30/08/2023
The Four Levels of Financial Freedom
Level 1 (Active Income), Level 2 (Passive Income)
Level 3 (Active Income), Level 4 (Passive Income)
At Level 1, you pay your bills with your active income. If you stop working, you cannot pay your bills. If you stop catching fish, you will go hungry.
At Level 2, your passive income can cover your basic bills. In many countries, governments create a welfare system that places all their citizens into this level, removing the need for subsistence-level living, which is Level 1. In Afghanistan, you can refer to them as pension investments with bank 1-2 plots.
At Level 3, you can afford luxury with your active income. Here is where you need to invest wisely. Understand that you can buy assets that appreciate in value or things that depreciate in value. I like to say, generally speaking, invest in character and rent beauty. Character builds and grows, while beauty declines and decays.
Some tips once you reach Level 3: Move some of your active income into investments that will generate passive income, allowing you to earn without constant effort. This is similar to using a spear for fishing versus using a fishnet. Here is the place where people make mistakes. When I reached Level 3, I used to blow money on restaurants, travel, and buying things that depreciate over time. After 1 year, I realized what stupid things I had been doing when I calculated the net amount that could be saved and invested. This realization was a kickstart for me. I used to invest in beauty, which, as I've mentioned above, decays and fades with the passage of time, such as expensive phones, clothes, unnecessary spending, and traveling, etc. Once you reach Level 3 and can afford luxury, save money; after a couple of months, you can have good savings that you can invest to create passive income. This is where most people get into trouble when they start earning money; they blow off one of the most horrifying levels of finances.
At all levels, you should aim to build up your passive income. While Level 1 generally characterizes an average worker barely making ends meet, people at Level 2 are average retirees in social countries. They can afford their basic needs without having to actively work. Level 3 is for high-earning individuals who have the opportunity to build strong passive income streams, as long as they can maintain their relatively lucrative active earnings.
At Level 4, you can buy luxury items, services, and experiences solely with your passive income. Many people identify this as being rich. You have financial freedom and can enjoy comfort. While luxury can be defined in numerous ways, this level is usually accompanied by peace of mind, along with other intangible things like elegance and pleasure that involve great expense. This is the value of entrepreneurial success and true freedom.
This is where we need to focus as our end objective. For people at Level 3, agency owners, and small business owners, it's important to think very carefully and wisely here, because this would be your path to getting to Level 4.
.af
