The Five Levels of Financial Success

This article is not financial advice, but rather a collection of ideas and lessons learned from the past six years of studying personal finance. The goal is to propose a structured approach to building long-term financial stability, inspired by my experience diversifying investments and planning for my family’s future.

Build your financial tower:

Think of your financial journey as a 5-story tower. As with any permanent building, the foundation must be secured before the upper floors can be built. Skipping steps or rushing through the process can lead to instability. Each floor represents an important milestone in your financial growth.

Level 1 - Financial Stability:

This is the foundation of the tower and the most important step. Without stability, it is impossible to move forward effectively.

Financial stability means:

• Healthy cash flow: You can easily cover your monthly expenses.
• No high-interest debt: Pay off or avoid credit card debt and payday loans. This creates compound interest that works against you.

When paying off your debts, there are several methodologies, including: 1. Starting with the highest interest rate, 2. Beginning by paying off the lowest balance, etc. Choose the approach that motivates you the most and keeps you progressing towards eliminating your debts in a snowball effect.

• Emergency Fund: Create a fund that covers 6-9 months of expenses to protect yourself from unexpected situations like medical bills or job loss. - Remember that this refers to basic expenses, not monthly income. Do not get discouraged by thinking it is unattainable.

Helpful Tip: Create a budget to track expenses. Many people know their income, but not how much they spend. Saving systematically: Allocate at least 10% of your income to an emergency fund until you have enough. Put that money away in a high-interest savings account for affordability and growth.

Level 2 - Financial Strategy:

Once stable, it's time to think about long-term development. Savings alone do not create wealth due to inflation and opportunity costs.

At this level you should:

• Create an investment plan: determine the monthly investment amount, required asset allocation and timeline. Example: Invest 20% of your income every month for 15 years. 75% is invested in ETFs like VOO (S&P500), 15% in international funds, and 10% in bonds.

Why stop contributing 20% after 15 years? The goal should be for your entire working life. And if you can't start at 15%, continue working towards it. At the very least, start with the company contribution (if available) and increase by at least 1% per year until you reach at least 15% or more :)

• Develop financial knowledge: Read books, attend seminars, or seek guidance to improve your understanding of investing and financial instruments.

Consistency is key and discipline. Stick to your plan even during market fluctuations.

Level 3 - Financial Security:

Financial security is when your investments continue to grow and you can enjoy your income more freely without worrying about major financial issues. However, this level requires the greatest patience because:

• This is a long-term game: success depends on the ability to increase your investment over time.
• Avoid emotional decisions: Don’t let fear or greed keep you from your plans.
• Do not look for shortcuts or quick fixes.

Research shows that even 90% of professional money managers cannot consistently beat the S&P500 Index. Focus on your strategy and let time grow your revenue.

• Just because you now have more money and better income does not mean you should stop investing or fall back into bad debt.
• Enjoy, but in moderation.
• This level requires the most important and valuable asset in the world: time. You need to give your strategy time to see its results. It is recommended to stay committed for years, to see the fruits of your strategy.

Level 4 - Financial Freedom:

At this level, your money works harder than you. Your investments generate more income than you need to maintain your lifestyle.

Reaching this level does not depend on how much money you have, but rather on how much income your investments generate. It’s not about having a large pool of money from which you gradually withdraw, but about ensuring that returns allow you to live comfortably.

Financial freedom allows you to:

• Pursue your passion or hobby without financial restrictions.
• Shift from growing wealth to preserving it through stable income-producing assets (such as dividend-paying stocks, rental properties, or bonds) and changes in your risk tolerance. The focus shifts from high income to maintaining wealth and creating stable cash flow.

At this level, the order of priorities shifts and should look like this: Preserve and protect our wealth, generate predictable income from our wealth, and continue growing the wealth.

Level 5 - Financial Abundance:

At this level, your wealth exceeds your needs and you can contribute to making the world a better place. Whether it's philanthropy, supporting others or sharing your financial knowledge, being wealthy isn't just about having more, it's about making an impact.

"Money is a tool, not a goal. Use them to create a meaningful legacy."

Start your journey now. No matter your current financial situation.

Generosity is not just about sharing money, but also about sharing time, experiences, and knowledge with others. Sharing your knowledge is something you can start doing right now. Let’s work together for a better world.

Remember these important lessons:

1. Start with a solid foundation; without stability, growth is impossible.
2. Stay disciplined: Long-term success requires consistency and patience.
3. Share knowledge: Empower others to build financial buildings that create a ripple effect in your community.
4. You don't have to be an expert to thrive. Take the first step, learn along the way, and continue to build your financial future one step at a time.