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The 5 Levels of Financial Freedom

In layman’s terms, if you were to be asked the meaning of ‘financial freedom’, you would probably imagine it to be a working consistently to have an earning. But, academically, the right answer is far far different from the above one.

For a long time, we as a kid or even as a teenager and adult, depend upon our elders and other family members to take care of our expenditures. But then, there comes a time when we ought to get out of that comfort zone, stand on our feet and make a place in this world with our own sweat and blood. That is when for the first time in our lives, we learn the meaning of and earn our freedom in a true sense.

Freedom is of many types. Nonetheless, if we talk about one’s personal freedom, it is rarely possible in the absence of having your own monetary sources. It is not just about surviving, having security, or making a trip. Being financially independent is fundamentally quite essential in order to have a full-fledged life along with gaining a sense of achievement, and increasing the self-esteem. Experts divide the whole concept of financial freedom into 5 levels.

Below are explained all the 5 levels, with an introduction, their meaning, and strategies to jump from your current stage and enter the next level.

Level One

Level one represents that stage where if your active source of income is removed today from your life, then you cannot survive for more than a year with your current standards of living.

In a way, it may mean that your expenses are more than your income. There is a loop of debt and repaying. Level one has also been labeled as a modern form of slavery and a kind of poverty. But why would anyone think so! The reason is, when you are in stage one, there is no active source of income, then maybe after surviving for a year or so, you would have the same mental and emotional anxieties as that of a person stuck in slavery or poverty.


  • Keep a check on your regular expenses. This is easy to catch. Observe and cut down every possible expense that can be lived without.
  • The expenses that you reduce, convert them into a permanent saving.
  • Fix a specific percentage of your total monthly income and limit your expenditure by that amount. Similarly, fix a ratio for monthly savings too.

Level Two

A more stable stage. You are spending what you are earning. The savings may be small yet and only for the emergency purpose. But, you have almost paid the debts and are not in the cycle of stress and obligation. If you can imagine being able to live off of without active income for three to five years, you are already a level 2 member.


  • Keep following the steps from level 1.
  • Try to create a passive or side income.
  • Curb your desires and only spend money on prioritizing your needs.

Level Three

When the financial life becomes feels so very secure and solid, that you could survive without active income for a maximum of seven years without a worry, know that you have reached the level 3. In this stage, both your main and passive income together would exceed your expenses. You would easily be able to pay the EMIs of various plans and loans and still manage to save some every month.


  • Smartly and slowly invest in things that could cushion you in case of emergencies like health and life insurance.
  • Learn smarter ways of saving and investing like in a small start-up or real estate.
  • Plan on long-term financial goals.

Level Four

At level 4, life feels more in your control financially. The passive income of sources is paying off well. Your savings are growing and you are doing very well at enhancing the main source of income. The nature of your freedom and independence is becoming sort of more permanent. The reason that fuels this independence is your wise investments into various other passive sources, which are creating enough money every month to help you live the whole life with your current lifestyle and without actively earning.


  • First of all, begin to take care of personal and nonfinancial things that matter to you, such as your health, spending time with family etc.
  • Make efforts to shift your investments towards strengthening your passive sources and converting them into just like active ones.
  • At the same time, try to save more into other forms like gold, shares, and funds etc.

Level Five

This is the supremest form of financial freedom. You are your own boss. Money is flowing abundantly in your life. You can quit your job, work for yourself as and when you please. Even a stage would come when you no longer at all are required to work on a regular basis. That means you can skip the active source of income and live off well with the money that your alternate passive sources and long-term investments are bringing in. So, you are happily rich, have a huge bank balance, and recurring income that would keep coming lifelong for you.


  • Yes, health still must be your top priority because of it being the greatest and most precious form of wealth.
  • You could consider reallocating the funds from one source to another.
  • Grow your own business and think of strategies to expand it further in future.
  • You could also opt for ventures and mergers with other business groups if that applies in your case.

These are some of the well-planned and feasible strategies based on experiments, research, and lives of many successful people and their survival stories. Anyone could benefit from following this step-by-step process and get himself out of the monstrous and demeaning debt-cycle. In fact, everyone deserves and should have the right to work towards a healthy, happy life, and live with self-esteem.

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Message from Sophia!

I would love to hear from you and read your comments on this article. Let me know what you think about this article. Is it helpful to you? Your comments and suggestions will serve as an inspiration and learning platform for me.
Regards, Sophia
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