The 5 Levels of Wealth: a simple exercise to clarify how much money you actually need.
Gain clarity on your financial goals, break free from arbitrary numbers, and design a wealth strategy that truly aligns with your life.
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A few weeks ago, I was sitting with 12 founders in my mastermind when the conversation turned to a topic that so many of us think about frequently but rarely discuss openly—money.
What’s your number?
How will your life change after you hit your number?
Money is one of those subjects that often carries unspoken assumptions, hidden fears, and unconscious desires, simply because we don’t talk about it enough. Like any important relationship in our lives, the first step to understanding and improving it is bringing it into the open.
This article will help you to have a powerful, clarifying conversation with yourself and others about money.
The motivational speaker Zig Ziglar has a great line on money;
“Everyone knows money can’t buy happiness, but they want to find out for themselves.”
What I’ve learned—both from my own journey and from working with leaders at every stage of success—is that money is a means, not the end.
It’s natural for money to be a motivator. It represents security, freedom, opportunity. But too often, we assign it arbitrary, oversized meaning without ever questioning what we actually need to live a life that feels full, rich, and aligned with our values.
That’s why the Tony Robbins scene from the doc “ I am not your guru” sticks with me.
In one of his business mastery courses, Tony is asking people in the audience how much money they need for ultimate financial freedom.
He calls on a young entrepreneur, early 20s who stands up without hesitation, “a billion dollars.”
Tony smiles and asks him why he needs $1 billion, he goes on to tell him about owning his own private jet, owning an island, owning houses, and all of his favorite places.
Tony calmly guides him through an exercise, asking him how much he wants to fly, how often he wants to visit his private island, how much each house would cost. Tony knows how much these cost, because he has all of them.
As they work through the exercise, the young entrepreneur realizes that he couldn’t possibly need more than $200 million in the bank to live the life of his absolute dreams.
He had locked onto a number—a billion dollars—without ever breaking it down. And when he did? He realized he needed 80% less than he thought.
I see this all the time. I get to work with exited founders who still don’t feel like they’ve “made it” and early-stage entrepreneurs who think they need 10x more than they actually do. The truth is, if you don’t define your number—if you don’t get clear on what financial success actually looks like —you’ll always be chasing something just out of reach.
One thing I can most certainly promise you, an arbitrary amount of money will never fix an underlying story that we don’t have enough.
Understanding and achieving financial freedom can be a confusing journey. Fortunately, it can be navigated much more confidently with clear milestones.
Tony Robbins created one of my favorite exercises that outlines five distinct levels of wealth, each representing a deeper stage of financial security and freedom. It is the simplest and and most effective framework for establishing a deeper sense of clarity around money and exactly how much we need to feel safe, secure and ultimately free.
Here is The 5 Levels of Wealth Exercise…
Start a blank document and write down your answers for each level of wealth to the best of your ability.
1. Financial Security
Definition: At this foundational level, your investment income covers essential living expenses, including housing (mortgage or rent), utilities, food, transportation, and insurance for you and your immediate family.
Calculation:
Total Monthly Essentials: Calculate your average monthly costs for housing, utilities, food, transportation, and insurance.
Annual Requirement: Multiply this monthly total by 12 to determine your annual essential expenses.
Investment Needed: Divide your annual essential expenses by your expected investment return rate to find the total investment required. For instance, if your annual essentials total $100,000 and you anticipate a 5% return, you'd need $2,000,000 invested ($100,000 / 0.05).
The 5% number comes from the average return of the S&P 500 over longer time horizons. (Typically quoted between 5-7%)
2. Financial Vitality
Definition: This stage covers all essentials plus a portion of discretionary spending, such as dining out, entertainment, and modest travel.
Calculation:
Discretionary Expenses: Determine your average monthly spending on non-essentials like dining, entertainment, and travel.
Vitality Expenses: Add 50% of your monthly discretionary expenses to your total monthly essentials.
Annual Requirement & Investment Needed: As with Financial Security, annualize this total and divide by your expected return rate (6%) to find the necessary investment.
3. Financial Independence
Definition: At this level, your investment income fully covers your current lifestyle, eliminating the need to work for income.
Calculation:
Total Monthly Expenses: Sum all monthly expenses, both essential and discretionary.
Annual Requirement & Investment Needed: Annualize this total and divide by your expected return rate to determine the investment required.
4. Financial Freedom
Definition: This stage allows for additional luxuries, such as upscale travel, luxury vehicles, or vacation properties, funded by your investment income.
Calculation:
Desired Luxuries: Estimate the annual cost of desired luxury items or experiences.
Total Annual Requirement: Add this to your Financial Independence annual requirement.
Investment Needed: Divide by your expected return rate to find the total investment necessary.
5. Absolute Financial Freedom
Definition: The pinnacle of financial wealth, where your investment income supports any lifestyle or aspiration without financial constraints.
Calculation:
Ultimate Lifestyle Costs: Envision and calculate the annual cost of your ideal lifestyle, including all aspirations and luxuries.
Investment Needed: As before, divide this annual figure by your expected return rate to determine the required investment.
How to work through the 5 levels of wealth:
Assess Your Current Expenses: Very easy to hire a Bookkeeper to manage this for you if you have resistance to doing it yourself (like me!)
Define Your Desired Lifestyle: Reflect on the lifestyle you aim for at each financial level and estimate the associated costs. Making an exhaustive list here is often quite illuminating.
Set Investment Goals: Based on the calculations above, determine the investment needed for each level. (Assuming 6% annual return)
Develop a Savings and Investment Plan: Create a strategy to accumulate the necessary investments, considering factors like savings rate, investment vehicles, and expected returns.
Regularly Review and Adjust: Periodically revisit your expenses, lifestyle goals, and investment performance to ensure alignment with your financial objectives. I like to do this at the beginning of each year. I don’t like spending a lot of time focusing on finances and once a year is typically enough for me.
The freedom of knowing
By systematically evaluating our financial needs and setting clear investment targets, we can navigate with great clarity about what we truly need. We can stop delaying the life we want to live today, for some arbitrary financial milestone in the future.
Using money as a motivator is totally fine, so long as we are doing that consciously.
Neville Goddard was a famous personal transformation guru from the 1920s, he popularized a lot of the manifesting principles that would later be popularized in The Secret and he has a great quote that I will often share with clients…
Everyone is doing what they’re doing because of how they think it will make them feel.
For most people, they unconsciously assume that some amount of money will equate to some specific feeling, like safe, like accomplished, proud.
While it is meaningful to define your financial goals, I believe it is even more valuable to identify how we would like to feel right now, and then to find the actions that will help us to feel that way in the present so that we can live a fully lit up life right now.
Have fun working through the exercise and let me know if you have any questions.