Where are you on the Spectrum of Financial Dependence and Independence?

Where are you on the Spectrum of Financial Dependence and Independence? (H/T to financial planning guru Michael Kitces for including this article by Morgan Housel in his October 19, Weekly Reading for Financial Planners.)


I love continuums. Or is it contiua? You’ve seen a million of them. They are generally represented graphically, in an arc or a line, that explains the gradual transition from one condition to another; without abrupt changes and with the extremes on either end. A classic example is freezing on one end and boiling on the other. With San Diego’s perfect temperature somewhere in the middle.

This financial dependence/independence continuum represents seventeen (yes 17) points on the spectrum between complete financial dependence and complete financial independence. On the front end (Level 0) is the point at which one is entirely dependent on the kindness of strangers – think panhandler. On the far end (level 16) is the philanthropist – for whom giving it away is the only way your money won’t compound faster than you can spend it. And everything in between.

Somewhere between levels 13 and 14 is where we commonly think retirement resides. Where, if you choose, you can stop working and your assets and their reasonable return will cover your basic and above basic living expenses for longer than your life expectancy.

Retirement? Or  Maybe Not.

But in some circles, retirement has become a dirty word. And rightfully so. Fewer and fewer people want a traditional retirement. But rather want to be able to take a sabbatical or work part time or cycle back and forth between work and leisure. None of which is possible without some degree of financial independence.

What’s unusual about this particular spectrum is the fine gradations between the points and the clear qualitative explanations of the potential lifestyle differences among them. Moving along the spectrum presents manageable and reachable targets over your chosen time horizon. Progress isn’t that far away. It’s just the next step.

Take the Test

Here’s a suggestion for a ten-minute exercise. Read the 17 points on the spectrum. Then ask yourself three questions: 1) Does the construct ring true for you? 2) Where are you at present? and 3) Where would you like to be in five or ten years?

Let us know how you did.

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