Harrison Loke of Journey to Financial Freedom, has written on Levels of Financial Security.
He classifies these levels as :-
b) Break Even
c) Financial Security
d) Financially comfortable
e) Financial Freedom and
Harrison puts forward his arguments to define each of these levels, and also explains the steps we should focus to resolve as we work to get to the next level.
It is paramount for us to know where we currently are, before we can realistically plan to go where we want to be.
I am totally in agreement with Harrison on the need to know our present position. However, personally, I like the 4 levels as defined by Adam Khoo, in his book “Secrets of Self -Made Millionaires”.
He lists them as :-
a) Being financially stable
a. Having sufficient liquid assets to sustain us, should we lose our income for 6 months and
b. Having sufficient life and hospital insurance
b) Being financially secure
a. Having sufficient passive income from investment assets to meet basic expenses like mortgage, transportation, food, interest payments on all debt and insurance premiums.
c) Being financially free
a. Having sufficient passive income from investment assets to sustain our current lifestyle.
d) Being financially abundant
a. This need not be explained. For the record, Adam Khoo’s definition is having sufficient passive income from investment assets to sustain our desired lifestyle.
Ultimately, it is not the definitions of levels that really matter. What is important is :-
– We must clearly know where we are currently,
Facts such as our monthly expenses, our assets and liabilities,interest rates applicable on our liabilities, etc
– Know where we want to go,
Our financial goals must have been clearly defined and written down.
– Come out with an action plan to get to where we want to go.
– And work on our plan diligently!!!