Levels of financial freedom
Published 03/09/2022 | Last updated on March 10, 2022
At some point in life, we will want to stop working. Or, at the very least, we want to stop depending on the money we earn through work. Whether pension allowance or passive income, we can achieve financial freedom and even go a little further. Below, we want to share some of the levels to achieve these goals with you.
To stop worrying about money and achieve financial freedom, it is necessary to go through many levels. It is essential to move up through the levels of financial freedom, avoiding descending on these steps and consolidating them until you can leap to the next level.
Levels of financial freedom
Different models help us understand the economic reality around us. Of these models, some are simpler, and others are more complex. This model of levels of financial freedom allows us to see clearly where we are and how far we are from reaching our goals.
There are different financial or wealth levels in this model, and financial freedom is part of one of those levels. The levels are as follows:
1. Survival
This stage is the initial level on the road to financial freedom. It occurs in those cases in which one depends on the income from work to subsist. In other words, work covers the expenses necessary to live (food, clothing, rent, mortgage). In order to ascend to a higher level of financial freedom, it will be essential to increase the capacity to save, obtain new sources of income and pay off debts.
This stage is the first level of the model. Those at this level are part of modern slavery. They are characterized by spending more than they take in, so to maintain their lifestyle, they use all kinds of toxic debt as a vehicle to continue consuming.
They are those who live one day at a time. They can be part of this financial level those who have properties, cars, and other belongings, but they do not have any financial planning. They only think about how to survive this month and, at most, the next.
Their only source of income is their job, and they are not prepared for unforeseen events. So when contingencies come knocking on their door, their only way to get by is to incur more debt which takes them further away from achieving financial freedom.
This situation causes great stress and anxiety to individuals and families living at this financial level. Being at this level affects their pocketbook mentally and emotionally.
2. Stability
At this stage, the individual already has a savings or financial cushion that will allow them to subsist for a period of about 6 months. They continue to depend on a salary or wage to be able to live, although they have a greater capacity to save than those at the survival level. Although they have no assets, they are beginning to show some interest in them.
This financial level is the minimum level to which every person should aspire. Something that characterizes this level is that, as in the previous level, you depend on your job to subsist, or in other words, you depend on active income to maintain your standard of living.
These people do not have assets that generate passive income to give them greater economic stability, but they are in the process of forming. They have an interest in having assets in their portfolio.
Another characteristic is that they have an emergency fund of 3 to 6 months of expenses set aside as a cushion against unforeseen events. They also have life and medical insurance to protect themselves and their families.
As a consequence, emotionally, people at this level enjoy emotional stability. They are happy and can sleep more soundly than those at the financial survival level.
3. Security
We find ourselves before a degree of financial freedom in which investments in real estate, buying and selling shares or opening small businesses begin to take place. In this case, the income generated by investments is not yet sufficient to support the cost of living. In other words, it means that the individual will continue to depend on income from work. Here, however, the financial cushion is higher than the stability level. In this case, to continue to progress in the degree of financial freedom, it would be advisable to educate oneself about and increase investments. Therefore, it is advisable to carry out investments with a long-term vision.
At this level, financial freedom is close, far from the slavery of those in financial survival. What characterizes those at this level is that they understand that investing is the way to progress financially.
They have different portfolios that generate residual income: properties, stocks, online businesses, etc. Despite having these assets in their portfolio, they still depend on their work to make ends meet. The income from their investments is not high enough to cover their living expenses.
However, this is temporary as they have found the perfect recipe for financial progress: keep earning assets.
Emotionally they are very calm and feel very secure as money is not an issue in their lives. Many are comfortable at this level and do not see the need for further progress even though it is possible to grow even more.
4. Financial freedom
In this situation, it will no longer be necessary for the person to depend on a salary or wage to continue living. Investments will be a substantial source of income. Thus, we find people with essential training in the financial field in this step. Their investments allow them to forget about work and dedicate themselves to what they like the most while enjoying the people they appreciate the most.
This level is the one that represents total freedom. At this financial level, your financial assets generate at least enough to cover your lifestyle expenses.
This does not imply that you are rich in terms of the amount of money in the bank, but it does imply that those at this financial level no longer need to work (exchange their time for money) to live.
Those who manage to be at this level have protected their greatest asset: their time. Therefore, they can invest their time in what they want most: in their projects, in fulfilling their dreams, in dedicating it to those they love the most, in developing their talents, and in making a positive impact on the world.
5. Absolute financial freedom
This stage is the highest degree of financial freedom. This surplus income can be reinvested to achieve even higher returns. We can say that this point is also financial independence.
This level is at the top of the pyramid and represents financial wealth. Those at this financial level not only enjoy the freedom to maintain their lifestyle, but it also makes it possible for them to have no deprivation of any kind.
To differentiate it well from financial freedom, this level implies that your assets should generate 5 times the amount needed to live comfortably. They enjoy the freedom to do a lot of good in the world.
At this level, they can afford to make riskier investments, devote significant amounts of money to philanthropy and be a force for change in the world.
After looking at all the levels, ask yourself where you are now and your goal. Based on your answers, establish a plan of action, and carry it out. This will generate more motivation to achieve it.
Remember that the information we share with you serves, as an illustration, to learn about this topic, but does not constitute financial advice, and any decision you make is your responsibility.
At El Paisa Multiservices we want to help you with your finances and give you the best advice. You can contact us if you have questions about our services.
By Ingenuity & Solutions
