People at Level 5 have at least two years' worth of living expenses saved. "Think about the bare minimum you'd need to get by." Level 5: Flexibility 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. "If you have a job loss, you'd make some changes. 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. "At this level, you're not worried if you lose your job or if you have to move to a different city," Sabatier says. Building up emergency savings helps ensure that your finances won't be thrown off track by unexpected circumstances. 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. "Most people in this country live through debt." Level 4: Stability "Just because you make a lot of money doesn't mean you're actually saving that money," Sabatier says. Indeed, 31% of working Americans making over $100,000 live paycheck-to-paycheck, according to MagnifyMoney. 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.Įscaping Level 2 means giving yourself some financial leeway, which Sabatier notes doesn't necessarily mean making a much bigger salary. Video by Courtney Stith Level 3: Breathing room Progressing through the levels likely requires a shift in your financial habits and overall thinking around money, Sabatier says. Half of working Americans say they live paycheck to paycheck, according to a recent MagnifyMoney survey, which puts them at Level 2, Self-Sufficiency. Rather than play golf or charter fishing boats, Sabatier has spent post-9-to-5 life in what he calls "a mission-driven phase." In his book " Financial Freedom," as well as in the Financial Freedom Course, an online personal finance curriculum, Sabatier offers a roadmap to money security which includes seven levels of financial freedom, ranging from Clarity all the way up to Abundant Wealth. "Based on how much you have saved and invested, ask yourself, 'How many months of freedom have you acquired?'" "With every dollar you save, you give yourself more freedom and options in life," he says. Sabatier views his situation as the end goal for people who think about money the way he does: not as something that allows you to buy things, but as a means of giving you more choices in how you want to live.
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