Things You Need to Know Before Getting Start
First, you must know which level you’re in the financial pyramid
5 Layers of Financial Pyramid1:
1st layer / base: Instability (Income-based Mindset)
Live from payday to payday. And become financially insecure once they lose their job or need to face some emergencies. They have no savings, and most of them even need to borrow money to live themselves. Overspending is common.
2nd layer: Stability (Emergency Fund & Debt Management)
People in this layer have an emergency fund to support them to live without a job for at least 6 months. Besides, they do manage different aspects related to money in their life. One thing is that they’re still at the beginning, so there rarely plan for their retirement.
3rd layer: Security (Retirement Planning)
The asset is amassed to a considerable level. As a result, the passive income is enough to support one’s daily expenses, insurance, and debt. Simply put, people in this layer can’t live without a job.
4th layer: Independence (Growth Mindset & Financial Independence)
When one’s wealth keeps increasing to another level, they will move from layer three to four. And they can live the ideal lifestyle they want with a passive income.
5th layer / top: Affluence (Social Contribution & Financial Freedom)
The top layer’s people still maintain an incredible amount of income after monthly expenses and donations to the community. They can use the money to reinvest into their portfolio, and their equity will keep growing.
1st layer / base (Budgeting)
This stage is about gaining awareness of where your money is going and plugging financial holes caused by overspending and poor money habits.
2nd layer: Stability (Set Goals)
You should begin setting up systems: automating savings, budgeting consistently, and living intentionally. You should no longer reacting, you should go planning.
3rd layer: Security (Investment)
Now that your foundation is strong. It’s time to build wealth, you move from earner to investor. Putting money into assets that grow over time.
4th layer: Independence (Lifelong learning)
You’re good to live without a job now. The focus should shifts to growth, and advanced risk management.
5th layer / top: Affluence (Self-actualisation2)
At the top, you’ve achieved financial freedom. Focus on continuous growth, giving back, and leaving a legacy (living with intention, and leading with value)
Don’t be discouraged if you’re not in an ideal layer. Follow steps in next article to find the way out !
“Compound Interest will create magic.”
Next, we’ll provide you the step-by-step guidelines on how to plan your budget.
Footnote
- 5 layers of financial pyramid is the concept in Rich Habits, Poor Habits by
- Self-actualisation is a concept in Maslow’s hierarchy of needs
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