I get asked for a lot of financial advice and as you would expect, some of the questions are easy and sometimes they are difficult to answer. Sometimes, the questions arise from the saver having inputs, as in, I have x amount of money so what should I do with it. Sometimes it is about outputs—I need x amount in five years so what should I do to make that happen? Sometimes it combines both. All these are fine and have quite well established and sensible ways of selecting a solution.
The hardest questions are those where all you can do is to show the other person how to work out their own answer simply because the answer is different for everyone. There’s one such question which always falls into this difficult category: “How do I achieve financial freedom?” At first this looks like a vague term even though it signifies a roughly similar thing to almost everyone: Financial freedom means not having to worry about money ever, and knowing this with a high degree of confidence.
This is probably always the dream of most people but it seems to have become more common to articulate it. Since the daily grind of earning money dominates our lives, a permanent relief from this is the freedom that most of us desire. There are many degrees of financial freedom, and the ultimate one is not having to work to earn money for the rest of one’s life. Of course, there are many who do not have to work. There are those with large inheritances, and there are those whose burden we taxpayers are committed to carry all our lives, but it takes most of us an entire working life to reach that stage. If at all we ever reach it.
However, it is worth it to clearly articulate what different levels of financial freedom mean. Based on what many authors have written, here’s one list that you will often come across if you start searching on the internet. This one is based on the one in Grant Sabatier’s book,
Financial Freedom: A Proven Path to All the Money You’ll Ever Need.
Levels of financial freedom
- Clarity: When you have understood your financial position and what you can achieve
- Self-sufficiency: When you earn enough money to cover your expenses on your own
- Breathing room: When you escape living from salary to salary
- Stability: When you have six months of living expenses paid and have no consumer debt
- Flexibility: When you have at least two years’ of living expenses saved
- Financial independence: When you can live off your investment income, and therefore, working is optional
- Abundant wealth: …….