Financial Independence
Yes, we all want financial independence – but what does that actually mean? I’ve been reading The Art of Spending Money by Morgan Housel. I read his previous book The Psychology of Money and was curious about where he’d go next.
One thing I liked was his list of the levels of financial independence. I’d never thought of it in layers before, and it’s surprisingly illuminating.
What is Financial Independence?
If we don’t know where we’re headed, how are we going to get there? Or even know when we arrive? Housel suggests 15 levels, plus a bonus 16th. Here they are, boiled down with examples.
Interesting, isn’t it? When I first decided I wanted financial independence (at around level 5) my motivation was simple: total independence of thought / action. Not having to bow and scrape to a boss. Not pretending to believe in corporate “values”, “missions”, or endless corporate rituals. Just being able to be myself – openly. Now I’m at level 15 (and loving it!), not yet at 16 (although I would like to be!)
Where are you on the scale?
And where do you want to be?
The Highest Return
Housel says that the end-goal of good financial decisions isn’t wealth – it’s control over your time. The highest return on money is the ability to choose how you spend your day.
I would add one more condition – to be free to be yourself.
Financial Decisions
I despair when I read the financial advice – especially advice given to children. Cut down your expenses. Save. Stop doing fun things. Don’t enjoy yourself now so that you can enjoy it later, once you’ve forgotten how.
There was a story about 2 colleagues. One saw the other having a latte every morning and admonished her: ‘if you stopped having that coffee every day, in 20 years you would be able to buy a Lamborghini!’
She responds: ‘You don’t buy coffee, do you?’
‘No, certainly not,’ he replies.
‘So . . where’s your Lamborghini?’
Exactly. But what does that mean for us traders?
Stop Fussing Over the Small Stuff
Traders love tinkering. It feels productive to spend hours fine-tuning charts or agonizing over whether the strike should be 59% or 60% ITM. But honestly? None of that makes a scrap of difference over the long run.
Put Your Energy Where It Matters
There are only a handful of decisions that move the needle:
- your strategy
- your entry and exits
- your ability to stick to the rules when the market goes crazy
Everything else is just decorative fluff created to look important.
Broad Direction Beats Perfect Precision
You don’t need a perfect system. You need a good system that you actually follow. A simple rule applied consistently beats a “perfect” strategy applied only when the stars align. As George Patton said:
A good plan violently executed now is better than a perfect plan executed next week.
We can skip the “violently” part – but acting now beats fiddling endlessly.
Simplify the Rest
Set your strikes, set your roll rules, set your signals – and then leave them alone. Monitor, yes – tinker, no. There are no bonus points for complication. Just headaches.
Bottom Line
- Most traders major in minor things.
- Successful traders major in major things.
- And all the little tweaks in the world won’t save you if the big decisions are wrong.
(BTW I don’t have a private jet – never even been on one – but you never know . . !)
To the markets . . .
There’s a stock market saying:
Buy on rumor, sell on fact.
Well, we certainly saw that in action last week when the shutdown finally ended. Let’s check the charts.
SPY Charts
Last Friday’s ‘spring’ candle gave us a glimmer of hope, and we did get a decent bounce. For a brief moment it looked as though the bear trap might actually confirm.
Until Wednesday.
Thursday gave us a nasty red candle on high volume never a comforting combination – but Friday’s candle (also on high volume) looked a shade more optimistic. Slightly. Possibly.
What is depressing is that we are now back where we were two months ago – so not exactly in bubble territory. It will be interesting to see what this week brings.
In the long term chart, it looks as though SPY has pierced the lower bound, which is not a good sign. But let’s hope this week delivers something better than last week’s emotional rollercoaster.
SPYG Charts
On the short-term chart, SPYG recovered modestly after that hopeful spring candle, then dropped again just like SPY. It is now trading just below 105, which was the top of the Darvas box from early September to late October – so we are back in that trading range.
On the long term chart, SPYG is still in its trading channel, still crawling up the lower bound.
QQQ Charts
On the short-term chart, QQQ behaved just like SPY and SPYG: a bounce after the spring candle, then a drop straight back into the same general trading region. It’s still stuck in the sideways range it’s been chopping around in for months – no convincing breakout, no proper breakdown, just noise. And no bubble in sight.
On the long-term chart, QQQ is sitting neatly in the middle of its trading channel after bouncing off the upper bound. And once again, I’m amazed at how effective chart reading can be. (Note the emphasis on can.)
We drew these lines over two years ago – and they’re still doing their job beautifully.
VIX Chart (Volatility)
VIX bounced last week and is now sitting right on 20 – the line where we move out of low-volatility territory and into the “markets-are-paying-attention” zone. Not alarming, not dramatic – just a reminder that nerves are still a little frayed.
Let’s see what this week brings.
ITMeter
The week ahead . .
It’s a big week for earnings, with NVIDIA reporting on Wednesday – always one to watch given how much of the market’s narrative hangs off it. We’ve also got the major U.S. retailers: Walmart, Target, Lowe’s, and Home Depot, which will give us a clearer read on the state of the U.S. consumer.
On the macro side, we’ll finally start to see the normal flow of market data resume now that the shutdown is over. We’ll get the flash PMIs (Purchasing Managers’ Index – above 50 = expansion, below 50 = contraction) for November, existing-home sales, and the usual weekly indicators – nothing dramatic, but enough to get things moving again.
The Futures
They seem optimistic, but it is still 12 hours until market open.
Fingers crossed for a good week!
Heather
Trade the tide, not the waves
24 Responses
Dear Heather,
The ITM Method sometimes has losses so we need to be patient and follow the rules of ITM Method. For example, from 1994 to 1995, the ITM Method experienced a loss of 25% but then bounced back with a gain of 50% in 1996. Please see below.
Heather Cullen says:
March 15, 2025 at 6:25 AM
HI Jim, no I havent done that specifically, but here is a list of the ITM and market account values by year:
1994 $1,007 $978
1995 $746 $960
1996 $1,487 $1,290
1997 $2,058 $1,562
1998 $3,733 $2,141
1999 $4,612 $2,714
2000 $5,814 $3,262
2001 $5,650 $2,904
2002 $5,650 $2,648
2003 $5,307 $2,044
2004 $8,603 $2,570
2005 $8,394 $2,917
2006 $8,040 $3,005
2007 $10,401 $3,414
2008 $10,547 $3,663
2009 $10,547 $2,261
2010 $15,768 $2,922
2011 $18,444 $3,294
2012 $14,887 $3,450
2013 $18,889 $3,918
2014 $32,350 $4,967
2015 $38,283 $5,779
2016 $29,542 $5,614
2017 $37,530 $6,301
2018 $56,835 $7,767
2019 $54,599 $7,133
2020 $75,842 $9,383
2021 $83,368 $11,259
2022 $146,176 $14,289
2023 $95,883 $11,531
2024 $123,040 $14,637
2024 $181,362 $17,345
Hi Heather, thank you for your valuable insights and for always reminding us to stay calm. Today was my deadline to roll my first SPYG option. I’ve completed the sell part, but I’m wondering whether to wait or roll fully ITM now.
Given the current euphoria and “this time is different” narratives around the AI bubble, would you suggest a shorter-term option (Mar 2026) or June 2026?
Here are the numbers I’m considering:
* Strike 55: $48.56 (Mar 2026) vs $50.17 (Jun 2026)
* Strike 60: $43.66 (Mar 2026) vs $45.40 (Jun 2026)
I know we act only on clear, confirmed signals—just wanted your perspective.
Thank you,
Marijana
HI Marijana – if it were me I’d go for the June ones – probably the 55 (currently around 102 so around 54% strike).
I really hope the market picks up!
x
h
Dear Heather,
Thank you for listing the 16 levels of financial journey. To simplify it, I put the 16 levels to four groups.
Group 1: Level 1 to 4
Group 2: Level 5 to 8
Group 3: Level 9 to 12
Group 4: Level 13 to 16
Hey George Henry – so you are aiming for No 15? or 16?
x
h
Hi Heather,
Yes, I am aiming for level 15 or level 16. Interestingly enough, Warren Buffett and Charles Munger of Berkshire Hathaway and President Donald Trump and Congresswoman Nancy Pelosi are still working in their mid 90s and late 90s and late 70s and mid 80s, respectively. In the United States, Americans can start collecting Social Security and SSI in their early 60s.
By the way, there are also 16 different levels of wealth according to
Lakshmi: Goddess of Prosperity –
The 16 levels of wealth are known as Shodasa Lakshmi, which are 16 forms of prosperity presided over by the Hindu goddess Mahalakshmi. They encompass both material and spiritual riches, including fame, knowledge, courage, victory, good children, valor, gold, grains, happiness, bliss, intelligence, beauty, higher aims, morality, good health, and a long life.
Level
Form of Wealth
Description
1 Fame Recognition and renown
2 Knowledge Education and wisdom
3 Courage and Strength Bravery and physical power
4 Victory Success in endeavors
5 Good Children Progeny and lineage
6 Valor Heroism and bravery
7 Gold, Gems, and Valuables Material possessions
8 Grains in Abundance Food security and a bountiful harvest
9 Happiness Joy and contentment
10 Bliss Deep spiritual happiness
11 Intelligence Sharp intellect and reasoning
12 Beauty Physical and inner grace
13 Higher Aim, High Thinking Ambitious goals and broad-mindedness
14 Morality and Ethics A strong moral compass
15 Good Health Physical and mental well-being
16 Long Life Longevity
Hi George Henry – I didn’t know all that – thank you for bringing it to my attentioln.
I like all her forms of wealth – and many of them have little to do with money – but I can’t teach anyone how to be beautiful, have good health, logevity or bliss – so I’ll stick to my knitting (is that a saying in the US? It means stick to what you are meant to be doing in Australia).
x
h
Another book of interest may be The Wealth Ladder by Nick Maggiulli. I found it helpful.
I overlapped with Morgan Housel at The Motley Fool. We did not work directly together but I always respected his work and read his work whenever I could (we all are busy). For those who don’t know, his life was deeply affected by tragedy. He lost his two best friends to an avalanche while skiing. He was tired and stopped before they did, or he would have died as well. That loss, at a young age, has given him a deep desire to focus on what Really Matters in life. Money is just a tool for him and he reflected a lot on what people give up in focusing excessively on money.
One funny thing is tragedy in my own life lead me to my job at The Fool. I had a serious accident and had to give up much of my life because of a year confined to a hospital bed. I made a list of all the things I had wanted to do and could not because of lack of time. Then I sorted that list for what I could do from a hospital bed. “Improve my investing” was one of those things. I started posting on The Fool boards, and they offered me a job. Money is important but your Friends Family and Health are much much more important. Hopefully we are in a correction not a new bear- but either way friends, family and health are so much more important.
Hi Kate – what a conincidence – 2 readers who know Morgan Housel!
What an interesting story, I did not know about the skiing accident – or anything about him really, other than what i’ve read in hiis books.
And your accident too – a year in hospital! That must have bee excrutiating – I had 13 weeks in a wheelchair after I broke my ankle, and was driven completely mad not being able to do thins. Yours must have been so much worse.
I’ve just bought The Wealth Ladder – looking forward to reading it.
Re the market – it is painful right now, I am always the eternal optimist so I don’t think it is a new bear – but the market doesn’t care what I think!
x
h
Hi Heather,
Have read your ITM Bull and Bear, studied Buffett and Lynch over the years, and came across Morgan Housel from his Motley Fool days. Have read your blog for a few years, follow and invest a portion of portfolio in your system. 62, recently retired and currently a 14 on Morgan’s scale although markets can be fickle:).
Congrats on your life well lived and thank you very much for the service and information you provide to all of us!
Sincerely,
Bill
Hi Bill – wow, so two readers actually know this author – I don’t, just saw his books on Amazon, have not read anything about the author.
Congratulations on getting to 14 – its a greaat feeling, isn’t it?
One of the reasons the blog is free is that I want to stay at no 15 – if people were paying I would have to be careful about what I said – but now I am free to write what I think.
And thank you for your kind words!
x
h
Heather,
You said you haven’t been on or flown in a private jet but didn’t mention the Lambo so I assume that blue one must be yours? I once had a flight on the corporate / private jet of the company I worked for. They were trying to fill the seats that would have otherwise been empty and wanted to save on my commercial ticket. Anyway, when my Dad found out about it he was over the top. He started telling his friends “Yeah, they fly him all over the country..” Laughable because I was just an IT hack like you. . 🙂
Hey Thor!
well, you have been n a private jet one more time than I have!
Any my lamborghini – umm, no! I wouldn’t want the responsibility. You would be paranoid in case someone dented it in a car park – I can do without that hassle. I have a cute little MX5 which I love – fun to drive – and can park it anywhere knowing that if it is ever bent out of shape I can just buy a new one!
x
h
Hi Heather,
I have fresh money to put into some new SPY calls, since the 10 day is well above the 200 day, no rules have been violated. The last few weeks have been so choppy, how do you decide when to jump in if you have cash on the sidelines and all of your criteria are still in play?
Thank you for your wonderful articles every week,
Jason
HI Jason – pls see previous question – it is obviously on people’s minds!
I never try to time entries – probably because I am always in the market and if I am rolling it doesn’t matter what day you choose as you are buying and selling at the same time.
If you are getting into a position for the first time I have no real advice – I can only tell you what I would do – which is if I have decided to get in I get in. Right now, the ITM IN signal is in force so that means an entry is OK – in fact it may be a good time – but we will only know that afterwards.
The market is very twitchy right now, and seems to be looking for an excuse to drop, but nothing has really changed in the underlying conditions so I am hoping it is just one of the conniptions it has from time to time – a bit of a tantrum because its not going to get a December rate cut!
Sorry can’t be more helpful.
h
Heather,
Thank you for the time, I appreciate your response, and that is helpful!
Jason
Hi Heather, Finished the book and looking to enter tomorrow. But it seems like a sell signal would be about 80 points below todays market. That seems like a lot to give up waiting for a sell signal. Am I missing something? Is the 10/200 sell signal on the daily period? I see your charts on your website default to the 2 hour period. Would this also give a signal? Please let me know, if possible. Thank you, – Rick
Draw downs are just part of the deal. The safest time to get in is after a substantial decline. Heather may want to jump in and correct me here but conceptually I think of her system as follows.: you’re gonna get 80% of the up move of the S&P 500. You’re gonna give up the bottom 10% up move to confirm an up move after a bear market and you’re gonna give up around 10% in a downturn after the peak. There is no reliable way to know whether there’s going to be a correction or a bear market, you’re just going on the historical norms. Heather has back tested and found the most reliable signal she can but she can’t tell you what the market’s going to do tomorrow or next week or next month.
Getting 80% of the up move with the leverage inherent to the ITM options is very very profitable but only over a period of time that is often emotionally trying.
Great summary Kate – thank you!
x
h
Hi Rick – I must put warnings on the charts to adjust to a daily chart as that is what we use all the time. If I have to chaqnge the chart default I’ll probably have to dive into the bowels and mess with the code, which I am always reluctant to do.
But everything ITM is based on the daily chart.
Yes, we wil never get out at the top – or get in at the bottom – no-one can, unless they are trading retospectively, which I must admit alot of stock market writers do!
I have tested many different combinations looking for a tghter sell signal, but they all perform much worse than the 10/200 cross, whipping us in an out of trades usually losing money as they go.
The backtesting goes from golden cross to golden cross, so anyone getting in some time after the golden cross will not have the same results – but waiting for a death cross so that you can have a ‘fresh’ golden cross may see you waiting for years. That has happened.
My take is always if you decide to get in the get in – any time I have waited for a ‘good’ place to get in I watch the market take off without me. Having said that, there is always a chance that you will get in at the top of the market and have a loss before you get the ITM OUT signal.
I would like to be more reassuring, but nothing in trading is sure, except long term statistics.
Sorry can’t be more helpful.
h
I have my own system but I love your Commentary every week and your System ain’t too bad either. But you are so right Sister. You must trade your own System and adhere to it or Trade your ITM system. But your own System doesn’t have to be complicated and shouldn’t be. But it should work and have rules and you must stick to it. I can give you a system so simple right now, that works, if you adhere to it religiously, but if you can’t follow it through thick and thin and make it your own it will be worthless. Amen and Amen and Amen to what you are preaching Sister!
Hi Tommy (bro?)
thank you (I think . . ?)
h
Hi Heather!
Thank you for the blog!
Could you please share latest backtest for ITM for 50% and 60% strike price in one of your future posts.
Sincerely,
John Beaver
Hi John – I have updated all the figures for the new book, which I am hoping will be ready in early January.
Right now I have finished the first draft but I have to go through all the figures and check them before I release them – so give me a few more weeks!
h