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!

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.

Related: BP Radio Podcast 002: Starting Out with Karen Rittenhouse – Subject To, Direct Mail, and Investing from a Woman’s Perspective

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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
  • insurance
  • taxes

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.

Photo: papalars

About Author

karen rittenhouse

Karen Rittenhouse has been investing in real estate full time since January 2005. In that time, she has purchased hundreds of single family properties, opened a full-service real estate company, a property management company, a coaching/training business, and written three books on real estate.


  1. Douglas Dowell

    Outstanding read Karen,

    I think this ladder is an excellent break down of the rungs that should be climbed. If your risk seeker like me its more like monkey bars and swinging a rung higher is always been my mentality. Its not for everyone for sure because when you fall its kinda ouchy.

  2. Douglas Dowell

    Outstanding read Karen,

    I think this ladder is an excellent break down of the rungs that should be climbed. If your risk seeker like me its more like monkey bars and swinging a rung higher is always been my mentality. Its not for everyone for sure because when you fall its kinda ouchy.

      • Douglas Dowell

        I feel so strongly I posted twice twice hahaha

        I think understanding your risk tolerance and the corresponding flaw that comes with it is really important. Risk Seekers and Risk Adverse each lose something with their profile.
        It takes all kinds. For sure. I think being able to step out of myself for a bit and wear a different hat is something that Tony and other great teachers advocate.

        Thank you for the best wishes and as always if I may be of help to your success in any way please let me know.

  3. great article Karen, Way to make people think!
    I would say I am around a two, but it is hard to figure. I have enough coming in off my rentals for basic costs, but nothing extra. Most of my income is from other sources, not work I actually do, but I manage those sources. Some of it would continue without me and some would not. Depending on what the definition of not working is would change between two and three.

  4. Nice article, Karen. We have an emergency fund and some insurance and I’m learning more about income investing to get started. I like how you have broken it down into chunks, enough to cover food, etc., because those ate nice, achievable targets. Like the cashflow game, it gets you focused on the independence goal. Thanks for sharing!

  5. I had started my real estate investing before I met my wife. Once we met I found I focused a lot better on it and grown a lot. This is the type of stuff we talk about in our investing. I still work, we are married and have a 2 year old son and my wife is a stay at home mom. When we plow our money and time into our real estate between improvements or purchases, I always equate the return to our finacial status as described here. If we do this deal, we will have all our needs covered even if I lose my job. If we do this next deal, we are able to watch something on the tv by having cable and keep our fancy phone plans as well. It breaks it down nice and we can see where our money and more importantly our time is going towards. Great article 😉

    • karen rittenhouse

      Congratulations, Kyle, on the way you look at your investing. Perfect.

      I always tell people to start small – just focus on generating enough each month to cover your cable bill, then your car payment, then your mortgage. One step at a time ’til you find yourself at the top of the ladder!

      Thanks for leaving a comment.

  6. To be completely honest, I disagree with much of this article. It makes the assumption that you need to deleverage yourself in order to be rich. Some people are forced to keep working because their mortgage payment is $40,000/month.They are still wealthy.

    I once read about someone who had $120,000/month in net income. They bought a bigger house with a $60,000/month mortgage payment. They were fine with it — they felt that the remaining 50% of their income was enough to cover living expenses and personal savings. Even if you don’t agree with this person’s opinion on debt, it’s hard to argue that they’re not rich.

    • karen rittenhouse

      Hi Jon,
      HUGE difference between being financially rich and being financially wealthy. There are lots of “get rich quick” schemes – haven’t seen a “get wealthy quick” one.

      I read somewhere a saying that, “rich is waking up at 4am to take the train into the city and make millions on Wall Street. Wealthy is waking up without an alarm clock.”

      The wealthy don’t worry about working (unless they want to).

      Thanks for your comment.

      • Thanks for replying, Karen. I don’t want to be a “troll”, so I wasn’t going to comment further. However, I believe that the rich vs. wealthy comparison is dated. It’s not that simple.

        In terms of your six steps, the first four make sense. #5 is really tough. I know of people worth tens of millions of dollars who use private jets most of the time, but not all the time. They still aren’t rich enough to give up public air travel for good.

        #6 is practically impossible. When you get your first Rolls Royce, you want another. You’re never really done. The concept of “whatever you want, whenever you want” is a myth. Are you familiar with Donald Trump’s Mar-a-Lago club in Florida? Have you ever wondered why it’s a club? Donald wanted to keep it as his private residence, but he couldn’t afford it. #6 doesn’t exist—everyone has limits.

  7. This blog reminds me of “The Millionaire Next Door” where they discuss where your wealth should be. Expected Net Worth = Age * Annual Income / 10. They also stress its all of what you keep not what you spend.

    • karen rittenhouse

      Hi George:

      I’d not heard that formula. Did you state it correctly? I tried it and it wasn’t accurate for me. Also haven’t read “the Millionaire Next Door” but have certainly heard about it. Would you recommend it?

      Thanks for keeping the conversation going.

  8. I want money, lots and lots of money, la la la la la la laaaaaaaa

    Passive C.F of $15k / month ought to get me to step 4.5 – working on it and BP will be the first to know…

    Interestingly, this CF game unfolds in waves. The first $200.month is really hard, but then you breeze to $1,500 with relative ease. Then, the next $2,000 is really tough to cause it requires you to think differently. From there, 2 big deals git r done – working on it right now 🙂

    Really good read Karen!

  9. karen rittenhouse

    I want wealth, lots and lots of wealth, la la la la laaaaaaaa


    You’re so right about cash flow unfolding in waves. Finally, you reach that tipping point where you’re over the top – forever. Lots of bobbing and weaving until then!

    Thanks, Ben, for commenting.

  10. Speaking on the wealth goals. A formula I really liked as it was quite agressive is. Age 16 – 40ish your net worth should be 0-25% of your total lifetime earnings, age 40-60 your net worth should be between 25% -100% of your lifetime income. 60+ or by your desired retirement date your net worth should equal 100% – 200% of your lifetime income. Lifetime income was determined by your social security statement, what showed on that. It shows that you need assets and growth in order to have a net worth larger than the money you have made from an employer. Just another one to look at that is interesting.

  11. There is a stage where you can sell your places on contract and replace your job which comes before (2, 3, or 4?) having investments fill in all the gaps. This can be an easy one if you hit the upward wave just right. Plus if you are close to retirement age-30 yrs of pymts goes a long ways.

  12. Karen,

    I love it! I’ve never seen a column quite like yours in either real estate or other investing informational platforms. It gives us all something to aspire to. It makes me think more about NOI enhancements to my multifamily buildings. Thank you!

  13. Yikes when you look at it this way you might not be doing as well as you thought! 🙂

    I think it takes a while to get past those first few stages and really ramp up.
    I know my mix of active and passive strategies is paying off, but I can’t stop my active flipping at this point and be free, or even have vitality, with my passive investments yet.

    Good goals to have and a great way to measure progress.

    Thanks for the good read!

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