There are many levels of wealth and often they are thought of in terms of dollars, but perhaps they are better thought of in terms of mindset.
Ultimately, the focus of one's mind is different at each level of wealth accumulation or lack thereof. The dollars and cents may not matter as much as how one is strategically positioned or networked and how their focus is directed. Here are some basic parameters for each level.
Level One - The Dole
The first level is mostly focused on what can be received through the welfare of others. Whether it is the government and taxpayers, a charity, friends and family or any combination of these. There is not much thought of earning income and often it is penalized anyway so there is not much incentive either. Net worth usually remains near zero in this level. In order to move to the next level a major shift in mindset will need to be achieved where the inidividual can believe that they can work for a living and even weather the initial negative penalties to get to the next level. This is often a very hard shift and usually only a few with the original character to attempt this change will be able to move ahead.
Level Two - The Worker
The second level is the worker and they often work very hard. Perhaps even two or three jobs just meet the bills. They are commonly "paycheck to paycheck" and will need to check the bank account often to see whether or not to pay a bill on time or save it until more money comes in to the account. Sometimes credit cards are used and often carry a balance with high interest rates that will continually keep a lid on any temporary savings. Many extras get neglected or passed by since there often is not enough money to handle them including health related or general home or car maintenance. If any big bills come in they will be difficult to handle and may require payroll advances or loans. They often even opt out of benefits from normal savings such as 401k with company matches. Net worth usually remains near zero in this level as savings are very hard to build. To get to the next level requires some technical budgeting and a mindset shift to start thinking about savings and how to get a budget that will allow for a percentage of unknowns and still provide a positive monthly cash flow. Initially this can seem difficult but it often does not require as much of change in standard of living as one might think. Focus on those costs that are the highest and alleviate those first. These may require some hard or even drastic choices such as living in another house that can cut payments down. Finding a vehicle that can be paid for in cash or with low payments to avoid high interest rates. Insurance and many of the other known monthly high percentage consumers of the budget will need to be the focus of cost cutting. Income generation is also good but at this level the main objective is cost management and allocating those gains to savings first before other desired expeneses. This will lead to the next level of savings.
Level Three - The Saver
The third level is no longer a "paycheck to paycheck" worker. They still work but do not need to check the bank account to see if there is enough money to cover the bills. The monthly budget is set up to provide a solid positive monthly cashflow and continues to accelerate as income goes up gradually. Net worth usually remains low but has a slow steady increase. 401k plans are utilized and even matched. Additional savings vehicles may be used such as IRAs, Roth IRAs, Roth 401k, 403b, etc. The individual believes in saving money but often does not think of enhancing its potential or elevating investment resources. The next level requires a mindset change that initially will challenge the risk tolerance of the individual. Ironically, the greater risk is not pursuing a higher invesment potential because a saver is subject to the hidden taxes to their wealth just as everyone else is including inflation, devalution of currency and many of the other invisible taxes to stored wealth. If a conservative saver is increasing networth by 3% per year and inflation and other taxes are silently consuming at an average rate of 4% per year, the saver is not actually saving anything but just holding steady.
Level Four - The Middle Class
The fourth level is usually associated with higher income earners in the standard definition of middle class. They have a decent amount of income which affords an healthy positive cash flow per month and they are able to spend disposable income on their desires. Net worth is moderate and can even be high in some cases but fluctuates and can often swing heavily on market events. Level four income earners do save and will even dabble in attempts to increase investment potentials on their money by buying stocks, mutual funds, real estate and other investment vehicles. There can be speculation and this can lead to higher risk investments and usually due a belief that they can be recovered from in time with a high income earning occupation. Sometimes individuals will even hire financial advisors that will take up to 2% of their wealth with no added benefit other than to provide emotional counselling when a financial matter comes up or markets swing. In order to move to the next level, the mindset change will need to focus on capital preservation by fully maximizing the potential of saved money, lowering risk and adhering to the original lessons of the lower levels which involved smart budgeting. The higher income occupation may not always be around of may not always be of interest especially in later years. It would be nice to have passive investments with high returns and lower risk eventually. This will require discipline to maximize invesments even though it seems like there is a lot of money to work with.
Level Five - The Investor
The fifth level is the savvy investor. The previous two levels are also investors as they are using many of the same investment vehicles, however the fifth level is highly maximizing them for capital preservation, growth and high yields with lower risk. Net worth usually remains high to very high and grows quickly often with double digit percentage gains per year. The majority of all assets are providing yields consistently. Very little money sits on the sidelines as it is quickly put to work. The mindset is not as much on consumption as the previous level. Advanced strategies include combinations with business and starting businesses or partnerships that can be used to provide goods and services while allowing significant tax deductions to maintain capital. Other people's money is often used at this level for leverage, however it is usually limited to personally guaranteed loans or partner capital. Some networked capital may be available. The transition to the next level will require a mindset that taps in to this much larger network with strong alliances to potential big money capital or power sources.
Level Six - The Dealer
The sixth level is the dealer. It could also be considered the highly networked individual who has already acheived a great deal of wealth or posiition of power. This can vary greatly and perhaps there is even a level beyond this including politicians and other highly influential people who pull the strings. Net worth usually is very high and sometimes extreme. Money is easy to come by and the mindset is changed to a networked mind where they no longer have to make it on a technical mindset such as the previous levels. Deals can be be made to provide great sums of money or residual income for ages with accelerated growth. Even technical minds here can excel using yield spreads where they in control of a great sum of other people's money. Some examples include bankers that make 4% to 6% on hundred of millions of dollars that is not even their own money. In fact, it can be money generated from government computers or the federal reserve.
