Did you know that only 26% of Pakistanis are financially literate?
The main reason behind this is that people are intimidated by the simple methods and tools needed to become economically stable. They think of financial literacy as this scary thing that is unattainable for the common man, when it really isn’t— they just don’t start at the right place and jump to the high-level, confusing information.
The first step on the road to financial stability is being aware of your current state, and the 5 levels of financial confidence do just that. They teach us to analyze our situations so we can educate ourselves in a way that leads us to success.
So let’s start:
1. Survival
Unfortunately, this is the stage that most people in Pakistan are standing at, the dreadful state of barely having enough to keep body and soul together.
Individuals in this state struggle to meet their basic needs, sometimes not even having enough to get important necessities like food, clothing, and shelter.
Due to the unstable income, they never know how the month will treat them, and thinking about savings is only a far-fetched fever dream.
Consequently, people end up under a severe amount of stress at this level as they have difficulties paying bills on time, along with the reliance on debt to cover expenses.
Due to the absence of savings, they are likely to struggle with high debt if a financial emergency comes up.
Learn How to Save when you have Irregular Income
2. Stability
This is the minimum level that an average person should aim to be at, since it assures that the person can provide for themselves at an appropriate pace.
The income allows us to have a small amount of money leftover each month after covering our primary expenses, giving way for some comfort to come through.
There is a fairly consistent income that allows some savings to take place, and also gives us a growing ability to start managing debts.
However, one should not stop at this stage since you aren’t completely secure yet. If a comparatively larger economic stress springs out of nowhere, they would still be at risk.
Thus, it’s important to start expanding your emergency funds, reduce high-interest debts, and start saving for medium-term goals.
3. Security
At this stage, people usually lie back and rest their minds as they are assured to be in an entirely safe position regarding their finances.
On top of covering their fundamental needs, these people can strengthen their emergency funds, which helps them make progress towards long-term financial goals, i.e., retirement.
The debts become more manageable, and we can go toward making plans for the future to maintain this security of expenses. At this stage, it’s fairly allowed to lean into your impulses every once in a while, as long as it’s not excessive.
Remember, there’s always a step ahead that we can reach, and it’s always crucial to keep increasing your savings and reducing/eliminating debt.
Some people may even find the courage to start their investing journeys at this level, making their economic game way stronger!
4. Freedom
Following the name, this level is all about being free of financial constraints, as just our passive income(investment) is enough to cover our living expenses.
At this phase, we can start thinking about making choices regarding work without solely relying on an active source of income. We can choose whether to continue our jobs since our increasing savings and investments allow us to live a comfortable life.
Additionally, we can start to execute bigger plans and start to live in a carefree manner while indulging in satisfying economic experiences as well!
There can also be an addition to our expenses in the form of donations, which will allow us to help other people in need. Doing charity work will also bring a sense of warmth as we won’t just selfishly spend all our money on ourselves.
5. Abundance
Being the final level of financial confidence, it’s the ultimate definition of “significant wealth”. The extensive amount of money guarantees a lavish life without even having to do a regular job!
Using the multiple income streams from our hard-earned wealth, we can pursue any goal without ever worrying about running out of resources.
Furthermore, the abundance of savings allows us to be safe from any financial stress in our lives, no matter how big or small.
Individuals at this stage usually start to focus on the long-term sustainability of their wealth by managing their finances well, along with leaving a potential legacy for future generations.
Down below is an illustration of the 5 steps of financial confidence. Which one do you think you’re on right now?
CONCLUSION
The world is moving at an overwhelmingly fast pace nowadays, and figuring out what to do in order to stay stable can be difficult.
However, this does not mean that we lose hope; we just have to adjust the speed to our level again.
Start small by analyzing which level of financial confidence you’re on, and work your way up from there.
In summary, whether your goal is to just be stable or to be bathing in an abundance of wealth, knowing your current stage will allow you to make more informed plans for the future, leading to a thriving life ahead!
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