215. The 5 Levels of Financial Wealth

Today we're talking about the five levels of financial wealth.

All baseline needs are exceeded and modest pleasures become accessible.

I like to learn on the job rather than just learning about something and maybe using it down the line. I like to have a problem and then go try and find the solution and learn it and then go implement it.

It's a crazy stat. 60% of people do not invest their money.

But yeah, once you can start to have your assets start to work for you or even just beginning that process, you're starting to create a little bit of distance between paycheck to paycheck and having some longer term we and the.

Best place to start was in your 20s. Second best time is now is today if you haven't done it.

Welcome back to another episode of the Bennebergs Podcast. I'm Ben, your favorite high school dropout and founder of Collective Shift. Alongside me is Bergs, your favorite MBA and CEO of Collective Shift. We're here to bring you world class crypto research strategies and insights to help you crush this crypto bull market. Plus get an exclusive behind the scenes look as we scale Australia's leading crypto research company. And if you like the podcast, we'd love for you to share it with a friend. It is how we bring you these two episodes each and every week without advertising or sponsorship and how we grow the podcast now today and we've been on a bit of a bit of a run of personal wealth episodes. We've gotten some really amazing feedback. The downloads are going through the roof. So we want to keep this sort of personal finance track going, especially while the crypto market is extremely boring and not much is going on. Today we're talking about the five levels of financial wealth. And this is from the book Five Types of Wealth from Sahil Bloom. And there's five different types of wealth. There's time, social, mental, physical and financial. And today we're going to be focusing on the five levels of financial wealth. And I remember when Berg sent me this sort of page and we went through that. It really is more of a philosophical viewpoint versus more of a step by step which we shared back on episode 212. So really keen to jump into this episode, share a little bit about how we're thinking about it and maybe you can start to have a think about what level you're on. So Berks, over to you mate.

This is a cracking book. I highly recommend everyone gets it because it'll get you thinking and it's this guy's own thoughts as well as lots you would have heard and drawn on from other books, other people that have done similar things, but it is just not just focusing on the finance, but your physical health, your mental health. It's just incredible. Your time, time, wealth. And he's even got a quiz on his website you can do. And Ben and I did this quiz and it's only 20 questions and it gives you five quadrants to see which ones you need to focus on. Absolutely brilliant. So today with financial wealth, he's got five levels of it. Let's start off with level one. This is baseline needs are met, including food and shelter. Now, Ben, you've only recently just achieved level one. You were homeless for quite a while. You. You barely had shelter, you were walking around Melbourne at 3am trying to find somewhere to sleep for the night, but you now at least have achieved level one, mate.

Level one's a good feeling, man. It's. It's a great level to be at and just builds the foundations to go. Go higher.

Exactly. So we would say that if you're listening to this podcast, we can safely assume that you've achieved level one, unless you're kind of having a hard time of going through some struggles. But baseline needs are met. Most people have that. Let's go to level two. All baseline needs are exceeded and modest pleasures become accessible. This includes meals at restaurants, simple vacations and spending on education. This is an amazing place to be in because you got somewhere to stay, you got a roof over your head, you've got food and you can start to do some nice things, you can start to explore the world, you can go out on dinner dates, you can eat out, and you can actually start to upskill and educate yourself. Now, I think most people generally get to this probably, I'd say in their 20s, you're able to go to restaurants. If you got a job and you might go to uni, you might upskill, you might upskill through your work. And I can safely say, Ben, you have achieved level two.

Level two is good, man.

Would you say that is true?

That is. That is true. Didn't quite spend an education, but I do spend on eating out, so. Eating out, that's good.

You spend a lot on education, formal education. You do. It's not just for, like, when we think of education, it's not always formal, like uni or a course or whatever. You do courses as well, but it's things like entrepreneurs, organization, going to forum, learning from experts. You even pay a lot of mentors to get their advice. And that is one to one Education. So I think you spend a lot more than you think and you're much better for it, mate. It's how you upskill.

You're actually right. I think like when I think of education, I think school and like, oh my God, just what a, like a cookie cutter sort of playground that is of not really helping anyone that has any sort of aspirations. Anyway. That's a, that's story of another day. But I think the, the, yeah, that's exactly how I've learned is just I actually spend a lot of time and a lot of money on, you know, more online education. Whether it be courses, people, content, entrepreneurs, organization.

You know what, you know, there's so many different things, I guess, like ongoing podcasts that I like to learn on the job rather than just learning about something and maybe using it down the line. I like to have a problem and then go try and find the solution and learn it and then go implement it.

Even just sharpening your mind by meeting up and talking to other people. We really need to reframe education to improvement because anytime you're improving, you are learning. If I'm getting better in the gym, I'm educating myself. I've got a trainer, I'm learning new techniques. I'm looking at YouTube videos on how to do them and I'm going and I'm executing them. Think of education as improvement. All right, level three, Ben, Baseline needs are no longer top of mind. You don't think about how am I going to get food and shelter. They're just taken care of. And the focus is now on saving, investing and compounding wealth, more significant pleasures. So you might be able to fly, you know, a fancier holiday or a fancier restaurant. Things like multiple vacations, they're readily available if you want them. There's more aggressive asset compounding and that generally begins at this level. So I would say for most people, this would probably start in their 30s earlier if you're keen. Ben, it's already actually started for you. Now you do get significant pleasures. You're very big on that, on what you want to do in your life. And you've now got to focus on saving, investing and compounding wealth.

Yeah, and it's interesting, like even from a business perspective, like looking at compounding wealth through, through an asset that's not necessarily liquid as well. Like, I think that's another angle to look at it. Like if you're building something for longer term value, like, that's, that's, that's another thing. But yeah, once you can start to have your assets start to work for you, or even just beginning that, that process, you're starting to create a little bit of distance between paycheck to paycheck and having some longer term wealth.

Exactly right. And practically that this means having an emergency fund, having some savings for your holidays, and then taking part of your pay and putting it into investments that will grow and compound over time. Once you start this process, your financial trajectory has changed dramatically. This is a step that 60% of people do not take. It's a crazy stat. 60% of people do not invest their money outside of their for superannuation and maybe savings in the bank. They don't invest in shares, bitcoin, property, anything like that. And this is what separates that 40% from that 60%. Just this simple move, this one simple trick. Ben?

Yeah, it's fascinating because you never, like, you're never going to get out of the quote unquote rat race. I mean, inflation alone's at 10%, like at least real inflation, you know, unless you're making more than 10% on your money.

Meaning, you know, you're, you're putting in 10,000, you're getting back 11,000 every year you are falling behind and you're not getting that from the bank. So if you're not investing it, you're essentially behind unless your wage is going up more than 10%, but then again, everything else is going up. So cost of living. So yeah, long story short, yeah, wages.

Have not kept step. So this is the thing. What you're getting towards here is multiple streams of income where you don't just rely on your job because if you get sick or injured or can't do your job, your one stream of income is gone. So the next easiest one to build is something like shares or property where you get rent or you get dividends and capital appreciation. So you're doing nothing apart from putting money in and automating it and money comes towards you. Then there's other things like, you know, a second job or a side hustle or whatever it may be, but that will require more, or a business, but that will require more of your time. This is a more passive way to outpace inflation. Have multiple income streams. At first, the money will just trickle in. $10 a month here, $50 a month here for dividends. But over like years and years, five years, 10 years, decades, that really compounds. And it can become something significant if you set it up. And the best place to start was in your 20s. Second best place, second best time is now, is today. If you haven't done it. All right, let's go to level four. Level four out of five, Ben. Most reasonable pleasures are readily available. Asset accumulation accelerates and assets begin to generate passive income to cover some lifestyle expenses. This is the level of moderate financial independence as you can reduce your active income and continue to live the same lifestyle. So let's use round numbers. Let's say you earn a hundred thousand per year and you have to work your job and your spending roughly with your investments and everything equates to a hundred thousand. If you're now getting 40,000 from passive income, you only have to work 60,000 worth of hours, which is 0.6, which is three days per week. You don't have to work five days per week. You can work three days per week, which is part time, three days on, four days off, and you will enjoy exactly the same lifestyle. This is incredible. Yeah.

And a lot of people in our platinum group especially, this is either their aspiration or they're here and they're looking to take another level up. But a way to turn your assets into either cash generating or just growing at a, at a rate where you're outpacing your income so you can essentially retire. I was chatting to a platinum client the other day in person and she is nearly there. And the way she's going to do that is like she's, she's grown a crypto portfolio quite substantially. Unfortunately, crypto doesn't have a native yield or return. So she's going to look to move some of those crypto assets in and pay off some of her investment properties. And so she's positively geared those investment properties and then she can live off the income from the property and still hold a decent chunk of crypto, which is, you know, a great move. Like that's, that's the goal. Right.

That's beautiful. And at different points in your life, you're going to be working a lot. So you may not need cash generation from your investments, you might not need the dividends and everything else to actually spend. So you go for capital growth, capital appreciation. So you can really accelerate your wealth while you're working. But, but you then get the choice to be like, well, now I want to work less, I actually need money. You can move your asset allocation around to fund the lifestyle that you want. This is the kind of freedom that very few people have. Most people will only get this level of freedom if they're lucky in their 60s when they retire and they have enough superannuation. But you can bring that number that 60s number forward to 50s to 40s, hell, even 30s if you compound hard enough and you put enough money in. There's quite a few people we know that are in their 30s that could retire if they wanted to. They've had a business, they've got cash generation, and they are absolutely set. They are extreme outliers. And this is a big trap for people. Don't get caught in, oh, I'm in my 30s or 40s or even 50s, and I haven't done this yet. I shouldn't try because I'm just not going to be like them. You don't need to. Even if you replace 20% of your income, that is de risking. And you have 20% more money. You could even spend 120%. So 100% will be your salary and then an additional 20% if you want to. That's coming in from your investments. Just get it started, folks.

Yeah, and diversification, that's something that I'm really focusing on over the next couple of years, is really like, you know, as a lot of, you know, my goals are to sort of diversify away from. Well, not away, but diversify my portfolio outside of just 100% crypto into property and start to offset that and help try and get to this level a lot sooner.

And not always, but generally you build wealth faster through concentration and then you protect and preserve it through diversification. So you go to more defensive assets, ones that aren't so as volatile as cryptocurrency. And that's exactly what Ben's doing. He's going deep into his business, deep into crypto. And when he's at a comfortable level, then he de risks those things. He'll spend less time in the business. You'll get dividends from the business and buy. Buy Mum and Dad a house. That's the big goal. All right, mate, let's get to level five. This is exciting. All pleasures are available. Asset accumulation reaches escape velocity. Oh, oh. Let me say it again. Asset accumulation reaches escape velocity. And assets generate passive income in excess of all lifestyle expenses. This is the level of complete financial independence, as you can remove all active income and continue to live the same lifestyle. Now, practically, what this means is if my life costs 100 grand to live per year, and from my investments, I am getting $100,000, they net out. I no longer have to work. I can stop working. I've reached escape velocity. The money I've invested is going to look after me and cover my life expenses for the rest of my life. This is an incredible Position to be in a very privileged position.

Yeah, crazy position to be in. And also. Well, not crazy. That's the really ultimate goal. We had a Hynenworth advisor come and speak to our platinum clients again last week in the monthly session. And you know, if you can get in a really sort of risk off strategy, liquid investable assets outside of your primary residence, you know, even at 5 million, I think you're looking at $80,000 a year return on average. And then 10 million, you're looking at, I think it was a quarter of a million from memory in terms of income either from cash generating assets or just growth of, growth of existing assets. And again, that's a, that's a very low ball number too, right? That's not, that's not crypto.

That's so 5 mil outside of your house. 4% return, which is essentially, you know, 7 or 8% after tax. That's 200k per year that you'll get passive income with 5 million, which is crazy. Everyone throws around that 5 million number, but it's actually a lot less than that. So if you read this, it is. Assets generate passive income inaccessible lifestyle expenses. So there's a trick here. Lifestyle expenses doesn't need to be 200 grand. It can be 30 grand, 40 grand if you've paid off your mortgage and you need, let's say 52,000, $1,000 per week you need to spend. And depending on how big your family is and what life you want to live, that can cover, you know, your food, your travel, depending on what you like to do. A thousand dollars after tax is actually quite significant if all your other expenses are taken care of. Or you could move to a low cost of living area. Like you could move to Bali for six months of the year. You could live over there and you could have a job from a high cost of living area and do arbitrage. You could save up heavily for a decade and then take five years off and live this. This is the exciting thing about choosing your own adventure. It doesn't need to be oodles and oodles of money. And here's the thing, like you can get there. All you need to do is plan that. The whole reason I'm doing this and we're doing this personal finance and talking about this, and this is the third time we're doing like a personal finance flavored episode in the last month, is that there are no secrets. This is so achievable. And anyone can do it. Anyone can do it. I've done it. I started with $0 it is fine like I, I, you know Ben can do this like all my mates can do this. If you just start saving and you are reasonable and you add time and you compound you can have this level five freedom.

Yeah and I think Berg's like this this third episode rounding off with the other ones that we've done which are episode 212 and episode 210 really bring each everything together and I think the key takeaways here is that one accessible by for anyone to do but two for me you need to have the processes and systems and automation in order to get there. Unless you create that you'll be forever sort of spinning wheels and not not growing your wealth because you, you don't have the systems in place to do it and you end up just spending what you have and you're not really thinking about it. You don't put time aside but once you set up that those systems and automation and you forget about it again. This thing compounds very quickly.

Yeah and just simple things like you can control the income side with your job and you know, the education you have whether you're investing but also the expense side. Like a lot of people don't look at their credit card statements they don't know what they're spending they just pay every month and you just pay the bill and you just keep moving. Nowadays you can just get your transaction history. There's even little softwares that'll categorize it for you or copy and paste like de identify just copy and paste transactions into chat GPT or upload a CSV and it'll categorize it for you. Be like you what mate, I spend like a thousand dollars on UberEats per month. What the. Like you will be very very surprised. And if you reduce that and you put it into investments you're kind of sacrificing a little bit now to have more lollies later in life. Like this morning I met with a guy and his, his net worth is significantly more than mine yet we lead very similar lifestyles and it's because we both value time free so time freedom and like social wealth essentially the things that we, we value a lot as well as mental and physical health. He has multiple businesses and he does them for fun. He doesn't need the money anymore. The money he generates from assets is way in excess of what he needs to live his life because the things he does is like I'll go and play golf, I'll go this, I'll do it. He has nice cars and nice holidays as well. But he hasn't gone insane in what he's done, nor does he want to. He absolutely could have asked him. I'm like, we got oodles of cash, what are you going to spend it on? He's like, hey, as long as I can see my friends, be comfortable, travel when I want, and not have to be certain places at certain times, I'm golden. That's how I want to live my life. It is not the big number. I need a private jet. I need this. If you want that, great. But realize what you're sacrificing for along the way.

It's the freedom. That's, that's what we're optimizing for here. Yeah.

And I think about that like, okay, I'm 41. I think about all of my friends. Absolutely zero of them have the same freedom that I do because I work in a business, I'm an owner in that business and I control my time. I can go and pick up a little one from school, take them around, take him around for an hour. You know, I can go to a meeting, I can reschedule stuff, it doesn't matter. Like, having that level of freedom is so valuable. Way more valuable than extra marbles in the bank. Just having like extra money. Like, there's no point in having tons and tons of financial wealth if you don't also have that time freedom as well. So think about how you're structuring your life where you're spending. And.

This is the thing. Just, just get off the hamster wheel. You don't have to be like your mates at work. You don't have to have the things that they have. Spend the time thinking about what you really want and then just fucking get after it.

Totally agree. When you said that, I was like, mate, I'm 26. You know what my mates are doing?

Okay? So the person I talked to this morning at breakfast, he's in his 50s and he's an outlier. Most people only achieve the level of freedom he has in their 60s. I'm another outlier. I'm in my 40s and I've achieved a relative level of freedom to him. And I'm a huge outlier. You are a extreme outlier. You are like the 1% of the 1%. I could not name another 26 year old that has your level of freedom. Well, one, because you live with them. Right, but you're both extreme outliers. Right. Like I could not name a third.

Yeah.

Like I could not name anyone that has what you have, it's incredible.

Yeah. It's kind of hard. You kind of. You over. What is it? Overestimate what you can. No. Underestimate what you can achieve in the long term and overestimate what you can achieve in the short term.

Exactly. Right. Like you get after it and then we get caught up in it. We're, we're building this business. It's very difficult. You have to make difficult decisions. You have to put time in. But when you step back and look at what you can do and where you are and your life relative to your peers, you're like, oh, this is the ticket.

Yeah.

Like this is the path.

Yeah. Yeah. Once you take the blinkers off and have a look around, like, hang on a minute, what's that? What's everyone else up to?

It's kind of wild where you feel like you're on the ground but you're like, oh, actually I'm up here. Like the things that I have and I do that I just thought were normal actually aren't normal.

Oh, mate, you don't really see like forever not doing enough, not good enough. Oh yeah, cool. You know, small win, next thing now you know, it's, it's, it's never. And it's interesting. Interesting. I don't think of it from a. Even I, I think I'm less com. I definitely still compare myself and not wait nowhere near as much as what I used to. But like I think more about the potential I think I have and the business has and I know we're nowhere near that yet. And that's what drives me.

Yeah. Like that's the thing. You can still be excited about it, still get after it, but you choose where you put your effort and where you put your time. Yeah. And you can still get after it. Hell for leather. I know people that have insane wealth and still work like absolute mad dogs like 80 hours a week because they love it and it's what they want to do. It's where you want to spend your time and where you get your self worth from.

Yeah.

And it's not like they need to disconnect. They just want to build awesome shit, build high performing teams and be around people and just be as sharp as they can be. And that's beautiful.

So good. Yeah, so good.

Absolutely incredible, mate.

Right, Great episode folks. Make sure you go back and listen to episode 212, how to Climb the personal wealth ladder step by step. And also episode 210, how to build a personal finance plan that grows your wealth Cracking episodes led by Mr. Ber Cuber himself, being some great personal. Personal finance lessons. Jump over and check those out. And if you like this episode, we'd love for you to share with a friend. This could probably go to someone that's not in crypto, honestly, someone that's maybe a family member friend, Someone that you know could find some value in thinking about investing, thinking about growing their wealth, getting out of the right race. We'd love for you to share it with them. And as always, thank you for listening and we'll see you on the next episode.

Thanks so much, champions.