We’re fascinated by the net worth of ultra-HNIs like celebrities, business tycoons, politicians, and sports heroes. But even for the “aam aadmi,” knowing our own net worth can be very useful for us. Do you want to assess your personal financial balance sheet? And use that to decide future spending?
If you won 10,000/- in a lottery, would that change your life? What if you won 20 lakhs? How about 5 crores? Your answer is based on your age, family situation, and your current net worth. More importantly though, how your spending and investing patterns will change after a lottery win of this value says a lot about your present economic status.
Let’s explore 6 levels of wealth:
Level 1. Salary to Salary: It’s the third week of the month and you run out of cash.
Level 2. Grocery freedom: Grocery prices don’t impact your finances.
Level 3. Eating out freedom: When eating out, you don’t use the menu prices to decide what to eat.
Level 4. Holiday freedom: You fly first class, stay in five-star hotels, and travel as often as you want.
Level 5. Property freedom: You can afford your dream home.
Level 6. Charity freedom: You can donate enough to transform many lives.
When you think about wealth in levels, you realize that certain amounts of money may not make a huge difference. For the average person in level two above, an extra 10 lakhs probably won’t bump them up to level three.
Honestly, 10 lakhs aren’t enough to free someone from thinking about day-to-day living expenses for the rest of their life. But the same 10 lakhs given to the average person at level one may push them to level two.
It is difficult to put an exact rupee value on each of the above wealth levels due to differences in cost of living, individual mindsets, number of dependents, etc.
Let’s say two friends, Avyaan and Mahima, have decided to buy themselves the latest iPhones. They have to choose between the iPhone 13 Pro (priced at 1.5 lakhs) and the iPhone 13 (priced at 1 lakh). Avyaan’s is at level 3 of our hierarchy above so he feels the pinch of 50,000/- and purchases the iPhone 13.
Mahima, on the other hand, is at level 4 of the wealth ladder and doesn’t find it worthwhile to save 50,000/-. So she opts for the iPhone 13 Pro. The marginal impact of a single decision at each level of wealth is dependent on the net worth of the individual.
Wealth grows in steps, not in a steady slope
Most people in the same level of wealth consume in a similar way. A level 3 person doesn’t fly by private plane. They only fly first class if they get lucky and get upgraded. A level 1 person rarely flies.
Spend within your means to ascend the wealth ladder
At level 2, if you book a holiday to Switzerland without considering the costs then you won’t make progress in the wealth hierarchy. Until you have enough to spend extravagantly at your current level, you have to be disciplined about your spending at that level. Do this and you are very likely to move up the wealth staircase.
For example, though today I might opt for a nice restaurant when eating out, I will still move my schedule around to find the absolute cheapest deals for holiday travels. Last year I booked a family holiday in Goa way before Diwali because it was so much cheaper than in peak travel season. Because I spend as per my level; I enjoy my life while growing my wealth.
Some people might recommend not increasing your consumption as your net worth grows. I disagree. Moderate lifestyle creep can make life deeply satisfying. So, there is more to life than saving money.
