Where Do You Fall in the Five Stages of Wealth?

I use these five stages of wealth as a personal check-in tool. Climbing from one stage to the next takes a lot of effort, but if you're not careful, falling back can happen quickly! This isn’t a step-by-step guide, but it can help you figure out where you are right now and what might be next for you

The Surplus: Spending Less Than You Make

This is your first step toward financial security, and if you stick with it for life, you'll gradually build up a sizable nest egg. However, there’s a catch: sometimes, you'll need access to a large sum of money right away. Depending on your current savings, you might not always be prepared for these moments. To handle these occasional but inevitable needs, aim to move up to the next stage of wealth!

Cash Rich: Savings > Annual Salary

Getting to this stage likely took a lot of hard work—congratulations on making it! You’re now well-prepared for most of life's challenges and enjoying a comfortable position. But what’s next? If you're aiming to grow your wealth, it’s time to make sure you’ve covered all your essentials. Check that your insurances, PPF investments, and other basics are in place. Once that’s sorted, you can start investing in options like mutual funds, stocks, and more to boost your money faster than inflation can erode it. By now, you probably have some of your savings invested, but it's time to step up your game! This doesn’t mean you should drain your liquid assets. Think of your current savings as your safety net, and focus on ramping up your investments without touching that crucial buffer.

Comfortable: Stable Investments > Annual Salary

At this stage, you’ve achieved two key milestones: you’ve got a year’s worth of savings as a safety net, and your investments are now nearly as substantial as your savings. Half of your wealth is securely parked, while the other half is growing faster than inflation. You’re starting to make your money work for you! The next big challenge is managing your time. Right now, you’re working hard and earning well, but it’s taking a toll on your time. The next goal is to earn more while working less. Aim to grow your investments to the point where you can live off the returns.

Own Your Time: Passive Returns > Annual Salary

Welcome to the 1% club! You’re now in a position where you can enjoy life while your income remains secure. Almost everything you earn goes into either investments or enjoying the finer things. Your money is fully working for you, and as time goes on, you’ll naturally reach the fifth stage. For now, kick back, relax, and don't do anything stupid!

Super Rich: Buy Nice Things

At this stage, you’ve reached a point where you have more than you ever dreamed of. Your essentials are covered, your income is secure, and you likely have everything you want! It’s time to indulge a bit—treat yourself to the things you’ve been eyeing, visit those dream destinations, and spend as you please. Just a heads-up: this is a risky phase. Lifestyle inflation can quickly eat away at your wealth if you're not careful. Stay mindful, and you’ll continue to thrive!