Home » Personal finance wisdom » Love your life

Degrees of Financial Independence: where do you stand and how to move between the stages?


Do you dream of financial independence? Do you lust after a life of freedom where you can choose what you do and with whom you work?

Let me let you on a secret – my dreams are the same as yours. Except, they are becoming my life after a couple of decades of money focus, hustling like obsessed and celebrating moving up the different degrees of financial independence.

Today, I’d like to tell you about the degrees of Financial Independence and how to move between these. I didn’t invent them – they come from a book.

What is the book, you wonder?

‘Money Master the Game: 7 simple steps to financial freedom’ by Tony Robbins.

I will not review the book here (though I may do it at some point). It is a book well worth reading despite the many pages of padding that I had to skip. (What I consider padding may be very useful to someone who has never read anything about personal finance before.)

What I’d like to share is an idea I found very useful.

What is financial independence?

You know that there is a lot of talk about financial independence, right?

Bloggers and civilians are also debating what it is, how do you know that you’ve got there and whether you should ‘retire’ once you have achieved financial independence.

(I suspect I’ll never understand some young people’s obsession with early retirement or any retirement for that matter, but each to their own.)

I may have a problem with ‘retirement,’ but John and I have already achieved financial health and are approaching the third level of financial independence. Since October 2018, we have been in a financial position where I didn’t have to be employed if I didn’t want to be.

(Yes, work is a beautiful thing when you love it and have the option to reduce your time. I semi-retired in Autumn 2019.)

To make this move, we used the TMP retirement calculator and worked out exactly how much money we need to live a joyful and fulfilled life. We still have much higher aims, but I’ll get back to this some other time.

Reading Tony Robbins’ book has given me the will to continue on this path.

Tony gives a lot of handy messages in his book.

One of these is:

‘If you want your life to be better, you have to become better.’

Another one is that there are different degrees of financial independence.

Degrees of financial independence

Recently, on a course I am attending, someone said that they would have never built their business if they focused on the outcome. She had to break down the stages of building a successful business and, at any given time, focused on climbing the next step.

It is the same with financial independence. Achieving financial freedom where money is no longer a problem is possible; it is just likely to take time, hustle, ingenuity, and patience. For most of us, including me, patience is not an easily attainable virtue.

Hence, the critical importance of thinking of financial independence as different degrees of achievement – you only focus on climbing to the next one.

Here are the degrees of financial independence according to Tony Robbins:

#1. Financial security. It is achieved when you have sufficient passive income to cover your life’s very basics like the rent (mortgage), bills, and basic food.

#2. Financial vitality. Your passive income can allow for more things like clothes, going out and having fun, and basic holidays at this level of financial independence.

#3. Financial independence. That is the level where your passive income is sufficient to allow you to have your current quality of life.

#4. Financial freedom. At this level of financial independence, you can up-step your lifestyle to the one you desire.

#5. Absolute financial freedom. That is the level where money stops being an issue, and you can do anything you want.

You see, very few people will get to the 5th level; that of absolute financial freedom.

Some will get to the 4th level.

Everyone can get to the 3rd level of financial independence.

Where do we stand on the way to financial independence?

Do you know why reading about these levels of financial independence gives me the will to go on?

Because I could put numbers to the different levels.

(It is an excellent exercise and very useful to keep you on track; get a pen and start working out your numbers.)

Here is what I figured out (all numbers are of income after-tax).

#1. Financial security. For financial security, we need a passive income of £24,360 per year. We are above that today.

#2. Financial vitality. For this level of financial independence, we need £38,400. At the moment, we are over-shooting this one if I include our advertising income (which is not entirely passive).

#3. Financial independence. For financial independence, we need an annual income of £48,000. At this moment, we fall short of that by approximately £4,000.

#4. Financial freedom. Currently, this is our programme maximum, and you know we are rather short here.

#5. Absolute financial freedom. We have not even allowed ourselves to dream about this one! Yet.

Final thoughts

Now you see why I’m encouraged. We are very close to the third degree of financial independence today. The way we are going, we’ll undoubtedly be there in four years.

It means that even if we don’t get to financial freedom (our £2.5 million plan), we have choices!

Where are you on the way to financial independence? How do you plan to move through the degrees of financial independence?

12 thoughts on “Degrees of Financial Independence: where do you stand and how to move between the stages?”

  1. Thanks for listing those very interesting steps and great to hear that you are close to FI!

    Looking at my own calculations, it looks like I’m shooting for Financial Vitality, which sounds good enough right now.

    Still many years for me to save and invest so who knows if I can actually go for FI itself!

    • @Weenie: Shooting for financial vitality is good; it is very good. Because it gives you imaginative options to speed up the race to financial independence. (Your cash flow increases rapidly and if cleverly invested/used…). Weenie, I’m very happy for you and please keep in touch to let me know how it is going :).

  2. I’ve been wanting to read this book as well and now you have inspired me to finally do it! I need to run our numbers against the various degrees. Just by looking I think we are somewhere between #1 and #2. I do agree that most won’t get to #5. Our goal would be to reach #4.

    • Jon: Certainly worth reading. As I said, there is some padding but some of the things Tony manages to explain simply are mind-blowing. It’s very hard to write a book on personal finance that is interesting and offers something new but he’s done it.

  3. My side income is now my business. Which allows us to earn a decent living, afford to travel and also set our own schedule, which is very important. We’re clearly not out of the woods, but there’s been solid improvement in the past years.

    • @Dojo: Glad to hear things are going well. I found that this list is very good to charter our way to financial freedom – the place where I wouldn’t have to make a living by employment, self-employment or other. May need to build a business on the way, though 🙂 (and sell it for obscene amount of money).

  4. At level 1, financial security, I can only imagine the vitality of writing numbers down. I hope to be happy at level 3 at some point in my life. This is a great way to look at your financial situation and I enjoyed reading it. Thank you!

  5. My total gross income will be $420,000 for 40 years of work!! THAT IS GROSS!!!!!! This includes all jobs, EI. insurance, severance payments, self-employed income and CPP. I am still on track for millionaire status by age 65!! I shall not receive any inheritance money or OAS until AFTER age 65. THE KEY: Get a good financial planner early and invest primarily in equities (especially American) to start. I am just as rich as DENIS RODMAN and almost twice as rich as AMY JO JOHNSON!! Both have earned WAY more than $420,000 in their lifetimes!!!
    DENIS RODMAN: 27 million gross income and a net worth of $500,000 at age 60. ME: right now: about $370,000 and I will have a net worth of $600,000 at age 60!!!!! My highest paying hourly blue collar wage: $13.50 an hour. That is 75 cents below minimum wage in Ontario today!!!!!

    • I am a real health nut and at one time wore TWO sweatshirts:
      1) ME: 1962-21? (This implied longevity)
      Number 2 definitely helped with my financial portfolio!!!


  6. $750,000 is the MINIMUM wage in the NHL BUT MAXIMUM WAGE in the REAL WORKING WORLD!!!
    My lifetime gross income for 35 years is almost exactly half of what JOE THORNTON will make in ONE year ($376,000). Only about 75% of that is EARNED INCOME!!
    I have received NO INHERITANCE YET but still have a net worth of $600,000!!!
    LESSON: Get a good financial planner early and invest primarily in EQUITIES (especially AMERICAN)!!!!!
    $10,750+ per year!!!
    Do you know anybody who has averaged LESS than 11,000 a year for 35 years and is still worth $600,000 dollars without an inheritance or lottery victory???!!!
    I am going to average only a $9,000 gross the next FIVE years and fully expect to be a MILLIONAIRE (still without an INHERITANCE or LOTTERY VICTORY).
    It is time to contact THE GUINNESS BOOK OF WORLD RECORDS!!!


Leave a comment