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7 levels of financial freedom

The pioneer of the FIRE movement offers a model of 7 levels of financial freedom from clear, self-sufficient money to abundant wealth.

Grant Sabatier – self-made millionaire since the age of 30, is one of the pioneers of the FIRE (financial independence and early retirement), and is also the author of one of the world’s best-selling books of 2019 – Financial Freedom: The Proven Path to All the Money You’ll Ever Need. Although not yet fully retired, the 37-year-old millionaire has amassed enough money to live comfortably on the permanent income from his investments.

In Sabatier’s view, money is not something that allows us to buy things, but a means to help us make more choices about how we want to live. “For every dollar you save, you give yourself more freedom and more choices in life. Based on how much you’ve saved and invested, ask yourself: How many months do you have in your life? freedom?”, he shared.

Grant Sabatier offers a roadmap to personal financial security, including 7 levels of financial freedom. The levels include: clarity, self-sufficiency, relaxation, stability, flexibility, financial independence, and abundant wealth.

7 levels of financial freedom designed by Grant Sabatier.  Source: CNBC

7 levels of financial freedom designed by Grant Sabatier. The source: CNBC

Level 1: Obviously

The first step is to examine your financial situation – how much money you have, how much you owe and what your goals are. “You can’t get where you want to be if you don’t know where to start,” Sabatier said.

Level 2: Self-sufficient

Next, you will stand on your own two feet, including financially. This means, you need to earn enough money to cover your expenses without any outside help, such as support from your parents. At this level, Sabatier notes, you may be living on a penny or taking out a loan to cover your living expenses.

Level 3: Relaxed

Level 3 people, after deducting their living expenses, can set aside money for goals such as building an emergency fund and investing in retire. Passing level 2 means giving yourself some financial freedom, which Sabatier notes doesn’t necessarily mean earning a much larger salary.

“Just because you’re making a lot of money doesn’t mean you’re actually saving it. In fact, most people in the US live off of debt,” he stressed.

Level 4: Stable

People who reach level 4 have already paid off high-interest debt, such as debt credit, and have accumulated a full 6 months of living expenses into the emergency fund. Accumulating emergency savings helps ensure that your finances won’t be affected by unexpected circumstances. “At this level, you don’t have to worry if you lose your job or have to move to another city,” says Sabatier.

Financial experts advise that, when calculating how much to save, think about your financial picture in the face of difficult circumstances. Then give priority to regular daily expenses.

Self-made millionaire Grant Sabatier.  Photo: Characters provided for Grow Acorns

Self-made millionaire Grant Sabatier. Image: Characters provided for Grow Acorns

Level 5: Flexibility

Those at level 5 already save at least 2 years of living expenses. Sabatier notes, you don’t have to accumulate this number in cash. That can be the sum of money from savings and investment accounts, as long as you have access to them when you need them. A person who reaches this level can temporarily take a break from work for a certain period of time, ideally a year, to rest, relax or refresh themselves.

Level 6: Financial Independence

According to Sabatier, people who have achieved financial independence can live entirely on the income generated from their investments. “This person usually has one of two things: large sums of money in a profitable portfolio or rental properties to cover living expenses, or a combination of both.”

To get here, you will have to invest a high percentage of your income. This may cause you to switch to a more minimalist lifestyle to significantly reduce the cost of living. According to Sabatier, pursuing this lifestyle requires a change in mindset to break away from traditional stereotypes about personal finance.

“People are being taught to save 5%, 10% or 15% of their income, and you’ll probably retire at 65. Thankfully, many young people are starting to understand that if I actively save and invest, I will. can work less and have more control over his future and destiny,” he said.

Level 7: Abundant Wealth

Financially independent people live off their portfolio income with the “4% rule”. This is the rule that, in retirement, an investor can withdraw 4% from a portfolio of stocks and bonds each year, and still be able to ensure that the remaining money will continue to grow and not run out. Economists still debate whether 4% is the optimal number, but the calculations behind it are the basis for establishing the ideal FIRE number, the amount of money you need in retirement to comfortable living.

While level 6 people still need to monitor changes in their portfolio to ensure retirement can go as planned, level 7 people need not worry about this.

“Level 7 is wealth – having more money than you need. You don’t have to worry about money and it’s not essential to your day-to-day survival,” Sabatier describes.

That’s the level Sabatier is reaching in himself, and the level he wants many people to reach if they’re willing to change their mindset about money. “If you want your life to look different, you have to make different choices,” he says.

A recent survey by MagnifyMoney shows that half of Americans are working and living on wages. That number includes 76% of people earning less than $35,000 per year and 31% making $100,000 or more. According to Grant Sabatier’s 7 Levels of Financial Freedom, half of all American workers are in the second level.

When a person lives mainly on salary, expenses consume most of their salary. Therefore, they have little or no idle cash to save or invest. That makes it difficult for this group to cover their expenses if something disrupts their regular income, such as losing a job or incurring an emergency expense. According to Grant Sabatier, progressing through the levels requires a change in financial habits and overall thinking about money.

Xiao Gu (according to CNBC, Grow Acorns)

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