When it comes to financial freedom, many people imagine living without debt, being able to retire young, or traveling around the world without worrying about costs. But did you know that there are stages to all that? In the concept of financial freedom levels, there are seven levels that describe a person’s journey to financial freedom gradually.
Understanding each level of financial freedom is very important because each stage has different challenges, goals, and strategies. By knowing which level you are at, you can focus more on developing a realistic and targeted plan to move to the next stage. Let’s look at the 7 levels one by one and check, where are you?
Level 1: Clarity, Knowing the Starting Point
The first level of financial freedom is clarity. At this stage, you need to compile a comprehensive picture of your personal financial condition. This means that you must know how much income and expenses, how much debt you have, and the assets you have accumulated. Without a concrete understanding of the current financial position, it will be very difficult to plan ahead.
Like a journey, if you want to get to your destination, you must know where you are. By having simple financial records, such as a list of debts, savings balances, and spending plans, you can more easily develop a realistic financial strategy.
This level also includes setting short-term and long-term financial goals. Starting from paying off debt, buying a house, saving for children’s education, to preparing for retirement. Everything must be written down in a clear and measurable manner.
This initial step is an important foundation for the next level. The more honest and open you are in recording your financial condition, the faster progress can be achieved.
Level 2: Self-Sufficiency, Standing on Your Own Feet
After understanding your financial condition thoroughly, the next level of financial freedom is financial independence. At this stage, you can fulfill all your basic living needs from your own income, without any help from your parents, family, or other parties.
Despite being independent, many people at this level still live mediocre lives or depend on consumptive debt. Usually, their income is only enough to pay bills and daily needs, with no room for savings. This condition is quite vulnerable, especially if there are sudden expenses.
The main challenge at this stage is to manage finances so that they don’t always “run out before payday”. Reducing your consumptive lifestyle, looking for additional income, and starting to set aside even a small amount of money are important steps to get to the next stage.
This level is not the end, but a stepping stone to stronger financial stability.
Also Read: 6 Ways to Achieve Financial Freedom with Digital Gold Investment
Level 3: Breathing Room, Start Having Breathing Room
At the third level of financial freedom, you already have excess funds after your needs are met. This means that you can set aside some of your income for emergency funds, savings, and start investing.
However, keep in mind that many people with high incomes still feel financially cramped because their expenses have increased. This means that the amount of income is not the only determining factor. The key at this stage is the ability to manage money wisely and maintain a lifestyle that is proportional to income.
With financial breathing space, you can be more calm when facing unexpected situations. Financial plans begin to take shape more stably, although not yet fully secure. Importantly, there is progress from just surviving to being able to start building.
This level also opens up opportunities for you to strengthen your financial foundation and start realizing long-term goals.
Level 4: Stability, Finances Begin to Stabilize and Controlled
Entering the fourth level, you are in a relatively stable financial condition. All high-interest debts such as credit cards have been paid off, and an emergency fund of at least six months of living expenses has been accumulated. You no longer panic when faced with unexpected events such as losing your job or moving house.
At this stage, daily expenses can be controlled, and financial plans are more mature. You also begin to dare to make medium-term decisions such as saving for house down payment or children’s education costs.
What distinguishes this level from the previous one is peace of mind. You are no longer living in “survival” mode, but rather starting to have risk resistance. Although not completely free, control over finances is much stronger.
This stability is the main requirement to move to a more flexible stage in financial life.
Level 5: Flexibility, Can Make Life Choices
At the fifth level of financial freedom, you have accumulated savings and investments equivalent to at least two years of living expenses. With this amount of money, you can make big life decisions, such as quitting your job temporarily, changing careers, or starting your own business, without fear.
This flexibility comes not only from the amount of money, but also from the freedom of time and choice. You no longer feel tied to your job just to pay the bills. Even if the source of funds comes from a mix of savings and investment assets, as long as they are accessible, flexibility is maintained.
What needs to be maintained at this level is discipline in maintaining a lifestyle. Many people are tempted to immediately raise their standard of living when they have more money, but that can erode the progress that has been made.
True flexibility is about control over time and life decisions, not just money.
Level 6: Financial Independence, Living on Investment Returns
The sixth level is when you can live entirely on investment returns. This means that daily expenses can be covered from investment returns, such as stock dividends, property rental income, or other portfolios.
To reach this stage, it usually requires the accumulation of large amounts of funds. That’s why you need to be highly committed to investing early and aggressively. In addition, lifestyle must also be adjusted so that expenses remain within the limits that can be covered by investment returns.
You no longer need to work if you don’t want to, because the cash flow from assets is sufficient. But many also continue to actively work for self-actualization or just to maintain routine.
Financial independence is one of the most ideal stages in the level of financial freedom, because it offers a balance between security and freedom.
Level 7: Abundant Wealth
The last level of financial freedom is abundant wealth. At this stage, you have assets and portfolios that continue to grow even though you are no longer actively adding to them. Passive income is far greater than living expenses, and wealth can be passed on across generations.
At this level, you can fund noble causes such as donations, social programs, and support personal projects without worrying about running out of funds. Wealth management focuses more on asset conservation and sustainable growth strategies.
Although it seems very far away, this level is not impossible if you plan ahead, build investment habits, and maintain a balanced lifestyle.
This seventh level is the culmination of all efforts in the journey to financial freedom, a life without financial burden, and money is no longer a source of worry.
Reaching the level of financial freedom is not about how fast you can get rich, but how consistent and conscious you are in managing your finances. Each level has its own meaning and role. By recognizing your current position, you can develop the most relevant strategy to move to the next level.
Not everyone will pass each level at the same speed. But as long as you keep moving forward, every small step will make a big difference. Don’t just focus on the end goal, enjoy the process too.
Remember, financial freedom is not just about the amount of money you have, but also about choice and control over your life. Let’s start today, determine which level you are at, and prepare a strategy to get to the next level!
