The 5 Levels of Financial Freedom  

I don’t know when the term “financial freedom” came into vogue, but it certainly gets tossed around a lot nowadays.

Some people don’t like it, but I’ve always felt it captured something useful.

Money is a tool, and what exactly is that tool for?

For our family, it helps us to pay the bills, enjoy memorable experiences, and support causes we believe in.

When there’s not enough money, we’re constrained in our choices. As our income and assets grow, we have more freedom to choose.

I think it’s helpful to think about this freedom in terms of different levels that make certain types of freedom possible. 

I’ll get to those in a minute.

The implications of freedom

But first, I want to talk about the implication of this idea of money as freedom.

With freedom comes responsibility— or at least that’s what I was always taught growing up.

If I wanted the freedom to drive my own car, there were certain expectations I had to live up to.

Looking back, I think this was healthy.

I’m going to propose that you think about your finances the same way.

This is no guilt trip.

I’m not trying to say that rich people ought to do this because that’s the price of being rich.

I honestly believe this is the path to the richest life you can actually live. One where you’ll be able to use your financial wealth to create other types of wealth that really matter.

That’s just good business 😉

The five levels of financial freedom

Where are you right now? And where do you realistically hope to get?

Don’t assume that the highest possible level is the one you should strive for. It takes time and energy to move up the levels, and you need to balance this with other opportunities you have in life.

I’d argue that too many people overinvest in trying to get to the next level.

And keep in mind that this is all relative to where you live in the world and when you were born.

My context is 21st century United States.

Level 1 – Stability

You’re paying your bills and saving a little bit of money.

Your financial situation is sustainable though not quite comfortable, by modern standards.

Level 2 – Breathing Room

Ah, you can breathe.

You can now handle large unexpected expenses without breaking a sweat.

As long as your job is secure, you don’t have to worry about money on a day-to-day basis.

Level 3 – Flexibility

You’ve moved past the point of survival and even concerns about money.

Now you’ve got choices and options.

What are you going to do with your disposable income?

Level 4 – Independence

At this point, you don’t need to work anymore if you don’t want to.

For most decisions, you’re no longer constrained by money.

Level 5 – Abundance

You now have more money than you can ever reasonably spend in a lifetime.

The important question becomes, what do you do with it all?

What is true freedom to you?

One of my goals with this blog is to challenge people to think holistically about wealth.

I’m pro wealth. 

I think it can be a distraction, but I’m grateful to be living in a wealthy society and consider it a blessing.

But one mistake I see people making is, especially those of us who read blogs about personal finance, is using money as a scorecard for life.

Freedom is only useful if you have a plan for what you’ll do with it.

There’s no prize on your death bed for simply having accumulated a bunch of IOU’s.

Do you have a vision for your freedom? What level of financial freedom does that require?

It’s hard work, but this involves matching your personality and your ambitions with what you can reasonably hope to achieve.

It’s the step I think too many people miss, and so I hope you’ll join me in thinking deeply about it.