Just for fun, I thought I’d create my interpretation of a hierarchical “Financial Pyramid” (modelled after Maslow’s Hierarchy of needs).

More detail on each level (Top Down analysis):

GATES:- (Buffet and Bill Gates, and similar people dwell here) I don’t know what it would be like to have a Net Worth greater than the GDP (Gross Domestic Product) of entire countries…  This is for the most part a practically impossible level for the vast majority of us to obtain.

Wealthy: – I would define this level in my financial pyramid as those (in current 2010 dollars) as having at least $20,000,000 million and above (if you live in a city like New York, perhaps $100,000,000 would be a better entry-level marker for you…).  Another hard level to conquer…  You would need the perfect combination to obtain and stay at this level (your luck, your drive, income, investment mix would have to be perfect).

Rich: – Depends where you live, but you would need at least enough money to travel overseas whenever you wanted (up to 4 time a year), without decreasing your net worth.  I would define this group as people having at least $5,000,000.  If you had the money invested in an investment that would yield 4%, that would provide you $200,000 in income per year…  The key here would be, that just the income off of your interest/dividends would earn you enough income to be above the top 5% of comparable earned income (in your area you live).  So again, this number would be much larger for more wealthy cities like New York, etc…

Financial Independence:This is the break even point, this is where your investment and other passive income(s) earn you enough to cover your current life style expenses and inflation.  You’ll still want to contribute money to increasing your wealth though.  After all, recessions happen

Solid Upper Middle Class: Interesting level, many people can make it to this level by improving themselves and increasing the amount of money they have via investments, hard work, being frugal and continuous learning.  I personally don’t believe that getting a degree like an MBA is the magic ticket for inclusion in the Upper middle class (although it certainly can help!).  I think to be a part of this level, you’d have to either have a net worth of $1,000,000 or at least manage that much at a personal level.  Upper middle class is more than money though.  This is the level where IMHO, you should have developed some traditional sense of class, and people should ask you for your opinion on matters.  So respect or prestige (at least a little) comes into play.

Snowball Accumulation: This is the strategic years, where you have already implemented or are following your plans developed in the lower level.  Time (hopefully) is your greatest ally.  Keep doing what you are doing and hopefully Luck will also join your team and become an ally too.

Action Plans Forming: At this stage, you have to think and really hustle to get ahead.  At this stage you have most of your core needs managed, and you are now trying to build your wealth for the future.  I almost called this the Battle Plans level, because you must develop strategies to conquer future expenses (kid’s college, kids cars, kids braces, retirement, car replacements, home repairs, increased life style, better vacation, etc).  At this level you must start the plans for these future financial concerns.  Even if they seem impossible to beat, at least start the process…  If you don’t, then the saying (by my #1 financial hero Benjamin Franklin)  ”By failing to prepare, you are preparing to fail” will happen!!!  These are the hustle years, think and move quickly and wisely!!!

Shelter Needs You have money to cover your shelter needs: Housing, real estate taxes, Utility costs and so forth…  This can be a monkey on your back that is slowing you down.  Personally, I started the Action Plans level above while still working on this level too.  By doing so, it took me a little bit over 10 years to conquer this level, but I think the way that I did it worked out well in my case.  Most people just make their mortgage payment as planned out by the banks, and that is fine.  The key is to have money (from some source) to cover this basic need.  Ideally, you want to have this paid off or have invested assets that can cover the mortgage payments in case you get laid off or something else happens…

Basic Needs: This is the most simple level, you need to have some way of getting food and clothes!  The preferred way is saving up your money so that if something horrible happens you can use that money to buy cheap foods and clothes for survival.  Of course, if you are really at this level you could get food stamps, or try growing your own food.  Having an Emergency Fund of some sort would go a long way to covering this level.  Perhaps $20,000?  I cheated this level, I had money but it was in investments.  This was risky, but I was young and the economy was strong…  If I were a college graduate today, I’d most likely consider a high yield saving account or government bonds for my emergency needs.

If you haven’t noticed in my previous posts, I like to measure things and create milestones and other markers to help me judge where I am in my financial goals.  Such tools help me define my financial progress and enables me see things that I might miss if I didn’t use them.

If you have other tools to help you in your progress, please share them too, such tools can really help others…

- MR