There are eight levels of financial freedom. Most people don’t even think about the first four levels: being out of debt, having 3-6 months of expenses saved, having work optional and finally having money to spend on leisure activities without affecting necessities.
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How to determine your Levels Of Financial Freedom
Determining your Levels Of Financial Freedom is the first step in creating a budget, which will allow you to take control of your finances. By knowing where you stand today, you can determine what areas need improvement and how much work it will take to get there.
The first step is to figure out how much money you earn per month. This number can be found by adding up all sources of income wages, commissions and bonuses, interest and dividend payments and then subtracting mandatory deductions such as taxes, insurance premiums and 401(k) contributions.
Next, determine how much of that total income goes toward necessities like food, shelter and clothing. The remainder is known as discretionary spending or the amount available for expenses like entertainment or travel.
To determine how much money you spend on each category of discretionary spending each month, add up your monthly expenditures for each item (for example, $200 for groceries). Next, divide that total by 12 to determine an average monthly amount devoted to each category. This will give you a better idea of where your money goes each month so that you can adjust accordingly when creating a budget.
The ultimate goal of investing is to achieve a Levels Of Financial Freedom
The ultimate goal of investing is to achieve Levels Of Financial Freedom. Financial freedom means having enough money to live the life you want to live. When you think about it that way, it’s easy to see why investing should be a priority for everyone. It’s not just about getting rich or about being able to live the life you want.
It’s important to understand that there are no magic formulas or shortcuts when it comes to investing. There are no investment “secrets” that will guarantee overnight riches or an easy path toward financial freedom. In fact, there are no guarantees at all not even close. The only way anyone can ever be truly successful at investing is by following a proven plan and sticking with it through thick and thin.
8 Levels Of Financial Freedom
Level 1 – No Liabilities
This is the most basic level, and it’s the one that all personal finance experts recommend you start at. At this level, you have no debt. You own your home free and clear of any mortgage payments, or you rent an apartment or house that is fully paid for. You also have no car payments or student loans to worry about. Your credit card bills are paid in full each month, and you don’t have any other debts hanging over your head. If this sounds like a pipe dream, it’s because it is. It’s great to be debt-free, but few people ever reach this level of financial freedom unless they were born into wealthy families. It’s possible if you get out of debt quickly and live frugally (and perhaps win the lottery), but most people will never achieve this goal.
Level 2 – Positive Cash Flow
Positive cash flow is the amount of money you make each month, minus your monthly expenses. It’s important to note that this is a very different definition than the traditional definition of positive cash flow, which refers to the amount of money you take in from your business after all expenses have been paid.
For example, if your monthly income is $3,000 and your monthly expenses are $1,500, then your positive cash flow for the month would be $1,500.
Also Read: Do You Pay Yourself?
Level 3 – Levels Of Financial Freedom from Multiple Sources
Many people are looking for passive income from multiple sources to help them reach their financial goals. The idea of earning money while doing something else may sound great, but it’s not as easy as it sounds.
Passive income is when you earn a certain amount of money without having to do anything. For example, if you own rental property and you collect rent every month, that’s passive income. This article will show you how to generate passive income from multiple sources using online tools and websites like Amazon FBA, eBay and Etsy.
Rental property
Landlords receive income from tenants who pay rent to live in the landlord’s home.
Royalty agreements
Songwriters and artists get paid when their work is used.
Dividend-paying stocks
Investors receive a share of profits from the companies they own stock in.
Paid surveys
Companies pay people to complete surveys about their products or services.
Freelance work
Artists, writers and other professionals sell their skills online to make money with freelance websites like Upwork or Fiverr.
Also Read: Importance of Financial Freedom for Women
Level 4 – Build Assets
The best way to achieve financial freedom is to build assets. Assets are items that have value, therefore can be sold for cash. Assets can include real estate, stocks and bonds, precious metals, and businesses.
If you’ve ever wondered how some people seem to be able to retire at 40 or 50 years old, it’s because they have built up a lot of assets. Most people don’t start saving until they’re in their 30s or 40s. By then they’ve accumulated a mortgage payment or two and maybe even a car payment or two. They may have a few investments but not nearly enough to retire on. Just imagine what it would feel like if you could retire at 50 with $1 million dollars.
The key is starting early and investing consistently over time so that your money has time to grow into something substantial by the time you need it most when you’re retired.
Also Read: How to achieve financial freedom in 5 years
Level 5 – Enjoy Time Freedom by Eliminating Work
Freedom is the ability to make a choice for yourself. You don’t have to do what everyone else is doing. You don’t have to chase money and status, because you’re free from having to work for them.
Freedom means that you can wake up every morning, look out your window at the beautiful scenery, and know that you have no obligations, other than those that you choose. Financial Freedom means that you get to live life on your terms whatever they are without any regard for what others think of you or how they might judge your choices. Freedom means being able to live in a way that brings happiness into your life each day and helps you find fulfilment at all levels.
Work is one of those things that can easily take away your freedom if it’s not managed properly. There are many people who work just so they can get by financially, but this isn’t what most would consider true freedom.
Also Read: What is EMI and How is it calculated?
Level 6 – High Financial Security
High financial security is a state of mind or a feeling that you have enough money to meet your needs and you are protected financially. A person who has high financial security is able to live comfortably, purchase things they want and need and save money for the future.
Personal finance experts often talk about having an emergency fund. This fund is used in case of emergencies such as losing a job or medical bills that cannot be paid with existing income. The size of this fund varies depending on what the individual needs but it should be enough to cover at least three months of living expenses if not more.
High financial security also means having additional savings beyond what is needed for emergencies such as retirement or other life-changing events like buying a home or paying for college tuition for children or grandchildren.
Level7 – Maximum Financial Security
Maximum financial security is the point at which you have enough money to cover all your expenses, without having to worry about losing your job or getting sick. You’ll also be able to save for retirement and other long-term goals.
In order to achieve this goal, you should aim to save 15% of your income each year. Start by saving enough money to cover all of your essential living expenses. Then, continue to save until you’re able to consistently contribute 10% of your income into a retirement account. Finally, once you reach this stage, you can start saving for other long-term goals like buying a house or travelling the world.
Level 8 – Multiple Passive investments
Multiple Passive investment returns are the most important factor to consider when investing in property. The more passive income you can generate from your property, the better.
Example: If you have a $200,000 property and it has two rental units, one tenant pays $1,000 per month and the other pays $800 per month. You can now use that extra $200 per month to invest in another property.
Multiple Passive investment returns are also known as cash flow. Cash flow is the amount of money that flows into your bank account each month after all expenses are paid. It’s important to know how much cash flow you can expect from your investment property before buying it. If you buy a property with bad cash flow, it will never make a profit for you.