The 7 Levels of Financial Independence

The 7 Levels of Financial Independence

Being financially independent is often thought of as an either-or thing. You either have enough passive income to cover your living expenses or not.

But financial independence (FI) isn’t so clear cut. There are “levels” of FI.

You progress through the levels the more money you invest. Each level provides more freedom and economic stability.

The stages aren’t exact, and there isn’t an amount of money that defines each one – everyone requires a different amount to meet their needs and wants.

That said, I’m going to be bold and estimate the net worth and passive income that an average spender would need at each stage.

So, without further ado, here are the seven levels of financial independence…

Level 0 – Financially Struggling


Most people have experienced what it’s like to struggle with money.

It’s usually immediately after we flee the nest – the reality of being an adult is a never-ending stream of bills – but it could happen at any time.

Struggling with money is horrible. It creates constant background anxiety that lessens our enjoyment of everything.

When you’re in the struggle, it can feel like your hard work isn’t getting you anywhere. You work every waking hour, yet still barely manage to cover your bills. And to make matters worse, you might also have debt that’s growing at an alarming rate.

People at level zero have zero assets, zero passive income and often have a negative net worth – but all that “financial fluff” isn’t important when all you’re trying to do is stay afloat.

  • Net Worth: Zero (or negative)
  • Passive Income: Zero

Level 1 – Financially Stable


The next level up is when you’re making enough to get by.

You’re still living paycheque to paycheque, but you’re surviving. The wolves are no longer at the door.

Spending everything you earn is now a choice. You’ve got some disposable income to save, but it takes discipline.

The best thing you can do for your finances at this stage is to create a budget. Get good at managing your money, look for ways to save more, and pay down bad debt.

It’s also wise to build a small emergency fund (£1,000 is ideal) that will stop you from going into debt for an unexpected financial emergency.

If you want to progress to the next stage swiftly, read a couple of personal finance books. They’ll give you the know-how to quickly reach a place where you feel financially secure.

  • Net Worth: £1,000 – £5,000
  • Passive Income: £0

Level 2 – Financially Comfortable


By the time you’ve reached level two, you’ll have padded out your emergency fund, have all your critical insurances in place, your pension will be gaining momentum, and you may have a few other investments as well.

With your financial house in order, you’ll probably relax a little.

A change will probably happen. You’ll go from valuing the security that money provides to using it to build a comfortable life.

You’ll buy a house and a nice car. Then you’ll buy a bigger house and a nicer car.

This level – filled with consumerist trappings and endless comparison – is where the middle class resides.

With no immediate financial threats or incentive to save hard, people remain at this level for years, decades even, and sometimes for the rest of their lives.

Don’t get me wrong; there is nothing wrong with a middle-class life or wanting nice things. But if you can fight off the temptation to spend just a couple more years, you can buy the time to enjoy all those nice things.

  • Net Worth: £25,000 – £200,000
  • Passive Income: £0 – £100 per month

Level 3 – Coasting FI


If you build up a decent pot of income-producing assets early in your career, you could “coast” the rest of it.

You won’t have enough passive income to quit your job, but you could afford to go part-time and still earn the same salary.

Or you could take a lower-paying job that you enjoy, do seasonal work (snowboard instructor, anyone?), or you could even backpack around Europe and pick up odd jobs to top up your investment income.

Coasting FI allows you to take extended breaks, change careers, or try working for yourself.

You have plenty of options when you’re not living paycheque to paycheque.

  • Net Worth: £100,000 – £300,000
  • Passive Income: £500 – £1,500 per month

Level 4 – Lean FI


Lean financial independence is when you have enough passive income to cover your necessities and a couple of luxuries without the need for employment income.

It’s the first level of being truly financially independent. Without the need for a job, you are, in effect, retired.

Your time is yours to do as you wish. You could learn a new language, travel, take up yoga, start a blog, write a book, go fishing all day, or do anything you want – as long as you remain somewhat frugal.

Lean FI is where I’m currently at. I make enough money from my investments to cover my basic living costs and a few luxuries without working, but there isn’t a lot leftover.

I share how I achieved Lean FI in 6 ½ years in this post: How I Retired At 30

  • Net Worth: £300,000 – £600,000
  • Passive Income: £1,500 – £3,000 per month

Level 5 – Fat FI


Fat FI is lean FI’s extravagant big brother.

You’re financially independent, but there’s a lot more passive income to splurge on the non-essentials.

You can frequently dine out, go holidays abroad, give generously, and partake in the odd shopping trip (guilt-free).

Although you may still practice frugality, it’s not required to sustain your lifestyle.

You can spend freely and have what would be considered a good, middle-class lifestyle, except you don’t need a job to sustain it.

  • Net Worth: £600,000 – £1,200,000
  • Passive Income: £3,000 – £6,000 per month

Level 6 – Financial Freedom


True financial freedom would allow you to do anything and everything you wanted without considering the cost.

Feel like a week in Barcelona? Get the next flight – first class, of course.

The financially free life is what you’d imagine a millionaire’s or celebrity’s life to look like. You have more money than you’ll ever need, and you can spend lavishly if you wish.

Very few people will achieve financial freedom. But most of us don’t need to be this rich to achieve our dreams – unless your goal is to become a deca-millionaire.

If you’re pursuing financial freedom, beware that it comes at a cost. You’ll need to make many sacrifices, devote decades to your profession/business, and you’ll also need a bit of luck along the way.

  • Net Worth: £10,000,000+
  • Passive Income: £50,000+ per month

Wrapping It Up


Achieving financial independence takes years. There will be times along the journey when your motivation will fade, and you’ll feel as if you’re making no progress.

By breaking FI into levels, you’re chunking a big goal into smaller milestones, which is going to keep you motivated and on course.

Also keep in mind that it’s not financial freedom or nothing. The money and investments you’ve already accumulated can provide lifestyle choices way before attaining financial freedom.

Nothing is stopping you from working solidly for 2-3 years and then coasting. Or you could achieve Lean FI, and then quit a stressful job and achieve Fat FI doing something you love.

Money gives you choices. Be aware of them and use them.

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