The Powerful 0.01% Spending Rule, Making Career Shifts, & When to Adjust Your Asset Allocation

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In today’s episode with fellow money nerd, Nick Maggiulli, author of The Wealth Ladder and writer of Of Dollars & Data:

• Why you might be spending too much time agonizing about small consumption choices

• How to approach a risky career shift when you’ve already built financial momentum

• What the largest risks and opportunities are once you’ve eclipsed the $100,000 net worth mark—and how they shift after you pass the $1 million threshold

You’ll walk away with at least two handy new tricks for quickly gut-checking your spending and income opportunities.

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Our show is a production of Morning Brew and is produced by Henah Velez and Katie Gatti Tassin, with our audio engineering and sound design from Nick Torres. Devin Emery is President of Morning Brew content and additional fact checking comes from Scott Wilson.

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Mentioned in the Episode

• Nick Maggiulli’s first book, Just Keep Buying

Transcript

Nick Maggiulli:

The assumption is that your wealth is throwing off 0.01% per day, and if you’d compound that over 365 days, that’s about 3.7% per year, which is even more conservative than the 4% rule. And the idea behind the 0.01% rule, it’s just that, hey, when this occasional expense comes up, you can just pay for it because it’s trivial. You don’t have to think about it.

That marginal decision, that’s what I want to attack. I want to say, when is it okay for this particular thing. And I’m like, oh, I’m at the grocery store. Can I get cage-free eggs instead of standard eggs? Oh, but that’s $2 more. Well, if your net worth is $20,000 or more, then have at it.

Katie Gatti Tassin:

Nick Maggiulli is the bestselling author of the book, Just Keep Buying, the COO of the New York City investment firm. Ritholtz Wealth Management, the blogger behind the popular Of Dollars and Data, and finally, and most importantly, a friend of mine.

Nick is one of the few classic personal finance writers or so-called influencers whose robust advice and insights I still will revisit regularly and will read his personal finance stuff every week when he publishes something. His new book, The Wealth Ladder, introduces a critical philosophy to financial advice that it’s not one size fits all and that your strategies should vary significantly. They should change depending on where you are on that ladder. Someone who’s focused on working up from their $0 mark to their first $10,000 in savings should prioritize where they’re spending their energy and their focus very differently from someone who’s trying to go from $100,000 to a million dollars. In other words, when you are taking financial advice from someone on the internet, you have to make sure that it is for you.

He breaks up the levels by factors of 10, so they become increasingly extreme as you go. His first range is from $0 to $10,000, and then $10,000 to $100,000, and then $100,000 to $1,000,000. You get the gist. The highest level that we’re going to be discussing for our purposes today is his level four, which is $1 million to $10 million. That’s the range that we’re going to top out at in his book. He goes further, but I don’t think that that’s relevant for our audience today.

Nick is one of the only writers that I know who places a really big emphasis as I do on making long-term spending decisions according to your wealth and living beneath your assets rather than just focusing on your income alone. So I’m excited to talk to him today about some of his guiding principles that can make things like tough decisions about your career and making big changes and how you’re working and spending your time to maybe changes in consumption habits that you’ve been weighing and even more generally, just time management maybe feel a little bit clearer. He’s really good at quantified heuristics and I think you’ll see what I mean shortly.

Well, Nick, welcome back to The Money with Katie Show. I am so happy that our data daddy has returned to us once again.

Nick Maggiulli:

Thank you for having me back on again. I truly appreciate it. I’m married now. I’m married now, so that’s the big lifestyle update for me.

Katie Gatti Tassin:

Data husband.

Nick:

But everything’s great. Yes, data husband.

Katie Gatti Tassin:

Well, I know that this is far from the point of the new book, but I do want to talk to you about your first three years of writing Of Dollars and Data because you started your blog in 2017 while working in litigation consulting as a data analyst. Kind of a switch up. Tell us about the first three years.

Nick Maggiulli:

So I was working in litigation consulting, doing data work, and building my skills, but on the side I was like, hey, I want to write about personal finance and investing. And that first year was really tough. I know you can probably attest to this. When you first start putting content out there and you don’t have an audience, people think, well, if your content’s not good, someone’s going to be like, oh, your content sucks.

No, you’re not going to hear anything. Rejection is the sound of silence. People don’t realize that literally you’re going to put something out there and then just nothing, maybe one, if that, and it’s like your best friend or something if they didn’t even listen to it or read it or whatever. And so that was obviously very difficult and I went through a breakup during that period, so there was a lot of questioning was this the right decision? This caused all these other issues in my life.

And so I’m like, you know what? I’m going to stick with this. And late in the year I started to get more confidence. I met some other bloggers who had done this and they’re like, yeah, you got to keep going man. Your stuff’s good. And so that really helped me that first year. And then after that, it was much easier once I kind of had other people, I looked up to Morgan Housel saying, dude, I love your work. And I was like, what the heck? I didn’t even know you read my work.

Katie Gatti Tassin:

That’s so cool.

Nick Maggiulli:

That’s crazy when that happens, when you have someone, that’s how you can really influence someone’s career, and I try to do that as much as I can. If I find someone who has a great blog on their new, I try and promote them as much as I can and I’ve done that for a handful of people over the years.

So yeah, the first three years I didn’t make any money on it was just writing about it. I loved it and it was fun and it was much easier. I had more confidence. I eventually got into wealth management, so I actually changed jobs and my whole career because of that and then eventually started monetizing and then I’ve written two books now, so that’s just been quite a journey. It’s been almost nine years now, but if you write a blog post once a week for almost nine years, you’ll get decently good at it.

Katie Gatti Tassin:

You did it essentially for free for three years. The first three years was just investment. You write about spending 10 hours on each blog post, so 1,500 hours of writing for free before you turned on ads and made any money off of it. But I love this because you found your golden intersection, you found what you’re good at, what you’re interested in, and what people will pay you for, but that “paid for” part can really take a while. Looking back at that, having written two books about this topic, how do you weigh those various components of good at interested in it and paid for differently depending on where someone is on the wealth ladder?

Nick Maggiulli:

Yeah, so in general, especially if you’re lower on the wealth ladder, so for most people starting out you have to get paid, you need to survive. There’s no debate there, so you have to weigh that almost to the maximum. Of course, it would be great if you could also follow your interest and also be good at something, but as you kind of build wealth, you can see how you have more freedom to do other things.

You can say, hey, I can do this other thing. So for example, I had a full-time job and I started doing this on the side, not because necessarily I had wealth, I was still doing that job. It was more like, oh, I can use my free time to do this, but God forbid something happened where I lost that job, I would still have this thing. It wasn’t really making money yet, but then once it started making money, I now have that option where if I absolutely had to have, God forbid something happened to the firm, I could sustain myself off of this for the time being.

And so I think it’s just thinking about where you are in your life, what do you want to do and what are the other types of things you can do? It’s easy to talk about this in a vacuum. Content is one of those things that’s like it’s out there and people can do it and it has lots of scale possibilities, right? We’re going to record this conversation right now and thousands of people are going to listen to it. We don’t have to go and hang out with those people individually for them to hear this. So that’s kind of the cool thing. The internet has allowed for this type of stuff. And so I think whether you want to do something on the internet, it can scale or you want to just find a different career, find something more interested in, a lot of times you kind of need a little bit of that safety financially before you can get there.

Katie Gatti Tassin:

We will get to the rest of this conversation with Nick after a quick break.

What I’ve been spending a lot of time thinking about now is just how there can be psychological hangups that are self-imposed. I actually don’t think you have to have as much wealth as one might assume before you make a pivot of that kind. And you did write about this recently actually in your blog, this difference between financial freedom and financial independence. And I think, for so long, I was very trained on financial independence as being the one and only goal. And now that I’m coming up on that point imminently, I do sort of look back and think I probably could have started taking bigger risks a lot sooner. I would not have had to get to the point of never needing to work again before I started taking bigger swings or taking bigger risks.

Nick Maggiulli:

I think it’s also hard to know that in the moment looking back it’s like, oh, things turned out okay, I could have been fine, but when you’re in the moment, you’re like, there’s so much fear and uncertainty and stuff and we make decisions based on the information we have. You had no idea you’re going to be a successful podcaster or write a book. All these things that eventually happened, maybe you thought that might happen, but now you actually did it right? And you’re like, oh, wow, it actually came through. I sold a bunch of books. You don’t know that when you start. That’s the scary part, right?

Katie Gatti Tassin:

Yeah, we had a guest on a couple weeks back, Jonathan Grimm, he has a really interesting perspective on personal finance and retirement. It coalesced so well with what we talked to him about, this idea of financial freedom versus financial independence where he basically was like, how would you be thinking about your career differently if you knew that you were going to work forever? What would make you excited to never have to stop?

So we know that you’re always good for a statistic. You lay out that 39% of households in the US have less than $100,000 in wealth. The middle 43% have somewhere between $100,000 and a million dollars and the remaining top 18% have more than $1m+ with slightly fewer than 2% of all Americans or about one in 10 of that upper group clocking in at $10 million or more. It’s really quite an exponential curve at the end there.

And in the book you would assign a class level to each group. You put the 39% of households in the lower- or working-class distinction, you define the 43% as the middle class and then that remaining 16% with $1,000,000 to $10 million as upper middle class with only the remaining 2% as upper class or super rich. And when I read that, I was like, I feel like people are going to give Nick shit for this, for saying that someone with $8 million is upper middle class.

Have you gotten pushback on this? I’m really curious about the thought process here, given how small that upper echelon is and what your main takeaway was when you were parsing that aggregate population wide data about wealth distribution in America.

Nick Maggiulli:

So I did actually get some pushback, but not too much. Actually just yesterday I tweeted an image from the book and I said, these are the new economic classes in the US based on net worth not income. And it actually went super viral. I got 2 million engagements on, I got 6,000 likes.

Katie Gatti Tassin:

Oh my gosh.

Nick Maggiulli:

But I did get pushback and I think the pushback is fair, right? It’s very location dependent. I tried to make these buckets location-agnostic; no matter where you are, you would definitely be upper class by the time you have $10 million.

But you’re right, you have $5 million that—you’re in rural Alabama. You’re upper class, you can basically do what you want. You can fly private. You’re living somewhat like that, more upper class life. Your costs are so low.

So I could see that, but if you want to be location agnostic, I could be upper middle class anywhere, then I think level four has to be $1m to $10m and then upper class is $10m to $100m in this case. And of course it’s arbitrary. People are going to push back and that’s fine, but I want to come up with a framework that’s better than anything else we had.

You can nitpick and say, oh no, I think upper middle class is $1 million to $7 million. I can do that. And maybe it is slightly more accurate, but there’s a tradeoff between accuracy and memorability and marketing and sharing an idea. And I think if I made this super accurate, I think we lose all those other things which are maybe more important, which no one’s going to hear about this idea if it’s super complex and not easy to spread. If you say, hey, I created this levels framework, which is logarithmic, which just a 10 x jump from each one and the data actually fits pretty nicely. There’s roughly 20% in level one, roughly 20% in level two, just by chance the data fit nicely.

And so because of that I was like, I can put this forth and say, hey, this is a decent framework to think about this. It’s not perfect. There are course issues, we have to think through location and things like that, but at the end of the day, I’m trying to come up with a new framework to look at money and something I think is very helpful.

And I think in general, most people in the US with $1m to $10m live very similar lifestyles. Don’t get me wrong. The person with $10m is very different, the person with $1m, but the person with $4m and the person with $6m live probably an identical lifestyle, despite a $2 million difference. That $2 million could be at one property, a few properties. It could be like, oh, I pay for my children’s education expenses, but they’re not living a different lifestyle. Those people have recognizable lifestyles. I think once you get past $10m, it’s when it starts becoming like you have your own private driver, you go to a private airplane, everything is different. I think once you start to get in the $10m+ range.

Katie Gatti Tassin:

I see. I was just curious. It jumped out at me and I was like, I bet you he’s going to get catch some flak for this. But I think when you put it in that context, the other thing that is occurring to me now as we’re talking about this is just the difference that age makes. A 60-year-old with $2 million is in a very different position than a 30-year-old with $2 million. It’s hard to accommodate or account for all of those factors in a way that I think would be satisfactory to everybody. But I think that I understand what you’re doing here with that log scale of 10.

Nick Maggiulli:

So I agree with the age thing; because of age, the older you are, the more time you’ve had to save money so that it’s more likely you’re going to have more wealth. And you see that clearly in the data. At the same time, the person who’s 30, they can’t just say, okay, I’m never going to work again with $2 million and they’re going to be fine. The person who’s 60 with $2 million and the person who’s 30, the person who’s 60 has more options than the person who’s 30, assuming the person who’s 30 doesn’t want to work anymore, right? Because now your $2 million has to last 60 years instead of just 30 years.

Katie Gatti Tassin:

I think the big distinction is that, at 30, with that much money, you still probably are going to have, especially if you’re about to have children—you still are going to have to be doing something to generate income, but you probably wouldn’t have to really be saving very much. You can probably coast from a retirement savings standpoint.

Nick Maggiulli:

Yeah, that’s what I’m saying. You can probably coast FIRE for sure. Right, which is you’re talking about, we talked about earlier. Well, it work’s going to change and everyone’s just going to work till 60 and then stop. I do think coast FIRE as an idea is going to take off.

Katie Gatti Tassin:

That can be book number three for you.

Nick Maggiulli:

Yeah, but I really think that’s the future where it’s like, hey, I save up enough where I’m going to have my retirement taken care of, and then I just got to take care of my current expenses until I get to retirement. And that allows you to take your foot off the gas, allows you to go and have a different job, all those types of things.

Katie Gatti Tassin:

There’s a couple things in your philosophy that I found really useful and that I’ve been revisiting a lot actually since I read the book. So you have something called the 0.01% rule, which is really your way of guiding people to see their net worth as a more valuable indicator of how much they should feel free to spend as opposed to just looking at income. And this is similar in nature to my don’t live beyond your assets framework that I have in chapter three of Rich Girl Nation. So I was like, oh, this is fun to see it rendered in this way.

So from a sense of scale, I understood it in theory that if you have $100,000, a $10 difference in price is ultimately going to be meaningless to you. So anything beneath that really isn’t worth your time to stress about. But I was curious, okay, well how often can you blow off that $10 price difference? Because theoretically, if you’re doing this a hundred times a week, well now it’s going to start to matter, but you had a pretty elegant explanation for how this 0.01% rule fits into regular spending. So can you walk us through that?

Nick Maggiulli:

Yeah. So the assumption is that your wealth is throwing off 0.01% per day. And if you do that, compound that over 365 days, that’s about 3.7% per year, which is even more conservative than the 4% rule. And the idea behind the 0.01% rule or the one-10000th rule, there’s a lot of ways you can call it, but the idea here isn’t that you should spend this every day. It’s just that, hey, when this occasional expense comes up, you can just pay for it. It’s trivial. You don’t have to think about it. It’s just a trivial expense.

And so I think that’s where I want to get people’s heads into because every time when someone’s like, can I afford this thing, this unit of thing, that marginal decision, that’s what I want to attack. I want to say, when is it okay for this particular thing? And I’m like, oh, I at the grocery store, can I get cage-free eggs instead of standard eggs? Oh, but that’s $2 more. Well, if your net worth is $20,000 or more, then have at it. That’s my thinking.

It’s like something of that sort everyone’s purchasing on the margin. There’s not people in level one who are at the Ferrari dealership saying, I don’t know if I can afford this. They obviously know they can’t afford it, but they might be at a grocery store and say, can I afford this thing or can I afford my latte? And so obviously you spend based on your income because wealth alone is not enough, especially for those starting out.

However, over time, I like this rule because it allows your lifestyle to creep a little bit, but only after you’ve built wealth, which is the ultimate goal, I think if you had to pick between, oh, I want someone to end their life with more wealth or more income, I think you’d pick wealth because that’s something that’s a stock. You can pass it on to the next generation. You can do things with it. Income’s great, but it’s very fickle.

And so my goal here is to be like, hey, let’s find a way to allow people to spend more money over time, but only after they’ve been financially disciplined and that’s using wealth. And I also agree with you, I think you’re the only other person that says spend based on wealth. I don’t think I know another person in the space really that talks about this idea. Most people talk about spending based on income and different rules and oh, you have to pay yourself first. All these different things.

Katie Gatti Tassin:

Save rates.

Nick Maggiulli:

Yeah.

Katie Gatti Tassin:

I came to this on necessity, where I went from being a below median earner to a high earner in a relatively short amount of time, just a couple of years, and that explosion in access to just cash flow on a monthly basis, I didn’t really know what to do with it. And I was like, I feel like if somebody just looked at my income, they’d be like, oh, you could spend a lot more. You’re really living beneath your means.

But at that point in time, I hadn’t been earning a lot of money for long enough to really accumulate very much; my net worth and my income were actually kind of comparable. And I was like, okay, I don’t feel like I can safely scale up. So I was really looking for some sort of formula that would give me a sense for what was a reasonable amount to indulge. And so that was what led me to kind of look for that, okay, how can I balance the 4% rule of the progress I’ve already made with the income that I have now?

I also don’t love this idea that I think is very pervasive, particularly in the harder core personal finance circles of all lifestyle creep should be avoided or that you should constantly be living at the same level that you were in your twenties. Well, yeah, that’s a great way to build wealth, but it’s kind of self-defeating. I want to enjoy the success that I have at least a little bit. I want to responsibly enjoy the progress that I have made. And I think that that’s really important for keeping people going and having maintained and sustained motivation.

So when I was reading through this, it sounds like, okay, if you’re getting 3.7% growth per year after inflation, as you’ve noted, this is exceedingly conservative. Your wealth is growing by 0.01% per day, which means theoretically speaking, you could spend 0.01% of your wealth daily in excess of your income and you would still not be reducing your long-term wealth. The growth is replacing the spending. I think that that could get out of hand really quickly, but I do love the idea of this highly personalized little metric that you can tap into if you are still kind of operating in the framework of— which is kind of how I felt, where I used to make $60,000 and then when I was making $250,000, I was still kind of judging my spending decisions as if I made $60k because I hadn’t scaled up at all really.

Nick Maggiulli:

Yeah, no, exactly. And you’re completely right with the lifestyle creep stuff. I don’t think there’s a lot of other people that are like, yeah, you should have some lifestyle creep. And I completely support that. It’s a great way to build wealth, but it’s a terrible way to live, right? To never creep. Now, especially if you’re working hard, what’s the point of money if we really abstract all this stuff away with investing, at least we’re giving up current consumption to have future, ideally higher consumption in the future. Now whether that’s by us, or our heirs, or by we want to donate to someone and some other cause there’s a lot of ways this can be done, but that’s the whole premise. Why are we doing this? Why do we have the stock market and all this? Because people want to consume more in the future.

The ironic part is most of them, they die with lots of money and they don’t actually consume most of their wealth. I just agree with you completely on this issue. And there’s not many people where I’ve heard argue this, and that’s why I think we align so well on some of these things.

Katie Gatti Tassin:

Just you have the statistic handy. What percentage of retirees die with more money than they retired with?

Nick Maggiulli:

I do remember a Kitces study, which was based on history. So it’s like, hey, if you have a 60/40 portfolio and you do that for 30 years, the 4% rule, the question is what’s the chance that you’re going to be below your starting principle value and then what’s the chance you’re going to be up 4x? And the answer is they’re roughly the same.

Katie Gatti Tassin:

Damn.

Nick Maggiulli:

If we retired today and you did 4% rule in a 60/40 for the next 30 years, you’re equally as likely, at least according to history, you are equally as likely to end up with 4x your starting balance as you were to end up below your starting balance. The typical median outcome was like two to three x your balance while you’re pulling money out by the way.

Katie Gatti Tassin:

That’s so crazy.

Nick Maggiulli:

Yeah, that’s the nuts part.

Katie Gatti Tassin:

That’s wild. So based on some research that we’ve done about our community, I believe that the median Money with Katie Show listener is in the mid-level three range. They have somewhere between a hundred thousand and a million dollars in savings, investments, and home equity combined.

I want to talk about for level three people, what are the biggest areas of opportunity and the biggest risks? Because you write that at this point, there’s a bit of a dual truth on the table where more income is more important than more budgeting. If you’re in this phase, however, not controlling your spending is a one-way ticket back down the ladder. So you warn of a few things in particular that can be pretty tricky for this group. What are the big risks at this financial phase? How should priorities begin to shift in level three?

Nick Maggiulli:

Yeah, so in Chapter 10 of the book, I talk about a particular data set that’s called the “panel study of income dynamics.” And panel data just means you’re following people over time or following subjects over time. And so with this data, I was able to look at someone’s wealth at point A and then look at their wealth again in 10 years. And so I can basically say, hey, let’s look at all the people that are in level three today. I know they’re in level three, and then what’s the difference between the people that start in level three and get to level four versus the people that start in level three and stay in level three after a decade?

And there were two big differences I found. The first one was the income of those that made it to level four was considerably higher. They had a higher income, so they were earning more money. But the other thing I found, which was probably more interesting, was that their spending between these two groups was nearly identical. The ones that stayed in level three did spend a little less but not that much less. They spent almost as much as the people that made it to level four, despite the fact that they have not as high of an income. And so I think there is a little bit of keeping up with the Joneses, whether that’s status, whether that’s a nice home, and if you look at what types of the big ticket purchases, people probably get overextended on their home, maybe get a mortgage that’s bigger than maybe what they need or what they can afford. And so on average, all these groups built wealth. Even those that stayed in level three, they did build wealth. They just didn’t escape level three, but I did see that their spending was still quite high. And so that was something to note.

So in terms of opportunities in level three, it’s like how can I grow my income further? And I think there’s two big pillars here. One is investing. You got to keep investing and over time that really can build wealth. That money starts throwing off income of its own.

The other one is side hustles and things like that. I faced that when I was in level three. I had a decent job, I was making good money, and I just saw these 3%, 4% raises for the rest of my career, and that was it. I was capped out. I was just going to follow the inflation, and that was going to be it unless I got a PhD or an MBA or something. I said, I don’t want to do that. So I was like, maybe I’ll start writing and we’ll see where it goes.

I didn’t know it was going to be monetized. I had no clue, but I had heard you can do stuff with content. I said, okay, we’ll see. So that’s how I did it. There’s other side hustles, a lot of different options out there and I talk about this in the book. But yeah, that’s what I would say is thinking about the income side. That’s the opportunity.

And then on the risk side, it really is a little bit of overspending. I think that can cause this. Also, your investments can go awry as well. I’m less worried about that. I’m guessing the median Money with Katie listener is not day-trading crypto and options and things like that. So I think that you guys are set.

Katie Gatti Tassin:

Well, there was one line that I kept thinking about after I read it. You wrote, “The most expensive thing some people own is their ego.” And I was like, oh, that is a killer. That’s a bar. Honestly.

Nick Maggiulli:

I appreciate it.

Katie Gatti Tassin:

We’ll get back to this conversation with Nick Maggiulli right after this.

So I do want to spend a little bit of time on level four as well. You note that, level four, so to kind of ground us again in our scale, net worth between $1 million and $10 million, that’s a huge range, but that’s the point at which your investment portfolio is likely to earn more than you are. That really jumped out at me. This is when it pays to spend more time ensuring your investments are in the right spot.

One of my unexpected takeaways of that level four chapter was that maybe worrying too much about asset allocation before that point might not really be the best use of your time. I feel like I’ve had this conversation with people over the years where they’re really nervous about getting every single percentage point of that allocation just totally locked in with a $70,000 portfolio, and it’s like this really is not the best use of your time right now.

I am curious though, if you can tell me a little bit more about what investment management at that phase might look like. Obviously you work for a wealth management firm. I am aware that that’s the context we’re having this conversation in, but that was something that jumped out to me that I was like, oh, I should maybe be paying a little bit more attention to this. I kind of set this and forget it a long time ago, and now that I’m really thinking through these numbers, I’m like, yeah, actually a high return year is comparable, so what should we be paying attention to here?

Nick Maggiulli:

The thinking is that as your investment portfolio gets larger, the cost of the mistakes just get larger. And so a mistake on $100,000 portfolio, let’s say, oh, I made a slight mistake and maybe I underperformed the market by a few percentage points. On a 10% return, let’s $10,000. Let’s say you underperformed by 2%-3%. That’s $2k-$3k; and’s not a big deal, right? On a million dollar portfolio that’s now a 10x—right now you’re $10k to $20k off. You can just see how because the portfolio value is larger or your net worth is larger as a whole, the mistakes are more costly.

And I also think it makes sense why the financial advice industry does really try to target people with $1m+ in investible assets because A) it’s where the economics make sense for the advisor, but B) it also makes sense for the client. If you don’t have a lot of money, our advice isn’t going to be as impactful…and it’s hard to run a business that way. And also there’s not much we’re going to give you that’s impact your life as much as raise your income or work on the personal finance side.

It makes sense why that naturally as it gets bigger, people start to say, oh my gosh, maybe I do need an advisor. I don’t want to think about this or I’m not sure what to do with this stuff and not everyone’s going to want an advisor. And there’s different types of people. Kitces has some research on this as well, Michael Kitces, and one of the things he shows is there’s basically three groups of people out there and it’s roughly equally divided into three parts.

So there’s the people that do it yourselfers, they’re going to always do it themselves, are never going to pay someone for it ever. They’ll read blogs, they’ll do stuff, they’ll listen to podcasts, but they’re not going to pay someone.

There’s the people that they’re called the delegators, they don’t want to do any of it. They’re like, I can’t even think about this. This is not my area of expertise. I’m happy to pay an AUM fee or a planning fee or hourly fee, whatever.

And then there’s a third group who doesn’t want to pay the AUM fee, doesn’t want the full on advisory relationship, but really wants someone to just double check their work really. And so those are the people that are going to go on and maybe ask questions to podcasts that answer questions or they’re maybe going to pay a financial planner to give them a one-time plan or pay them hourly or something just through a very fixed engagement. And so most of your listeners should fall in one of those buckets of like, oh, I do it myself, or oh, I really want to delegate. And so thinking through that, especially in level four, that’s where it starts to become more impactful.

Katie Gatti Tassin:

I’m definitely the third camp. I think I was really confident doing it myself up until that switchover point where I started to be like, okay, we’re talking about some actual money ass money now. I should probably just make sure that everything that I assume I’m doing that’s correct. It’s worth the money now to pay somebody a couple thousand dollars to check my work.

I think that I’m having that same experience personally speaking with now thinking that it might actually be time to work with a CPA. I’ve always done all of my taxes myself and now that I have multiple businesses in the mix, and royalties from a book, I am going to be establishing myself in Colorado as a resident so we’ll have state income tax for the first time since my husband is getting out of the Air Force…There’s just a couple things where I’m like, yeah, I actually think that there comes a point where the peace of mind that a professional is looking at these things is worth spending the money on it, and I don’t feel as stingy about these things anymore.

Nick Maggiulli:

Yeah, I agree completely, and when I think about this, I’m definitely more of the do it yourselfer, but in terms of the tax stuff, I have to pay people, right? If you have an LLC, you have a book paying royalties, this, that, you’re changing states, all this stuff, it gets so complex and I know I’m not the expert on it. Do I want to sit and learn all the intricate tax law for New York, New Jersey, my LLCs in Wyoming? Do I want to learn all that?

No, I don’t want to do any of that, so I’m happy to pay that stuff. I do think that’s also where the value add comes in because at some point you’re going to be like, wow, I could have been doing that and saving how much a year and doing this. That’s the example where those services do really pay for themselves at some point.

Katie Gatti Tassin:

Every single year I owe money on my taxes. I have W-2 and 1099, and I’ve historically paid enough of my liability through the W-2 paycheck deductions that I always end up owing money for the 1099 income, but it’s not enough to trigger a penalty. And I think this past year was the first year where there was a penalty and I mean it’s thousands of dollars, so I’m like, okay, well yeah, this is probably a sign that my attempt to do this on the cheap is now actually costing me more because just I’m overpaying the IRS now anyway.

I think regardless of what level someone is currently in, you have another guideline to help people assess new opportunities and potential career moves, not thinking about the investment or the spending side of things as much as we’re thinking about income and exertion and how are you kind of quantifying big changes. Can you walk us through the 1% rule?

Nick Maggiulli:

Yeah, so the 0.01% rule is for spending. The 1% rule—of course, this is a rough guideline. Everything should be based on how much time it takes you technically, but let’s just put time aside for now. And the question is, if you’re looking at an income opportunity, if it’s not going to eventually improve your net worth by 1%, then maybe you should reconsider.

And it’s not a hard fast rule, it’s just something to think about. So let’s say you’re like, oh, someone wants to pay me to do this event somewhere, and if that thing’s not going to even move your net worth by 1% or not even close to that, you’re going to be like, oh, why do I want to go do that? Why do I want to go speak somewhere? Why do I want to take on this project?

And so I think thinking through that, and obviously that bar gets higher and higher over time, and I think that as it should, because then you’re valuing your time more highly over time, which I think is a good thing. Now that’s only within the labor market setting. I don’t think you should start thinking that way with your whole life. Then you’re going to start being like, well, I could play with my kids or I could go make this money, and I’m like, I don’t want to do that. You don’t want to take this to the extreme. I think it gets…

Katie Gatti Tassin:

I appreciate that we’re keeping it in this box.

Nick Maggiulli:

When it’s, I’m like, I’m paying you and this is a contractual relationship. That’s when you use this rule. You do not use this rule to start evaluating everything because then next thing you know, you’re not living your life anymore and you’re optimizing everything and it gets really bad. You could see how that spirals to the point where you don’t do anything in your life anymore and you have someone cooking for you, cleaning for you, all this stuff, and I’m just like, it’s too much that you need to experience life still and not just maximize every dollar.

Katie Gatti Tassin:

There were some viral reply to a Reddit post where someone was talking about essentially witnessing somebody go through that where they took this optimization framework, applied it so wholeheartedly that before long they really did nothing that didn’t make them money, and they became so one dimensional, like the outsourcing everything to other people. The main takeaway from the reply was it flattened this person’s sense of their identity to the point that was pretty harmful. And I always think about that now.

I actually stopped paying somebody to come clean. I paid a professional cleaning service for years, and when we downsized into this apartment, I was like, I actually like cleaning. This is kind of part of my wind down time. It feels productive, but it’s kind of mindless and I can listen to a podcast and if I’m applying an optimization framework of I could spend a couple hundred dollars to save this hour of my time, that might make more sense. But that in some ways I think I was actually losing out on feeling like I had other purposes or was capable of doing other things than sitting in front of a laptop.

Nick Maggiulli:

Yeah, I completely agree. I think that’s exactly right in what can happen when you start just like, oh—I really love cooking, but I could afford to do Uber Eats or something. I like cooking and I like the act of cooking and yes, it’s cheaper and that’s great and all but that one hour I could write a blog post that would make me more money and I could hire someone, but at the end of the day, I enjoy that. I want to still have a life and not just be a money making machine or something like that.

And I think that’s for most people that just have a nine to five, if your work’s very defined, but if you start doing a side hustle, there’s something, this type of stuff can come up as a tension and I don’t want that to kind of take over someone’s life.

Katie Gatti Tassin:

I think you’re absolutely right, and I think that that’s why I value heuristics like these of the 1% rule because pretty much all of my friends have side hustles and I actually can’t think of a single one that only works nine to five and isn’t somehow scrapping of I’m either trying to build a business on the side or I’m doing something just for extra money. Most people that I know at this phase of life, either out of necessity or out of desire are doing something for money outside of a traditional nine to five employment, and I do think that sometimes things are a little borderline where you’re like, well, should I take this opportunity? Should I spend the time doing this? The money could be good, but that’s why I like the 1%. You think about 1% of your net worth and you go, alright, if it’s underneath that, maybe you still do it. You want to, but if things are borderline, it gives you an extra check that you can run the decision making process through that might push you in one direction or the other when you’re making those very basic day-to-day decisions about what you are committing to and how you’re spending your time.

Nick Maggiulli:

Yep. I could not improve on that answer, so I agree completely.

Katie Gatti Tassin:

So your book expands to levels of wealth that are like nine figures and above amounts of money that I can’t even begin to wrap my head around, but I think there’s an interesting tension toward the end of the book when it comes to the relationship between the pursuit of wealth and the pursuit of happiness, and you summarize some of this happiness data: Well, if you’re poor, more money will make you happier. Probably if you’re happy, more money is probably going to make you happier, but if you aren’t poor and you aren’t happy, more money won’t do a thing. And I like the nuance there.

You also acknowledge diminishing returns here and how little your life is impacted by money once you have enough of it. I do think about this a lot. I’m sure you think about it constantly given your profession. I’m just curious how you reconcile that reality with the fact that some people who do have billions of dollars still seem hellbent on acquiring more and will go to great lengths to defend their ability to have and make millions of dollars. There’s a conversation you include in the book with Charlie Munger. He basically was reflecting on his life and life kind of gave the answer that no one expects, which is I could have had higher returns, I could have made more.

And I was like, whoa, that’s not what I was expecting. This billionaire 90-year-old man to say it feels like attention to me and I’m kind of curious how you personally resolve that and think about that.

Nick Maggiulli:

How do I resolve it? The most expensive thing some people own is their ego. That’s how I resolve it. That’s it. Why do people go and do the things they do? It’s not money. It’s really not. It’s only the competition of the money. It’s not like the consumption. I don’t think people with, oh, I have $20 billion. Oh, if I only had $30 billion, I could actually consume my right consumption basket. Absolutely not at that level. It doesn’t matter anymore.

Money is a tool to do other things. You can buy companies and do other things and really impact the world in a much bigger way. That is true there. Between $20 billion and $300 billion is quite big because you can do impact the world and change the world in a big way, but I do think a lot of that is ego coming out. Why do you want to do that? There’s debates to be had and there’s philosophical ideas here, but I do think some of it is like, oh, I think I should be the one doing this because I believe in my moral philosophy and that’s I think coming through in some way with some of these people.

Katie Gatti Tassin:

Okay, interesting. I wasn’t expecting you to tie that back to ego, but I think you’re spot on. I remember talking to our mutual friend Jack Raines about this a couple years ago where we were kind of discussing this idea of when money transitions from being a material resource to just being a scoreboard, and how when it becomes a scoreboard, that’s when you get into this kind of infinite, no amount will ever feel like enough to you because you’re asking it to do something that it was never meant to do. You’re never going to achieve a level of satisfaction with that.

Nick Maggiulli:

Yeah, I think that’s a piece of it. I also think about who’s actually the richest people in the planet right now. I think it’s Gates and Buffett. And if you look at the Forbes list, it’s going to say Musk and Bezos and all these other people who have a higher wealth on paper, but they’re not diversified. If something happens to Tesla, you could very easily see Elon Musk’s net worth get cut in half, even more than that, drop below a hundred billion. You could imagine something could happen to Tesla specifically that would cause that.

I can’t imagine a scenario where Buffett or Gates has their net worth cut in half. There’s no scenario because they’re so diversified. Bill Gates is the largest private landowner in the US. For him to lose his wealth, the US—there’d have to be a nuclear war. These people are so diversified, the Buffets and the Gates are going to have money.

I know they’re giving their money away to the foundations when they die, but it’s very interesting to think about that in ego and I think they are playing a very different game than most of the billionaires because they’ve been able to diversify, which has really protected their wealth, and it’s going to allow that to sustain much longer than I think a lot of the other very, very rich people. Super rich. I think in general, I do think it’s partially ego and at the end of the day, that’s what happens, right where this plays out.

Katie Gatti Tassin:

What’s next for you? You think you’ll write more books?

Nick Maggiulli:

I have no clue. People have asked me that. I’m just thinking about this one right now. It’s imagine—it’s like just got married, enjoying that, going through the promotion of this, and it’s been fun to kind of hear everyone’s different thoughts and their takes on it and what resonated with them and what didn’t. And I really appreciate you having me on, Katie. We’ve been friends a long time and it’s great to go back and forth with you intellectually on these ideas.

Katie Gatti Tassin:

Oh, thank you. I feel the same way and it was a pleasure. Thank you for coming back. I think for the show art for this one, I’m going to use the Polaroid of the selfie that you took with my parents at my book release. I love it. Have you seen this?

Nick Maggiulli:

I dunno if I have.

Katie Gatti Tassin:

It’s so cute. There’s a stack of Polaroids after the party that I think Henah or somebody handed it to me and one of it was like you and my dad holding the book. I was like, wow. If you would’ve showed me this five years ago, I would’ve never believed that this was real. If you would’ve showed this to 2020 Katie, she would’ve just spontaneously combusted. Me reading Of Dollars and Data in my little apartment in Dallas being like, the 4% rule.

Nick Maggiulli:

I’m going to have your book one day and I’m going to be holding with your dad and at your book launch party. So funny.

Katie Gatti Tassin:

Wild. Well, thank you for joining me and congrats on another successful book.

Nick Maggiulli:

Thank you. Thanks so much, Katie. Appreciate it.

Katie Gatti Tassin:

Our show is a production of Morning Brew and is produced by Henah Velez and me, Katie Gatti Tassin, with our audio engineering and our sound design from Nick Torres. Devin Emery is the president of Morning Brew and additional fact checking comes from Scott Wilson.