Welcome to today’s topic:
“The 9 Levels Of Financial Freedom – Your Lifetime Journey”
Achieving financial freedom is everyone’s dream. Once you search more information on how to achieve financial freedom, you will definitely come across people or some groups of people who have already achieved it extremely early.
However, achieving extremely early retirement from scratch is kinda controversial and has a lot of critics on how people can practically spend near to nothing so they can retire at a very young age, ex. 30.
Ultimately, if you really want to achieve financial freedom extremely early, then you also need to do a lot of adjustment in your budget. Plus, the most important thing – You need to learn a lot of new frugal things and different ways of creating multiple passive income streams that work for you.
I see people cutting their expenses extremely like selling all their stuff, moving into a smaller apartment, moving in a mobile home and even moving in the woods so they can save a lot of money for rent. There are people who collect stamps and coupons in the whole city and neighborhood and save a lot of money for food.
Unfortunately, it’s difficult to change a lifestyle in a very short period of time. It requires a huge motivation and courage to do a lot of huge adjustments. What’s even more saddening is, people are not that willing to change at all even if they have to.
Related Post: Top 6 Scary Money Statistics – Up to 90% of people are not happy with their job.
But why is retirement always related to financial freedom?
Does financial freedom mean you don’t have to work at all?
And why do people suffer from their own money habits?
9 Levels of Financial Freedom
Financial education is the main key to achieving financial freedom. A lot of people are suffering from their money habits due to lack of knowledge and control over their finances.
Financial independence and financial freedom are achievable but you have to get started even with tiny little goals.
“Financial slavery is when you work hard for your money to live while financial freedom is when your money works for you, while you enjoy your life”
Here are the stages and levels of financial freedom that you’ll be working with.
Paycheck to Paycheck Lifestyle
This is the starting point for almost everyone who wants to achieve financial freedom. Unfortunately, there are around 80% of the people in the US who are living paycheck to paycheck.
Sadly, a lot of these people are already lacking an average of $800 even before the next paycheck according to surveys. And saving money is almost impossible.
This level is merely the poverty level and this is the most challenging part to move into the next one.
Moving to the next level requires a total overhaul of your personal finances and budget. You would have learned a lot of new things, cut down expenses and create other sources of income both active or passive streams.
Paycheck to Paycheck
In this level, you already have a setup of your personal finances and budget. You already know how much is your daily, weekly or monthly expenses including paying off your credit card balances as soon as possible.
Ultimately, you already have built an emergency fund and you are really determined to be debt free. Plus, you have automated all payments, savings, and investments in this level of financial freedom.
Having an emergency for 6-12 months equivalent of your take-home pay is an ideal amount to be secured against unexpected expenses such as car repairs, dental and medical bills as well as temporary unemployment in a short period of time.
Can Afford A Year Time Off
Aside from emergency fund, you should have saved enough money for at least equivalent to one year of your take-home pay in this level.
And at this level, you can afford to take a year of vacation. Some people especially women opt to have a much longer maternity leave and extending a whole year or two could be a great idea in some cases.
Well, this doesn’t mean that you have to take that year of time off, sabbatical or prolonged vacation but it’s great to know that you can and you don’t have to be worried about your job security.
Conversely, you can accumulate your savings at this point in order to accelerate your journey to the highest level of financial freedom.
The Right Track Without Compromise
This is the level where you enjoy life and have the money to do it. You save a huge part of your income yet still have money to do what you want to.
Reaching this level would probably spark your energy to even boost your savings so that you can reach the highest level of financial freedom. Assuming you don’t increase your spending habits and lifestyle activities because you’re absolutely satisfied with your financial plans.
Amazingly, you are already seeing good results in your financial freedom and you know you are on the right track at this level.
Passive Income Streams
(Freedom of Time)
Passive income streams are the most important aspects of achieving financial freedom sooner as these types of incomes require just a little part of your time.
At this point, you already have started building more sources of passive income and enjoying more time freedom. You decide your own working schedule and you manage your time freely.
You can spend more time with your family and you don’t need to take days off for going to dental check or bringing your kids to the doctor.
You can decide when, where or how to work on your own pace. It could come as an on-call duty for health professions, teaching profession, freelancing, etc. You enjoy your time at work because you can choose when to do so.
Financial Independence 1
If you opted to totally stop working for active income streams, then this level is the basic retirement where you can sustain all your basic needs.
I have seen a lot of people across the web like the FIRE movement or ERE, which has a common goal to retire extremely early. Most of the people who are following this concept hate their job, and they really are willing to do anything to retire as soon as possible.
There are pros and cons in FIRE & ERE concept but I like the fact that it is actually doable and achievable to retire within 5-6 years.
Basic retirement level is where you can totally live an extremely minimalist lifestyle with a very tight budget. This is where you can, in the early stage of financial independence, can support all your basic expenses from the 4 % withdrawal rate from your investment or retirement funds.
This level means that you don’t have any room for a luxury car, fine dine in, yearly vacation or even just a movie night out.
Financial Independence 2
Let’s say you are satisfied with your current standard of living. How much do you need in order to maintain this lifestyle after retirement if you give up your active income?
Assuming $50,000 a year budget is your current life standard – not too much. not too tight either. Just exactly the way you want it to without compromising anything after retirement.
In this level, you already are able to sustain this lifestyle using your passive income streams.
Accumulating a retirement fund or a portfolio that can support that lifestyle is a huge accomplishment. Happy are those who have accumulated enough assets and passive income streams to attain good and ideal retirement.
Financial Freedom 1
If you would have to live your dream retirement, how would you paint it? How would your dream lifestyle look like as a retiree? Would you like to travel more, spend more time with your family and friends? Would you be traveling in first class and 5-star hotel 5 times a year?
How about your home? How would you like it? A penthouse, a mansion or a palace? How about your car? Can you dream big at this level? This is it.
In this level of financial freedom, you have everything you need and everything you want and you live exactly your dream lifestyle.
Can you picture out how you can achieve this level? How much work do you need to do in order to live the dream of your life before even reaching the age of 70?
Oh, please don’t tell me you don’t have plans at all and you want to die in poverty.
Financial Freedom 2
(Extremely Wealthy Retirement)
If the previous level above is everyone’s dream, then this level is the extreme and exclusive level of financial freedom. This is where you have so much money streams and even more than you can spend at all.
However, building enough wealth and fortune in a way that you could never be able to spend them all is an extreme accomplishment.
This group of people is those who inherited a fortune or built an empire of a massive income-generating company like in the case of Warren Buffet And Bill Gates. These extremely wealthy people around the globe can even shop free, buy planes, yacht, etc. without even worrying that they will go broke.
Everybody deserves financial freedom. However, there are a lot of people who are lacking the knowledge and the ultimate actions to make plans and actually follow it.
In my humble opinion, financial freedom for ordinary people like you and me is a lifetime journey. We can always get better in our finances no matter which level in financial freedom we are in.
Remember to set goals where you target the next level. So if you are at the level one – do not target the level 8 or 9 right away, as this will stress and overwhelm you in achieving your goals.
Taking a lot of small actions can track your progress easier.
In my humble experience, creating multiple passive incomes while still enjoying your active income will accelerate the whole process in achieving financial goals.
This is the end of today’s topic “The 9 Levels Of Financial Freedom – Your Lifetime Journey”. I have you have learned something from this particular matter and that it will help you to make wiser decisions for your finances and retirement plans.
This post aims to inspire you to take more actions in improving your personal finances. However, we highly recommend talking to your financial advisor for the actual investment plans that suit your current financial status.
If you have any suggestion or question, please feel free to comment below. Thanks and good luck to your journey to financial freedom.
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