[Editor's Note: In today's post from WCI Network partner Passive Income, MD, Peter Kim refers to one of my favorite episodes of one of my favorite podcasts. I agree with Peter and Stewart Butterfield about the levels of wealth. Money can make you happier right up until the time you swap a chair lift for a helicopter. Beyond that, it's hard for me to imagine how money can bring you any more happiness.]
Recently, I listened to an especially interesting episode of my one of my favorite podcasts, How I Built This. In it, the host interviewed Stewart Butterfield, the founder of Slack.
If you’re not familiar with Slack, it’s a collaboration and communication tool used by some of the largest, most well-known companies in the world. In fact, I personally use it to communicate with the WCI Network and my team of business managers and virtual assistants at Passive Income MD and Curbside Real Estate.
It’s also one of the fastest growing companies in history. Founded in 2013, it saw phenomenal growth and now has a valuation of over $7 billion. Not too shabby. In the podcast interview, Butterfield recounts a fantastically inspirational story of failure, pivoting, endurance, and success. It’s very motivating, but it’s not the reason I bring it up.
The real reason I was fascinated by the interview was that at the end of it, the host, Guy Raz, asked Butterfield one question about his newfound wealth. “Does that eliminate stress in your life?” Raz asks. “Does that mean that everything is set, everything is taken care of?”
Butterfield’s response was fascinating, and I had to play it back several times to get the full effect. He said that he believes there are three levels of wealth in the world, and knowing where you’re at depends on how you think.
Butterfield’s Three Levels of Wealth
Here are his three different levels, which are really three different mindsets relating to finances:
- I’m not stressed out about debt – meaning people no longer worry about their credit card bills or student loans.
- I don’t care what stuff costs in restaurants – meaning it doesn’t matter how much you spend on a meal.
- I don’t care what a vacation costs – the “ultimate level,” meaning you don’t care how expensive a hotel is or which flight you take.
Beyond the ultimate level, Butterfield said that additional wealth doesn’t really matter or make any other impact in his life. In fact, he says he aims to give almost all of it away, because he doesn’t think he’ll get additional happiness from spending it, and there’s a lot of suffering and inequality in the world.
These are powerful words. Not only that, but it’s so refreshing to hear someone distill the vast complexities of wealth and finance down to such simple terms.
Here I was thinking of wealth in terms of a specific number or a huge landmark, like reaching financial freedom from medicine. Of course, that’s important, but when you think about it, what really matters about wealth is how it impacts the smaller things in your daily life.
Sometime after hearing the interview, it occurred to me that, in fact, there may be more than just the three levels Butterfield mentioned. But before I continue, I think it’s important to sidestep here and mention some studies that Butterfield briefly referenced as well.
Happiness, Wealth, and Income
The first study is titled “Happiness, income satiation and turning points around the world.”The study is a large analysis published in the journal Nature Human Behavior. They used data from the Gallup world poll which aggregated answers from 1.7 million people from over 150 countries.
The study found that the ideal income for individuals is $95,000 a year to achieve life satisfaction and between $60,000-$75,000 a year for emotional well-being. Of course families with children would require more, but that didn’t factor into this particular study.
This and other studies in the past have shown that income above these amounts does not improve one’s life any further (i.e. make you happier). The problem with more money, in this situation, is that people simply tend to hop on the hedonic treadmill, spend more, and only cause more issues. As a wise man once said, “mo money, mo problems.”
Another study, a survey conducted by Charles Schwab, asked 1,000 Americans from age 21 to 75 what level of personal net worth would make them feel “financially comfortable.” The answer was an average figure of around $1.4 million. If they had $2.4 million, they would consider themselves wealthy, and ultimately comfort = happiness.
It would seem that there is a strong correlation between wealth or income and (perceived, at least) happiness. Personally, I believe that the exact number depends on where you live.
For example, in northern California, you’re considered low income in some areas if you make below $117,400, whereas, in other parts of the country, you would be living like royalty for that amount. That’s part of the concept beyond geographic arbitrage that my friend Physician on Fire loves to talk about. In short, it does matter where you live and how much you have when you’re there.
Five Levels of Wealth
So, instead of a distinct monetary amount, it’s nice to think of it in terms of real life situations we can relate to. This takes into account the cost of living and really what your lifestyle is like.
Using these ideas as a framework, I’ll explain my version of the different levels of wealth adapted from Butterfield.
1. I’m not stressed about having a roof over my head or a basic meal.
Nothing in life matters if you don’t have these basic human needs. At this point, it’s all about survival. There are plenty who are below this line and unfortunately, it’s a problem to which our society hasn’t found a solution. However, it’s safe to say that physicians don’t have to worry about this.
2. I’m not stressed about debt.
As high-income professionals who have been through many years of education to get where we’re at, we’re no strangers to debt. According to the Association of American Medical Colleges (AAMC), as of 2017, the average medical student averaged $179,000 in debt. No doubt it’s higher today.
In fact, we took a recent poll in our Facebook group, Passive Income Docs, and almost 25% of physicians in the group had more than $250,000 in debt.
That’s a mountain of debt to work your way out of when starting. Yes, it helps to refinance their student loans, and as the White Coat Investor always preaches, most should focus on getting rid of that debt within the first 5 years. That way they will be able to climb out of this level onto the next.
3. I don’t care what stuff costs in restaurants.
Do you base your restaurant choice on what food you feel like eating or is it based on a budget constraint? And once you’re there, does the price next to the item dictate what you order?
I completely understand this level because my wife and I are somewhat foodies. After having children, we can barely make it out past 10 pm without being tired, so going out and having a nice dinner either by ourselves or with friends is a valued treat.
So we choose where we go based on the restaurant or what we feel like eating, not so much what it costs. And when we go, we try to eat their signature and popular dishes. We pay for the experience, and it’s worth it for us. This doesn’t mean we’re eating fancy every night, because we all know that the price of the food doesn’t always correlate with how good the food is or how many Michelin stars it has.
Reaching this level doesn’t mean going out and spending hundreds a week eating out, but when you’ve reached the point where the cost of your meal doesn’t factor into your decision to eat it, you can move to the next level.
4. I don’t care what a vacation costs.
I don’t think this means you’re obligated to stay at the nicest hotels and always fly first class. It’s just that you can do whatever you want, depending on the experience you’re looking for. All of this comes down to choice.
If we’re traveling with children, we’re looking for the hotel with the best amenities for children. If you’re traveling to Europe, you may want to eat at places that provide an authentic experience. When you’re able to choose places because of the experiences they’ll provide, rather than the expense, you know you’re here.
Of course, let’s face it, if you had the choice to fly first or business and money wasn’t an object, you’d do it every time. I’m not there personally, but I realize it’s all in the experience you want.
5. I am giving away a majority of my wealth over my lifetime.
In his interview, Butterfield talked about the previous level as the ultimate level. But I believe that this is truly the ultimate level.
I was blown away when I first heard about the Giving Pledge. According to their site, “The Giving Pledge is a commitment by the world’s wealthiest individuals and families to dedicate the majority of their wealth to giving back.”
It was started by none other than Warren Buffett and the pair Bill and Melinda Gates. It includes pledges by notables such as Mark Zuckerberg, Michael Bloomberg, Richard Branson, and George Lucas.
Giving is a great thing, but let’s be honest, it’s not always easy. That’s why I’m so inspired and motivated by movements like the Giving Pledge. If you can, take a look through the site. I hope it motivates you as well. It’s something that everyone can integrate in a small way at every level along the way.
I may never qualify as someone who never worries what a vacation costs or honestly feel financially comfortable enough to give most of my wealth away. But why not aspire to it? All I know is that I’m taking my own journey one passive income venture at a time.
Where are you on these levels of wealth and do you see yourself reaching the top level? Comment below!
Reading #3 hit home for me a bit. I grew up in one of those areas where the $80-100k my dad made was just barely enough for #1, not enough for #2, and I remember the glares I would get if I ordered steak/seafood when we went out. 20 years later I still *don’t* order them usually because dining cheap is so ingrained in me. In some ways I actually stress more about dining than vacations (we never had vacations growing up). We are a family of 7 so everyone going on a vacation gets pricey fast, but when it’s just me and my wife going we do what works for us and don’t worry.
It’s getting better though…I don’t cringe quite as much at $90 restaurant bills for said family of 7. It takes triple digits to get me inwardly crabby, first at the amount then second at how stupid it is to be stressing over anything costing less than an hour’s wage.
I actually vacation cheaper with the kids than with my wife for a different reason–I don’t want them to think this is normal. I guess that’s why I camp with the kids and heliski and stay at the Ritz with my wife.
I appreciate that you included #1 on your list of five, however I would argue that having to worry about a roof over your head or a basic meal, is not actually a quality of “wealth”. That’s probably why Butterfield skipped straight “not being concerned about debt”
‘I WOULD ARGUE THAT HAVING TO WORRY ABOUT A ROOF over your head or a basic meal, IS NOT actually a quality of “wealth”.’
Yes, what you actually typed is true. Having to worry about a roof over your head or a basic meal is certainly not a quality of wealth. At that point, you’re at the base level of the human condition, which is devoid of any wealth.
I presume what you meant is that you would argue that NOT having to worry about a roof over your head is not a quality of wealth, disputing the above level of wealth #1.
You can argue all you want, but you’ll still be wrong. If you have worry free shelter and food, you’re certainly more wealthy than someone who doesn’t.
I think you misunderstood. The measure is NOT having to worry about a roof over your head or a basic meal. That’s level one.
“You can argue all you want, but you’ll still be wrong.”
Looks like you’re the one that was wrong.
Interesting take on wealth, and I’ll admit I missed this one the first time around on PIMD, so I appreciate the posting here.
For the most part, I agree with the premise, but I would change the phrasing. I feel like I’m at the point where it doesn’t really matter what meals or vacations cost, but I don’t think I’ll ever stop caring. The care is a big part of what made me wealthy, and I’m not sure there’s a dollar figure that would make me blind to the cost of things.
So I’d change “I don’t care” to “It doesn’t really matter.” And as of August this year, when I leave my doctor job, I’ll giving away half of what I earn online, so I feel like I’m approaching #5. Happy to be in this position.
Best,
-PoF
Great point, and I agree.
If you are born in to wealth and were spoiled, the value of money is significantly different than someone like me that started out in dentistry with a negative net worth. I worry about every penny and do not trust anyone to manage it.
I am long retired, but I easily relate to KFM. I was raised to be very frugal, and that has stuck. I can easily afford not to care about what restaurants or vacations cost, but I always will. Yes, that is irrational, to a point, but there is some rationale. That brings me to your point 5; which can apply more modestly than the Gates/Buffett way.
You can’t take it with you, but you can still come up with a giving plan that somewhat rationalizes frugality. My plan is to make gifts to kids, fund college education+ for 6 grandkids, and to make charitable gifts where it will do the most good. I have a detailed spreadsheet that computes the amount I can spend each year for the rest of my life. I arrange to spend that amount each year; my annual gifting spend now exceeds my personal spend.
Personally the price of everything is always relevant to me, it comes down to the value you get for spending money. I have a different middle stage, that is you have no worries about ever running out of money no matter what might happen. I know an elderly female who gave a lot of money to her family and now might be out of money before being out of life. Very interesting post as most are.
I’m not sure I agree that ignoring prices in restaurants is a level of wealth. I used to work for a billionaire, a nice man who was on Forbes 200 richest American’s list so I’m not exaggerating his wealth. He traveled by private jet and had a multimillion dollar yacht and a glorious vacation compound on a private island. But he loved to eat at Golden Corral, an ultra cheap, all you can eat kind of place. He loved a “deal” and everything he bought he bought at rock bottom dollar or he did not buy it, including the yacht and the jet. He was wealthy and lived well but he also appreciated value for what he spent. I’m not a billionaire but I’m wealthy by most objective standards yet I drive a $7,000 car and the last two pairs of jeans I bought cost under ten dollars each. The thrill of getting that deal on a really nice car and great fitting jeans was worth way more to me than the thrill of driving a Ferrari which I could easily afford or $200 jeans that would look pretty much the same on me. If train yourself to get value your entire life then it is unlikely you’ll stop doing it just because you’ve got more money than you could ever spend. At least that seems to be how it works for me.
I appreciate how you’ve segmented this out, but I personally have to add one more in based on my lifestyle. I would add in a point prior to your point 5 that says “I’m not worried about the cost of my kid’s education.” Actually, perhaps this should go before #4. I don’t worry about debt, and I don’t worry at all about what restaurants cost, but I am focused on trying to save enough to keep my kids off of the debt treadmill if I can. So, I would probably think about solving for that before giving away wealth. Now, if I have that solved, the charity would indeed be my end category.
I appreciate the sentiment of this post but it seems to me that the message does not differentiate wealth and income appropriately. One can get all the way to level 4 on income alone, which is clearly not the right take-away. Now, if you changed the premise to the ability to do 1-4 on passive income, then perhaps it would be wealth. Normally I would not bother to call attention to the distinction, but in this case it appears to be meaningful in order to avoid the appearance of endorsing the big hat, no cattle lifestyle.
On a separate note, Step 5 probably does represent a level of wealth, but I’m not sure that is how I would define the top tier. In fairness, I wouldn’t give away the majority of my wealth during my lifetime even if I agreed with the premise of the hierarchy presented here.
Another key issue is giving money to charity wisely. I’ll never forget what Reed Hastings, founder of Netflix, said some years ago. “Writing the check is easy. Knowing who to write the check to is hard.”
You forgot number 4.5….When I can afford to fly NetJets instead of commercial. Because that is actually what I want. I hate flying commercial. Even in first class it is not a good experience. Private Charter….every single flight….now that is truly next level. It’s like going to Alinea in Chicago and not caring that you just dropped $800 on a meal for 2. The experience is next level. As I write this it sounds ridiculous in knowing how many people are int he world praying for their next meal. Still, since we are discussing wealth levels, I would say that is the highest level. Private Charter Flying all the time.
My first year out of college I was flying in our company’s private jet and the other people on the trip had canceled at the last minute so it was just me. Here I was, 23 years old in a private jet with two pilots who both made more than I did. As I was serving myself a drink from the onboard wet bar on the trip home, it was the most surreal experience, next level, and then some!
I dunno, I don’t think First Class is worth paying 4X. I can’t imagine buying a private jet and paying 100X.
I’m not saying paying for private charter is “worth it”. Just saying that if I ever get rich enough to not care about spending 100x for a private charter, it will be enough to retire early ;). Also that is a level of wealth that doesn’t appear to be on your list, and it fits somewhere between 4 and 5.
“Beyond the ultimate level (not caring what a vacation costs), Butterfield said that additional wealth doesn’t really matter or make any other impact in his life. In fact, he says he aims to give almost all of it away, because he doesn’t think he’ll get additional happiness from spending it, and there’s a lot of suffering and inequality in the world.”
WCI and Butterfield agree that the next level, beyond vacation costs, is giving it away. ND says, “the highest level (4.5) Private Charter Flying all the time” comes before giving it away. Quite a gap.
Beyond covering the basic necessities of life money can represent freedom, security, power, or luxury.
Most of us in this community seek freedom. For my immigrant patent, money will always mean security. They always want to hoard more. Even when they have more than what a rational person would deem adequate, they will continue to save and hoard, because that feeling of insecurity was so deeply rooted.
For some wealthy individuals money represent power. They will throw money around to control people, environment. Even their charitable contributions is done with the agenda to influence. Many wealthy individuals donate to schools trying to influence the direction of research and education.
For some money represent luxury. Not in the hedonic treadmill sense. Some people especially girls just like beautiful, luxurious stuff. Diamonds, pretty vacation villas, fancy shoo. Many do it to show off, there are some that just intrinsically like nice, shiny, well made objects, beautiful spas, fancy cars.
This paradigm does not contradict your post, but it does affect how wealthy someone has to be before reaching each of your levels.
A power hungry billionaire will still put all his resources to influence others, but maybe when he has 100 billion dollars he will feel he has enough to give to charity without agenda.
Same with many Asian, Hong Kong billionaires. The society places so much of your self worth on how much money you have, you can be a billionaires and still feel like you don’t have enough, and have no interest in charitable giving.
“Personally, I believe that the exact number depends on where you live.”
Lots of articles came out after the 2010 Kahneman paper was published that gave us the 75k number that is frequently quoted (based off 2009 data, btw) that attempted to adjust for cost of living. Adjusting that number for cost of living isn’t a personal or new idea.
Interesting that charitable giving comes after fancy meals and expensive vacations. Those indulgences are not on the list of things I do, or seek to do, with my money.
Fascinating that charitable giving is framed as while alive. This seems to be more about the ego boost for the giver than the goals of the charity. Same for pledging while alive to give away nearly all one’s money at sometime in the future. This let’s the giver bask in the praise and glory that pledge generates while accomplishing nothing that would not be done had they made the same resolution and gifts but not announced them.
I would put healthy food, clean water and safe and healthy living conditions for my family as number one.
I would ignore the restaurants and trips. I will never ignore the cost of something I buy. I don’t willingly waste money and ignoring the cost to value relationship assures lots of money being wasted.
The next step beyond my number one would be ensuring to the extent I can that these security and safety needs are provided for family into the reasonably forseeable future. The lifetimes of my children, for example.
After that comes making an impact beyond the family, which includes charity. I would never announce and seek priase for making charitable gifts. It is not a religious thing. It is just that I would not be doing it for recognition. It is not about me. So no point in trying to show the world what a wonderful person I am.
I wonder whether why the very wealthy who have made that pledge did so. Some, I suspect, are trying to take the heat off of their businesses. Some just love glory. Being a billionaire brings them fame as it is. Donning the vestments of sainthood brings in yet more. Some, no doubt, are lying and their real bequests will become known after they die. Some do it to reinforce the illusion that they are rich. Apparently, there are people who scheme to be named in the Forbes list of the wealthiest when there true networth is far too small to qualify.
I like the article & idea. The issue getting teased out in the comments is that everyone’s “wealth blueprint” looks different . An individual’s money as it accumulates & impacts daily decisions & feelings is most important IMO. Therefore it can never be a specific dollar amount or any one transaction type – shelter, restaurants, travel levels & hotel stars, etc. so I propose evaluating the areas related to money that give you stress or anxiety & calculate how much $ it’ll take to alleviate it.
If there’s no amount of financial security or dollars that moves the emotional needle from “scarcity” to “abundance” consider updating your blueprint! A billion dollars cannot overcome a scarcity mindset.
Regardless of why high net worth individuals sign & execute the giving pledge, it’s worthwhile to direct the conversation of sharing resources. Without getting political, I’d rather those sharing their $ help design the giving & it’s impact while alive as I think it’ll get done more effectively & efficiently than by elected officials incentivized to retain power & get reelected. Besides, regardless of when they give it or what accolades may come, no one is taking anything with them.