The 5 levels of financial freedom

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This is an extract from my book, The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Low to Medium Income.

This is not a get-rich-quick guide.  It does not require business genius, crazy risk taking or complicated financial techniques.  It is a step-by-step, layman’s guide for organizing your money, getting ahead and reaching your goals.

This book is not a replacement for getting professional advice.  In fact, there is a whole chapter devoted to how to find a good financial advisor and how to get the most value from that advice.

A word of caution: this book is not a genie in a bottle that, upon reading, will magically grant your wish for financial freedom.  To get any benefit from the book you will need to do the hard work of actually implementing the steps explained.  This process will probably take years, though most of that time will be spent patiently waiting for the strategies to reach fruition.  There are no secret tricks or shortcuts.

Before you go any further, grab a pen and paper.  Also have a calculator handy, and a device with internet connection.  You’ll have some things to research and figure out as we go along.

Levels of Financial Freedom

            What is financial freedom?  It is best defined as having the wealth to choose your own path in life instead of being flung about by the fickle waves of fortune.  The further down this path you go, the more freedom you will have.  After all that doom and gloom, here is a rundown of what you can look forward to:

Level 1: Freedom from Fear

Your debts are under control and you have the emergency cash to bide you over in case you lose or quit your job.  You don’t lie awake worrying about expensive medical needs or a car breakdown because you know you could handle it financially.  For most young people, this is an excellent initial goal, and if you follow the steps in this book it is likely achievable in a couple of years.  You might call Level 1 ‘financial security’.

Level 2:  Chillax

You could take a year or two off work if you wanted to, such are your savings and investments.  Rumors of layoffs at your company pass by you like a gentle summer breeze.  This is like Level 1 on steroids.  Most people can reach this level in 5-10 years, depending on their initial circumstances.

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Level 3:  Semi-Financial Independence

Your wealth has reached the point where you are able to work part time, or on and off, if you wish.  You can use the rest of your time to focus on other priorities.  This is a great level of freedom at any age, but it is particularly pleasant for middle-aged people who are considering easing into retirement rather than finishing work all at once.  Financial stress is eliminated, and options increase – work for extra cash, or play more Fortnite?  At Level 3, you get to choose.

However, just because this is a nice level of freedom for older people does not mean that you only need to start thinking about it once you hit middle age.  If you want to reach this point someday then you’ll need to start working towards it now, if not earlier, because it will take most people 10-20 years to achieve.

Level 4:  Full Financial Independence

Your investments are at a level where you can live off them permanently (but frugally).  You don’t have to work anymore unless you want to, either for extra pocket money or for personal fulfillment.  You’ll need to reach this level eventually if you want to retire, unless you live in a country that can still afford to pay a livable old-age pension by then.

There is a big FIRE movement – Financial Independence, Retire Early.  These people basically follow the steps in this book to the absolute extreme in order to escape the rat race as soon as possible.  A lot of FIRE websites offer fantastic advice and I link to some in this book.  However, be aware that most people who are able to retire very early, before 40 or even 30, either have quite high incomes or have no children.  If you fit into either of those categories then reaching this level early is plausible.  If you don’t, financing a comfortable retirement by age 55 might be a more suitable goal because this level of financial freedom takes most people 30+ years to achieve.

Again, that doesn’t mean you can start thinking about it 30 years hence.  Rather, you need to start working through the steps in this book today if you want to retire comfortably in 30 years’ time.

Level 5:  Rich

You don’t have to work, you live in a serviced villa in the south of France, you drive a Ferrari, and you wake up every morning by doing lines of coke off the buttocks of high-class escorts.  This book will not help you to reach Level 5, but if that’s your goal, the best of luck to you.

End of sample.

To learn more about reaching financial freedom, get my book from Amazon:

The Poor Man’s Guide to Financial Freedom: A Realistic, 10-Step Manual to Building Liberating Wealth on a Low to Medium Income

Also available on many other platforms.

HALF PRICE for just 5 MORE DAYS!

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