In assessing others’ level of wealth, as well as your own level, it is important to have a sound measurement on your financial situation. Merely assessing someone by just their lifestyle and the kind of car they drive are just one of the many myths people believe to be true in order to say that someone is doing well in life. Certainly, there must be a sensible way in determining the financial position of a person.
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Find out in this post the definite stage of wealth you are into at the moment. There will be different stages that will be discussed, and here they are:
Stage 1 – Financial Solvency
You are in wealth stage 1 if you can pay your bills on time and be able to save even a small chunk from your income. Generally, the standard when it comes to saving is a minimum of 10%. Yes, saving can help you be financially independent; however, you will need three decades at a minimum for you to be able to enjoy your money.
Stage 2 – Financial Stability
Stage 2 requires you to have an emergency fund that you can use anytime an unwanted financial situation happens, i.e. hospitalization. If the emergency fund is lacking, there is a higher chance that you will be inclined to spending a portion or even the whole of your savings.
You cannot say that you are in the financial stability stage if you have not surpassed the solvency stage. You must be financially solvent first before becoming financially stable.
Stage 3 – Debt Freedom
As the name says it, a person is considered to be on this stage if he or she had finished paying all of his or her debts. A lot of people usually reach this stage a few years before retirement, between 40-60 years old. This stage is hard to achieve, as there are mortgage and vehicle offers wherein the pay period range from 25 years and above.
A person is said to achieve this stage if the first two stages have been attained.
Stage 4 – Financial Security
You are said to reach this stage when you already have a positive cash flow which you can use to build wealth further. The person, then, is able to make his or her money work for him or her, allowing you to have a bigger amount of money than your annual gross.
When a person is at this stage, he or she can take deal with more investment risks (such as getting into the investing field and portfolio diversification) without worrying about the consequences in order to grow more his or her wealth.
Stage 5 – Financial Freedom
Financial freedom entails that as you let your money work for you, you are not only getting more financial sources aside from your gross income, but you are also given the opportunity to spend on extravagant things that you were not able to give yourself or your loved ones.
There are people that may think they are already in this stage since they can afford the extravagant things in life, but remember you must have confidently and truly surpassed the first four stages before considering yourself belonging in this stage. The word “afford” then might not really apply to you – you might just be spending on extravagant things without really becoming financially able to buy them.
The measurement of wealth mentioned in this post can be considered to be the concrete gauge for assessing in what particular stage of wealth you are into. Remember that, wealth cannot just be inferred from the accumulation of material goods.
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