- There's levels to everything.
And with financial independence, it's no different.
As you reach each level, the concerns will change,
the successes will be different
and the failures are always looming.
Each one comes with a new set of questions,
and it will force you,
to look at things in a different way that you didn't before.
Not for any reason other than you've reached a new level,
a good comparison would be
what we all experience as we get older.
When we're five years old,
we might cry our eyes out because
our ice cream fell off the top of our ice cream cone.
But as adults, we just laugh at something like that.
We're going to cover what the 10 levels
of financial independence are,
and some of the obstacles that you might face along the way.
This is gonna be a nice little guide,
to get you familiar with what's coming down
the pipeline on your fire journey.
Hey, I'm Jarrad with an A,
and on this channel, we talk about
all things personal finance,
investing and financial independence.
So first level is where we all start out,
and that's financial dependency.
It's where we're getting by
with the help of someone else.
For most of us, it's gonna be a family member
or a friend that's supplementing a portion of our income.
That person might not be handing you money,
but they might, for example,
be letting you stay with them for free
or allowing you to borrow their car
or give you rides to different places.
This is an area that we all start out in when we're young,
since that's when were the most vulnerable.
I've seen a grown adults in this position
as they're in the process of paying off debts, for example.
Now moving back in with your parents
to get your finances in order,
isn't anything to be ashamed of
as long as it's not for an extended period of time.
On the other hand, it starts to become problematic
as we get older, if we're not careful.
It is no fun and can be extremely demoralizing,
because you start to lose your sense of purpose,
since you're not able to take care of yourself without help.
I've seen people get stuck in this position,
and become a little too comfortable in it.
There's a guy that I know who is in his mid 30s,
and still lives with his mother.
He has never gotten his license before
and has no desire to either.
By the way he is a very capable person,
but he's just fallen into this slump,
and his mom is allowing it to happen.
Since this is the bottom though,
there's only one way to go, and that's up.
If someone is at this level,
then it should be a top priority to get out of it
as soon as possible,
to start building up some confidence.
Level two is where you have enough money
to cover all of your bills.
Think of it like the break even point.
Well, this sounds like it's the ideal situation,
it's a little deceiving.
Breaking even is good, if you're only playing the game
to keep your head above water.
But it's not if you're trying
to become financially independent.
It's like playing the same level of a video game
over and over and over and over,
without progressing through the whole game.
On top of this, you can continue to earn more
and more money over the years,
yet still continue to break even.
This is due to lifestyle inflation.
Your income always seems to match your spending,
which is why we see people who are rich
because of their high income, but not wealthy.
There's nothing to show for this success
except a bunch of expensive things,
that nobody really cares about.
Just like my grandpa used to say about these people,
they have a big hat, but no cattle.
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The next level is where you don't have any consumer
or student loan debt.
All of the money owed on credit cards,
cars and any kind of debt like that
is completely taken care of.
If you have a car lease,
then I'd even consider that debt as well
since you are bound by a contract
to pay a certain amount to the dealership.
Before I hit this level, I remember thinking to myself
that there is no way in heck,
I'd ever live without a car payment.
People can't just buy cars with cash, that's insane.
They need to have so much money on hand.
Fast forward to today, and now I'm thinking,
oh, young little Jarrad was so naive, how cute.
This level is usually the biggest hurdle
for a lot of people.
I know it was for me and the $82,000 debts
that I had personally racked up.
I worked really really hard for years,
to achieve this one.
It takes a ton of focus and effort
to get to this level.
But once you're there,
things really start moving in a positive direction.
You start to get that small taste of freedom,
and it becomes absolutely addictive.
You've got to be careful at this stage though,
because it can be super easy,
to fall back below this level.
If you haven't built those proper habits around
to only spending money that you have,
then your consumer mindset will start to creep back in.
At this stage, your net worth might actually
be in the positive.
But if you have a mortgage out on a home,
or you take one out after this level,
then it's back in the red.
Now this isn't always a bad thing though.
So we'll talk about that in just a minute.
The following levels are where you start to build yourself
a bigger buffer to help protect you
from falling below this one ever again.
The next level of financial independence
is where you have enough money set aside,
to get laid off from your job,
for at least three to six months.
Think of this like creating
a little personal insurance policy for yourself.
If someone having enough money to buy a car
with cash blew mind,
then you can only imagine how impossible
I must have thought that it would be,
to save up enough money,
for three to six months worth of expenses.
Sounded like some Voodoo black magic ancient pyramid type.
Shall admit that this is probably gonna take a minute
to set enough money aside,
to cover your normal expenses.
But once you get there, you start to get a little taste
of what financial freedom really feels like.
That freedom you feel from being in a position,
to not get super stressed if your income drops
for a short period of time, is one that the majority
of Americans can't even conceptualize.
I should also mention that,
you have to be careful not to get too cocky at this level
because, it can get a little risky if you're not careful.
Since you have this big wad of cash,
sitting in a high interest savings account,
it can be easy to dip into those funds,
and start living a little bit beyond your means.
Now is not the time to start making it rain
or letting up on the gas.
If anything I'd say to start working harder.
Celebrate for a minute, then get back after it.
If you're looking for more financial independence resources
and videos, I'll have my playlists,
linked up down in the description.
If you're not already in the positive Net Worth area,
then by the time you hit this level, you should be.
And that's because your mortgage will be paid off.
For most, their biggest debt is their home.
and it's what keeps their net worth in the negative
for the longest time.
Paying off your mortgage early is more
of a personal choice than anything.
For someone like me, I have zero interest
in ever paying off my mortgage early.
Now I still have a positive net worth,
even while having the mortgage since
my assets are worth more than my liabilities.
This is all calculated
into my financial independence numbers though.
I plan on renting this house out that I'm in right now,
once I move to the next house,
that I purchased, that I'll live in
for a short period of time,
before renting that one out and moving on to the next one.
But paying off the mortgage on your personal residence,
can free up a ton of cash every month,
and make you feel a little bit more secure since,
that's one less payment that you have to worry about.
There is of course a cost to having a ton of cash equity,
tied up in a home.
But you can't put a price on the financial security
that you get from owning your home outright.
Level six of financial independence
is the exponential growth stage,
and it's one of the more entertaining stages
because you start to see your money grow like crazy.
Since you've wiped out your consumer debt,
built a nice little three to six month nest egg,
and have no mortgage payment,
you're left with a buttload of cash.
Because you're pursuing financial independence,
you already know that that additional money,
needs to be deployed into income producing investments.
Those investments could be index funds
within the stock market, real estate,
businesses or anything like that.
If you wanna learn more about index fund investing,
then I'll throw a link to the video
that I made about that topic, down in the description.
When you're able to take one or multiple mini retirements,
then that's how you know that you've hit
the next level of financial independence.
You don't have enough money to be able
to completely leave work yet,
but you've built up enough cushion in your numbers,
to be able to leave work for next extended period of time,
so that you can kind of test out
the life that you wanna lead,
when you eventually leave your job for good.
Many people do this so that they can be sure
that they're actually going to enjoy
what they plan on doing.
Could you imagine working towards ePhI,
so that you and your significant other
can buy a boat and sail the ocean,
when you've never actually done it before.
That could be a disaster waiting to happen,
and a huge letdown, to find out that
neither of you can handle being at sea
for very long because you're constantly sick.
If you have enough money to leave work,
with the goal of living on less money than you do now,
then that's the next level of financial independence.
This could be where your income,
for example is $200,000 per year,
but you hit an amount, where you can leave work
and live off of $40,000 per year.
It's going to take some life adjustments
to make it happen since you're used to that high income,
but if you were prepared for it,
then there's nothing to worry about.
Even hitting this level and continuing to work,
will basically eliminate all financial stress
that you have because if you really want to one day,
you could just get up and leave from your job.
Once the numbers match up to where you can leave work,
and not change your financial lifestyle,
you've reached the next level.
It would be like if you're making $90,000 per year,
and you also have enough income producing investments,
to cover that same $90,000 per year,
that you would earn from your job.
This is the ultimate goal for everyone
since there's not much adjusting that you have to do
at all in terms of how much you're spending.
Next, we have the ultimate level of financial independence.
It's when you're able to leave your job
and live above your current standard of living.
It's the ultimate because
not only can you leave your job for ever,
if you'd like of course,
but you can also spend more money when you leave your job.
I know it sounds insane, but it's possible.
You could technically hack the system with this
by moving to a very, very low cost of living country,
using the geoarbitrage method.
Watch these financial independence videos to your left next,
make sure to check out the description
for more resources and playlists,
to help you out with all of your personal finance
and investing needs.
Please make sure to Hulk smash that thumbs up button,
I'll see you in the next one friends, adios.