What is Your Financial Level?: The Five Levels of Financial Being

​​What is your financial level?

Have you ever read an article or a book about finances and thought to yourself, “That doesn’t make sense for me.”  This is especially true if the article is claiming to have something like the “10 Surefire Ways to Financial Success” or “The Only Investment Strategy You Need.”

I could name several other examples of this phenomenon, but the point is that personal finances are not a “one-size-fits-all” type of endeavor. Financial advice differs based on your priorities and current financial situation.  Therefore, over the years, I have come up with a way to categorize my teaching so that I can be more specific about what you should focus on based on your finances now.

I call this the Five Levels of Financial Being. Everybody is at one of these levels, and your financial goals should be geared towards moving you to the next level.

The Five Levels are:

• Struggling: you don’t have enough money on a monthly basis to cover all your monthly expenses.
• Steady: you are barely covering your expenses but have no savings and can easily fall back to struggling.
• Solid: you have your spending under control and are starting to build up your savings; you are able to go on vacation without incurring debt.
• Surplus: you have more coming in than you have going out even after you pay for all your savings goals.
• Service: you have plenty of passive and residual income, so your time is not tied to your earning.

For the next few weeks I am going to present some scenarios to illustrate these Five Levels and then show you the type of advice that helps people at that level move to the next one.

This week take the example of a fictitious young couple in their 20s. Let’s call them John and Jane Mills.

John went to a prestigious university and in his first job out of school he earns an above average salary for a new graduate. Jane is doing a Master’s Degree in her profession and hasn’t started working full-time yet.She works part-time as a professors teaching assistant but doesn’t earn much in that role.

The two were high-school sweethearts and married shortly after graduating from college. They moved to the city where Jane is doing her Master’s so John limited his job search to that geography.

They enjoy going on vacations to Europe and eat at least once a week. Their social circle is well educated and middle-class – they fit right in with their friends.

If you looked at this couple without knowing their financial picture it would be hard for you to get a good handle on which of the five levels they were.  In fact, you might even think they are Steady or Solid.

In reality, they are Struggling.

John’s parents did not save for college, so to attend he had to take on a huge debt burden. The loan payments from that debt significantly diminish their monthly cash flow.  In addition, they have succumbed to the peer pressure of their social circle and therefore feel the need to live the ‘middle-class life with their vacation and leisure time.

Unfortunately, they finance this with credit cards that they cannot afford to pay off, so their monthly debt obligation is growing.

Any conversations about money in their household are not pleasant because they are both feeling the pressure and don’t know how to get out of the cycle they are in. They are hoping that when Jane graduates, she will be able to get a high paying job and then they will start fixing their situation.

But what can they do now to start moving from Struggling to Steady? I will share more on that next week by showing you how they can move through the Four Stages of Financial Growth.

If you want to study ahead, you can get the first 3 chapters of my book, The Wealth Cycle and get more detail about The Five Levels and The Four Stages.