The last time I went grocery shopping, I bought the name-brand cheese instead of the store-brand cheese. The price differential between the $3 cheddar and the $6 cheddar used to feel impossibly vast; now it barely matters. It still registers, though, every time—and reminds me how much my life has changed, over the past ten years.
Nick Maggiulli, who writes about personal finance from a data analysis perspective at Of Dollars and Data, recently shared his thoughts on how to deal with these kinds of price differentials—and how to use your understanding of how much money you should be spending on cheese (or at restaurants, or on vacations) to save money and progress up what he calls the “wealth ladder.”
First, Maggiulli explains, you have to know where you currently stand. (Literally. On the figurative ladder.) He defines six different levels of spending ability, starting with the level where every penny counts, then the level where every $10 counts, then every $100, and so on.
If you’ve had the good fortune to watch your income grow over time, you’ll understand exactly what Maggiulli is referring to here. Back in 2004, when I was working as a telemarketer in Minneapolis, I was at the “every penny counts” level. The pennies were so important to me that I would time my bus rides so I only had to pay off-peak fares.
These days, now that I am both out of debt and earning more money, I can feel my financial sensibilities inching towards the “every $100 counts” level, even though I keep trying to tell myself that every $10 counts, too. I just booked a 90-minute massage instead of a 60-minute one, for example, because it was only an extra $50 (including tip), and that felt like a fair upgrade. However, I still fly economy—or even basic economy if there are tickets available—because paying a few hundred bucks for a little more comfort doesn’t feel right.
I mean, it doesn’t feel right yet.
As Maggiulli reminds us, our priorities tend to shift as our net worth increases—and the best way to increase our net worth is to stay within the financial priorities that are appropriate to where we currently stand on the ladder.
If you are in level 1 and you book a vacation without caring about the costs (level 4), then you won’t progress further up the ladder. Until you have the money to spend frivolously within a level, you have to be strict about your spending in that level. Get this right and you have a far better chance of progressing up the ladder.
I have booked a holiday “without caring about the costs” when I wasn’t yet earning enough to spend that kind of money on vacations, and I put most of the costs of that trip on credit cards and paid it off later and it was still one of the greatest experiences of my life. So the rules don’t always apply in every situation.
But it’s worth it to ask yourself where you currently stand on Maggiulli’s “wealth ladder”—can you afford to buy groceries without worrying about paying an extra $6 for cheese, for example, or can you afford to book a 90-minute massage instead of a 60-minute one—and how that might shape your spending priorities in the future.
Because if you climb the wealth ladder one rung at a time, you might end up with enough money to buy any cheese you want, or to never have to sit in basic economy again—but if you don’t keep track of every penny when every penny counts, you might never find yourself in a place where you think of money in terms of $10s or $100s.