Sep 18, 2024
A shaky economy, job uncertainty and rising everyday costs have Americans craving the financial independence that makes money worries a distant memory.
That might be why so many people are turning to author and personal finance expert Grant Sabatier’s seven-level breakdown to financial freedom.
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Sabatier’s list is gaining attention because it ladders the distinct levels of wealth people reach on their path to prosperity. Understanding where you stand on the ladder can inform your next steps toward the final rung: complete money freedom.
So, where are you on the ladder, and how can you keep climbing?
Level 1: Clarity
The journey starts by understanding your financial situation — your income, debts, and savings.
Today’s high grocery prices and everyday costs make basic living expenses a challenge. But it can be empowering to get an understanding of where you are financially speaking and how much you need to make ends meet. That’s how you build a plan.
How to climb: Begin by following every dollar’s comings and goings. Budgeting apps like Mint or YNAB can help you get organized and clarify your debt-to-income ratio so you understand what you owe.
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Level 2: Self-sufficiency
At this level, you no longer rely on anyone for financial support and can cover basic expenses. Reaching this stage means you’re paying the rent or mortgage, utilities and other essentials without accumulating debt.
Living paycheck to paycheck, however, is still considered part of this step. A recent study by MagnifyMoney found that half of Americans are dealing with that reality.
How to climb: It’s important to build an emergency fund with three to six months’ worth of living expenses — a safety net to protect against lost income or unexpected expenses. It’s also important to minimize lifestyle inflation and keep expenses low as your income grows.
Level 3: Breathing room
At this level, you’ve escaped the paycheck-to-paycheck cycle. Extra money allows discretionary spending. You’re no longer stressed about covering your monthly bills. Knowing your financial house is in order, you have enough to occasionally indulge in eating out, vacations and other non-essentials.
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How to climb: Focus on erasing high-interest debt and increasing your savings rate. Prioritizing where your money goes ensures you’ll continue to build wealth while enjoying the results.
Read More: Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
Level 4: Stability
At this point, you’ve built a solid foundation. Day-to-day expenses and unforeseen emergencies don’t worry you. This level is about security and knowing that one unexpected bill won’t send you spiraling into debt.
How to climb: Maintain regular contributions to your savings and investments. Make sure you have the appropriate insurance policies (health, life, disability) to protect your assets and income.
Level 5: Flexibility
You can now take more risks or consider life changes — like a career change or entrepreneurship — without fear. Flexibility allows you to follow your passions, knowing your money can handle it.
How to climb: Continue to build diverse income streams and make strategic investments. Real estate, stocks and side businesses are common ways of building financial flexibility.
Level 6: Financial independence
Now your investments generate enough income to cover your living expenses. Work is suddenly optional.
This level is commonly associated with the FIRE (financial independence, retire early) movement, where investments provide enough income to cover daily costs and allow you to stop working while enjoying more control over your time.
How to climb: Maximize contributions to tax-advantaged accounts like 401(k)s and IRAs, and invest in dividend stocks or rental properties to generate passive income. With the stock market’s ups and downs, a well-diversified portfolio is essential for maintaining your financial independence.
Level 7: Abundant wealth
Is this the finish line? Sabatier says the final level finds you with more money than you’ll need, allowing you to live your dream life and give back generously. Whether that means traveling, passion projects, or philanthropic work, abundant wealth allows you to pursue what matters most to you.
How to climb: Focus on wealth preservation through diversified investments and estate planning. Giving back, whether through charitable donations or creating a legacy for your family, can also become a priority.
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Chris Clark is a Kansas City–based freelance contributor for Moneywise, where he writes about the real financial choices facing everyday Americans—from saving for retirement to navigating housing and debt.
