Gratitude

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“Integrate gratitude into your daily life.”

It’s essential to find gratitude every day.

Gratitude means thanks and appreciation for all things. It’s the state of feeling grateful — a conscious, positive emotion one can express when feeling especially thankful for something, whether intangible or tangible.

Robert Emmons, in a Greater Good essay, “Why Gratitude Is Good”, argues that gratitude has two key components:

  • “First, it’s an affirmation of goodness. We affirm that there are good things in the world, gifts and benefits we’ve received.”
  • Second, people should “recognize that the sources of this goodness are outside of ourselves. … We acknowledge that other people—or even higher powers, if you’re of a spiritual mindset—gave us many gifts, big and small, to help us achieve the goodness in our lives.”

“Gratitude is “an affirmation of goodness and a recognition that this goodness is sourced outside the self.” This doesn’t mean that life is perfect and peaceful, but when you look at life as a whole, gratitude encourages you to identify some amount of goodness and joy in your life.” Dr. Robert Emmons

References:

  1. https://greatergood.berkeley.edu/topic/gratitude/definition
  2. https://www.brownleeglobal.com/gratitude-research/

Simple Smart Wealth Building Moves

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By Brett Arends, Wall Street Journal, Feb. 7, 2015

Smart wealth building moves aren’t complicated or complex. They’re simple.

Cut through all the financial noise, jargon and pontificating and technical stuff, and everything you really need to know about wealth building and personal finance fits into less than 1,000 words—no more than three to four minutes of reading.

Ignore economic and financial forecasts. Their purpose is to keep forecasters employed and enriched. Most professional economists were blindsided in 2008 by the biggest financial collapse in 70 years and by the 2022 market collapse—and by the stock market’s recovered in 2009 and will recover after the 2022 collapse.

Ignore “expert” stock picks. The stocks that Wall Street experts like most generally fare no better than those they like least—or stocks picked at random.

Keep it simple. Complicated financial strategies and investments are mostly designed to enrich managers and salesmen. A simple, diversified portfolio of low-cost index funds, rebalanced yearly, will do just fine—if not better.

Buy individual stocks only as a gamble. Never buy fashionable investments.

Put most of your long-term portfolio into equities. While equities are volatile, they generally produce the best long-term returns—typically about 4% to 5% a year above inflation. But remember to hang on when they plummet.

Invest globally, not just in the U.S. Foreign stock markets, in the aggregate, are no riskier than U.S. markets and offer terrific diversification.

Buy Treasurys, too: In addition to stocks, own some long-term Treasury bonds and some Treasury inflation-protected securities. These are likely to hold their value, or even go up, when stocks crash.

Never buy a lottery ticket. The lottery runs a profit, which means the players run a loss. And a study once found that the people who won ended up no happier than those who lost.

Know thyself. Don’t pursue complex financial or tax strategies if you’re not a details person. Cut up your credit cards if you’re a shopaholic. Invest more conservatively if you’re apt to panic in a crisis.

Buy high-deductible home and car insurance. It’ll save you money. Insurance is necessary, but is generally expensive.

Protect yourself from disaster. Have disability insurance, either through work or directly. Buy term life insurance to cover dependents if you fall under a bus.

Save early, save often. Time and patience are the investor’s best friends. Invest a dollar for 10 years at 4% and you’ll have $1.50. Invest it for 40 years and you’ll have nearly $5.

Use those free tax shelters. Contribute as much as possible to your company’s 401(k) plan or equivalent (such as 403(b) or 457), and at least enough to get the company match. If you can, contribute to individual retirement accounts for yourself, and a nonworking spouse, as well.

Make the most of what you have. Don’t pin too much hope on the next pay raise or stock windfall. The more we have, the more we want. Psychologists call this the “hedonic treadmill.” The only way to have enough is to master the art of being satisfied…to have an attitude of gratitude.

Plan for a long life. A third of your adult life could come after you’re 65. Try to pay off your mortgage, and save at least 10 times your annual salary, by the time you retire. Delay taking Social Security for as long as you can up to the age of 70, to maximize each monthly check.

Don’t carry a balance from month to month unless you are planning to default and file for bankruptcy. Card interest rates are extremely high—partially to account for the borrowers who will default. Make paying off that debt your overriding priority.

Cut the waste. There’s fat in every middle-class budget. Most cellular bills are too high. Most cable bills are too high. Most people waste too much money on their cars. Few habits bust the budget more than eating out regularly.

Beware of buying your employer’s stock. Your job there is probably financial exposure enough.

Tune out advertising and other noise. If you consider it all to be a pack of cynical lies designed to steal your money, that’s about right.

Don’t spend money showing off. Designer brands and “luxury” labels are created to overcharge the desperately insecure. They’ll mark you out as nouveau riche. Old-money families keep it down low.

Protect your nest egg. Don’t drain your retirement savings to pay for your child’s college education. Likewise, don’t empty your 401(k) or IRAs to start a business. You will be taxed and penalized on the withdrawals even if you lose the money. And so long as the money remains in those shelters, it’s protected from creditors.

Teach your children about money. Teach them early and often. No one else will, and they will have to make their own way.

Value your money. Work out how much you take home, after-tax, for each hour you work. And remember that number—especially when you shop.

Share and give a portion of your blessings back. Finally, if you think giving to charities and good causes is the lowest-priority item in your entire budget each year, re-examine the budget.

Source: Brett Arends, Wall Street Journal

Savings and Checking Accounts

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Savings

A savings account is an account for emergency savings or saving towards a specific goal, such as an upcoming vacation.

A savings account is a basic type of financial product that allows you to deposit your money and typically earn a modest amount of interest, writes Bankrate.com. Savings accounts are typically found at banks and credit unions. You don’t need a large amount of money to open a savings account, and you also have easy access to your money.

A savings account is a good place to keep money for a later date, separate from everyday spending cash, because of their safety, reliability and liquidity. These accounts are a great place for your emergency fund or savings for shorter-term goals, like a vacation or home repair.

Once you’ve made a deposit, the money in your savings account will begin to earn interest. The amount you earn will depend on a few factors, including your savings account APY, the amount of money you deposit and how long you keep money in your account.

Your bank may choose to compound interest on a daily, monthly, quarterly or yearly basis. At the end of each compounding period, your accrued interest is deposited into your account. From there, your new account balance (deposits plus interest) will begin earning interest.

Beyond quick access to your cash when you need it, savings accounts often offer higher interest rates than checking accounts. You might even find some savings accounts with a higher APY than money market accounts.

These accounts are federally insured up to $250,000 per account owner and offer a safe place to put your money while earning interest.

Consumers are typically limited to six withdrawals or transfers a month from savings accounts due to Regulation D, a Federal Reserve requirement that distinguishes between transaction and nontransaction accounts. A savings account is considered a nontransaction account, and, therefore, the number of transactions is capped and any above the limit are subject to a fee.

Savings terms to know

  • Compound interest: Method of calculating interest where interest earned over time is added to the principal. Compounding is usually done on a daily or monthly basis and more frequently it is done, the faster your savings can grow.
  • Interest: Money that you earn for having your funds deposited with a bank.
  • Interest rate: A number that doesn’t take into account the effects of compounding.
  • Annual Percentage Yield (APY): A rate that takes into account the effects of compounding during the year. It’s best to compare yields rather than interest rates.
  • Minimum balance requirement: The minimum amount needed in a savings account to avoid a monthly maintenance fee.
  • Money market account: A type of savings account that may offer checks, and/or an ATM or debit card for teller machine withdrawals. Here’s more on the best money market accounts.

Checking

A checking account helps you manage your day-to-day finances, like paying your bills, buying groceries and gas and withdrawing cash from an ATM.

A checking account should be thought of as a transaction account. Checking accounts are easily accessible and are used frequently for everyday transactions, such as transferring money or writing checks. To make transactions convenient, checking accounts usually come with a debit card, checkbook and mobile app with payment features for sending money to other people, even if they bank elsewhere.

Banks typically don’t pay interest on money in checking accounts. As a result, money in checking accounts doesn’t grow. Checking accounts are not meant for building savings and, as such, do not typically provide supplements to saving like interest, though you may be able to find a checking account that pays interest, especially at credit unions.

Checking accounts have three key features to look for:

  • No monthly maintenance fees (or easy ways to waive them).
  • Free access to a large ATM network.
  • No or low overdraft fees.

The best checking accounts usually don’t have a monthly service fee or they offer an easy way for you to avoid it. They also may reward you with interest, cash back or a sign-up bonus. Checking accounts are important for paying your bills and other expenses. They typically have no transaction limits to keep track of.

References:

  1. https://www.bankrate.com/banking/savings/what-is-a-savings-account/
  2. https://www.bankrate.com/banking/checking-vs-savings-accounts/

Gratitude Research

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Gratitude is “an affirmation of goodness and a recognition that this goodness is sourced outside the self.” This doesn’t mean that life is perfect and peaceful, but when you look at life as a whole, gratitude encourages you to identify some amount of goodness and joy in your life. Dr. Robert Emmons

Research indicates that gratitude can lower blood pressure, improve immune function, reduce cardiac inflammation, increase happiness, improve relationships, and decrease depression. 

Dr. Robert Emmons, professor of psychology at the University of California, Davis, researcher, and author of the book Thanks! How the New Science of Gratitude Can Make You Happier, suggests that you “integrate gratitude into your daily life, rather than make it something you need to add to an already busy day”.

He recommends that you simply make it a point to notice opportunities that you can be thankful for and practice gratitude regularly.

Practicing gratitude can also make you better equipped to handle the difficulties of life that inevitably arise. In fact, according to Emmons, it’s an essential part of the process of healing from trauma. Even despair can be mitigated by the experience of appreciation for the good, however slight it might be.

Many survivors of the Holocaust, when asked to tell their stories, remember most strongly the feelings of gratitude for food, shelter, or clothing that was offered to them. This sense of thankfulness for the small blessings helped them maintain their humanity despite experiencing a horrific tragedy.

Additionally, many people with life-threatening illnesses also report decreased distress and increased positive emotions when they practice gratitude.

10 tips to fit gratitude in your life

Here are ten ways to become a more thankful person, according to Dr. Emmons:

  1. Every day, say aloud three good things that happened. It’s also extremely powerful to express gratitude aloud when you’re alone.
  2. Keep a gratitude journal. Jot down the small things from your day that mattered to you. If you’re having a particularly rough day, you can look back through the pages of accumulated blessings in your life.
  3. Say thanks to your partner. Couples who express gratitude toward one another set up a powerful feedback loop of intimacy and trust, where both partners feel as if their needs are being met.
  4. Cool a hot temper with a quick gratitude inventory. One of the quickest ways to dispel the energy of a stormy mood is to focus your attention on what’s good. So when you’re about to lash out at someone, take a moment to do a quick inventory of five things you’re thankful for in the moment. It will help you relax and avoid saying something you’ll later regret.
  5. Thank yourself. Gratitude doesn’t always need to be focused on what other people have done for you! Make sure you give yourself a thank-you for the healthy habits you’ve cultivated in your own life.
  6. Use technology to send three gratitude messages a week. Harness the power of this technology to send out some good vibes, such as a text or Facebook comment, to tell your friends why you appreciate them.
  7. Savor the good moments. If you notice you’re feeling happy, stop what you’re doing and pay attention for a few minutes. Notice exactly how you feel, including the sensations in your body and the thoughts you’re having. Later, when you’re trying to inspire gratitude, you can remember this moment and experience the benefits all over again.
  8. Check for silver linings. Even the most difficult life challenges come with some benefit—you just have to look to find them. Making a mistake teaches you a lesson. When things feel hard, ask yourself: What’s good here?
  9. Look outward, not inward. Robert Emmons says people are more likely to feel grateful when they put their focus on others, rather than getting caught up in their own inner narratives about how things should have gone. Empathy for others can trigger a sense of gratitude, and people who have an outward focus tend to experience stronger benefits.
  10. Change your perspective. If you struggle to come up with something to feel grateful for, put yourself in the shoes of someone who is experiencing misfortunes greater than your own. It will inspire gratitude for your own healthy body and circumstances, which you may have taken for granted otherwise.

It is vitally important to your health and overall emotional well being to cultivate a sense of gratitude in your life. Research confirms that gratitude effectively increases happiness and reduces depression.

References:

  1. https://www.takingcharge.csh.umn.edu/making-gratitude-part-everyday-life-tips-dr-robert-emmons
  2. https://www.takingcharge.csh.umn.edu/10-ways-be-more-thankful-person

Social Security Payment Increase

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Social Security Administration warned that Americans will stop receiving their full Social Security benefits in roughly 13 years without actions to shore up the program.

Seniors and other Social Security recipients, as all Americans, are being clobbered by four decades high inflation, which has outpaced increases in Social Security benefits this year.

Historically, Social Security recipients receive one cost-of-living adjustment, or COLA, each year, which is based on inflation and is supposed to keep their benefits in line with rising prices.

But this year, beneficiaries are seeing their purchasing power erode as inflation overtakes their latest COLA increase of 5.9%. Inflation in May rose 8.6% from a year ago, a four-decade high that pushed up the cost of food, shelter, transportation and energy.

Congressional lawmakers have proposed a new bill, The Social Security Expansion Act, which will boost Social Security payments by $2,400 per recipient annually, while also shoring up the program financially. 

The new bill would seek to lessen the strain on people collecting Social Security by boosting each recipient’s monthly check by $200 — an annual increase of $2,400. 

“With half of older Americans having no retirement savings, and millions living in poverty, it’s far past time to address the future of Social Security,” Rep. Steve Cohen, D.-Tennessee.

Anyone who is a current Social Security recipient or who will turn 62 in 2023 — the earliest age at which an individual can claim Social Security — would receive an extra $200 per monthly check. 

Anyone who is a current Social Security recipient or who will turn 62 in 2023 — the earliest age at which an individual can claim Social Security — would receive an extra $200 per monthly check. 

The bill would increase the Social Security payroll tax on higher-income workers.

Currently, workers pay the Social Security tax on their first $147,000 of earnings. Higher-income workers who make more than $147,000 annually don’t pay the Social Security tax on any earnings above that level. 

Under the bill, the payroll tax would kick in again for people earning above $250,000. Only the top 7% of earners would see their taxes go up as a result.

References:

  1. Aimee Picchi, “Social Security bill would give seniors an extra $2,400 a year. Here’s how it would work”, MoneyWatch, June 16, 2022, https://www.cbsnews.com/news/social-security-benefits-inflation-extra-2400-a-year-social-security-expansion-act-retirement/

The War on Fossil Fuels

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“Solar and wind power aren’t reliable sources of energy, simply because there are nights, clouds and windless days.” Bjorn Lomborg

“The developed world’s response to the global energy crisis has put its hypocritical attitude toward fossil fuels on display,” writes Bjorn Lomborg. Wealthy countries continue to admonish developing ones to cut their fossil fuels consumption and increase their use renewable energy, he states.

Last month the Group of Seven went so far as to announce they would no longer fund fossil-fuel development abroad.

Meanwhile, in response to the current energy supply constraints, Europe and the U.S. are begging Arab nations, specifically Saudi Arabia, to expand crude oil production. Germany is reopening coal power plants, and Spain and Italy are spending big on African gas production.

Over the past century, the developed world became economically wealthy through the pervasive use fossil fuels, which still overwhelmingly powers most of their economies. Fossil fuels still provide three fourths of wealthy countries’ energy consumption, while solar and wind provide less than 3% combined.

The reality is that solar and wind power aren’t reliable sources of energy, simply because there are nights, clouds and windless days. And, improving battery storage won’t help much: There are currently enough battery storage in the world today only to power global average electricity consumption for 75 seconds. By 2040, the battery storage capacity would cover less than 11 minutes of average global consumption.

The assault on fossil fuels has shrunk U.S. refining capacity and the refinery shortage is driving up fuel prices. Basic economics should inform politicians that “prices rise when supply doesn’t meet demand”.

With oil and gas prices on the New York Mercantile Exchange are at five-year highs, you would expect that it would be in oil and natural-gas companies interest to ramp up production, given the current high prices,.

But, oil and gas companies expect that as soon as the current energy turmoil subsides, the Biden administration will shift back to hostile rhetoric, anti-energy legislative proposals, and oppositional regulatory policies.

By forcing up the price of fossil fuels, policymakers have put the proverbial cart in front of the horse. Instead of driving up fossil fuel prices higher, policymakers need to make green energy much cheaper and more effective.

Humanity has relied on innovation and technological breakthroughs to solve other big challenges. We didn’t solve air pollution by forcing everyone to stop driving but by inventing the catalytic converter that drastically lowers pollution.

References:

  1. https://www.wsj.com/amp/articles/the-rich-worlds-climate-hypocrisy-energy-fossil-fuel-wind-solar-panel-india-poverty-power-battery-storage-11655654331
  2. https://www.wsj.com/amp/articles/is-6-a-gallon-gasoline-next-gas-prices-refining-shortage-fossil-fuels-11654806637
  3. https://www.wsj.com/amp/articles/why-energy-companies-wont-produce-oil-natural-gas-biden-administration-fossil-fuel-inflation-prices-11654720932
  4. https://nypost.com/2022/06/19/fossil-fuel-price-spikes-are-causing-pain-but-little-climate-payoff/

Thoughts of the Day

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“Never give in. Never give in. Never, never, never, never – in nothing, great or small, large or petty – never give in, except to convictions of honor and good sense. Never yield to force. Never yield to the apparently overwhelming might of the enemy.” — Winston Churchill

“You will never reach your destination if you stop and throw stones at every dog that barks.” – Winston Churchill

Hope is a Way of Thinking…a Super Power

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Hope is a feeling of expectation, a desire or wish for a certain thing to happen.

According to psychologist and renowned hope researcher Charles R. Snyder et al. (1991) hope is a positive cognitive state based on a sense of successful goal-directed determination and planning to meet these goals.

“Hope is not an emotion; it’s a way of thinking or a cognitive process.” Brené Brown

In other words, hope is like a snap-shot of a person’s current goal-directed thinking, highlighting the motivated pursuit of goals and the expectation that those goals can be achieved.

Hope helps us remain committed to our goals and motivated to take action towards achieving. Hope gives people a reason to continue fighting and believing that their current circumstances will improve, despite the unpredictable nature of human existence.

As psychologist and renowned hope researcher Charles Snyder et al. (2002, p. 269) stated so eloquently:

A rainbow is a prism that sends shards of multicolored light in various directions. It lifts our spirits and makes us think of what is possible. Hope is the same – a personal rainbow of the mind.

While some approaches conceptualize hope in the realm of being, that is acknowledging hope during illness and within palliative care; Snyder et al (1991) emphasized the relevance of hope in the context of doing – that is the capacity to achieve goals.

According to Snyder’s Hope Theory (Snyder, Irving, & Anderson, 1991), hopefulness is a life-sustaining human strength comprised of three distinct but related components:

  1. Goals Thinking – the clear conceptualization of valuable goals.
  2. Pathways Thinking – the capacity to develop specific strategies to reach those goals.
  3. Agency Thinking – the ability to initiate and sustain the motivation for using those strategies.

Hope does not necessarily fade in the face of adversity; in fact hope often endures despite poverty, war and famine. While no one is exempt from experiencing challenging life events, hope fosters an orientation to life that allows a grounded and optimistic outlook even in the most challenging of circumstances.

Practicing optimism has much in common with hope. Both are concerned with a positive future orientation and both assume that good things will generally occur in one’s life.

The difference is that optimism is a positive attitude about a future event that is probable and likely to occur: the optimist expects that life will work out well and as expected (Scheier & Carver, 1993).

On the other hand, being hopeful is regarded as more realistic than optimistism.

The hopeful individual recognizes that life may not always work out as planned, yet maintains positive expectancy directed toward possible outcomes that hold personal significance (Miceli & Castelfranchi, 2002)

Hope is more than just a state of mind; it is an action-oriented strength.

References:

  1. https://positivepsychology.com/hope-therapy/

C.R. Snyder was a fellow of the APA in the divisions of teaching, social and personality, clinical, and health. He worked as the director of the Clinical Psychology Program at the University of Kansas and was  the editor of the Journal of Social and Clinical Psychology. Snyder passed away in 2006.

The biblical definition of hope is “confident expectation.” Hope means “a feeling of expectation and desire for a certain thing to happen” and it is a cognitive processes or way of thinking.

“Be joyful always; pray continually; give thanks in all circumstances, for this is God’s will for you in Christ Jesus.” ~ 1 Thessalonians 5:16–18 (NIV)

Your Powerful Thoughts and Mind

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“You will attract to you…the very things, or the very station in life, that you create in your thoughts.” —Napoleon Hill

The most powerful tool available to you is your mind and you can attract the very things you create in your thoughts and mind, writes Napoleon Hill, America’s most followed motivational author about the principles of success. “Your thoughts singularly determine your personal outcomes in life, as well as your ability to enjoy the journey,” he opines.

In order to harness your thoughts to create the life you desire, you simply need to utilize the mental resources already within your possession, Hill concluded. You must cultivate a thorough understanding of the workings of the mind and the manner in which thoughts may be transformed into their physical counterparts.
 
In order to create positive change in your life, you must learn to harness the power of your thoughts. In particular, you must discover how to:

  • Magnetize your thought impulses with desire
  • Refine your thoughts with definiteness of purpose
  • Control and direct your emotions to productive ends
  • Support your goals with a compelling network of motives
  • Create positive thought habits through concentration and repetition
  • Protect your mind from negative external influences

The more you practice, the greater control you will have over your thoughts and emotions, which will enable you to enjoy more success in the pursuit of your definite major purpose.

Essentially, Dr. Hill wrote that there are no limitations to the mind conditioned for success and achievement.

“Try as hard as you wish and you cannot be happy unless you BELIEVE IN YOURSELF!

Work with all the strength at your command and you cannot accumulate more than barely enough to live on unless you BELIEVE IN YOURSELF!

The one and only person in all this world through whose efforts you can be supremely happy under all circumstances, and, through whose labor you can accumulate all the material wealth that you can use legitimately, is YOURSELF!” —Napoleon Hill

By understanding and embracing the power of thought and your mind, you will be able to operate at a higher plane of thought and action, better recognizing opportunities, gaining influence, and instilling this critical quality in others.

According to Napoleon Hill (Law of Success), self-confidence is…

  • the banishment of fear
  • the acquisition of mental courage
  • a safeguard from failure and defeat
  • the foundation for high achievement
  • the secret to attracting opportunities
  • the impetus for taking action on your dreams
  • the crucial ingredient for healthy relationships
  • the key to personal freedom and joy

When you believe in your ability to succeed…you completely transform your life.

“Change your thoughts and you change your world.” ~ Norman Vincent Peale

Most people take their joys and blessings for granted. Instead of focusing on their joys and blessings, they rather focus on what they do not have; or, constantly think and complain about their problems and troubles.

But, changing your focus and thoughts from problems to joy, and from what you don’t have to expressing gratitude for your many life blessings will change your life. And, a great way to change your thoughts is to appreciate and enjoy what you already have.

“Gratitude unlocks the fullness of life. It turns what we have into enough, and more. It turns denial into acceptance, chaos to order, confusion to clarity. It can turn a meal into a feast, a house into a home, a stranger into a friend.” ~ Melody Beattie

Focus on changing your thoughts and focus instead of changing the world and environment around you

It is impossible to change the world or environment around you. The best and wisest course of action is to change yourself or at least change your thoughts and attitude towards the people or situations you do not like.

“Never underestimate your power to change yourself; never overestimate your power to change others.” ~ Wayne Dyer

References:

  1. https://www.amazon.com/Napoleon-Hills-Language-Thought-Publication/dp/164095242X/ref=nodl_
  2. https://www.brownleeglobal.com/working-on-your-goals-and-expressing-gratitude-everyday/
  3. https://www.amazon.com/dp/1640952349/ref=emc_b_5_mob_i
  4. https://www.purposefairy.com/66095/change-your-thoughts/

Grant Sabatier: The 7 Levels of Financial Freedom

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“It’s important to view money not as something that allows you to buy things, but view it as a means of giving you more choices in how you want to live.”

Grant Sabatier, the author of “Financial Freedom”, views money not as something that allows you to buy things, but as a means of giving you more choices in how you want to live. “With every dollar you save, you give yourself more freedom and options in life,” he said. “Based on how much you have saved and invested, ask yourself, ‘How many months of freedom have you acquired?’”

Sabatier’s 7 levels of financial freedom

Level 1: Clarity

The first step is taking stock of your financial situation — how much money you have, how much you owe, and what your goals are. “You can’t get to where you want to go without knowing where you’re starting from,” Sabatier says.

Level 2: Self-Sufficiency

Next, you’ll want to be standing on your own two feet, financially speaking. This means earning enough to cover your expenses without any outside help, such as contributions from Mom and Dad.

At this level, Sabatier notes, you may be living paycheck-to-paycheck or taking on loans to make ends meet.

Level 3: Breathing room

People at Level 3 have money left over after living expenses that they can put toward goals such as building an emergency fund and investing for retirement.

Escaping Level 2 means giving yourself some financial leeway, which Sabatier notes doesn’t necessarily mean making a much bigger salary. Indeed, 31% of working Americans making over $100,000 live paycheck-to-paycheck, according to MagnifyMoney.

“Just because you make a lot of money doesn’t mean you’re actually saving that money,” Sabatier says. “Most people in this country live through debt.”

Level 4: Stability

Those who reach Level 4 have paid down high interest rate debt, such as credit card debt, and have stashed away six months’ worth of living expenses in an emergency fund. Building up emergency savings helps ensure that your finances won’t be thrown off track by unexpected circumstances.

“At this level, you’re not worried if you lose your job or if you have to move to a different city,” Sabatier says.

When calculating how much you’d need to have saved, thinking about what your financial picture might look like understand exigent circumstances, rather then your regular, everyday expenses, financial experts say.

“If you have a job loss, you’d make some changes. You’d probably cut your gym membership and get rid of your subscriptions, for instance,” Christine Benz, director of personal finance and retirement planning at Morningstar, told Grow. “Think about the bare minimum you’d need to get by.”

Level 5: Flexibility

People at Level 5 have at least two years’ worth of living expenses saved. With those kinds of savings, Sabatier suggests, you have the ability to think about your money terms of the time it can buy you: “You could take a year off from your job if you wanted to.”

You needn’t carry all of this money in cash, Sabatier notes: It could be a sum total from your savings and investment accounts. As long as you’re able to access that money somehow, if you need it, you have the flexibility to untether yourself, at least temporarily, from the workforce.

Level 6: Financial Independence

People who have achieved financial independence can live solely off the income generated from their investments, according to Sabatier’s framework.

“You generally have one of two things,” says Sabatier. “You either have a large pile of money in an investment portfolio that’s generating interest, or you have rental properties, and cashflow from the rent covers your living expenses, or a hybrid of the two.”

To get here, you’ll have to invest a high percentage of your income, which could require you to shift to a more modest lifestyle to drastically lower your cost of living. Pursuing this lifestyle requires a change in thinking away from the traditional paradigms of personal finance, Sabatier says.

“People are being taught to save 5%, 10%, 15% of their income, and maybe you’ll be able to retire when you’re 65,” he says. “Thankfully, more young people are starting to understand that if I aggressively save and invest, I can work less and have more control over my future and my destiny.”

Level 7: Abundant Wealth

Financially independent folks who live off their portfolio income rely on the “4% rule” — a retirement rule of thumb that posits that an investor can safely withdraw 4%, adjusted for inflation, from a balanced portfolio of stocks and bonds each year, and be relatively certain that the money will continue to grow and won’t run out.

Although economists debate whether 4% is the optimal number (some more conservative observers think the right figure might be closer to 3.3%), the calculation behind it serves as the basis for establishing a FIRE number — the amount of money you’d need to retire and earn an annual income you could comfortably live on.

While those in Level 6 need to monitor swings in their portfolio to make sure their retirement is still going according to plan, those in Level 7 have no such worries. “Level 7 is abundant wealth — having more money than you’ll ever need,” Sabatier says. “You don’t have to worry about money, and it’s not essential to your day-to-day existence.”

References:

  1. https://grow.acorns.com/self-made-millionaire-grant-sabatier-levels-of-financial-freedom/
  2. https://www.cnbc.com/2022/05/10/the-7-levels-of-financial-freedom-according-to-a-millionaire-50percent-of-us-workers-are-at-level-2.html