What stage are you at (on th e path to wealth)

[sv2007]

I recently read a personal finance book:
The Complete Idiot's Guide to Getting Rich, 3rd ed by Stewart H. Welch III

In the book he mentioned the different stages a person goes thru on the way to becoming rich (the final stage). It is an interesting book; I've never thought of it like that before (well, I've never read any personal finance books until just recently).

[sv2007]

A little more details on each poll option:

stage 1: is someone who's just starting out on the journey of savings and wealth building.

This person must first eliminate "bad" debt, e.g. debt incurred on depreciating assets like cars, boats, and jewelry (due to our recent diamond ring thread, is included too because of the incredible mark up).

Once that's done, this person can start on her savings goal. The goal is based on the amount of money the person needs to support her lifestyle at retirement. The book counts retirement account savings; and I disagree (I'm more conservative and only count taxable savings.)

stage 2: is someone who's been saving for a while and now her investments generate an equal amount of new wealth to her target savings. I.e. Instead of increasing her annual investment by 1x target savings; that's now increasing by 2x.

This is a critical time because compounding and the investment is beginning to take over as the main producer of new wealth.

The investments counted by the author seems to be everything but the house and other hard assets. I disagree, I believe that is should only be your taxable investable assets (don't think about your retiremetn accounts).

stage 3: is what the author calls financia independence where your job becomes optional.

Here, after a few years of reaching stage 2, your investments generate enough new income to allow you to life your lifestyle. However, because the new income is used to support your lifesylte, nothing new is being invested, so your wealth is stagnant.

stage 4: is what the author terms wealthy. This is like stage 3, except your investments generate income 2x your lifestyle spending. Here, new money is added to your investments for it to grow. I.e. you are continuing to build wealth.

stage 5 is what the author terms rich. This is like stage 4 except investments generate 5x spend. This allows you to give generously to family, friends and charities.

[dawnwes]

We will need to work until retirement. I am ok with that. We aren't wealthy and that isn't our main goal in life.

[disneysteve]

We will need to work until retirement.

What does that mean exactly? Doesn't everyone work until retirement? That's what retirement is - when you no longer need to work.

We're certainly in stage 2. Most years (unless the market is down), our investments generate more than we actively save. It's been that way for years.

[phantom]

Stage 1 here and feeling incredibly far from Stage 2

Maybe I'm just bitter because I don't like being told that I'm not particularly far along. But, I don't like measures of progress that penalize recent increases in income. I've been out of school 12 years and my income has increased almost fourfold in that time, with a good part of that increase having come in the last 4 months. So, the amount of money I can save now totally dwarfs the earning power of the money I already have saved.

This scales seems particularly strange to me because I can imagine hitting Stage 3 (or even Stage 5) before Stage 2. All you need is a savings rate of over 50%. Assume someone earns X, saves 55% of X, and lives on 45% of X. It takes investments earning 55% of X to hit Stage 2. But, it only takes investments earning 45% of X to hit Stage 3.

[Joan.of.the.Arch]

Stage 3, but only because one of the biggest investments was a pension system, yet had that system not been there, the equivalent (or more for fear of instability not moderated by the input of many participants) would have been invested elsewhere.

[rennigade]

We're at stage 6: the stage where you no longer listen to these made up milestones that some author chose to create so they would have a reason to write a book.

[97guns]

not sure what stage im in but all my income after bills are paid is dispisable, i dont save any of it, goes out every month almost as fast as it comes in. at this point i dont need to grow wealth, im only looking to preserve it and enjoy life to the fullest

[disneysteve]

not sure what stage im in but all my income after bills are paid is dispisable, i dont save any of it, goes out every month almost as fast as it comes in. at this point i dont need to grow wealth, im only looking to preserve it and enjoy life to the fullest

Is there nothing you are saving for? Home repairs? New car? Travel?

[sv2007]

We're at stage 6: the stage where you no longer listen to these made up milestones that some author chose to create so they would have a reason to write a book.

Before reading personal finance books, I had no idea on the classifications and that there are even step-by-step instructions on how to get rich.

In hind sight, I learned it the hard way. I mean everybody knows the math but I just didn't think that way. And it is a good way to think, because when faced with a difficult target, it is nice to have smaller and meaningfully defined milestones to measure your progress.

[sv2007]

Stage 1 here and feeling incredibly far from Stage 2

Maybe I'm just bitter because I don't like being told that I'm not particularly far along. But, I don't like measures of progress that penalize recent increases in income. I've been out of school 12 years and my income has increased almost fourfold in that time, with a good part of that increase having come in the last 4 months. So, the amount of money I can save now totally dwarfs the earning power of the money I already have saved.

This scales seems particularly strange to me because I can imagine hitting Stage 3 (or even Stage 5) before Stage 2. All you need is a savings rate of over 50%. Assume someone earns X, saves 55% of X, and lives on 45% of X. It takes investments earning 55% of X to hit Stage 2. But, it only takes investments earning 45% of X to hit Stage 3.

It is certainly possible to skip stages; e.g. somebody getting an inheritance; or in your case a large jump in salary.

[97guns]

Is there nothing you are saving for? Home repairs? New car? Travel?

not really, 1 months income can cover most any traveling i would consider, if i do any saving its in the form of silver and gold. i am looking at a new car and sold 9k in silver last week in preparation for that

[sv2007]

not really, 1 months income can cover most any traveling i would consider, if i do any saving its in the form of silver and gold. i am looking at a new car and sold 9k in silver last week in preparation for that

If you don't mind, I'm curious, how are you holding those hard assets?

[97guns]

If you don't mind, I'm curious, how are you holding those hard assets?

burried with a treasure map, X marks the spot like the pirates did

[sv2007]

burried with a treasure map, X marks the spot like the pirates did

I had a brief discussion with a coworker who held a lot of hard assets distributed over the world. In my motorcycle forum, there were a few people heavily invested into gold/silver too and they mostly used bank deposit boxes (esp for silver, one of them mentioned that the bank associate almost killed her foot because it was so heavy). A few also just hold shares in mining companies ETF and claims to hold hard assets (which IMO isn't technically correct). So, whenever I meet people holding significant hard assets, I'm always curious.