The 15 Levels of Financial Independence (Where Do You Stand?)
Last week I started reading The Art of Spending Money: Simple Choices for a Richer Life by Morgan Housel. Today’s email is about his idea that “financial independence is not black or white. It exists on a spectrum.” Morgan lays out 15 levels of financial independence – from total dependence to total freedom. As I read through each level, I found myself reflecting on where I am, how far I’ve come, and what really matters next. I thought you might want to do the same.
Level 0: Total financial dependence on the kindness of strangers who have no vested interest in your success.
"Think of panhandlers and CEOs asking for government bailouts. You have a complete lack of control over the direction of your financial life in a way that leaves you vulnerable to a fragile, often cruel world.”
Level 1: Complete financial dependence on people who want you to succeed because they like you and their reputation is attached to your success.
“Think about kids under age fifteen who are supported by their parents but too young to work. Borrowing money from friends and family who realistically know you can’t repay them also fits this category.”
Level 2: The ability to partially support yourself by adding value for others while still somewhat reliant on external support.
“Young people who work but still rely on their parents to support what they consider basic lifestyle necessities fit this category. Same for workers who rely on government assistance and semiretired workers who rely on pensions. A major part of your financial well-being relies on the decisions of people who may or may not keep it going in the future.”
Level 3: The ability to fully support yourself by adding value for others, but with a value that is marginal and easy to replace.
“This is a common category for both people and businesses. It is grinding and tenuous. It smells like independence in the sense that you can pay all your bills, but a boss or customer still owns your day and can dictate your future. Your future relies on their decisions. If you lose your job, you may struggle to find a new one, and you have little savings to fall back onto.”
Level 4: Enough savings to cover run-of-the-mill problems.
“You can endure hassles that every person should expect to experience on a regular basis without getting wiped out. A small medical bill, you’re OK. It’s cold and you need to spend more on heating this month, you’re OK. Your kid needs new pants, you’re OK. This is the level at which you realize that having literally just a few dollars in savings provides a small degree of independence over life’s hassles.”
Level 5: Enough savings to cover larger, unforeseen problems.
“You still rely on the whims of your boss to get by month to month, but if a crisis struck, you’d probably be OK for a reasonable period of time. Your car breaks down, you’re OK. Your furnace breaks, you’re OK. You now have some degree of independence and protection against what you might consider “bad luck” in life’s day-to-day risks.”
Level 6: Some retirement savings, education savings, and the avoidance of credit card debt.
“You feel like you have one hand on the financial independence wheel. You still rely on bosses, but you can foresee a time down the road when your current savings will grow into a new level of independence for you and your family. You may not be fully independent, but you have sufficient hope that both fuels your optimism and helps you sleep at night.”
Level 7: The ability to pick a job that avoids the most egregious examples of bullshit and unnecessary hassles in your life.
“You still rely on a boss for your paycheck, but have the freedom and marketable job skills to say, “No, not you. You’re a terrible boss. And this is a terrible job. I’ll find someone else to work for.” A big part of this is having sufficient savings that allows you to both quit when you want to and take the time you need to find a new, better job. (This is a wonderful and realistic goal for the majority of people. If you make it to level 7, you’re crushing it.)”
Level 8: Becoming comfortable enough with your socioeconomic status that you don’t feel the need to show off to strangers.
“This is the first glimpse of not just financial independence, but intellectual and identity independence. The inability to do this is a hidden form of debt and dependence.”
Level 9: The ability to avoid most debt, including auto loans, student loans, and even mortgages.
“Debt can be cheap capital, but it keeps you beholden to strangers who own a piece of your future decisions. I once knew a guy who hated his job and had a clear vision for what he would rather do, but felt like he had to stay at his job to be able to repay his student debt. The debt, therefore, cost so much more than its interest rate: It cost him his career independence. A similar fate hits people who borrow so much for their house that they’re stuck in a city they no longer want to live in if they can’t sell their home for more than they borrowed. Once you view debt as a claim check on your future options, you stop asking, “What is the interest rate?” and start wondering, “How much independence is this going to cost me?”
Level 10: Few realistic economic situations would cause you or your family to be pushed back below Level 5.
“You could support yourself for a year or more off your liquid savings if you got hit by a medical emergency or a huge recession. It’s the first true stage of financial independence. You can now say “No, go away” to almost anyone, or any employer—or any economic event—with high odds of recovering from the repercussions.”
Level 11: Passive income like interest and dividends covers a meaningful portion of your living expenses.
“You still work for a paycheck, but your portfolio is now providing enough income to reduce the common stresses and time commitments that restrict most people’s independence. It’s common for this level of independence to be owed to a slim lifestyle as much as a large investment portfolio. Once you taste this independence, you realize that lifestyle desires can compound faster than almost any asset.”
Level 12: Your investments and their reasonable return expectations will cover basic living expenses for longer than your life expectancy.
“Congrats—you are no longer reliant on others for work. You can deal with them if you want, and you probably will. But only if you want, when you want, with whom you want, which feels amazing. Many people reach this level with self-funded retirement savings.”
Level 13: Your assets and their reasonable return expectations cover above-basic living expenses.
“You can live the lifestyle you prefer and have something left over for family or charity. “Above-basic” expenses can be defined however you want. It varies by person. Just be careful about unnecessary lifestyle creep that can pull this independence down like gravity, and remember what comedian Chris Rock says: “If Bill Gates woke up with Oprah’s money he’d jump out the window.”
Level 14: Your independence lets you do and say what you please, unconcerned with other people disagreeing with you, since you don’t rely on the financial support or opportunities they could offer you.
“One note here: The concept of f**k-you money—having so much money that you can tell people to f**k off without fear of repercussion—is great. But so is kindness and civility. So I aspire to “no thank you, I’m not interested in that, I respectfully disagree and I’m free to ignore you” money. One is rationalizing being a jerk, the other is intellectual independence.”
Level 15: You wake up every morning realizing that you can spend your time doing what you want, with whom you want, for as long as you want.
“Bosses don’t control your day. Social debt doesn’t influence your decisions. Actual debt doesn’t control your options. You beat the game. And you realize that while this doesn’t guarantee happiness and there are still plenty of opportunities for you to screw up your life, you have unlocked a lifestyle boost that 99.99 percent of humans who have ever lived have not experienced. The only risk is that you forget how grateful you should be to be in this situation.”
Most of us think of financial freedom as a binary milestone. You either have it, or you don’t. But this framework reframes it — not as a goal, but as a ladder. And once you see it this way, the next step becomes clearer.
Of course there are no right answers. My Levels 12 will vary from yours. However what is important is to know what Level you are on, what that level looks like and using money as a tool to live your version of a rich life.
P.S. Happy Diwali! May your next step get you closer to “doing what you want, when you want, with whom you want, for as long as you want.”
That’s all for this week. See you next Sunday.
👋 I’m Harsh. I build with people I like and collect useful ideas to win at business and life.
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This framework is absolutely brilliant and Morgan Housel's thinking here is characteristically profound. What I love most is how it reframes 'financial independence' from a binary achievement into a gradient - each level unlocks specific freedoms, and you can appreciate progress without needing to reach the summit. Level 7 is the unsung hero here - 'the ability to pick a job that avoids the most egregious examples of bullshit.' This is achievable for most disciplined people within 5-10 years, yet it fundamentaly transforms your daily experience. You're still working, but now on your terms. The psychological shift is enormous. Level 8 is underrated too - not feeling the need to show off is intellectual freedom that many millionaires never achieve. I've watched people stuck at higher financial levels but trapped at lower psychological levels, which is a strange and sad form of poverty. The distinction between Level 12 and 13 is clever. Basic living expenses covered versus above-basic expenses covered might only be a $500K-1M portfolio difference, but that gap determines whether you're 'retired' or 'truly wealthy.' Most people chase Level 15 without realizing Level 10-12 solves 95% of what they actually want. My one pushback: the levels assume linear progression, but in reality people bounce around. A medical crisis can drop you from Level 10 to Level 5. A windfall can jump you from Level 4 to Level 11. Life's not a ladder - it's more like a lattice where you need to activly maintain your position even as you climb. Regardless, this is now my go-to framework for evaluating where I am and what actually matters next. Exceptional synthesis of Housel's thinking.