tools help me define my financial progress and enables me see things that I might miss if I didn’t use them. So that said (or written), I’m currently at the phase called “Action Plans for Wealth Development“. I’ve been in it for a while and I expect to be in it for quite a while actually.
If you have other tools to help you in your progress, please share them too, such tools can really help others…
