The 7 levels of financial freedom
Knowing where you stand is only the beginning.
In search of financial abundance, I was looking for clearly defined steps to measure where I am at currently financially and what I must achieve to reach my goal of financial abundance. I read many articles and books, followed courses on managing finances and about investing and found that these 7 levels describe the road to financial abundance in the clearest way possible.
I hope these levels help you get insight on your current financial position and help you set you goal for you for your future financial position.
1. Financial dependent
At the dependent level we are dependent on others to meet our financial obligations. This level is not easy, it can be a real struggle, especially if your dependent on family or friends. This position does not give much room for investing in our personal development or financial growth.
You are dependent if the state or family/ friends help you meet financial obligations. I would say that if more then 60% of your financial obligations are met by money provided by other you are dependent.
2. Financial survival
When looking at what survival means I like the following definition from Cambridge dictionary ” something that has continued to exist from a previous time”. When we put this in context of our financial position this is not a place of growth. This is a place of struggle to meet our financial obligations, there is limited to no room for investing.
You are financially surviving when you can meet the major part of your financial obligations. You might be dependent on other for parts of your financial obligation for example you receive allowances to cover parts of your obligations.
3. Financial stable
Financially stable is the level where you can meet all your financial obligations without being dependent on others. In the ideal situation you can start saving some money (rainy-day fund) and if applicable reduce debt.
You are financially stable if you can cover all your financial obligations and ideally have some room to start saving and or investing money.
4. Financial security
The financially secure is the level where we have our rainy-day fund in place and have sufficient income to invest on a regular basis. I would say that each month at the end of the month there is money left which can be spend on the growth of our financial position and or on our personal development. To put it simple there is money left at the end of the month in stead of days left at the end of my money.
At this level at least 10% of all income should be used to invest, in the ideal situation you start with investing money before you start spending. This to ensure that the investments are made. I would even say that at this level you should try to spend 10% on financial growth and 10% on personal growth.
At the financially secure level we should start getting some returns on our investments and it would be very nice to have some addition income for example from dividends or investment returns.
5. financial independence
Financially independent is the level where we do not have to work to meet our financial obligations, but we can choose to do so and do the things that give us fulfillment. Our financial investments should be able to pay for our lifestyle.
At this level we should keep a close watch on our spending pattern and cut out unnecessary costs. We have sufficient to pay for our lifestyle but are not in a position where we can permit excessive spending.
At the financial independence level your investment should cover at least all your financial obligations and might cover some of the additional spending’s.
6. financial freedom
Financial freedom compared to financial independence is simply the ability to permit comfort and luxury spending’s. In the level of financial freedom, you have more space to take financial risk and follow your passions. You are not dependent on any form of income from a working to meet any financial obligations and most comfort and luxury spending’s.
At the financial freedom level, you don’t have to work any more but are dependent on you investments to cover you expenses, meaning you need a certain level of return on your investments to pay for you lifestyle.
7. Financial abundance
Financial abundance is the level where you are in a position where money is not an issue, you can do and buy what ever you want without having to worry about your finances. At this level you have sufficient resources available so that you do not have to work any day in your life anymore and are able to afford any comfort or luxury spending’s.
The big difference for me between financial freedom and financial abundance is that on the level of financial abundance you have a more certainty on your future financial position. You are no longer dependent on your investments generating a return. To put it simple you have enough money on the bank to last you a lifetime.
Hi, I am Menno.
Hey there, I am Menno, and I am in search for a wealthy life.
I share my story on my journey to a healthy life full of energy, a happy and fulfilled life full of passion and love and a financial abundant life where I can choose what I want to do without financial limitations.
I share my story in the hope to help and inspire others to take action and live the life the truly dream off.