Before you can make progress in relation to any goal the first step is knowing where you are now. Then you need to set you goal and create a plan to get there.
So where are you financially right now? Which of the 8 levels are you at?
- Reliance. This is where you depend on other people when it comes to money. Obviously this is where we all start out as children, but reliance on others can continue into adult life. It’s better than the disaster stage because you have money coming in, but it is not a good place to be. You’re at this stage if you receive benefits payments or if you still live at home and get help from your parents.
- Disaster. This is rock bottom. You’re at this level if you don’t have the ability to meet your financial commitments and have ‘bad’ debts such as personal loans and credit card arrears. People can end up at this level for all sorts of reasons such as divorce, overspending or ill health. Unfortunately more people than ever are finding themselves facing financial disaster.
- Profitability. This means you bring in more than you spend and so are able to meet your financial commitments on your own. It means that you the business-equivalent of making a profit. You may still have some personal debts but you have the repayments under control.
- Solidity. You’re at this level when you’ve paid off your personal debts, continue to earn more than you spend and started to save.
- Flexibility. This level is about being able to quit what you’re doing or your job if you wanted to because you have no debts of any kind (including a mortgage) and have enough savings to take up something else.
- Security. You achieve financial security when you’ve ticked off all the boxes for the previous steps but crucially all the money you need for your basic needs is covered by passive income or investment income.
- Independence. This is the step beyond financial security whereby your passive or investment income covers your current standard of living for the rest of your life. In other words, you no longer have to work to enjoy the same lifestyle you have right now.
- Abundance. This is the ultimate stage where your investment or passive income funds your current standard of living for the rest of your life but you can afford to go beyond that and afford to do whatever you want.
Be honest and establish where you are right now. Resolve to move up the levels and take heart from the fact that it can be done. Level 8 is possible for you and in a future blog post I will reveal a plan that can take you all the way through to financial abundance.