Great words to live by, especially in today's economy. Below are the 4 levels of wealth and what they mean, per an online source.
First Level of Wealth - Financial Stability
The first level of wealth is known as financial stability. Financial stability is achieved when you have accumulated enough liquid assets to cover your current expenses for a minimum of six months. You should have also bought life and health insurance to protect you and your family's lifestyle should you be permanently disabled or passed away suddenly. Spend at least 5 minutes to compute your current level of wealth to find out how long you can sustain your current lifestyle without working. This is calculated by taking your total liquid assets divided by your monthly expenses less your current passive income. If you have not achieved financial stability, you would need to do the following:
1. You must aim to clear off your outstanding debts to minimize the negative cash assets that are taking a cut off your monthly salary.
2. Save at least 10-20% of your monthly income. This is on top of any mandatory saving plans such as 401K. You should save up at least 3 times your monthly salary before thinking about investing your savings. This is to make sure that you have sufficient cashflow to handle emergencies.
3. Book an appointment with a financial advisor to have a consultation on what kind of life insurance policy is more suitable for you. This is to cover you and your family in the event that you cannot continue working due to disabilities or any other unfortunate events.
Second Level of Wealth - Additional Passive Income
The second level wealth will be achieved when you accumulate passive income to sustain your most basic expenses. This means that you can choose not to work and yet have enough money to pay off your mortgage, daily food and transportation allowance as well as interest for all your loans and your insurance premiums. Any income that you gained from working will be channeled entirely into investment.
Third Level of Wealth - Financial Freedom
The third level of wealth would be achieving financial freedom. This means that you can sustain your CURRENT lifestyle without working again. You have accumulated enough passive income to sustain your current lifestyle indefinitely.
Fourth Level of Wealth - Financial Abundance
The fourth level of wealth would be attained when you have enough passive income to sustain your DESIRED lifestyle without working indefinitely. The amount of time that you take to achieve financial abundance from financial freedom depends how the gap between your current lifestyle from your desired lifestyle.
As you can see, to achieve higher level of financial wealth, it is very important to save a portion of your income and channel it into generating passive income. I am pretty sure most people are working hard to achieve or maintain level 1. Let's just keep the other levels in mind for that glorious day when the Global economy improves.
Enjoy!
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