Over the weekend, I came across an image of a ladder illustrating the stages of wealth, and it really made me reflect. Achieving financial wealth today feels more challenging than ever — with persistent inflation, rising living costs, global instability, and market volatility all playing a role.

Still, it’s possible to make steady progress. You can assess where you are along the wealth ladder and take deliberate steps to move upward.

  1. Financial Dependency – You rely on others (family, government, or debt) to meet your basic living expenses. There’s little or no income, and you’re unable to cover your obligations independently. Around 30% of Americans have a negative net worth, or their liabilities are higher than their assets. 
  2. Financial Solvency – You can meet your financial obligations without external help. You’re no longer going into debt each month, but you’re still living paycheck to paycheck with no cushion for emergencies.  Depending on the source, there is around 58% to 78% of Americans currently living paycheck to paycheck 
  3. Financial Stability – You have eliminated consumer debt and established an emergency fund. Your income covers your expenses consistently, and you’re beginning to save and invest for the future.  If you are on this stage, you are better than 80% of Americans and probably not trying to keep up with the Joneses
  4. Financial Security – Your investment income or passive income could cover basic living expenses if needed. You’re protected from financial shocks, and your essential needs (housing, food, healthcare) are secured long-term. From this stage on, you are in a sweet spot reserved to a selected minority in the United States. 
  5. Financial Independence –  Your passive income exceeds your total living expenses, giving you the option to stop working. Work becomes a choice, not a necessity, and you have flexibility in how you spend your time. Many of us think about this stage as retirement but some people are able to early retire or work on their passion. If you had no money need, what would you do in life? If you would continue to do what you currently do, you are a lucky one. 
  6. Financial Abundance – You have more than enough wealth to support your lifestyle and make a significant impact on others. You can pursue philanthropic goals, legacy planning, or major ventures without financial concern. Let’s call this stage, the unicorn stage, as these individuals are almost mythical creatures.

While everyone’s journey is different, here are three timeless fundamentals that can help improve your position:

  1. Spend less than you earn. This simple rule is the foundation. Track your finances, avoid lifestyle inflation, and build savings habits that stick. This rule was repeated by my grandfather since I was a little kid. As far as you live well beyond your means, your probability of becoming wealthy grows exponentially. 

  2. Invest consistently. Whether it’s in the market, real estate, or your own business, consistent investing over time is how you move from financial stability to long-term security. We live in a capitalist society and in order to enjoy some of its benefits, you need to save and invest. Remember that earned income is taxed at top marginal Federal rate of 37% while capital gains are taxed on a range of 0% to around 23% (your blood and sweat is taxed much higher than your investments)

  3. Grow your income. Invest in your skills, find ways to provide more value, or develop side ventures. Increasing your earning power gives you more flexibility and faster progress. The fastest way to increase your value is investing on yourself. Once you master your work or industry, you automatically become more values and it is reflected in your paycheck or your business income. 

Small, consistent actions can lead to significant change — and it’s never too late to take the next step up. Also, once you grow your wealth, taxes is usually the biggest expense (over 50% of your income can go to the tax authorities). Keep that in mind and reach out to our team of tax professionals to ensure you do not pay more than you are required, or even implement some tax strategies to reduce your tax burden.