How to become RICH - Part 1.1: How to find your Financial Level-Financial Stability

Do you want to become a millionaire?
Is paying bills are the first thing you do when receiving your salary?
Any idea to start your way to financial freedom?

Then this one is for you.

    Before starting anything we should know our current status. Without this working hard is useless. When we come to the financial side of us also this same. We should know our strengths and weaknesses and our current financial status in order to reach our financial target or so-called Financial freedom.

As per the Financial world definitions, we have 4 levels of Financial wealth. From book to book definitions may be different but what we should understand is to find our current financial status and work up through it to the ultimate financial goal.

1.Financial Stability

This is the first level you need to achieve in the way to your financial freedom.

Main Requirement:

1.You should have liquid assets to cover your current expenses for a minimum of 3 months.

Here we consider liquid assets which can withdraw easily within 2,3 days. 

Some examples of liquid assets are,

• Fixed Deposits
• Money in Savings accounts
• Money Market funds

For now, you can create a rough budget and check current expenses for now.

You can refer to how to find your real expenses post to know more data on this.

2.Life insurance to protect you and your family's lifestyle.

    Life is uncertain, we cannot predict anything in the future. If you are the only income source of your family and if it cut permanently just imaging the situation. Therefore although in past we not consider about life insurances now it is an essential part of our life. You can refer to more information about life insurance from Life insurance is it useful or a waste of money?

    Another advantage of reaching this level is, you can face unexpected challenges in life, and also you will have peace of mind to go for more challenges in life.  This will result in finding new sources of income to reach the next levels easily.  

To Achieve this:

1. Check your monthly expenses roughly for now.

2. Check how much you should save and how many months you need to achieve this.

Let's take Sam as an example.

This is the current expenses of Sam. What you can do is track expenses for around 3 months and average them. Some expenses can be fixed and some can be varied.

Therefore Sam should have 86372.33 * 3=259116.99 as liquid assets.

If you currently have an amount like that Congratulations!! You achieved the first level in your Financial journey.

If not at least target to save 10 % of your Income to achieve the first level. You can use the below formula to calculate how many months it will take to reach this goal.

Conclusion

By the above formula, you can understand that

• By increasing monthly Savings.
• By increasing liquid assets.
• By decreasing monthly expenses

you can achieve the first level of financial freedom quickly.

Now let's take some time and analyze our financial position. 

Once done please read How to become RICH - Part 1.2: How to find your Financial Level -Financial Security for knowledge about the second level of the financial freedom journey.