Whether you are an individual interested in increasing your own personal wealth, or are someone interested in helping others increase their wealth, it is useful to know the full seven levels of wealth, ranging from poverty and struggle to financial freedom and abundance.
Throughout life, people typically start at a particular level and then move up or down based on a combination of circumstances and opportunities and their actions related to those circumstances and opportunities.
At different levels of wealth, different actions need to be taken to proceed to the next level and to prevent yourself from slipping into a lower level.
Once you understand the different levels of wealth, you can take control of your financial destiny and help others move up the wealth ladder.
The Levels
There are seven levels of wealth:
- Survival
- Basic Needs
- Treadmill & Redlining
- Financial Stability
- Financial Security
- Financial Freedom
- Financial Abundance
Level 1: Survival
The first level of wealth (or lack thereof) is that of survival. At this level of wealth, you are struggling to meet your basic needs of shelter, food, and transportation. Perhaps you are homeless or live in substandard shelter or perhaps you have a home but struggle to afford food or transportation.
At this level of wealth, your focus would be on meeting your basic needs, usually through a combination of creativity and income generation using the tools and skills you currently have. You would want to take advantage of any community resources that would help you get to level 2.
Someone at this level would be in “survival mode” and it would be hard to concentrate on anything else other than meeting basic needs.
Level 2: Basic Needs
The second level of wealth is where you have met your basic needs of shelter, food, and transportation, but you cannot really afford much else.
At this level of wealth, you can now expand your focus to include education and training so that you can increase your income and be able to afford more than your basic needs. This could include on the job training or learning new skills on the internet or at the local library.
You would also want to be on the lookout for better opportunities that increase your income and work on ways to provide more value to potential employers or customers.
Level 3: Treadmill & Redlining
You’ve reached the third level of wealth once you have gone beyond meeting your basic needs. At this level of wealth, you are able to maintain a
To get to level 4, your focus would need to include increasing income, decreasing expenses & debt, increasing savings and setting up a safety net, in case something goes wrong.
Level 4: Financial Stability
The fourth level of wealth is achieved when you have accumulated enough liquid assets to cover your current expenses for a minimum of 6 months. You should also have basic income protection in place to protect your future income, in case you become temporarily or permanently disabled, or you pass away suddenly. The basic income protection should cover your current lifestyle.
In many countries, basic income protection might include a combination of health insurance, disability insurance, pensions, retirement savings, unemployment insurance, social security, life insurance, etc. If some or all of those are not available in your area, an alternative is for an organization or extended family to “self-insure” their members by collectively being able to take care of one or more members of the group in case something happens (without undue hardship on the group). It is recommended that you consult with a qualified financial advisor to find solutions for your specific situation.
Your focus at this level would be building your income, paying off debt, and investing. You would want to focus on opportunities that make consistent passive residual income, such as businesses or returns on your investments. If you have a very high paying job or have an opportunity for one or more high payout deals, it may be possible to make enough money to live off of, when you include the interest earned.
Level 5: Financial Security
This level is achieved when you can cover your most basic monthly total expenses indefinitely, either through residual passive incomes, or by having enough income and assets to sustain your basic living expenses for the rest of your life.
Your basic living expenses include:
- Shelter (rent or mortgage)
- Food (groceries)
- Transportation (public transportation and/or vehicle)
- Debt (minimum payments or enough to cover interest, whichever is greater)
- Insurance or Self-Insurance (health, disability, etc.)
- Taxes (income, property, etc.)
- Giving (paying it forward, donating to a worthy cause, etc.)
One way to achieve this is to have businesses or investments that provide enough residual passive monthly income to cover your basic expenses. The other way is to make a lot of money (perhaps through a high paying job, a big business deal, inheritance or lottery) and then living off of it by carefully managing your expenses and investing your money wisely.
At this level, your focus should be on managing your expenses and increasing your passive residual income.
Level 6: Financial Freedom
You have reached level 6 when your monthly residual passive income exceeds the monthly total expenses of your current lifestyle, or you have enough saved/invested funds to live your current lifestyle
At this level, you would be able to stop working if you wanted to and be able to continue your current lifestyle. You have the option to retire or continue working and focus on projects and ventures that you love.
To maintain this level, you would need to carefully manage your income and expenses.
If you want to achieve level 7, you would need to continue increasing your passive monthly income or land one or more huge deals until you reach your dream lifestyle and are able to maintain it.
Level 7: Financial Abundance
At level 7, you have enough monthly residual passive income (or enough saved/invested funds) to live your dream lifestyle
At this level, you can basically write your own ticket. You can concentrate on the projects and initiatives and pursuits that you are interested in, and have most likely delegated all the activities that you don’t like to others.
What this looks like highly depends on the individual. For some, a simple retirement in the country, travelling and playing golf might be their perfect lifestyle. For another, they want the penthouse or the mansion and the cars and the parties. Someone else might decide to spend the rest of their life working on social issues and/or helping others achieve wealth knowing that their own personal finances are secure. It really is up to you.
Why Seven Levels?
Unlike other models you
It is structured like this for a variety of reasons:
- You can accurately assess where you are on the wealth scale because it includes all levels.
- It shows that a natural progression from poverty to financial abundance is possible.
- For those at higher levels, it hopefully helps them appreciate what they already have by subtly highlighting that their financial situation could be much worse.
- It also subtly highlights the fact the not everyone starts at the same level, and hopefully that will encourage compassion for those who are starting off with less.
- It gives community leaders a path for creating wealth in their community, and they can design programs and initiatives that help people move up to their next level.
Moving Up Levels Quickly
It should be noted that you can move up levels faster if you keep your expenses low during levels 1 through 6. This allows you to reinvest a portion of your income in order to build passive residual income and saving/investments faster.
Also, the more ambitious your dream lifestyle, the more creative you will need to be to achieve it. It may take longer and/or require more effort.
For example, someone who is looking to retire in a modest home and be able to spend their time fishing,
The beauty of building your wealth is that you get to choose your dream lifestyle and customize it however you want. You get to chose your challenge.
Saving/Investing vs. Passive Income
As mentioned in the several of the levels, there are two ways to gain enough wealth to reach the higher levels: saving/investing or passive income.
Passive Residual Income
One way to create wealth is to have multiple passive residual income streams, usually through the form of businesses and/or returns on investments (interest earned, dividends, etc.). The idea is that these sources of income would keep producing income for the rest of your life.
The positive aspect of this is your monthly residual income covers your expenses and you can live your dream life now as you earn the money.
The risk here is that some or all of these businesses or investments fail or go down in value. Perhaps the business stops operating or an investment you made losses value. To mitigate this, you would want to have multiple streams of income from sources independent from one another.
This is the approach that most entrepreneurs and business people prefer, since they tend to enjoy building businesses, owning real estate, and investing (or at least like the money they earn doing it).
Saving Up and Investing Funds
The other way is to save up enough money over time or obtain a large sum of money, which is sufficient enough to live off of the rest of your life when you calculate in returns on investments (interest, dividends, etc.).
The positive aspect of this is you can live off of the assets you already have regardless of whether or not you earn more money.
The downside of this approach is, unless you come into a large quantity of money (such as a big business deal, an inheritance, etc.), it would most likely take a long time to build up sufficient funds.
The risk of this approach is that your assets could lose value or be lost and you would no longer be able to support yourself in a manner you are accustomed to. To mitigate this, you would need to diversify your holdings so that you are not too vulnerable to loss.
Another risk is that you have unexpected expenses, such as medical bills, and you deplete your money much faster than anticipated. To mitigate that risk, you would need to have more money than you expect to use, calculating the worst case scenario.
This is the approach many employees and executives take, where they squirrel away money into retirement accounts and investments. If they keep their expenses low so they have enough money to invest regularly, and they invest wisely, they could have enough money to retire on.
Combined Strategy
Of course, the safest way is combining the two tactics. You would want to create residual passive income and increase your savings/investments to the point where if something happened to one, you would still have the other to fall back on.
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