How much do you really need?

If you are familiar with our Passive Income miniseries (if not the latest article can be found here), we came up with the idea that we need 2000USD (or around that) to live properly without having the need to work (or at least to be able to quit whenever we want).

But, now it’s time to see if that sum is justified, if it’s too low, or too high. How will we do that? Going back to simple math and budget overview.

“If you can dream it, you can do it.” 

Walt Disney

The 5 levels of Wealth as defined by Tony Robbins

In one of his books, Money- Master the Game, Tony Robbins defines 5 levels of Wealth to satisfy all your desires. Something that can be matched to Maslow’s hierarchy of needs.

Taking them in order, each level of wealth satisfies something else, from basic needs like food, water, shelter to esteem, recognition and so on (at least this is my interpretation I think of).

The first level, Financial security, refers to satisfying the costs of the basic needs: like mortgage, utilities, all food you need, transportation and insurance.

The second level is the Financial vitality. The Financial vitality is the sum between the amount needed in the Financial Security and some indulgences. Indulgences are: clothing, dining, entertainment and small treats ( to make your life sweeter – like a new phone once in a while).

Financial Independence is the third level and I think that most strive to achieve (at least the ones interested in F.I.). This level is the level where you have the same lifestyle as you have now, but without going to work (so no more 9-5 jobs).

The fourth level refers to Financial Freedom, is the level where you have a little extra than the third level. The extra is used to buy some bigger luxuries you want in the future ( like a holiday apartment, a monthly donation or even a yacht or some expensive hobby – skydiving).

The final level, the Absolute Financial Freedom, is having anything you want without working a single day. You want a new car? here it is. You want a plane? Are you sure? Will you want to rent it? No. Ok ok just buy it.

Passive Income Milestone I

When we set the Milestone I, I didn’t know about these levels. What I am curious now, is where or how many we can cover with this Milestone. Also I would like to draw a line and say that I want to cover just the first to levels with Milestone I and if 2000USD is more that we need, we will update the goal for the next year. What do you say? Do I hear a Yes? A little bit louder please!

Level 1 – Financial security.

To achieve this level, I have to take into consideration the amount we need for mortgage, utilities, insurance, food and transportation. Going back to last year’s budget + adjusting the overflows, this is the amount we currently need, for this level.

image 3

So we are already at 1555USD, without taking into consideration the Insurance, which in our case is free (paid by employer). Yes, I know that the food bill is high, but we spare no expense when we talk about food, as we prefer to have healthier food and are diverse (we are a bit of gourmands). I hope you will not judge us too harshly. Either way, we can mark this level down in the goal.

Level 2 – Financial Vitality

For this level, we have to include some basic costs with clothing, entertainment, luxuries ( I will include here the kid kindergarten – we have to choose a low option, like a public kindergarten, but we want the best considering education, so definitely a luxury – exactly like the case of food).

levels of wealth, level I and level II

What I added extra to the second Level is that I want to increase the passive income we generate. So a part of the Financial Vitality level is reserved to auto-investing.

As you can see we are not that far away from the 2000USD goal, we proposed in the miniseries (and part of the difference is because of the inflation and the increase in last year prices).

In this case, as a conclusion of the exercise, we will increase the goal to the 2500USD mark as a round number (and take into consideration the potential fluctuations until we reach this milestone).

But to continue the exercise, let’s see what the third level implies (we are not talking about the 4th and 5th level – if we reach them, probably I will not be here writing – haha).

Level 3 – Financial Independence

Financial Independence or Milestone II, is adding all the needs and some luxuries and we will just throw some numbers in.

levels of wealth, financial independence, level III

First thing is to add the insurance cost of 100USD at the first level. Why? Because once I stop work, that will not be free anymore, so the Milestone I changes to 2530USD ( so I was right to include it in the goal). Another thing I will add into the Level III is the Medical Expenses category. I want to be sure that I have a budget each month for different kinds of emergencies. Maybe emergency was the better term (car broke down, needed a visit to the dentist and so on).

I am sure that with time, I will refine the Level III categories to something more real, but even if I have the Milestone II in vision and I think about it, we have to reach the first target.

Thank you for reading this article, I really hope you enjoy it. Also it would be helpful o hear your insights about the levels of wealth.

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Disclaimer: I am not a financial consultant! All the information you find here are my decision, I have taken at that moment, on my own analysis. I am open to any type of discussion about money. If you want to replicate my portfolio take into consideration that it is your money and you can have losses.

P.S. Header Image by Nattanan Kanchanaprat from Pixabay

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