Posted by Fred Lake

8 Levels Of Financial Freedom

8 Levels Of Financial Freedom

You can think of financial freedom as a video game. You have to go through 8 levels to get financial freedom. What does financial freedom mean? This is when your income is higher than your expenses. When you have enough money to cover your expenses, then you have become financially free. It's like making a glove, but it's feasible! Let's first look at the eight levels and how to achieve your goal of financial freedom.

Manage all unwanted debts

Bad debts are distinguished by their use for consumption rather than for production. Damaging debts generally do not have favorable tax treatment as good debts would. By eliminating all the unpleasant debts, you have determined that you can save and produce more than what you consume. These habits are essential to financial success. Moreover, these habits must be learned before you can do anything else.

Financial Dependence

Of course, everything starts with addiction. Anyone who comes to this world depends entirely on others to survive, and the support of our family or caregivers who pay for food, clothing, and shelter is essential. We can slowly move to this stage once we start making our money, which makes us responsible for our finances, even if it is a gradual transition.

Stability

Achieve stability after paying a consumer debt, create emergency savings and continue to make personal gains. You may still have "good debt" such as university loans, and mortgages, but you have succeeded in eliminating other debts and created a savings fund to protect you from ill-timed events.

Start a retirement account

Retirement is the first thing you should think of once you have tackled your bad debts because you may want to save up little amounts of money for a certain time. Therefore, you must open a retirement account as soon as possible. The sooner you start, the more your capital will accumulate and the easier it will be to financially free even when you retire.

Quit your job and start your business

It's a big leap. This requires moving from someone who relies on your finances to the responsibility of generating revenue for your account, which is not easy to do unless significant financial reserves accumulate. Of course, this does not necessarily happen at the same time. Many people start their own business while working for someone else. However, the decision to stop working for another employer and take on this responsibility is a big step forward.

Financial Security

To reach the stage of financial security, you must cover certain essential expenses with an income that is not your job, but passive income. It can be income, investments: interests, dividends, or capital gains or any other type of income stream created generating enough money to cover at least some of your necessary expenses such as insurance, loans, bills, and accommodation. The more you can cover with other sources of income, the higher your financial security. 

Financial Abundance 

When you reach financial abundance, your passive income covers virtually what you want. You have gone beyond the coverage of your current lifestyle and the two or three things you lose each year. In the phase of financial abundance, you can do almost anything you want to do when you want to. 

Enough to retire well

Assuming that you are doing well and that you are satisfied with your current standard of living, do you think that you would be able to maintain this same standard of living even in retirement? Understanding that you are on the right track to save money to maintain your lifestyle even in retirement is a big win, and that should be your target. 

Conclusion

The more you save up, the more financial freedom you have and the more risk you can take. By increasing your financial independence, you are moving away from the wall of concern. You can make decisions based on happiness, not money.

Here's what happens: As you develop smart habits and abilities, it will not only help you achieve the next level of financial freedom you are working on, but will also help you move to the next levels of being independent.

For example, if you are working to free your debts and learn to spend less and earn more, this profitability will help you more when you reach your solvency. You can apply the same ideas when working for stability and then take relevant actions.

Fred Lake
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