7 Levels of Financial Freedom

Grant Sabatier's book, Financial Freedom, outlines a roadmap to financial independence.  Although this roadmap wasn’t available to us when we started our financial journey as a married couple in 1978, we can look back and see when we accomplished each of his 7 levels of financial freedom.

Level 1: Clarity

This first step to financial freedom involves taking stock of your financial situation and becoming familiar with various financial issues such as earning a paycheck, banking services, credit, taxes, savings, and investing. Many people reach this level of financial freedom while teenagers who still live with mom and dad. Perhaps they have a summer or part-time job, open a checking or savings account, and start to pay taxes. Others may delay this level until they are in college, out on their own, or even wait until they make some mistakes like running up credit card bills.

Both Tammie and I were familiar with these issues before we were married since we both had jobs before and during our college years in the early and mid-1970s. We came into marriage already being familiar with paychecks, payroll taxes, bank accounts, and insurance. We knew about being frugal with money and not trying to live off credit card balances.

Level 2: Self-sufficiency

Most people achieve financial self-sufficiency when they move out of their parents’ home, start working, and support themselves.  This means earning enough to cover expenses without outside help from mom and dad. Most people at this level are living paycheck-to-paycheck. According to a MagnifyMoney survey, 50% of working Americans are living paycheck-to-paycheck which puts them solidly in Level 2.

Tammie and I began at this level when we were married in 1978. The first two years of our marriage Tammie worked full time as a public-school teacher in Greenville, SC, while I finished college and worked part-time. We got our first credit card at this time, but we made sure to pay it off each month.

Level 3: Breathing room

Breathing room is established financially when your monthly income exceeds your monthly expenses. This means you can begin saving and build an emergency fund. This may also entail possessing sufficient additional resources to provide a down payment on a house

After I graduated in 1980, Tammie and I were both employed full-time as teachers. Our income by the mid-1980s gave us the breathing room to buy a house and establish enough savings to keep us going if one of us were to lose our job.

Level 4: Stability

Stability is achieved when your emergency fund covers three to six months of living costs and you are free from all debts except possibly your mortgage or car loan.  For many families this is also about the time they begin having children.

We reached this stage after we began having our children in the late 1980s. During this time, we started contributing to an IRA and had about 3 months of savings in an emergency fund. We bought and sold two houses and moved from South Carolina to Colorado and back to South Carolina in that time frame as well. We ended the decade of the 1980s with no debt, money in the bank and in an IRA, both of us working (Don full-time and Tammie part-time), and Don working on a doctoral degree.

Level 5: Flexibility

This stage is also referred to as the security stage. You have saved and invested enough to make work optional for a while, allowing major life changes without financial stress.

We reached this stage in the mid to late 2000s. We were both working full-time. Our employer began a 401k plan for both of us which we immediately joined and began contributing to above the employer match. We bought a car on credit that we repaid early. And we had our third and final child. We also opened our first CD. Even though we neither switched jobs nor took a sabbatical, we still managed to fund my doctoral studies and send our three children to private schools.  We were also able to pay off our mortgage many years earlier than scheduled.

Level 6: Financial independence

Your investments generate enough passive income to cover your entire lifestyle and living expenses indefinitely. You are no longer reliant on active earned income from a job to survive. While some people retire from their job at this point, others decide to continue working in a job that has meaning for them.

We reached this level at about the time that we retired in 2022. Our combined savings, IRA, and social security allow us to live a productive and busy retirement lifestyle.

Level 7: Abundant wealth

You have more wealth than you could reasonably spend in your lifetime. The goal now is to create lasting wealth and manage resources for a legacy of giving.    

While we have not reached this level of financial freedom, we are actively working to make it happen. We would like to get to the point where we will be able to leave a legacy for our daughter and grandchildren. We would also like to leave a legacy to our alma mater, Bob Jones University. We presently support two endowments in memory of our sons: The Donny Jacobs Scholarship Fund (for nursing students) and the Allen Jacobs Scholarship Fund (for criminal justice students). If you would be interested in supporting either endowment, go to Give to Bob Jones University. Click on the Make a Donation dropdown box and find the Endowment section.

Summary

It only took us about 10 years to go from Level 1 Clarity to Level 4 Stability. It then took 20 years to go from Level 4 Stability to Level 5 Flexibility and another 20 years to go from Level 5 Flexibility to Level 6 Financial Independence. In all it took us more than 50 years to get from Level 1 to Level 6. We accomplished this during our many years working in Christian education.  As I had mentioned in a previous blog post, Christian education is not known for its high salaries. Our voyage through the 7 Levels of Financial Freedom was made possible by frugal living, wise investing strategies, and God’s kindness and protection towards us. Although moving through the levels can be done on a moderate salary, it does require patience, making good lifestyle choices, and living below your means.

Will we be able to reach Level 7 Abundant Wealth? That depends on how much we spend, how well our 401k does, what happens to the economy of the United States, how healthy we stay, and if we live another 20 or 30 years.