When we’re young, we typically want money for one reason and one reason only: to buy the things we never had. Many of us grow up in situations where money is scarce and we go through life with less than those around us. As such, when our time does come to enjoy what money we have, we tend to take full advantage of the opportunity. However, anyone who’s spent money on material goods to fill a void in their life knows that it’s rather unfulfilling. If you ask me, it’s not material goods that your money should be spent on but buying back your time instead. This is why so many people strive to retire early and attain financial freedom and this is the exact topic we will be talking about today. We are going to dive into the benefits of being financially free then go through the 5 levels of financial freedom so you can find out where you stand and which steps you must take to reach the ultimate level of freedom!
There are two things I love in this world that have the initials FF. The first FF is fast food. Now, of course, I don’t eat it all the time but I mean who doesn’t like a nice cheat meal once in a while right? The other double F I can get behind is financial freedom. As I just mentioned, I think we all go through a phase in our lives where we want to reclaim the missed out on glory of our past by spending money when we finally come into it.
I know that when I finally cracked the six-figure club, I had a strong pull to finally spend money to travel to the places I could never afford to visit. For others, their spending desires may relate to fast cars, nice dresses and the like. However, while it sucks to admit this, each one of these spending endeavours pushes you further away from attaining financial freedom, which if you ask me, is a much more worthwhile financial cause.
In fact, most people have never even thought about what benefits come with attaining financial freedom so let’s go through a few of them right now!
The first benefit, and the one I would argue is the most valuable, is gaining control over your time. As humans, we crave autonomy. In most people’s ideal world, being able to do what they want, when they want in life is the ultimate prize. However, jobs, relationships and other responsibilities tend to get in the way of that dream and while I’m not saying to ditch your spouse or put your kids up for adoption, you can at least tackle the working aspect that will make you more autonomous.
The second benefit is reduced stress. The concept around being financially free is to have enough money to never have to work again. In my eyes, it’s basically being retired, but without all the gray hair and saggy skin. Well, when you have loads of money in the bank, chances are you aren’t going to be sitting up at night worried about your next paycheck or how you will pay the $300 to get your car fixed. Whether you want to admit it or not, all of these little financial speedbumps take a toll on our mental health and when you become financially free, you should be able to handle them much more swiftly.
Finally, when you are financially free, you have the option of buying back your time. I know I already talked about time autonomy as being a benefit but let’s face it, regardless of how wealthy you are, you will still need to cut the grass, do the dishes or grab groceries. You have to do all these mundane chores, that is, unless you pay to avoid them. I know for myself personally, offloading low-value tasks has dramatically improved the quality of my life because let’s face it, no one likes cleaning toilets or sweeping their floors. When you have money, you can make these chores disappear which is just another reason you want to attain financial freedom.
Therefore, let’s now dive into the 5 levels of financial freedom so you can see where you land on its spectrum and the steps you must take to get to its final stage.
Level 1: Financial Wokeness
In our present day and age, generally speaking, being woke is a good thing. From being aware of changes to our climate to acknowledging the travesties against those who came before us, being woke means being aware. Unfortunately, many people are sleeping on one of the most important forms of wokeness which is financial wokeness.
I believe that almost everyone at some point in their lives will have their own financial awakening. A financial awakening, as I describe it, is a point in their life where their financial situation is so unbearable that they are forced to make a change.
For you, this awakening could be when your boss makes you work overtime for a 3rd night in a row and you have to miss your kid’s recital because of it. Alternatively, it could be when you have a sick relative halfway across the country you want to visit but you can’t foot the bill for the plane ticket. These moments of financial awakening tend to hit us hard and they prompt strong action in those who are the most affected. I know I had my own financial awakening when I was working 60+ hours a week in management consulting and was not only dead tired all the time but still could barely meet my bills.
Therefore, the first step in becoming financially free is to identify where your present financial issues lie and realizing that without action, you will remain in that rut forever!
Level 2: Financial Adoption & Stability
This level on the financial freedom ladder is perhaps the most important because this is where the rubber meets the road. Up until this point, you were probably a proverbial chicken with its head cut off when it came to money and financial advancement but today that changes! When you enter level two, you start to ask yourself deeper questions like why you want to strive for higher financial goals and what will having more money do for you?
This is also the phase of financial freedom where the most amount of learning is done. This is where people start to investigate the best ways to save, earn and invest their money through connecting with mentors, reading books and taking online courses.
With this new financial tool belt around their waist, most people tend to start to see improvements in their financial lives during level 2. They finally tackle that pesky credit card debt of theirs, they amass a small amount of savings and they may even try their hand at the stock market too. Not to mention, for those who are really taking their finances seriously, they even craft a retirement plan so that in the future they aren’t forced into working until the ripe old age of 95!
How I would sum up level 2 of financial freedom is that you are no longer struggling to get by financially. You are making enough money every month to cover your bills and you can handle one or two minor unexpected expenses if they come your way, which if you’re been around long enough, you’ll know they come sooner or later!
Level 3: Financial Security
Why do millions of people around the world pay to have an alarm in their house? Simple, it feels good to feel secure and when you reach level 3 of financial freedom, you too can enjoy this amazing feeling.
In my eyes, being financially secure means that you can handle all of life’s unexpected events. For instance, if your car breaks down, you can easily handle the repair bill. If you lose your job, you have enough money in the bank to be able to ride out the period of time where you’re unemployed.
To me, being in this stage simply means that you’re past staying up at night worrying about your bills and given that life is full of many other things to worry about, getting the financial aspect off your plate is a huge plus!
Now, you don’t just become financially secure by accident. Some of the core tenets of being financially secure are having a 6 month emergency fund set up, having more than one stream of income and being properly insured. These are what I call the financial freedom trifecta and once they are in place, your financial worries will be significantly reduced. Therefore, once you do have these financial components set up in your life, congratulations because you’re now halfway through the 5 levels of financial freedom!
Level 4: Financial Prosperity
Once you enter level 4 of financial freedom, you’ve now joined the big leagues. I will admit that there’s a big jump from level 3 to level 4 and as such, few people are able to join this higher tier but if you are able to get there, the benefits are immense.
So, first off, what does level 4 consist of? You will know you’ve entered a life of financial prosperity when you never have to work again. Keep in mind that I used the word “need” because if you hit this level of financial freedom early enough in life, you may still want to keep working in some capacity so as to fill your time. Now, how do you get to the point where you no longer need to work for a living? There are two ways to get there!
The first, is through the traditional means of amassing a large enough nest egg to never have to rely upon a paycheck again. This is typically done through consistent saving and investing and if you add a large income to the mix then this goal can be attained rather quickly. I know that my own retirement savings have skyrocketed since I started on YouTube and began collecting a whole extra full-time income from my channel.
The other path to financial prosperity and never having to work again is when you have enough assets in your possession to pay every last bill you have. This could be real estate, online businesses, dividend stocks or a combination of all three!
However, the way I described being financially prosperous probably doesn’t sound that prosperous to you in the way you imagined. Sure, it would be amazing to never have to work again but how large will you be living in this stage of financial freedom?
At level 4, the money you either have set aside or coming in every month should not only allow you to meet your bills but never have to shop for sales items again. In short, your day to day spending is easily handled, you can afford to travel a few times a year all while enjoying never having to get dressed for work again!
Level 5: Financial Freedom
We’ve finally made it to level 5 of financial freedom but the question is, have you? If you’ve yet to progress to this point in your financial life, don’t worry because few people ever get this far.
When you are totally financially free, you’ll know because at this point you’ll experience two amazing sensations. The first is that you will have ultimate control over your time. No one, other than maybe your spouse or kids, can ever tell you how to spend your time again. Second, you will never have to check a price tag or worry about how much you spend ever again.
As you’re probably coming to realize, being financially free to this degree will require you to have millions of dollars. However, with the right set of skills I do believe this level of wealth is attainable.
Generally speaking, achieving ultimate financial freedom requires a skill set of high financial IQ, consistency and patience. The issue is that there are a ton of people who have two of these factors in place but tend to lack the third.
For example, you could be very well-educated and consistent in your money management practices but take on too much risk and lose all your money because of your lack of patience. Alternatively, you could be consistent and patient but are working in a model like trading time for money, and never get ahead because of the limitations that are currently placed upon you.
At the end of the day, yes, reaching level 5 of financial freedom is a great goal to work towards however you shouldn’t feel bad if you never get there. Personally, for me level 4 is enough but you have to figure out what level is going to work best for you given that rising to each of the levels will take some degree of sacrifice and commitment!