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We believe there are five distinct levels of wealth, but they aren’t solely dependent on income or net worth. We’ll walk you through each of the five levels – including how to know where you are at, how to advance to the next level, and signs you are doing it right.
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Bo: Brian, I am so excited about this because this is a show that goes a little bit beyond the dollars and cents. We get to talk about what is really behind being wealthy and how do you know where you are and ultimately if you’re heading in the right direction.
Brian: Well I think your relationship with money has so many important things going on. We spend a lot of our time doing content on the strategy, the numbers, and the “how.” But this one—what I love about it is we get to talk about the mindset, we get to talk about some of those behaviors, and then we’re even going to talk about—because I want you to think about this is like a hierarchy, like a pyramid—where you’re going to go through each one of these five levels. But it’s important for you to know where you are so you can really get into that intersection of where your behavior and mindset should intersect with the money that we’ve covered in all the other episodes.
Bo: And the beginning of the year is a great time to reassess this—where am I on my wealth building journey? What level of wealth am I on? You know another thing that you can reassess right now is whether you subscribe to the channel because if you’ve not subscribed and rung that notification bell, you won’t know when we put out brand new content for you like today’s show where we dive through the five levels of wealth.
Brian: Bo, let’s not keep it a secret. I’d like you to just kind of give an overview—just a walkthrough—what are the five levels of wealth?
Bo: Yeah, as we define them, we think that there are five stages you work through on your wealth building journey. The first is the stability stage and then once you have stability mastered, then you move on to strategy. And then as you get through strategy, you begin to experience some security. And after you’ve done that for a while, ultimately our hope is that you will move into financial freedom. And then the very top of the pyramid, the very highest level of wealth is what we call abundance. And this one is the exciting one and unfortunately I think it’s the one that a lot of people don’t actually ever make it to.
Brian: Yeah, I mean look, I think even if you reach level four of wealth—which is freedom, that financial independence moment—you’ve done some incredible things. But I think it’s important let’s go ahead and kind of jump right in and let people know where they should start. And the first one I always like to mention is stability and the reason I talk about stability is because level one means you can pay your bills. That’s it.
Bo: Stability is the level where you’re no longer trying to make ends meet. You’re no longer at that place where you hope at the end of the month you have enough money just to bridge you to the next one. So we thought it’d be helpful—we kind of walk through what the stage is and what it is. And at the very basis level, stability is living on less than you make. It’s understanding that deferred gratification and discipline is masterful when it comes to wealth building. And once you’ve begun to exercise that behavior, it’s a pretty good sign you’re in the stability phase.
Brian: Well yeah, deferred gratification, discipline—there’s a reason that’s the first ingredient of the three ingredients of wealth building and we really want you to lean in on that. Because if you can have that discipline of living on less than you make, that creates the margin. You give that with time, magical stuff starts happening.
Bo: And the stability is also beginning to see the bad debt balances go away or maybe be non-existent. Maybe you had credit card debt or you had high interest debt and all of a sudden now it is a thing of the past. As you begin to see those disappear, decrease, go away, and your behavior shift, another good sign that you are in the stability phase.
Brian: Stability is not—I don’t want people to think it’s all income based. This could happen—it doesn’t matter if you’re like an entry level position right out of college or this could be somebody who’s getting a late start of things and is actually in their 40s or 50s because they made bad consumer decisions early. So don’t just base it off of income, don’t base it off of a certain age. This is not what stability is about.
Brian: And then the third thing is I don’t want you to think about stability where you can afford things at $100 per month because that is so much of society today. They say “hey, don’t wait, don’t do discipline or deferred gratification—you can have it right now by amortizing it for the next seven to eight years at $100 a month per big purchase decision.” That’s a disaster and that’s not going to allow you to have your head above water and actually start building wealth.
Bo: All right, so then the question comes—okay, well if I’m not at level one, if I’m not at stage one, how do I get there? What are the things I can do? And there’s really two that you can do. And the first one is you want to focus on the things that you can control, specifically your spending. Where is my money flowing out? Where am I losing my dollars to? Because how on earth can you command your dollars if you don’t know ultimately where they’re going? So this is a great stage where maybe if you’ve never budgeted before, you’ve never considered using some sort of tracker to track your spending—this stage is a great stage to start that and begin practicing that exercise.
Brian: Yeah, and if you’re really trying to cover a lot of ground very quickly, focus on the big stuff. I’m talking about the house payment, I’m talking about the cars that you drive. Those are the big decisions, that whole interaction with debt. If you can kind of really get that under control, I think you’ll be in a really good place. And that kind of then transitions into some of the lifestyle or consumption decisions on how you’re actually getting rid of subscriptions, how you’re thinking about the car payments or even other things in your life that—in a smaller detail you can say it’s the latte effect—but it’s back to that budgeting. I want you budgeting, knowing how to live within your means, and then creating a path for each dollar that comes into your army of dollar bills.
Bo: If you want to do even a little deeper dive, in a recent Beyond the Basics article, Daniel dives into how you can split your spending and how you can think about this between necessary spending and non-essential spending and asking questions around “why did I spend this?”—really getting into the behavioral psychology part. So if you’re not a subscriber to Beyond the Basics, make sure you go out to the website moneyguy.com and check that out and subscribe so you can get these newsletters in your inbox every week.
Brian: You started it off at the beginning—when you’re focusing on stability there’s really only two things you can control if you really look at it. You can focus on your spending—we just covered budgeting and covering how much you’re spending. The second thing is how do you increase and take a look at your income?
Bo: That’s right. Your shovel is going to be the thing that allows you to change your financial circumstance. So if you’ve cut your spending down to the quick and you cannot cut anymore, are there things you can do to increase your income? Because the higher your income is and the lower your spending is, the more stability you can begin to introduce into your financial situation. So are there things at my current job that I can do to improve my income? Or are there other things I can be doing like side gigs or types of work that might allow me to have more resources that can flow towards my ultimate financial goals?
Brian: So I want to get into—and by the way this is back to discipline, deferred gratification—make sure you’re willing to make the sacrifices and adjustments to get you to where you need to be. But I want to kind of transition now, Bo, because this is supposed to be about mindset, about the behaviors of what we can do. So let’s match your money and your mindset. I feel like a lot of financial mutants when they’re starting out, they really will major in the minors. They’ll focus on things that just do not matter. What are we talking about when we say don’t major in the minors?
Bo: Yeah, you got to make sure you’re focused on the things that actually have a meaningful impact on your financial life. So this is not the time if you’re in the stability phase to think about “okay, well how do I optimize by transferring to a bunch of 0% transfer cards?” Or “maybe you know what? I’m going to go rack up a bunch of credit card debt because there’s tons of rewards and I’m going to make wealth because I’m using the rewards.” Or “maybe I’m just going to go out there and find all the good deals, maybe I’m going to transfer money around and I’m going to get the sign-up bonus and the $50 here, $30 here.” It does not have to be that complicated. Building wealth and financial stability is simple, but it’s not necessarily easy. And so you want to make sure that you remove the things from the equation that make it unnecessarily complicated. So focus on those decisions that actually have an impact and ignore the things that are really just more than noise.
Brian: Yeah, and so level one if I was summarizing is really just making sure you’re living on less than you make, cutting through the rest of the noise. And then you’ll know that you’re doing it right if you really think about the fact—and once again this thing is built to last—is you’re following the Financial Order of Operations. The big things I think about is you’re going to have your highest deductible covered, you’re going to make sure that you’re maxing out getting that employer match, you got a budget, you’re living a scarcity—if you need to be in a scarcity mindset while you’re building discipline into your life, you’re actually focusing on that in this stage.
Bo: Yeah, and you’re still—your emergency fund is building, you’re working towards that 3 to 6 months of living expenses in liquid cash, and your high interest debt is now going away or it’s non-existent. If you begin to see these things and you recognize that you are progressing towards these things and moving, that means that you’re ultimately moving through the stability phase and now you’re likely at the beginning or starting to enter into level two of the financial pyramid of wealth—the strategy phase.
Brian: Yeah, unfortunately majority of Americans don’t ever make it out of stability. We know that because they’re just not actually getting their debts under control and paying for it. I love the strategy. This is when you really are above water. You’re actually saying “you know what? I’ve mastered living on less than I make and now I actually want to put a better plan to work. There is a better way to do money so my money can work harder than I can with my back, my brain, and my hands.” That’s why strategy is where you’re actually going to let the rubber meet the road.
Bo: You are in this strategy phase. You are controlling your paycheck, not letting it control you. You actually have a rhyme or reason to the decisions you’re making with your dollars. You also have a plan in place and you’re actually implementing. You’re not just dreaming about that better financial future, that better financial tomorrow—you have a plan in place in terms of how you’re spending, how you’re saving, what you’re doing with your dollars and you’re following it. And now you are also beginning to increase your financial education. When open enrollment comes around, you understand what a health savings account is, you know what a flexible spending account is, you understand why you should be saving 25% for your future, you get the concept of compound interest and how it can be an amazing ally if you use it or it can be a fierce adversary if you let it work against you. All of this stuff begins to coalesce inside of the strategy phase.
Brian: Yeah, I want to cover what strategy is not because like I said there seems to be a common thread of distraction. So if you’re taking advice on how to handle your money from your cousin’s best friend’s next-door neighbor, you’re probably—I mean this is the stuff—everybody’s always got a hot tip or a way to cut the corner off of things. Don’t fall into those traps. Also don’t get caught up with the next big thing. If I could tell you—if I go through all the decades of my life, it seems like every decade there’s some trap or there’s something that was just too good to pass up that in the moment seems like it’s such an awesome opportunity. But you look back on it from a historical standpoint and also the realization of 20/20 past vision, you go “that was stupid.” Don’t fall into those traps. That’s not what strategy is. We want resilient strategies that work no matter what decade of your life and career that you’re living through.
Bo: It’s also, Brian, not falling into the saver’s trap. This is one that you talk about all the time that you said you actually got to see this firsthand—that you can be a good saver and you can defer gratification, you can live on less than you make, but strategy is actually understanding that I can then use that money, that margin that I’m creating, and I can put it to work for me. So strategy is not just putting money under your mattress. It’s understanding that your money realistically can work harder than you do.
Brian: I hate it if you don’t have a plan for your money. Your money—your plan—your money really can own you by just you being just a victim of your bad choices in the past. Procrastination is not your friend. And that’s why a lot of research—Fidelity has a survey that they’ve posted where 51% of Americans between the ages of 18 and 44 just don’t pay attention to how they’re saving, how they’re spending. Essentially they’re not taking an active role in their financial life. How on earth can you know if you’re moving in the right direction or making the right decisions if you’re not tracking what you’re actually doing?
Bo: How on earth can you know if you’re moving in the right direction or making the right decisions if you’re not tracking what you’re actually doing? So as you are in this phase of wealth building and when you’re at this level of wealth, how do I get to level two or what are the things I need to be doing? Well the very first thing is be intentional. You can no longer take a passive role in your finances. You have to be active. Are you now thinking long-term with your money? Do you recognize that the decisions you make today and the way that you put your money to work today will impact your future self and are you making decisions accordingly with that reality?
Brian: And are you being honest about what you don’t know? Often one of the things I always think about when prospects reach out to us from the Money Guy Show is that realization that we all have blind spots. There’s things that we just don’t know. And I want you—if you’re trying to figure out how do I maximize my strategy, my plan for the future—there’s nothing wrong with getting help or at least diving deeper into great content like we have on the Money Guy Show.
Bo: And then you need to know your why and what are the steps to reach it. I mean ultimately money is supposed to be a tool that allows you to accomplish the goals that you have and strategy is the thing you implement to move towards those goals. Well what’s the why behind the strategy? Why am I making these decisions? Because without defining that, there’s a really good chance you’ll fall off and you won’t stay the course. So if you can begin to figure that out inside of level two, it’s going to give you that staying power to move into level three, four, and ultimately up into level five.
Brian: So let’s kind of talk about how do we make sure that you’re matching your mindset and the money—getting to that intersection point. The first thing is we got to make sure that those behaviors match up. And the big thing is instead of you trying to chase the latest trend or chasing the hot dot, you’re actually realizing “you know what? I need to focus on my savings rate, my investment rate.” And that’s why we recommend—I would really encourage you to go check out the resource of how much should you save. We always call it “what 25% can do for you” because that’s our recommended goal. But take a look at this, go to moneyguy.com/resources. And here’s my challenge for you—go look at your age specifically, use this resource, and I think you’ll very quickly see yeah, you got to get to work. You know in your 20s it’s aspirational—you don’t have to be saving 20 to 25%—but you just got to do something. But by the time you get into your 30s and 40s, you’ve got to actually put a lot of attention and discipline into your savings and investment rate.
Bo: Yeah, if you’re chasing the hot dot, you’re trying to go pick the next big winner, there’s a chance that your mindset and what you’re doing does not line up with level two of wealth building. Same thing when it comes to your consumption decisions. If you’re making purchase decisions and you’re extending the number of months that you finance the car so you can get into the nicer cars, so you can stretch out the payments a little bit longer, that’s probably a sign that you’re not treating your money the way that you should—that the strategy that you have in place is not the strategy that’s going to ultimately move you toward your long-term goals. And if you’re doing things like trying to move accounts around and open up new accounts—and again you are focusing and majoring on the minors and not focusing on the big decisions that have a true impact in your financial life—there’s a really good chance you’re not thinking about strategy the right way and you should reframe the way you’re looking at this level.
Brian: Well I just worry—it’s back to the point of we only have so many calories or horsepower that your brain can provide. And if you’re focusing on all these little things that—it’s really getting busy doing nothing, whereas I want you to be very strategic, actually have a plan. There’s a reason when I wrote Millionaire Mission and while we’ve developed the Financial Order of Operations—we’ve created a better plan so you know what to do with your next dollar. So it’s all dialed in for you. So make sure the secret to level two is actually sticking to the plan.
Bo: All right, so what are some signs that you’re doing it right? How do I know if I’m in the strategy phase? How do I know that I’m doing things right to move into the next phase? Well you have a full emergency fund. An effective strategy will allow you to begin to move through the Financial Order of Operations. So you’ve likely got the full 3 to 6 months of living expenses in cash ready for you when you need it.
Brian: I also like when you can make your millionaire status automatic for people. I mean let’s make this thing—always be buying can be such a great forced behavior because what it’s going to do is it’s going to make the good habit of automating your wealth as easy as possible. It’s also—as you get pay raises—make practice forced scarcity. Let’s automate even where that money goes so that you can keep those bad habits as hard as possible.
Bo: And when you’re checking yourself against the Financial Order of Operations and you begin to see that, “Hey, I’m in step four, I’m in step five, I’m moving to step six, I’m in step seven,” that’s a really good sign that you are in fact in the strategy phase. So if you want to know where you are, we would encourage you—go out to moneyguy.com/resources, download your free deliverable so you can assess for yourself “am I at the right stage? Am I where I’m supposed to be?” And if you find yourself in those four through seven steps and you’ve been there for a while, then there’s a really good chance you’re going to be moving into level three which is security.
Brian: This one gets me excited—not to steal your word, Bo—but security is something really powerful because this really does mean you’re no longer sweating the small stuff. So you know there’s so much noise out there and look, they’re not wrong because in the beginning—like when you’re in your 20s and you first discover personal finance content—you really should be budgeting and doing little things like that so you can squeeze every little extra dollar to put it to work because that discipline really is that important. But what I like about when you reach level three security—now this latte effect, not that big of a deal, doesn’t matter much. Those little things are just not doing what they do. This is when you’re starting—you really are starting to see the dividend of all that discipline and hard work catch traction and pay it forward.
Brian: You might even be reaching—and look, we have a little short content piece that we did on How to Skyrocket Your Net Worth—you might even be reaching what we call the boiling point.
Bo: The what point?
Brian: The boiling—I know, I don’t say things perfectly but you catch my drift. You really are reaching that critical mass where your money is starting to work just as hard as you do.
Bo: You’re beginning to see it take shape. And what you’ve been noticing is from a behavioral standpoint, you now have that financial mutant muscle memory. A lot of the good decisions that you used to have to force yourself to make now are becoming natural. You just naturally defer gratification, you naturally save and invest, you naturally increase your savings rate, you naturally make wise financial decisions. And because of that, you’re beginning to have peace of mind recognizing that “I don’t have to worry as much about the unknown unknowns. I don’t know when the next bad thing is going to happen, but I know because of the decisions that I’ve been making and because of the foundation that I’ve been building, when that next unknown unknown occurs, I’m going to be okay. I’m going to be able to make it through it because I have been executing my strategy for an extended period of time and it has now created security in my life.”
Brian: Now what security is not—it’s not going to necessarily be tied to a certain income or certain net worth. We look—it’s not surprising to us that professions with tremendous discipline—I think of engineers, I think of teachers—you’re going to see tremendous results out of people who just practice those basic skills of saving for the future. But you also see other people—and I’m not trying to pick on my doctors and my attorney friends—but it’s not uncommon you see really high incomes but it doesn’t result in high net worth or high assets working for them and building that security. So don’t get caught up in looking at just income or even where somebody is at that specific moment in net worth. It’s really the correlation of your expenses with your savings goals and having a plan for everything that you’re doing financially.
Bo: And here’s a reality—security is not available to most young folks. I mean you could be a 23-year-old saving 50% of your income, but if you’re in the first year or two of doing that, you’ve likely not reached the security phase. You may be well past stability and you are currently executing your strategy, but security takes time. You actually have to have a financial foundation underneath you for you to consider yourself secure. So it’s okay if you’re not there yet and working towards that—you’re not supposed to be there when you’re young. It takes time, it takes discipline. Make sure you put the time in.
Brian: We’ve done some episodes on financial milestones to pay attention to and I do like security—look, if you have a really strong month or quarter, there’s years that the stock market or your investments make 20% or greater. You’re going to have a period where maybe your income exceeded—from your portfolio—what you actually made with your labor. But that doesn’t necessarily mean you’re already at financial freedom because you had outsized performance. There’s a lot more that goes into reaching financial freedom. But it does mean that you definitely are reaching some cool traction points and it’s nice to still celebrate those small wins.
Bo: So the question that becomes—okay, how do I get to level three? What are the things I need to do? Well first off, you have to be in level two. You have to have some sort of strategy in place. And then you know what you do? You continue to execute that strategy and you execute that strategy over time and you give it time. You develop a plan, you develop a course of action, and then you stick to the plan. If you can stick to the plan and continue making the sound decisions and continue moving towards your ultimate financial goals, if you look back one, two, five, 10, 15 years in the future, you will look back and say “holy cow, how did I cover that much ground?” The answer is by sticking to the plan.
Brian: And look, you also—I want you to take an active role and keep an eye on your numbers because you’re going to start having—as I said—some success and I fully expect that your lifestyle will also increase as you have some of that success. But don’t get so distracted by the good things going on that as you get pay raises and other things, you’re not redeploying even more money to kind of make sure that your numbers and your goals are expanding together and they don’t get separated. Because nothing breaks my heart more than I see somebody who gets really on fire in their 30s about saving and investing, but then you look—you ask them what happened in your 40s. It looks like you’re still saving at the same annual dollar contribution as you were back in the 30s. Now here you are in your 40s with all these promotions and everything else. Don’t get distracted. Actually keep an eye on the numbers, make sure you’re progressing as you’re going through the security phase.
Bo: And then don’t get derailed trying to rush the process. Building wealth takes time. So don’t listen to the voices out there saying that “oh you should be rich today” or “you should have this today” or “you should—whatever that thing may be.” It takes time and that’s okay. And then checking your accounts every day can be something that sounds novel and sounds like a good thing, but if you’re doing that again, it might be causing you to focus on the minors instead of keeping your eye on the big picture, the big ideas. And you’re looking at the intraday ups and downs and ups and downs and ups and downs. What you’re going to do is you’re going to lose sight of the long-term path you’re on and you’ll be focused on the short movements that really likely don’t matter at all.
Brian: Yeah, this is another reason why you should watch the numbers—is because if you get into the security phase and you’re still hyper-focused on making your spouse track their expenses and all these other things, you are getting in that dangerous intersection or that razor-thin margin between financial mutant and financial miser. So that’s why you’ve got to make sure that you trust the process and stick to the Financial Order of Operations.
Bo: So as you’re thinking about your money and your mindset, be careful having anxiety around all the purchases you’re making. Be careful about trying to track every decision. You’ve likely graduated past that. We’ve already covered checking your accounts every day. You just said it perfectly, Brian—trust the process. And if you do that, the ways that you’ll begin to start seeing fruits of that—understand you’re doing it right—is now you’re not just worried about paying for your future financial self, building towards your financial independence. You get to focus on other things. You get to actually move into step eight of the Financial Order of Operations. You’re focusing on other abundance goals that you may have sitting out there.
Brian: And Bo said it earlier—this is hard. It’s kind of hard to reach security when you’re in your 20s and even 30s. But you likely are in your 40s now and you’re catching traction. If you’re over 45 and you’re way ahead of schedule on your wealth building journey, there’s nothing wrong with starting to de-risk your portfolio and your future by paying down that mortgage as well.
Bo: And then it’s okay—we talk all the time about lifestyle creep and how lifestyle creep can be a bad thing. Lifestyle creep does not necessarily have to be a bad thing. It’s okay for your lifestyle to improve over time. After all, money is a tool that allows us to accomplish the goals that we have and one of those goals might be a better lifestyle tomorrow than we have today. So it’s okay when you’re in this stage of life if you begin to see some more luxuries—maybe you drive the nicer car or you live in the nicer house or you take the nicer vacation. That’s okay so long as you’re not neglecting all the other parts and pieces of your finances.
Brian: Yeah, you’re not sweating the small stuff anymore. You should enjoy it because—maximize those memories, maximize your moment here on planet Earth.
Bo: All right Brian, now we get into level four. This is the stage that most people aspire towards. This is the one that I think gets all of the headlines out there and we call it financial freedom. And financial freedom quite simply just means your money is now at a place where it can literally work even harder than you do.
Brian: Well this is—look, this is when you do what you want, when you want, really how you want. This is what you daydream about. And I just—I hope that you really when you reach this financial freedom mark, you really have spent the time figuring out what you’re going to—not just what you’re getting away from. This is something you really do need to put some time looking into this. And freedom is something—again, we’ve already said this—most people aspire to it because what most people want is to do exactly what you said. They want to do what they want, when they want, how they want, on their terms. Money is the tool that allows you to do that. It’s the thing that allows you to buy back your time, to buy back your resources, to be in control of your life. And unfortunately because most people weren’t willing to make the hard decisions earlier on in life, they have a hard time reaching this stage later on in life.
Bo: Yeah, and financial freedom is also the ability to pay for your current as well as your future needs—hence the name financial freedom. But let’s talk about what financial freedom is not. It’s not when you no longer work. It might be when you have the choice to no longer work, but it doesn’t mean that you have to be retired. There are a lot of people who can reach financial freedom in their working years and they decide they want to keep working because they want to, not because they have to.
Brian: And I also think it’s important—remember, financial freedom is not easily reached overnight. You know this is not one of those get-rich-quick—this is something—typical millionaire, 28 years, late 40s when you cross into seven-figure status. Don’t let somebody try to sell you into a dream that’s not tied to reality and you lose this focus and this understanding.
Bo: So if you are in financial freedom and you want to think about how do you marry your money and your mindset, here are some things to be careful about. We call them miser traps. Number one, be careful undercutting experiences just to save money. You’ve reached financial freedom but you’re still unwilling to upgrade the plane ticket, you’re unwilling to stay at the nicer place, you’re unwilling to replace the old car, you’re unwilling to fill in the blank. It is important to recognize that once you’ve reached financial freedom and you get to be in control of your financial life, it’s okay to then enjoy the fruits of your labor. Don’t be a miser because there’s no benefit in leaving this earth and leaving all that money, all that wealth you’ve accumulated behind and never actually getting to enjoy it.
Brian: And don’t forget—health is wealth. You know we all spend decades saving and building up this money, but if you’re not healthy where you can enjoy it, you’ve really kind of lost the plot to a degree. And that’s why look—it’s expensive to have a gym membership, it’s expensive to buy whole foods and do the supplements and everything else you need to live your best life. But don’t lose focus of some of this stuff. If keeping you healthy, keeping you where you can enjoy these resources that you work so diligently and disciplined for—don’t skip that because you want to save a few bucks. That’s something I think is definitely a financial miser trap.
Bo: Well it’s not just health—I mean your relationships the same way. Be careful allowing yourself to be a financial miser and all of a sudden now you’re sacrificing relationships. You’re not spending time with the ones you love, doing things with the ones you love, creating memories with the ones you love. This is the stage where you ought to be able to do that. And if you’re at this stage but you’re not making those decisions, you’re really not enjoying this stage for exactly what it’s supposed to be.
Brian: And I worry—this one is one I see all the time with clients who are great at earning an income. Your income gets really strong at the end of your working career if things line up right for you. And I see a lot of people who don’t buy back their time. They have plenty of money in the bank—you can’t take it with you—but they still get to the point where since they’re making such good money, they’ll keep working even to the detriment of building memories, maximizing this moment. Don’t fall into that trap because that’s not really a miser trap but it is opportunity cost. Because just because you can earn this great living but you’re running up the scoreboard, it doesn’t necessarily mean that’s the best use of your time.
Bo: So in stage four—financial freedom—the key is use your money as a tool. I mean after all that’s what it is. It’s the reason why you’ve been building it. So how do you know that you’re doing it right in financial freedom? Well one is you have peace of mind. You have stress tested your plan. You have now planned for the unknown unknowns and you’ve run through the Monte Carlo simulation. You understand what happens if the market turns down or I have healthcare expenses or if I have to replace the automobile. You’ve planned for those contingencies and you have a level of confidence knowing that even if those things happen, you’re going to be okay from a financial standpoint.
Brian: I mean it even gets into the financial stuff—inflation, sequence of return risk, what if your expenses are greater because you’re in the go-go years and you spend more than you anticipated, or if you live longer. Typically if you’ve done this right and you’ve stress tested it, none of this stuff should matter. You should have accounted for every one of these things.
Bo: And we even have a tool—as you go into this, as you plan for retirement, there are some great things that you ought to think about that will help you figure out what are those parts and pieces that I ought to plan for so you can go out to moneyguy.com/resources and download our Money Guy Guide to Retirement to walk you through some things to think about as you enter into this phase of life so that you can enter into it well.
Brian: Also be prepared—once you’re in this phase, the way you’ve lived your life is going to change over time. How much you keep in cash reserves likely is going to go up. How you do charitable giving—because now you have appreciated holdings, you might even have required minimum distributions that you can use as a tool. Really even how you’re used to living off of a salary or a paycheck, now you’re living off of your portfolio. It’s going to change how you’re replenishing that money over time. And you also are thinking about risk and how you structure your portfolio because of that risk. You know all these things are going to be big decisions that you have to change your mindset from “make wealth” which happens in those 20s and 30s and 40s to where now you’re in that “maintain wealth” which is a completely different mindset.
Bo: Yeah, we talk about making wealth and maintaining wealth and we talk about how most folks—financial freedom is what they aspire to and most folks that’s kind of where the story stops. You use your money to do what you want, when you want, the way you want. But there actually is a step further. We think outside of just making wealth and maintaining wealth, there’s an opportunity where you can then use your money to multiply wealth whatever that may mean for you. And this higher level, this top of the stages of wealth, we call abundance.
Brian: Yeah, a lot of people—you know look, I’m going to share with you what we consider abundance and especially in the mindset format. But this is—it’s the reason it’s the top of the pyramid is that it’s got to be above and beyond what money can do for you. Meaning that you’ve got enough resources and assets behind you that you’re no longer worried about how you’re going to pay the bills, about the financial freedom and all those things. Now I want to encourage you—I want you to have the abundance mindset even on your journey up through the other four levels of wealth because you’re going to develop this skill set over time. But you’re not truly there until you reach that multiply phase of wealth whereas—you’re well beyond just what money can do and now you’re focusing on the purpose, the why, the fulfillment of what money can do when it’s not just about the necessity of paying your bills and making sure that you can cover each month.
Bo: Abundance is in fact focusing on mindset. It’s not about money, it’s about mindset. It’s about wisdom. It’s about the attitude you have in terms of the life that you’re living and how you’re using your money as a resource. It’s really beginning to understand and truly define and live out who you are, what you value, and what brings you purpose. I think it’s great, Brian, you said this isn’t something you have to wait until this stage to begin figuring out because you can begin figuring those pieces out all along the journey. But it’s only when you’ve crossed through all the other phases that you can really live your life on these terms and use your money as a tool to help you execute these pieces.
Brian: Yeah, what I like about especially the purpose and the why part of this is when you wake up in the morning you still feel like—you know because you are playing a positive role on why you’re here on Earth. Because I do sometimes—with financial freedom you see people retire and they don’t know what they’re going to do and they’re somewhat purposeless. And I think that’s a struggle that a lot of financially independent people have. So that’s why I do love when you’re in this abundance phase—if you’ve really done this right, you don’t have those moments. You wake up every morning and you’re kind of pep in your step and you know what’s going on and what you’re doing that day.
Bo: And abundance is having enough. You have now defined “okay, I’m not having to strive, I’m not having to chase, the goalposts aren’t moving. I have now moved into the end zone.” That’s a very different mindset that a lot of people have when it comes to money. They always want more, more, more, bigger, bigger, bigger, faster, faster, faster. When you’ve reached the abundance stage, you have figured out what you value and there is no need or no desire for you to move the goalpost out even further.
Brian: What abundance is not—it’s not a specific dollar amount. Now look, it is the component of this—you have plenty of money that you can do things on your terms and you can do what you value and you have your why all figured out. But it’s not a specific dollar amount because we’re all different. There’s definitely personal in personal finance. For one person this might be $10 million. For another person it might be a million and a half depending upon what they’re used to and what brings them that value in their life.
Bo: And it’s also not accomplishing a specific financial goal. Just because you retire doesn’t mean that you’ve reached abundance. Just because you reach a $2 million liquid net worth does not mean that you’ve reached abundance. Abundance is above and beyond strictly the financial goals that you have in place. It’s more about the inner person that you are and how you’re using your resources to be the best version of that person.
Brian: Yeah, I want to transition and talk about how you match your money with your mindset because this is something—as a financial advisor, Bo, we spend a lot of time with our clients because they come to us a lot of times in a really good situation, well on their way to reaching the freedom, the level four of the five levels of wealth. But they haven’t quite put the time in or really have the capacity of understanding yet what abundance is for them. We try to help focus that mindset so they know how to do their best life to really get to the top of the pyramid.
Bo: So here’s some things to keep in mind at this stage. Number one, you can’t take it with you when you leave. I mean it’s one thing if one of your goals is to leave a legacy and leave assets and resources behind for your loved ones or for organizations that you support. But let that be one of your goals that you work towards and not an after-effect of you being miserly and not actually using your money to be the tool that it can be to impact both your life as well as the lives of those around you.
Brian: And don’t sleep on the why part. I mean I really want you right now—whatever level of wealth you’re in—start thinking about what brings you happiness, what brings you purpose, what’s something that for the rest of your life if you could focus on doing this or giving a little bit more to this, that it would actually just make your life that much better. If you can start putting in those reps now, I really do think it’s going to help you out. And that’s why it’s a great segue to say level five ultimately is beginning with the end in mind.
Bo: That’s exactly right. If you can do that even now at this stage when you’re not at abundance just yet but you begin to have a picture and a vision of what that looks like and you can take steps today to move towards that, there’s a really high likelihood you’re going to have a much more fulfilling financial life in the future.
Bo: So what are some signs that you’re doing it right or some signs that you may be in the abundance phase of wealth? Well number one, you have a deep level of contentment and satisfaction. You recognize you are right where you’re supposed to be doing what you’re supposed to be doing and doing it the way that you’re supposed to be doing. And you don’t care what others have going on. You really are above that.
Brian: You start looking like the billionaires who—the wealthier you are, the dressier you seem to be. And then also you’re focusing on—you’re spending your time with those you love and what gives you focus and purpose. You know you can see what’s important to you by how you spend your time. And then you prioritize relationships and really making your mark on this planet. That is something that I think a lot of people who live in abundance think about. And I’ve said this several times but I think it’s worth repeating—you wake up in the morning with pep in your step because you know you are on this planet doing what you were put here for.
Brian: I don’t know that everybody gets to live in that abundance mentality but I would encourage you to start that journey today so you do live your best life.
Bo: At the end of the day, there is more to wealth than money and what we want you to do is on your financial journey as you move through these stages of wealth, we want you to recognize that money is just a part of it. It is a tool to move through the process. And when you really discover what you can use your money to allow you to accomplish and allow you to do, that’s when you begin to get to abundance. That’s when you begin to unlock that ultimate thing that’s worth moving towards.
Brian: I love that we bring this full circle and the fact that we talk about the abundance cycle all the time. And what is the fifth level of wealth? Of course abundance. And that’s on purpose because I do want you to go on this journey. Come, love, get all the love we’re giving for free, apply these concepts. If you’re not going to moneyguy.com—even moneyguy.com/resources—download as much free stuff as you want because I want to accelerate your journey and apply these concepts. You will reach a level of success and that is where you take the relationship to the next level and the abundance cycle is completely fulfilled. And I just love that we get to be a part of your journey. True wealth is the freedom to focus on what truly matters and owning your time. I’m your host Brian Preston, Mr. Bo Hanson, Money Guy team out!
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