This Money Road Map Breaks Down the 5 Levels of Financial Success
While having some cash in your savings account or emergency fund is important, it's only the foundation of wealth building. No matter where you are on your financial journey, it's important to consider the next step for your money goals and how to level up your wealth.
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In an episode of "The Money Guy Show," certified financial planners and hosts Brian Preston and Bo Hanson described the five levels of wealth people can achieve. Here's what they revealed about each wealth level and how to get there.
Level 1: Stability
Without stability, your wealth, is, well, shaky at best. As Hanson and Preston explained, financial stability signifies the ability to pay your bills without living paycheck to paycheck.
This level is not solely about income, as even high earners can struggle to achieve stability. It's about adopting a mindset of deferred gratification and discipline in spending. If you want to achieve financial stability, you should start by eliminating bad debts, following a budget and prioritizing saving when you can.
Key signs you haven't quite reached this stage are if you are relying on retail services like "buy now, pay later," don't have an emergency fund that covers three to six months' worth of expenses or are carrying a high-interest credit card balance.
Level 2: Strategy
Building your money and asset reserves is similar to preparing for a climb. As you inch your way up the wealth pyramid, the next level you find yourself at is strategy.
Here, you're no longer just surviving or living paycheck to paycheck, but rather beginning to make your money work for you through savings and investments. This level is about having a financial plan and executing it, not just dreaming.
Strategy is also about improving your financial literacy and avoiding the trap of chasing the latest investment fads. To transition to this stage, focus on increasing your income, managing major expenses wisely and ensuring your spending habits align with your saving, investment and financial goals.
Level 3: Security
For many people, the third level of wealth -- financial security -- is their main goal. At this stage, financial decisions become second nature, and saving a substantial portion of your income is a given. You're enjoying the fruits of your investments while also enjoying a nice surplus of cash.
The security and health of your green money garden is not solely based on income or net worth as it requires constant maintenance and tending. To know you're in the security phase, check if you have a fully funded emergency savings, a growing investment portfolio and a comprehensive retirement plan in place.
Level 4: Freedom
Financial independence or freedom is the stage where your investments and savings work harder than you do. You can just sit back and watch your money earn more money. It's about having the ability to cover your current and future financial needs.
However, reaching this wealth level is not a quick or easy feat as it requires long-term planning and discipline. Signs you're achieving financial freedom include having a stress-tested financial plan, understanding your post-retirement life and implementing advanced financial strategies.
Level 5: Abundance
Here, you've finally done it. You've climbed to the top of Money Everest.
Abundance, the final stage and pinnacle of wealth, transcends mere financial metrics. It's about aligning wealth with personal values, purpose and above all contentment. This stage is not defined by a specific net worth but by a mindset that views money as a tool for fulfilling life's purposes.
Achieving abundance means being content and satisfied with your financial status while focusing on relationships, personal growth and happiness. It's a blend of financial success and personal fulfillment, which is not too shabby when it comes to your wealth.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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