While many people view money as something that allows them to buy more things, having money can also act as means that can give you more choices on how you want to live.
With every dollar that you save, you give yourself more freedom and options in life.
You can tell that by how much you have saved and invested plus the months of freedom you have acquired.
In this article, I will be sharing with you the 7 levels of financial freedom.
Level 1: Clarity
The first step is evaluating and acknowledging your financial situation. You find out where you’re financially and where you want to go.
How much money you have, how much you owe, and what goals and ambitions you want to achieve.
This is because you can’t get to where you want to go without knowing where you’re starting from.
Level 2: Self-Sufficiency
Next, you want to be standing on your own two feet. This literally means earning enough to cover your expenses without any outside help such as contributions from parents, relatives etc.
A lot of people at this level live paycheck-to-paycheck or take on loans to make ends meet.
Level 3: Breathing Room
People at this level have money left over after living expenses that they can put towards their goals and aspirations, for example, building an emergency fund and investing for retirement.
Escaping level 2 literally means giving yourself some financial leeway.
Level 4: Stability
People who reach this level have paid down high-interest rate debt, such as credit card debt, and have stashed away six months’ worth of living expenses in an emergency fund.
Building up emergency savings safeguards you financially in case of unexpected circumstances.
At this level, you aren’t worried if you lose your job or if you have to move to a different city.
Level 5: Flexibility
People in this category have at least two years’ worth of living expenses saved. They have the ability to think about their money in terms of the time it can buy and can take a year off from their job if they wanted to.
They don’t have to carry all their money in cash. It could be a sum total from their savings and investment accounts.
Level 6: Financial Independence
People who have achieved financial independence can live off the income their investments generate.
They either have a large pile of money in an investment portfolio that’s generating interest or they have rental properties and cash flows from the rent cover their living expenses or a hybrid of the two.
To get to this level, you have to invest a high percentage of your income which could require you to shift to a more modest lifestyle to drastically lower your cost of living.
Level 7: Abundant Wealth
Financial independent people who live off their portfolio income rely on the 4% rule (A retirement rule of thumb that says an investor can safely withdraw 4% adjusted for inflation, from a balanced portfolio of stocks and bonds each year and be relatively certain that the money will continue to grow and won’t run out)
Level 7 is simply abundant wealth, having more money than you will ever need.
You don’t have to worry about money and it’s not essential to your day-to-day existence.
A lot of young people are starting to understand that if they aggressively save and invest, they can work less and have more control over their future and destiny. What do you think about the 7 levels of investment?
Share with me in the comments below.