Defining True Wealth: Which of These Six Levels Describes You?
I know a lot of really wealthy people. A consistent comment I hear from them about their wealth is that they have it, but they’re not sure when they got it. I love that comment – it always makes me laugh!
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Now, don’t get me wrong, they absolutely know HOW they got there – years of hard work and personal sacrifice. It’s just that they don’t know exactly when that tipping point from need to excess happened, when they actually became wealthy.
My question to you is, are you there? Sorta there? Would you recognize it if you were?
At a recent Tony Robbins event, we were given a way to measure financial progress. I’d like to share that here so you can watch for your own tipping point with some numerics and definitions, as well as with great anticipation!
Did you know there are areas of wealth to be measured? Fortunately, there are. And if we can break them down and analyze them, we can track our progress. Like any area of pursuit, if you don’t have a map, you don’t know how to get where you want to end up and you won’t know if/when you arrive.
Let’s clarify what that road to true wealth looks like.
1. Financial Protection
This is the starting point, the first goal. In this stage:
- You have enough liquid assets to cover your overhead, your basic living expenses, for a minimum 2-24 months (depending upon your level of comfort). You have enough liquidity (savings) to meet the basic needs of your family whether or not you’re able to work.
- You have begun a life insurance fund that will protect your family if you’re gone.
- Depending how much you have saved, you have enough disability insurance to cover any unforeseen circumstance.
2. Financial Security
You have created enough critical mass of capital to generate the necessary cash to meet the following needs without ever having to work again:
- monthly mortgage payment
- monthly food bill
- all utilities
- all transportation needs
Have you calculated that number? Do you know your true costs to live each and every month? Sit down and write out all basic monthly expenses that must be covered for you and your family to live.
That number is your financial security number. When that amount is coming in every month from investment returns, you no longer have to work to meet your family’s basic monthly expenses and you are financially secure.
3. Financial Vitality
You have met your Financial Security goals, plus you have enough excess capital coming in every month from investment returns to additionally cover:
- your children’s education (this may be a good time to work toward scholarships!)
- entertainment needs (start with a goal to cover half of what you currently spend)
- new clothing and some “luxury” items
Financial vitality is the ability to financially cover all of your needs and some of your wants without ever having to work again.
4. Financial Independence
You have enough excess capital coming in every month off your investments that, without ever working again, you are able to maintain the exact same quality of life that you already enjoy.
5. Financial Freedom
You’ve accumulated enough critical mass with your investments to provide sufficient income to live the lifestyle you desire without ever having to work again for the rest of your life.
6. Absolute Financial Freedom
You can do whatever you want, whenever you want, wherever you want, for as long as you want, forever.
Naturally, when you’ve arrived at any of these levels, you can continue to work if you want to; the point is simply that you don’t need to work to pay the bills. Sweet!
And, always take into account inflation. That's one of the many great things about real estate investing – if set up properly, it should take care of inflation as both property values and rents historically increase over time.
Breaking down these levels into understandable chunks was a huge relief for me. Instead of waiting to get to that ever elusive (and ever moving) goal of “wealth”, I can now look at this list and chart our growth and progress.
How about you – where are you on the list? I hope this helps.