When More Money Isn’t Enough: Navigating Wealth Beyond Financial Freedom
When More Money Isn’t Enough: Navigating Wealth Beyond Financial Freedom
Every individual is pursuing financial success, whether they realize it or not. The journey begins with the struggle to secure basic needs and evolves into seeking meaning beyond wealth. But as you climb the ladder of financial success, a curious law of economics—the law of diminishing marginal utility—starts to influence how you view money. Each additional dollar provides less satisfaction than the one before it, which means how you use your wealth must change if you want to maintain fulfillment.
Let’s explore the 4 stages of financial success and how diminishing marginal utility plays a role at each step.
1. Security and Stability: The Foundation of Financial Success
For those in poverty or living paycheck to paycheck, the goal is simple: achieve financial stability by meeting basic needs. At this stage, money represents survival—food, shelter, clothing, and the ability to cover emergencies. The satisfaction derived from each additional dollar is enormous because it directly reduces uncertainty and alleviates stress.
Key Focus: Exchanging the unknowns of not having enough money for the knowns of stability.
Role of Work: Reliance on earned income from a job in exchange for labor, time, and production.
Common Scenario: Most of the middle and upper-middle class fall into this stage as they cover their costs with earned income and save for retirement, often inadequately.
Actionable Tip:
Build an Emergency Fund: Set a goal to save 3-6 months' worth of living expenses in an easily accessible account. Start by automating a small percentage of your paycheck into a savings account.
Track Your Expenses: Monitor your daily spending for 30 days to identify unnecessary expenses and redirect those savings into your emergency fund.
Diminishing Utility:
At this stage, the law of diminishing marginal utility is barely noticeable because each dollar is vital. But once basic needs are consistently met, the satisfaction gained from additional income begins to decline.
Takeaway: In this phase, financial success is about securing a safety net and transitioning from living paycheck to paycheck to saving for the future.
Personal Story:
When I cashed out my brokerage account and took a second mortgage to buy my first rental property, it felt risky, but I knew that without taking action, I’d be stuck living paycheck to paycheck indefinitely. That decision helped me build the stability I needed to move beyond survival mode.
2. Financial Independence: Freedom from the Daily Grind
Most people associate financial independence with retirement, but many can achieve it long before traditional retirement age. Financial independence occurs when your passive income covers your basic expenses, meaning you could quit your job and still meet your needs.
Key Focus: Passive income covering basic needs like housing, food, and utilities.
Role of Work: Optional—you work because you want to, not because you have to.
Lifestyle Trade-off: You may need to live frugally unless you’ve built significant wealth.
The Difference Between Independence and Freedom:
Financial independence provides security and peace of mind, but it often comes with limitations. You have control over your time and are no longer reliant on a job, but your lifestyle may be constrained by your financial situation. If your passive income only covers the basics, you may need to budget carefully and make trade-offs. For many, financial independence is about having the option to stop working—but it doesn’t necessarily mean living without financial worries.
Example: Someone whose rental properties generate $50,000 per year in passive income can quit their job and cover their needs but may not be able to indulge in luxuries without dipping into savings. Similarly, an emergency or unexpected expense could challenge the financial situation of a person in this stage if they are relying totally on passive income.
Actionable Tip:
Diversify Your Passive Income: Identify your current streams of passive income and create a plan to add or grow at least one more stream. Options could include dividend-paying stocks, rental properties, or a side business.
Sustain Your Investments: Reinvest a portion of your passive income to maintain and grow your overall wealth. Set specific benchmarks for reinvestment.
Diminishing Utility:
At this stage, the satisfaction gained from additional wealth begins to decline noticeably. While reaching independence is a major milestone, living frugally to maintain it can limit your enjoyment.
Takeaway: The key here is to continue growing your income streams so you don’t get stuck at a level where money only covers the basics. This is where many fall short by retiring early without ensuring long-term sustainability. That sustainability can be gained by ensuring that you're investing at similar rates whether the funds are coming from earned income or passive income.
Personal Story:
Coming out of grad school, I went straight into full-time real estate investing. I was a true one-man show—doing repairs, renovations, marketing, leasing, and collecting rent. While I don’t recommend this path, it taught me valuable lessons. I remember filing taxes one year and realizing I made more income that year than ever before. That was the moment I knew I had achieved financial independence, and it was an incredible feeling.
3. Financial Freedom: A Life of Abundance
Financial freedom marks the beginning of true flexibility and autonomy. You have enough wealth to live the lifestyle you desire, and your passive income supports it indefinitely. At this stage, money becomes less about survival and more about choices and experiences.
Key Focus: Enjoying life without financial constraints.
Role of Work: Pursue passion projects, travel, or start businesses without worrying about financial risks.
Lifestyle: Live the way you want—whether that’s luxury or a simple, fulfilling life.
The Difference Between Freedom and Independence:
Unlike financial independence, financial freedom means you can spend your time and money however you choose without worrying about running out of resources. It’s about having true autonomy, where decisions aren’t driven by budget constraints. Financial freedom gives you the ability to take risks, explore passions, and fund your dreams, knowing that your wealth can support it.
Example: Someone with $200,000 in annual passive income can travel, invest in new ventures, or pursue hobbies without affecting their financial security.
Mindset Shift: At this stage, you move from cautious budgeting to embracing abundance, knowing that your wealth can sustain your lifestyle.
Actionable Tip:
Create a Bucket List Budget: Write down 5 experiences or passions you’ve always wanted to pursue and assign a budget for each. Allocate part of your income or savings toward these experiences to enjoy life now while building your future.
Reflect on Values: Take time to reflect on how your spending aligns with your core values and what truly brings you joy. Shift funds toward activities or investments that enhance fulfillment.
Diminishing Utility:
By this point, each additional dollar may not bring significant satisfaction unless it’s used for experiences, opportunities, or investments that align with your values. If money is hoarded without purpose, it will likely feel meaningless.
Takeaway: To maintain satisfaction, wealth must be reframed. It’s no longer just about accumulating more money but about using it to create a fulfilling life.
Personal Story:
If I’m being totally honest, I’m somewhere in between financial independence and financial freedom. I didn’t have a plan until a few years ago and was doing everything reactively instead of proactively. I could have achieved much more if I had started with a plan and an end goal. Now that I’ve made that shift, I feel more aligned with the life I want to create.
4. Significance: The Pursuit of Impact
Once you have more money than you need, wealth often loses its ability to provide personal satisfaction. This is where many turn outward, seeking significance through philanthropy, legacy projects, or massive undertakings that aim to make a lasting impact on the world.
Key Focus: Impact, legacy, and contribution.
Role of Work: Passion-driven efforts, often in philanthropy, innovation, or global projects.
Examples: Think of billionaires like Elon Musk, who aim to solve humanity’s greatest challenges.
Actionable Tip:
Develop a Legacy Plan: Think about the impact you’d like to leave behind. This could include philanthropy, creating scholarships, or mentoring others. Write down actionable steps to get started.
Start Small: Don’t wait until you have millions to give. Find a cause you care about and make contributions through time, money, or resources today.
Diminishing Utility:
At this stage, additional wealth brings little personal utility unless it’s used to achieve larger goals beyond oneself. The satisfaction shifts from personal gain to the impact your wealth can have on others.
Takeaway: The most fulfilled individuals in this stage find satisfaction in creating something meaningful, whether through philanthropy, innovation, or mentorship. “A society grows great when old men plant trees in whose shade they shall never sit.” — Greek Proverb.
Personal Story:
When I started on my financial journey, it was all about “more.” Business and investing were like a game to me, and I loved it. But after hiring employees, things changed—my business became more of a grind, and I felt stuck. I didn’t have a plan back then, but once I figured out my desired end goal, I made some big changes. My current significance is focused on raising my kids to be the best humans they can be. I’m passionate about teaching them about money, finance, and investing. The Vertex of Wealth is part of that plan—helping not just my kids, but others around the world build and maintain wealth. The fulfillment I get from enriching my students’ lives rivals any financial contribution I could ever make.
The Big Picture: Reframing Wealth at Every Stage
As you progress through the 4 stages of financial success, the meaning of money changes dramatically. The law of diminishing marginal utility teaches us that beyond a certain point, wealth provides less direct satisfaction, and its value must be redefined. Each stage requires a shift in how you use money to maximize its utility:
Security and Stability: Focus on meeting basic needs and building a safety net.
Financial Independence: Ensure your passive income can cover your needs and grow your wealth strategically.
Financial Freedom: Reframe wealth to support a fulfilling lifestyle and experiences.
Significance: Shift from personal gain to creating impact and legacy.
Final Thought: The key to lasting satisfaction isn’t simply accumulating more money but understanding when and how to use it differently as you move through each stage of financial success. Recognize that once your basic needs are met, wealth isn’t just about numbers—it’s about purpose.
Recommended Reading:
The 7 Habits of Highly Effective People by Stephen R. Covey (for developing purpose-driven habits)
Profit First by Mike Michalowicz (for effective money management)
The Gap and the Gain by Dan Sullivan (for reframing success and satisfaction)
