From The Art of Spending Money by Morgan Housel

Financial independence is not binary. It exists on a spectrum. At every point - every additional dollar of savings - you move up a little bit, and your life can improve a little more.

Level 0 - Total dependence on strangers

Complete dependence on the kindness of strangers who have no vested interest in your success. Panhandlers and CEOs asking for government bailouts. You have zero control over the direction of your financial life in a way that leaves you vulnerable to a fragile, often cruel world.

Level 1 - Dependence on people who care about you

Complete dependence on people who want you to succeed because they like you and their reputation is attached to your success. Kids under fifteen supported by parents. Borrowing money from friends and family who know you can't repay them.

Level 2 - Partial self-support

The ability to partially support yourself while still relying on external support. Young people who work but still rely on parents for what they consider basic necessities. Workers who rely on government assistance. A major part of your financial well-being relies on decisions made by people who may or may not keep it going.

Level 3 - Full self-support, but replaceable

You can pay all your bills, but a boss or customer still owns your day and can dictate your future. It smells like independence, but it's grinding and tenuous. If you lose your job, you may struggle to find a new one, and you have little savings to fall back on.

Level 4 - Savings for everyday problems

Enough savings to endure hassles that everyone should expect to experience regularly. A small medical bill - you're OK. Higher heating costs this month - you're OK. Your kid needs new pants - you're OK. This is the level where you realize that having literally just a few dollars in savings provides a small degree of independence over life's hassles.

Level 5 - Savings for larger, unforeseen problems

You still rely on your boss month to month, but if a crisis hit, you'd probably be OK for a reasonable period. Your car breaks down - you're OK. Your furnace breaks - you're OK. You now have some degree of protection against what you might consider "bad luck."

Level 6 - Retirement savings and no credit card debt

Some retirement savings, education savings, and no credit card debt. You feel like you have one hand on the financial independence wheel. You can foresee a time down the road when your current savings will grow into a new level of independence. You may not be fully independent, but you have sufficient hope that fuels your optimism and helps you sleep at night.

Level 7 - The ability to say no to bad jobs

You still rely on a boss for your paycheck, but you have the freedom and marketable 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 to both quit when you want to and take the time you need to find a better job.

This is a wonderful and realistic goal for the majority of people. If you make it here, you're crushing it.

Level 8 - No need to show off

Comfortable enough with your socioeconomic status that you don't feel the need to impress 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 - Freedom from most debt

The ability to avoid most debt, including auto loans, student loans, and even mortgages. 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?"

The author's example: a man who hated his job and had a clear vision for what he'd rather do, but felt trapped because of student debt. The debt cost far more than its interest rate - it cost him his career independence.

Level 10 - True financial independence begins

Few realistic economic situations would push you or your family back below Level 5. You could support yourself for a year or more off liquid savings if hit by a medical emergency or a huge recession. You can now say "No, go away" to almost anyone, any employer, or any economic event with high odds of recovering.

This is the first true stage of financial independence.

Level 11 - Passive income covers meaningful expenses

Interest and dividends cover a meaningful portion of your living expenses. You still work for a paycheck, but your portfolio now provides enough income to reduce the common stresses that restrict most people's independence. A slim lifestyle matters as much as a large portfolio at this level. Once you taste this independence, you realize that lifestyle desires can compound faster than almost any asset.

Level 12 - Work becomes optional

Your investments and their reasonable return expectations cover basic living expenses for longer than your life expectancy. 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.

Many people reach this level with self-funded retirement savings.

Level 13 - Above-basic lifestyle covered

Your assets cover above-basic living expenses with something left over for family or charity. "Above-basic" can be defined however you want. Just be careful about unnecessary lifestyle creep that can pull this independence down like gravity.

Chris Rock's warning: "If Bill Gates woke up with Oprah's money he'd jump out the window."

Level 14 - Intellectual independence

Your independence lets you do and say what you please, unconcerned with others disagreeing, since you don't rely on their financial support or opportunities. But the goal is not "f**k-you money" - it's "no thank you, I'm not interested in that, I respectfully disagree and I'm free to ignore you" money. One rationalizes being a jerk; the other is intellectual independence.

Level 15 - Complete autonomy

You wake up every morning realizing 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, you have unlocked a lifestyle boost that 99.99% of humans who have ever lived have not experienced.

The only risk is forgetting how grateful you should be.

Key takeaway

The trick is viewing every bit of savings as having actively purchased something, even if it doesn't come with a receipt: You have purchased the ability to do what you want, when you want, with whom you want, for as long as you want. And it is priceless.

Independence is not something you either have or don't have. Every little bit of savings, and every little bit of lower expense, pushes you higher on the spectrum. Too many people don't bother because it seems out of reach, when in fact they could easily - at any income level - be improving their position.