Understanding levels of financial freedom
Financial freedom may sound different to everyone. For some, it may mean freedom from all the financial worries while for others, it may mean getting rid of the debt that one must be carrying. Although, they are not completely wrong! However, what actually does financial freedom mean, we will see that in a bit.
Financial freedom means having everything that you need to live a comfortable life, including one or two luxury goals for the future. You can also say freedom from working for money. Simply put, financial freedom is nothing but attaining financial independence. And to achieve this, you need to have sources that generate an income passively. Therefore, to achieve complete financial freedom, you need to move through various levels, right from the basics to the advanced.
Basic financial needs
The very first level to attain financial freedom is to make provision for all your foundational expenses such as rent or mortgage, food, utilities (gas, electricity, water, phone, etc.), fuel, insurance expenses, etc. Once provision for the same is made, you will never have to worry about these basic expenses.
Semi-luxurious financial needs
The next level towards attaining financial freedom is to make provisions for semi-luxurious needs. At this level, you need to make provision for some of the semi-luxurious expenses such as clothing, dining out, going for a movie or any such recreational activities, gym membership, spa, going for a one-day trip, etc.
Current lifestyle needs
At this level, you need to make provision towards maintaining your current lifestyle. In order to understand your current lifestyle, you can go through all your bank & credit card statements and check the spending made by you.
Luxurious/passionate financial needs
Who doesn’t wish to have a luxurious life? Indeed, everyone does! So, once you are successful in making adequate provisions for maintaining your current lifestyle, you can notch the level up and make provision for luxurious expenses such as world tour, buying a luxurious dream car, have a farmhouse, and even pursue your passion by starting a new venture, etc.
The above are the four important levels to achieve complete financial freedom. Nevertheless, in the third level itself, you can achieve actual financial freedom if you make provisions for maintaining your current lifestyle. However, while doing so, it is really important to take inflation into consideration.