Welcome to another week of financial learning. It has been a while since I came your way with my financial nuggets.
I had to come out of my shelve to touch on a seven-level approach towards financial freedom by Grant Sabatier.
Grant is a is an American author, podcaster, and entrepreneur. He is best known for his international bestselling book Financial Freedom which was published by Penguin Random House on February 5, 2019.
In his book, he outlined seven levels of financial freedom. As a student and advocate for achieving financial independence, I found his write-up very interesting and wish to share my thoughts on his approach to attaining financial freedom.
Financial freedom has been defined by many as having enough savings, financial investments, and cash on hand to afford the kind of life we desire for ourselves and our families.
The process of achieving financial freedom comes with sacrifices, prioritization, and tough money decisions.
It is therefore not surprising that Sabatier opined that, one’s progress through the levels of financial freedom required a shift in financial habits and overall thinking around money.
This statement is very powerful and reaffirms my position on expenses adjustment in times of need.
The first half of the year 2022 has been tough for everyone financially as both global and local challenges have impacted our finances negatively.
There is no immediate solution in sight, thus, the interim way out for us is to readjust our needs and wants. This is what Grant opined when he said a shift in financial habits. We can do the same thing repeatedly and expect new results.
Some budget line items must be reduced and suspended in crisis if we seek to achieve financial freedom in future. As I always say, today’s comfortability is an enemy to tomorrow’s peace of mind!
Now, let’s look at the seven levels of Financial Freedom by Grant Sabatier.
|Level 3||Breathing Room|
|Level 6||Financial Independence|
|Level 7||Abundant Wealth|
According to Grant, an individual progresses from one level to the other based on available information, choices, and planning.
I will at this point look at what each stage entails and how we can progress to the final level of abundant wealth.
The first level of this journey is assessing your financial situation. This is where you set out clearly how much money you have, how much you owe, and what your goals are.
You must lay bare your current financial position and how you intend to move onto the next level.
This level is the baby step stage because most people depend on their parents or guardians. According to Grant, “You can’t get to where you want to go without knowing where you’re starting from”.
As we seek independence from external guidance and direction, we move to the self-sufficiency level. At this level, we bear all our expenses without external family support.
You are not dependent on anyone for your survival. Most people right after University find themselves at this level.
This level means that we ought to earn enough to sustain our expenses. We sometimes take loans from financial institutions to balance our pockets at this level. I believe many of us find ourselves at this level for the rest of our lives.
- Breathing room
As the level name suggests, we get a bit of a breather at this stage. This is the level where you have saved enough to sustain yourself for a couple of months even if you lose your source of income right now.
Readers will recall my famous words that if you can not live off your savings for the next six months without any extra income then you are one “letter” away from begging.
When we find ourselves with a financial cushion without income for a period, then we are at the breathing room level on the financial freedom ladder.
People who find themselves at this level usually have extra money after meeting their needs expenses.
“Just because you make a lot of money doesn’t mean you’re actually saving that money,” Sabatier says.
It is therefore important that people who find themselves at the level shift their attention towards goals such as building an emergency fund and investing for retirement.
Building up emergency savings helps ensure that your finances won’t be thrown off track by unexpected circumstances.
I must however add that investing for retirement should be a priority of life irrespective of your level on the Financial Freedom ladder.
This is the stage where you have paid off all your debts and you also have a saving to sustain you for at least 6 months in advance in an emergency fund.
“At this level, you’re not worried if you lose your job or if you have to move to a different city,” Sabatier says.
To get to this stage, you need to project how much money you need to survive on for at least 6 months and build up the emergency fund towards that.
Individuals at the flexibility level have at least two years’ worth of living expenses saved. Consistent savings and investment are the keys to attaining this level.
Sabatier suggests that “You could take a year off from your job if you wanted to.”
He added that at this level, you have the flexibility to untether yourself, at least temporarily, from the workforce.
This explains why some people can afford to go on early retirement and still live comfortably.
- Financial independence
Financial independence is that ideal level that we must all aspire to reach before bidding goodbye on this earth.
At this level, your accumulated investment begins to earn more for you. It’s when your Return from investments and savings is enough to sustain your expenses without working.
People who have achieved financial independence can live solely off the income generated from their investments, according to Sabatier’s framework.
Let us take a classical example which is applicable today. Assuming you had an investment of GHS 1,000,000 today in a Treasury bill at the rate of 19%, the average annual return will be GHS 190,000.
This annual interest can be broken down into a monthly return of GHS 15,833.
Depending on your lifestyle, this amount can make you live comfortably without having to stress yourself with early morning traffic and the sound of high-rising car horns.
“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 cash flow from the rent covers your living expenses or a hybrid of the two.”
Getting to this level as I said earlier comes at a price. One of such prices is to invest a high percentage of your income now, which could mean living a 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.”
Life is good at this level!
Many people at this level only see work as a hobby and not a means to earn a living.
- Abundant wealth
The World’s richest individuals find themselves at this level. This is the level where one has accumulated so much money that they would not be able to spend all in their lifetime.
“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.”
The average Ghanaian ought to aim for between levels 6 and 7 to live a great legacy especially if you are a man reading this.
Moving from one level to another is possible for those who are willing to sacrifice now without everyday money excuses and justifications.
Start today and work on moving up the levels ladder.
I wish everyone a wonderful and memorable weekend!
Happy Fathers’ Day!
Patrick Baah Abankwa is a Chartered Banker and Chartered Global Investment Analyst with over 7 years’ experience in main stream banking having worked in various capacities. He currently works at the Chartered Institute of Bankers, Ghana as the Business Development and Corporate Affairs Manager. Patrick is a Financial analyst and Savings Advocate. He runs a financial channel on Youtube by name “Patrick TV Gh”. Patrick can be contacted via firstname.lastname@example.org and or 0243984492.