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What are the five levels of financial well-being? How can these levels lead you to a secure and happy place in your life?
If you’re making a plan to control your finances, you need to aim for financial well-being. Doing so means you’re working towards financial security and freedom, but first you have to set a few goals for yourself along the way.
Here are the five levels of financial well-being you should target, according to Tony Robbins in his book, Money: Master the Game. In addition, we’ll look at alternate targets from the Financially Independent and Retiring Early (FIRE) community.
The 5 Levels of Financial Well-Being
You need to set a clear destination to obtain a financially stable lifestyle: Calculate how much you need to save and invest to obtain monthly returns that can support your desired lifestyle.
Robbins says that you can reach financial well-being with much less money than you think. He suggests five levels of economic prosperity:
Level #1: Financial Safety—you can cover five of your basic needs—housing, food, utilities, transportation, and insurance—with your investment yields. In other words, you don’t have to work to pay for them.
To find this number, estimate the monthly cost of each above expense, add them together, and multiply by 12. That gives you your yearly cost of basic needs—the amount you’ll need your investment yields to cover to achieve financial safety. For instance, $2,500 of monthly expenses means you’d need $30,000 in annual investment income.
Level #2: Financial Robustness—You have enough additional investment income to cover half of your desired luxuries—such as gym membership, restaurant expenses, or nice-to-have software subscriptions—without having to work.
Level #3: Financial Sovereignty—You have enough investment income to cover Levels 1 and 2, as well as any other expenses that are part of your current lifestyle. Since you don’t have to rely on earned income, your life—your time—is now your domain, and you can work when and if you want to.
Level #4: Financial Autonomy—You’ve met the above goals and can also afford a few significant luxuries—such as a vacation house or long-term travel—without having to work for them.
Level #5: Complete Financial Autonomy—You can do whatever you want, whenever you want—without having to work to afford it. Money is no longer a concern for you or your family, and you can live your life entirely on your own terms.
Robbins recommends picking three goals from the above: An easy, medium, and hard goal. Achieving the easy goal will feel great, build momentum, and motivate you to reach for your medium and hard goals.
(Shortform note: In I Will Teach You to Be Rich, Ramit Sethi recommends that you think about your why. Clarifying why you’re working to achieve financial well-being can help prevent you from getting lost in the nitty-gritty of penny-pinching. For example, maybe you’re investing for peace of mind so that you can live as you like without worrying about future income. Remembering this each day will help you to focus on money as a means to an end, not the end itself.)
Lean FIRE Versus Fat FIRE
Similar to Robbins’s suggested goals, the Financially Independent and Retiring Early (FIRE) community offers a few different lifestyle targets to pick from:
- Standard FIRE means simplifying your lifestyle and saving somewhat aggressively. You aim to develop an asset base that will allow you to retire in your 40s or 50s.
- Lean FIRE means living well below your means (such as in an RV) to save a high percentage of your income—think 50%, and even up to 85%.
- Fat FIRE means compromising fewer creature comforts, and instead, taking longer to retire but enjoying a more comfortable lifestyle.
- Barista FIRE is similar to Lean FIRE but involves supplementing your passive income with part-time or gig work to support your desired lifestyle. For example, you might work for pleasure and income at a coffee shop.
As always, it’s up to you to determine what works for you. Consider how much you could let go and still be happy, and practice finding pleasure from less if you can. In general, cut out consumption that returns only temporary, shallow pleasure—like a $4 muffin from a bakery—unless that muffin is truly meaningful to you.
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