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stages of wealth

5 Stages Of Wealth: What They Represent And Financial Tips You Need At Each Stage

Every one of us dreams of becoming wealthy. But did you know that there are actually five different stages of wealth?

A recent survey done by St James Place breaks down the different stages of wealth into five stages:

  1. Financial Stability
  2. Financial Security
  3. Financial Flexibility
  4. Financial Freedom
  5. Financial Abundance

Each stage represents a different level of wealth that impacts your perceptions, approaches, and challenges around wealth management and wealth creation.

  1. Financial Stability: Post-Graduation Stage

The first stage of wealth is financial stability. This is where you have the ability to save up a portion of your income after accounting for fixed monthly expenses like rent, mortgage, insurance premiums, and monthly expenses.

Financial Tip: To achieve financial stability, the priority for anyone is to focus on budgeting, goal setting, and basic financial literacy. Budgeting and goal setting will provide you with a long term goal to work towards. Basic financial literacy, on the other hand, is to set the stage for the next stages of financial wealth. That’s why we made it a point to educate our readers through our blog.

  1. Financial Security: Early Career Stage

After financial stability, you will enter into a stage of financial security. At this stage, you will have more disposable income than financial stability. This gives you more room to invest your monthly income to grow them at a faster rate.

Time Frame: It typically takes someone around 6.1 years to achieve this from the financial stability stage.

Financial Tip: To get to the financial security stage, financial planning and having guidance on portfolio building is important. You need good asset allocation and diversification so that you can grow your investments at a steady pace.

One way to do so is to get a comprehensive financial planning session with a professional wealth planner like Moneyline. Such sessions are typically free of charge and they help you to address your key financial goals in the medium term.

  1. Financial Flexibility: Mid-Career / Family Planning Stage

As you progress through financial security, you will enter into your next phase of wealth known as financial flexibility.

At this stage, you will have built up a sizeable portfolio of investments and assets that can cover your living expenses for up to a year. This is also the stage where you start thinking about having children and consider how you can save up for their education.

Time Frame: It typically takes someone around 6.5 years to achieve this post-financial security stage.

Financial Tip: As your investment portfolio grows in size, knowing how to be tax efficient and taking into account your risk tolerance and investment time horizon becomes more important. You want to have these considerations in place so that you can accelerate your wealth growth through the right investments while still maintaining your sanity.

To build a sleep-easy investment portfolio with free advice given by experts can be as simple as leaving it up to professionals.

  1. Financial Freedom: Late Career / Early Retirement Stage

The term financial freedom is often loosely used. But to be more concrete on its definition, financial freedom means that your current assets and investments generate enough passive income for you that you can live your life without having to work. This gives you the choice of working or not.

Time Frame: It typically takes someone around 8.7 years to move from financial flexibility to financial freedom.

Financial Tip: Most people who have achieved financial freedom will be thinking about the next stage, i.e. financial abundance. This means thinking about retirement planning and how you can continue growing your retirement savings to create an uplift on your retirement lifestyle.

At this stage, you need good advice and guidance on retirement savings vehicles such as retirement plans and/or annuities that helps to sustain your retirement lifestyle as long as possible.

There are lots of retirement plans in the market. Finding one that is suitable for you is key. At Moneyline, we help you to compare and find the best retirement plan for you.

  1. Financial Abundance: Retirement Stage

This is the peak of financial wealth for anyone. Achieving financial abundance means you are financially stable with more than enough income than you are ever likely to finish spending in your lifetime.

While that doesn’t mean you will be a billionaire like Elon Musk or Jeff Bezos, it does mean that you no longer have to worry about money in this lifetime. In fact, you can even donate money for some philanthropy of your choice.

Time Frame: It typically takes someone around 11 years to progress to the last stage of financial abundance from financial freedom.

Financial Tip: Money is no longer a concern for you, but you are probably thinking about your next generation at this point. You want to know how you can pass on your wealth to your next generation so that they can carry on your legacy. Or perhaps build on your wealth to create a legacy of their own.

At this stage, there is a strong need for comprehensive wealth preservation strategy and efficient legacy planning. This will help you carry out wealth transfer to your heirs with as much tax efficiency as possible.

A way to do so is through insurance plans. Because insurance plans allow the policy owner to dictate who the beneficiary can be, it doubles as both personal financial protection as well as a tool for wealth transfer. For example, beneficiaries of life insurance plans do not have to get a probate nor pay taxes when receiving the insurance pay out. This lets you pass on your wealth to your next generation without any taxation.

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