Financial
Status Number line
Knowing your financial status is the most critical
stage on your journey to proper financial management. You cannot move on to the
next step if you do not know exactly where you are. Having an idea of which
specific financial status you are currently in will enable you to take stock
and move into a better one.
There are basically five financial statuses:
1. Deficit 2. Neutral 3.Financial Security
4. Financial Independence
5. Financial Freedom.
Definitions
1. Deficit:
Deficit is where your monthly expenses far exceed your total income and hence
you either have to borrow to meet your financial obligations or you
consistently live an impoverished life at the latter end of the month. More
often than not anyone who is in a deficit financial status stage has debt and
poor financial habits.
2. Neutral or
Balanced: This is when your expenses are always equal to your income. With
this you are always at zero. In effect you always spend all you make. There is
no money left for savings, much less investments. Living like this is called
living on the edge. Any emergency or unexpected expense becomes a huge headache
for the family or individual.
3. Financial
Security: This is where you have at least three to six months’ worth of your
monthly expenses in an account you don't touch except for emergencies. With
this status, you can maintain your lifestyle without having to sacrifice
anything for the specific number of months you have saved as security.
4. Financial
Independence: This where you have been able to create several multiple
streams and passive income from other sources that is either equal to or more
than your current income. In effect, you can decide to quit your regular job,
take longer vacations and holidays or simply take time off to develop other
interests without having to worry about money.
5. Financial Freedom: This is the ultimate
destination of financial intelligence. It is the state where your systems and
processes that ensured your financial independence are absolutely shock proof
and ran by themselves perpetually. In effect, beyond your budget, insurance and
emergency expenses, all you could ever need are catered for.
in my next post, we will discuss how to move on the number line.
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