Financial freedom is the ultimate goal for everyone because it represents a state where individuals have sufficient money and assets to enjoy a comfortable life without being burdened by any financial worries. The threshold for financial freedom varies for each person, and there is no specific number for achieving it.
Being financially free means not being constrained by money and having the ability to do what one desires. However, achieving this requires a process of effort and specific short-term and long-term strategies.
The 7 levels of financial freedom according to Grant Sabatier
Grant Sabatier, a self-made millionaire and prominent figure in the Financial Independence Retire Early (FIRE) movement, amassed over 1 million USD in just five years by saving more than 80% of his income.
Sabatier views money not just as a means for purchasing but also as a tool that gives us more choices about how we want to live. Sabatier has outlined seven levels of financial freedom to help anyone easily "locate" their finances. Let's explore together which level you are at with VPS!
Grant Sabatier outlines seven levels of financial freedom to help individuals gauge their financial situation:
- Level 1: Clarity: This is the starting point where you assess your financial status by understanding how much money you have, how much debt you owe, and your goals.
- Level 2: Self-Sufficiency: You need to earn enough to cover your expenses without any external help. At this level, living within your means and avoiding taking on debt to sustain your lifestyle is essential.
- Level 3: Breathing Room: Once you've achieved self-sufficiency, you've likely managed to save a modest amount, allowing you to start funding other goals such as an emergency fund and retirement savings.
- Level 4: Stability: To reach this level, you must eliminate high-interest debt and accumulate an emergency fund covering at least six months of living expenses. This savings cushion ensures that your finances remain stable despite unforeseen circumstances.
- Level 5: Flexibility: Typically, having at least two years' worth of living expenses saved indicates that you're at this level of financial freedom. This includes cash and funds in savings and investment accounts, accessible when needed. At this stage, you can afford to quit a job you dislike without much worry.
- Level 6: Financial Independence: Achieving this level requires a shift in mindset from traditional personal finance approaches. It often involves investing a significant portion of your income or adopting a simpler lifestyle to reduce living costs drastically.
- Level 7: Abundant Wealth: While individuals at level 6 still need to monitor their investment portfolios to ensure they meet their financial plans, those at level 7 do not have to worry about money. At this stage, money is no longer a concern nor a necessity for survival.
The journey to financial freedom is challenging but achievable with the right strategies and mindset.
The secret to achieving financial freedom early
First, review your financial freedom level based on Grant Sabatier's framework or create a detailed financial spreadsheet. Then, start planning specific strategies to achieve the financial freedom threshold or goals you desire. Remember, you must have long-term and short-term strategies to stay on track with your objectives.
After you have a complete plan, consider these tips to achieve your financial goals sooner:
- Diversify your income sources: Besides your fixed monthly income, you can generate additional passive income streams through long-term investments, entrepreneurship, etc.
- Build a smart financial lifestyle: Implement spending and income management rules, such as the 6 Jars Rule, the 50/20/30 rule, etc., to manage your personal finances effectively.
- Invest in knowledge and education: Increasing your value and skills through continuous learning can open up more opportunities in life
- Learn effective communication and expand your network: Going alone is never easy, so mastering effective communication and constantly expanding your network can allow you to learn from others and find companions to share your journey.
