Financial independence is the dream of many people, but financial independence is not a one-step process, but a staged process. At different stages, your financial situation and degree of freedom will also be different. So, what are the levels of financial independence? What level are you at? Let’s take a look.
Level 0: Total dependence on strangers
This is the lowest level and the one with the least sense of security and dignity. At this level, you have absolutely no source of income of your own and rely on the kindness of strangers to survive. Like, a person begging without a job, or a company relying on raising capital from first-time investors who don’t care about your success or failure. At this level, you have no control or choice and can only passively accept charity from others.
Level 1: Total dependence on family and friends
This is a slightly higher level, but still very unstable and involuntary. At this level, you still don’t have your own source of income, but you can rely on people who want you to succeed to help you. These people like you and their reputation is tied to your success. For example, children under the age of 15 who are being raised by parents who are often too young to work fall into this category. There are also companies where friends and family invest because they have no intention of getting their money back. At this level, you have some support and encouragement, but you still need to follow other people’s expectations and rules.
Level 2: Total dependence on partners
This is a relatively common level, and it is also a more stressful and risky level. At this level, you have your own source of income, but that income source is entirely dependent on those who have a vested interest in your financial results. For example, investors will invest in companies that are currently unprofitable but have bright prospects. Investors can obtain high returns from these investments, so they may continue to support you. At this level, you have a certain level of confidence and motivation, but you also have to face a lot of competition and challenges.
Level 3: Partially dependent on external support
This is a relatively balanced level, as well as a relatively stable and sustainable level. At this level, you have the ability to support yourself somewhat by adding value to others, while still being somewhat dependent on external support. For example, young people who are employed but rely on their parents to pay for basic necessities. There are also companies that can be profitable if they change their cost structure, but they still have to raise funds from investors in order to grow the company. At this level, you have a certain amount of independence and creativity, but you also have to remain humble and grateful.
Level 4: Completely Self-Sufficient
This is a more ideal level, but also a more difficult level to achieve. At this level, you have the ability to fully support yourself by adding value to others, and that value is negligible and easily replaced. This is a common scenario for both individuals and businesses. People or businesses in this category may sound like they are independent, but the boss or client still has the upper hand and can determine your future. In other words, your future depends on their decision. At this level, you have a certain amount of self-respect and pride, but you also have to be alert and flexible.
Level 5: Have emergency reserves
This is a more practical level and a more necessary level. At this level, you have enough savings to solve daily problems. You can deal with the common troubles that every person or company encounters without falling flat on your face. For example, you could cover some unexpected medical bills, or you could maintain your standard of living for a while until you find a new job or client. At this level, you have a certain sense of security and confidence, but you also have to be frugal and plan.
Level 6: Ability to respond to crises
This is a relatively advanced level and a relatively rare level. At this level, you have enough savings to cover big, unforeseen problems. You’re still relying on your boss or clients to make ends meet each month, but if a crisis hits, you can hold on for a while. For example, you could pay some significant legal fees, or you could maintain your standard of living for a few years or even a decade until the market returns to normal or new opportunities are found. At this level, you have certain strengths and resilience, but you also have to be cautious and prepared.
Level 7: Have long-term savings
This is a relatively common goal and a goal worth pursuing. At this level, you have retirement savings and education savings, and no consumer loans or car loans. You are still dependent on your boss and clients, but you can foresee that one day, your existing savings will lift you and your family’s living standards to a new level. For example, you can enjoy a comfortable life after retirement, or you can provide quality education for your children. At this level, you have certain visions and dreams, but you also have to be patient and execute.
Level 8: Having options
This is a relatively free level, and also a relatively rare level. At this level, you have the ability to choose jobs, or choose specific clients, and avoid unnecessary troubles in your life. You’re still dependent on your boss and clients, but you’re free to say, ‘No, I refuse. I’ll find someone else’ when you’re not satisfied. For example, you can refuse job requests that are unreasonable or inappropriate, or you can Reject customers who are dishonest or disrespectful. At this level, you have certain rights and respect, but you also need to remain professional and cooperative.
Level 9: No need to compare
This is a relatively noble level, but also a relatively difficult level to achieve. At this level, you are content enough with your social status that you don’t feel the need to show off with expensive consumer goods. Those who cannot truly do this are not truly independent yet. For example, you can afford luxury cars and watches, but you don’t need them to prove your worth, or you can live in luxury homes and hotels, but you don’t need them to satisfy your vanity. At this level, you have a certain connotation and taste, but you also have to remain humble and grateful.
Level 10: Debt-free
This is a relatively sane level and a relatively rare level. At this level, you have the ability to say ’no’ to bank debt you don’t need, including mortgages. Debt can be a cheap source of capital, but it subjects you to someone else owning a portion of your future decision-making power and cash flow. For example, you can buy a house or a car with cash instead of borrowing money from a bank, or you can run a company with your own money instead of having to answer to investors. At this level, you have a certain amount of freedom and control, but you must also maintain rationality and judgment.
Level 11: Living security
This is a more truly independent stage. At this stage, there are very few realistic situations that would cause you, your company, or your family to be pushed below Level 5. You can support yourself for a year or more with your liquid savings. This is a truly independent stage. Now, you can say ’no’ to almost anyone and have a good chance of recovering from the negative effects. For example, you can quit a job you don’t like, or you can close a business that isn’t profitable without affecting the quality of life for you and your family. At this stage, you have a certain amount of confidence and resilience, but you also need to stay positive and innovative.
Level 12: Have passive income
This is a more comfortable stage, but also a more difficult stage to maintain. At this stage, interest and dividends can cover more than half of your living expenses. Much of this independence is due to a frugal lifestyle rather than having huge assets. For example, you can use investment tools such as bank deposits, stocks, and bonds to obtain a stable income stream, or you can use assets such as rental properties, copyrights, and patents to obtain a continuous income stream. At this stage, you have a certain level of comfort and ease, but you also need to keep learning and updating.
Level 13: With basic pension
This is a relatively ordinary goal, and it is also a goal worthy of celebration. At this goal, your assets and their reasonable expected returns will be able to cover basic living expenses for longer than your expected lifespan. Congratulations, you are no longer dependent on your boss or client in this situation. If you want to cooperate with them, you can cooperate; if you don’t want to cooperate, you can refuse. It feels good to only interact with people you like. For example, you can retire and enjoy the lifestyle you like, or you can continue to work but only work on projects that interest you. In this goal, you have a certain level of satisfaction and happiness, but you also have to maintain health and vitality.
Level 14: With high quality pension
This is a more luxurious goal and a more difficult goal to achieve. In this goal, your assets and their reasonable expected returns can cover not only basic living expenses, but also ‘above basic living’ expenses. You can define ‘above basic living’ however you want, it varies from person to person. For example, you could retire and travel around the world, or you could retire and donate to charity. In this goal, you have a certain amount of luxury and enjoyment, but you also have to maintain responsibility and meaning.
Level 15: Fearless
This is a relatively high-level goal, and it is also a goal that relatively few people have achieved. In this goal, this level of independence allows you to do and say what you want without caring whether others agree with you, because you are not dependent on others for support or opportunities. For example, you can express your own opinions and opinions, or you can create your own works and products. In this goal, you have a certain amount of influence and leadership, but you also need to maintain honesty and integrity.
Level 16: Infinite wealth
This is a more extreme goal and a more unimaginable goal. At this point, your assets will compound at a rate far faster than you spend your money, unless you start focusing on meaningful philanthropy. For example, you can have a fortune of billions or even tens of billions of dollars, or you can have a product with tens or even hundreds of millions of users. In this goal, you have certain power and status, but you must also maintain charity and public welfare.
The above are the 17 levels of financial independence. See which level you are at. Hope it helps and inspires you. If you like it, please share it with more people.
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