If FI is 100% freedom and being deeply in personal debt is 0% freedom, then there has to be some sort of gradual increase in freedom along the way. It’s not like you are at 0% freedom all the way until you have enough to be financially independent. At least I don’t think so. Here’s my best effort to fill in the gap of different financial milestones unlocking certain freedoms or luxuries:
The 5 Levels of Freedom:
Level 1 (50% freedom) – Debt free with no personal debt. You finished paying off the car, student loans, credit cards and everything else (besides maybe your house). Ahhhh, what a sigh of relief! You feel like you finally have room to breath and can start saving some serious cash now that payments are no longer holding you back. Stress levels are thoroughly decreased knowing you don’t owe anybody anything! Maybe this is also the time where you can drop the second job and can start going out to eat occasionally. What a privilege!
Level 2 (60% freedom) – Debt free and have 6 months to a year saved up. Having no debts and some money in the bank is a great feeling. At this level you can confidently get out of any situation temporarily. For example, if you have an unfavorable working situation or you desire to move then you can comfortably do that. Or maybe you were offered a 50% raise if you took a job in a new city and you could easily cover the moving costs to attain a much higher level of income now. This is the point where you start to get a lot of control over your life and can start to have some fun. Most things that would be financial disasters to some people like a job loss or a needed repair to your home or car are now just minor inconveniences.
Level 3 (80% freedom) – Debt free and have 5-10X your expenses saved and invested (the FU money stage). This is where you could easily survive an economic downturn or taking some time off the job. Your money is starting to spit out some serious passive income and you see how this whole retire early thing works. Your snowball is just starting. This is also the point where you may consider a mini-retirement if you are into that kind of thing otherwise, keep plowing on to the next level of freedom! If you have a fun hobby or side hustle, you could possibly think about pursuing that more in depth if there’s potential for it to turn into something big. Also, test out a few of the things you want to do in retirement to make sure you enjoy them! Want to travel the world? Try taking a sabbatical. You are no longer a slave to your job and this in itself makes work more enjoyable. Now might even be the time where you pursue a side hustle full time or a job that is more enjoyable or flexible over one that pays a little bit more. You have lots of options and that is why I credit this Level at 80% of the freedom you would feel at full FI.
Level 4 (90% freedom) – Debt free and 10-20X your expenses saved and invested. At this point you really see the light at the end of the tunnel. Once you reach the 20X level, its seriously time to think about what your life looks like in retirement. Depending on if you already have some money making hobbies going on the side, you might find out you are already FI. If not, it will likely only be a couple short years before you’re there since your wealth is really starting to snowball and its likely your income is the highest it has ever been. Start setting up your life after the traditional 9-5 and plan your exit. This is also a good time to experiment with things you may want to do once you are FI. It is the time to start thinking about what you will retire TO (rather than retiring from you job).
Level 5 (100% freedom) – 25X+ your expenses saved. You have reached enough. Likely it will be more than enough since I bet you may accidentally pursue something that ends up making money at some point in your future. Hopefully you have done enough experimenting along the way so you know what you want to do with your days of 100% freedom!
The point of outlining these different levels is to help you realize you have freedom long before FI! In fact, I believe most of the freedom is gained early on by eliminating debt and having a couple years of savings. You may think of different %’s at each level than I do, but I feel like too many people think their level of freedom is at 0% until they are FI. These people are unnecessarily putting more stress on themselves and should be enjoying the ride along the way. Perhaps they should use some of their freedom by switching to a less stressful job once they reach Level 3 instead of gutting out a higher paying miserable job for years. Or get a little taste of FI by moving to somewhere you’ve always wanted to live which again might mean needing to change jobs or building up the courage to ask for a work from home arrangement with your current employer. Or even going on a much needed vacation every once in a while and not feel guilty about spending the money.
To back this idea up with a few of the more well-known FIRE bloggers out there, MMM talked about wishing he had enjoyed the ride to FI a little bit more in one of his posts where he would have told his past self “Dude. Chill out. You’re already rich, and thus it is time to start living that way.” Also, jlcollins talks about FU money a lot which I would say is similar to Level 3 (No debt and 5-10 years of expenses saved). Just goes to show that getting out of debt and a little bit of FU money saved gives you a whole lot of freedom!
Let me know your thoughts below. Do you agree with my %’s of freedom for each financial milestone? How would you change it?