Passive Investor Tips is a weekly series hosted by full-time passive investor and Best Ever Show host, Travis Watts. In each bite-sized episode, Travis breaks down passive investor topics, simplifying the philosophy and mindset while providing tactical, valuable information on how to be a passive investor.
In this episode, Travis talks about the various levels investors need to achieve on the path to building financial wealth. Using Maslow’s Hierarchy of Needs, Travis has created his own hierarchy of wealth building to illustrate what needs must be met before you can achieve financial independence. There are five tiers in this hierarchy:
The first level in the hierarchy of wealth building is self-sufficiency. This is where you can support your living costs and expenses through active income. You may have a W-2 job or work as an independent contractor — in any case, you are working to pay your expenses.
At the second level, you eliminate high-interest debt, bad debt, and credit card debt. You also have some cash in the bank as a reserve.
At the third level, you could potentially take a year off of work, travel, or even pivot careers. You may have some investments or IRA accounts and adequate cash reserves in the bank. However, you are still working to pay your expenses. Your investments have not been able to generate enough income for you to quit your job.
4. Financial Independence
At the fourth level, you are able to live off of the income that your investments generate. It is important to note that even if you are a high-income earner who makes millions of dollars per year, it isn’t possible to reach financial independence unless you become a passive income investor.
5. Financial Abundance
At the fifth and final level, money is no longer a concern. You have more than you will ever need, and you may begin using that extra money to give back via sizeable charitable donations.
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Travis Watts: Welcome back, Best Ever listeners, to another episode, the 10th episode in fact, of Passive Investor Tips. We are well underway, we are 10% of the way to our goal; this is inevitably going to be a 100-episode series on tips and strategies and the foundation and the mindset of becoming a professional passive income investor.
Today's episode is about building your way to the top. We're going to talk about the levels to financial independence; disclaimers as always - not telling you or anyone else what to do. This is not to be construed as financial advice. This is for educational and informational purposes only. So again, I want to discuss the various levels or the hierarchy, if you will, when it comes to building wealth.
So if you're familiar with Maslow's hierarchy of needs, this is very similar in concept. So Abraham Maslow sometime around the 1940s, I believe it was, wrote a paper; it was called "The theory of human motivation", essentially about humans' needs and motivation. So I'll put that up on the screen for you right now, if you're joining us here on YouTube. So at the bottom of the pyramid are the most basic human needs; the physiological needs, things like food, water, shelter. And then once that's obtained by a human being, you can then begin moving up the pyramid to safety needs, then to love, belonging and relationships above that, and then to esteem needs, things like having a sense of accomplishment... And the highest tier of Maslow's hierarchy of needs is called self-actualization. This is where one can achieve their fullest potential.
And the point in me sharing that with you is that you can't just skip right to the ,top as much as we would all like to. It's not possible to have self-actualization without first having your basic needs met, things like food, water and shelter, for example. So in parallel, because Maslow is such a widely known example, I decided to create my own hierarchy of wealth building, showing you the various levels; you may be wondering where you stand in the pyramid of wealth building. That's what we're talking about in this episode.
Again, if you're joining us here on YouTube, you can see this example in front of you. I will put it on the screen. If you're joining on audio, I'll do my best to articulate these points and describe it; I'm sure you'll be able to follow along. So my pyramid is flipped upside down, because we're talking about building wealth. And it just makes sense to me to start with the lowest amount on the bottom, the least amount of wealth, and have the most abundance and wealth on the top. So just envision a pyramid flipped upside down as we go through this. But again, the concept is the same; you still move up the pyramid to the top.
So at the bottom of my pyramid - I call this self sufficiency, and this is where you can support your living costs and expenses through active income. So maybe you have a W-2 job, maybe you're an independent contractor, but basically, you are working to pay for your expenses. That's where most of us start out. The next level as you move up is where you eliminate high-interest debt, anything I would call bad debt, credit card debt, things like that, and you have some cash in the bank as a reserve. I call this level stability.
As you continue moving up to the third tier, I call this level flexibility, and it's where you could potentially take, say, a year off of work, you could travel more, you have the ability to pivot careers... This might mean that you have some investments or some IRA accounts and adequate cash reserves in the bank, stuff like that, but ultimately, you're still working for money. At this point, your investments have not been able to generate enough income for you to quit your job, and that brings us to the next to highest tier, I call financial independence. Other people use other terms - financial freedom; you do you... But to me, this is where you live off the income that your investments generate. We're going to talk about that more in a second.
Break: [00:05:48.14] to [00:07:46.15]
Travis Watts: And the final tear at the very top is something I call financial abundance, and it's where money is no longer a concern. You quite frankly have more than you'll ever need, and commonly, what people do at this stage is they begin to give back in different ways, and in very large ways. You might see that with some of the wealthiest people out there in the world donating huge sums of money to various causes, things like that.
So my goal is to encourage investors like yourself, if you haven't already, to be able to achieve the level of financial independence. It's something I tackled in about seven years in a bull run market mostly using real estate as my asset class; it may take you less time than that, it may take you more time with that. It really depends on you, your strategy, your income, and what you decide to do.
There's so many great things that can come from financial independence; it doesn't have to mean retirement in the traditional sense, although you could choose to make it that. I would say at the very least what it allows you to do is allocate your time where you see best fit. So it's essentially giving you a choice to remain active with work, but you don't have the obligation to have to work.
So taking a step back here just for a moment... The purpose of this show, Passive Investor Tips, is to help you understand the fundamentals and help you build a foundation for building wealth for yourself. We talked about fundamentals a lot more in detail in episode number seven and eight... By the way, if you haven't checked those out, we've got two sources now that you can go to. You can go to YouTube and search for Best Ever CRE. Find the playlist Passive Investor tTips and watch all the episodes, 1 through 100, over time; we're on episode number 10 right now. Or you can go to BestEverCRE.com, click on podcasts at the top, and scroll down to Passive Investor Tips if you've missed any episodes or want to take a deeper dive on other topics in the series.
And the reason that I always talk about fundamentals and foundation and why those are so important is we have endless examples of high income earners worldwide, quite frankly... Some of these people make millions of dollars per year, but they never exceed the hierarchy level of having flexibility, which is the ability to take some time off of work. And the reason is - I'll show you right here; I'm going to pull the pyramid back up on the screen for you. It's because they never become professional investors, more specifically passive income investors. If you notice, going back to this financial independence hierarchy here, it's defined as "You can live off the income your investments generate."
So if you don't make investments that are generating passive income, then you just never achieve that level. And that is one critical fundamental to understand; hashtag passive income.
So with that, to your success. I hope you've found this episode and very short video useful and beneficial. I try to make these as short as possible and right to the point, to add as much value to you in as little time as possible. Thank you for tuning in. I'm your host, Travis Watts, in another episode of Passive Investor Tips. Have a Best Ever week, everyone. We will see you in the next episode.
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