In this article, we will discuss the ladder of financial independence.
Level 1 - Solvency
You cover your debts and living expenses with your income.
Being solvent is considered to be shaky states. Once you stop earning for any sake of a reason, you immediately become in debt.
Level 2 - Stability
Besides being able to cover your living expenses and debts, you also have an emergency savings.
The emergency savings usually cover 1-2 months of your basic expenses, making your state more sustainable.
Level 3 - Debt Freedom
You are free of debts and that lets you start investing and save even more.
It is the transitional level in our ladder from unstable to a secure state.
Level 4 - Security
Your investments cover your basics expenses.
While you keep earning, the money that you invested start bringing more money fortifying your state.
Level 5 - Flexibility
While your investments are still not sufficient to cover all your costs of living, it fully compensates 1-year costs of your basic expenses.
Level 6 - Independence
Your investments cover all your living costs, letting you live wherever you want and spend on luxuries.
Level 7 - Abundance
Money is no more a concern to you. You have more than you and your children will even need.
The understanding of the level where you are is crucially important for building your investment strategy.
Keep working and learning to constantly climb the stairs and grow your wealth.