The financial pyramid for financial freedom
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Introduction: The financial pyramid for financial freedom
You might be dreaming of:
- to become financially free.
- The ability to choose whether or not to work.
- Changing careers without stress.
- Travel more.
- To no longer live with the fear of running out of money.
Many people believe that financial freedom can only be achieved through a high salary.
Although a high salary is a considerable advantage, it is not enough to achieve financial freedom.
In reality, financial freedom is built step by step, like a pyramid. Each level rests on the previous one.
If the foundations are weak, the pyramid can collapse, regardless of the salary amount.
Let's look together at the 5 levels that allow you to gradually build your financial freedom.
⚠️ Investing involves a risk of capital loss.
The base of the pyramid: ensuring one's survival
It all starts here. That is to say, at the first step of the pyramid.
Before even thinking about investing or becoming financially free, you need to be able to pay the essential expenses of daily life.
For example :
- the rent
- the races
- health insurance
- taxes
- other mandatory expenses
At this stage, the goal is not yet to become rich. The goal is simply to live without accumulating debt.
Unfortunately, many people spend more than they earn. That is to say, even the first step of this pyramid is difficult for them to manage.
👉 Without this solid foundation, it is very difficult to build wealth.
Once you've stabilized with this step of the pyramid, let's move on to the next one 😊
Second level: building up emergency savings
Once essential expenses are covered, the next step is saving.
Why? Because life is full of unexpected events.
- A car breakdown
- A dismissal
- A bill from the dentist
- A health problem
- A washing machine that breaks down
If you don't have any financial reserves, you risk going into debt at the slightest unforeseen event 😐
This lack of savings is far from being an isolated case.
Studies show that only 471% of Swiss residents save money each month. Among those earning less than CHF 7,000 per month, many save less than CHF 500 per month. 1.
These figures show that a large part of the population remains financially very vulnerable to unforeseen events.
That is why many specialists recommend building up savings representing between three and six months of expenses.
This reserve is not for investment. In reality, it is used to buy peace of mind.
👉 A good emergency savings plan protects your investments and your daily expenses.
Third level: making your money work for you
Once your essential expenses are stabilized and your emergency savings are built up, you can start investing.
At this stage, the objective changes completely.
Your money no longer simply sits in a bank account. It starts generating income!
For example, thanks to:
- Growth ETFs
- High-dividend ETF
- real estate
- a third pillar invested in the stock market (in Switzerland)
- other investments suited to your profile
By investing, compound interest grows over time.
Each return generates further returns. Little by little, your wealth grows.
You're no longer just trading your time for money. You also have an ally. In other words, your money starts working for you, and you're no longer accumulating wealth alone.
Fourth level: partial financial freedom
After several years of investing, an interesting phenomenon appears. Your investments begin to generate regular income.
Your passive income may not yet be enough to cover all your expenses. But it can already finance a portion of them.
You could then, for example:
- reduce your working hours and switch to part-time
- changing jobs more easily
- start your business with a more solid financial foundation
- take a sabbatical year
You become less dependent on your salary. And above all, you regain more freedom in your choices.
For me, this is probably the level at which the quality of life increases the most.
You're not completely financially free yet. But you have a lot more freedom.
Fifth level: total financial freedom
This is the top of the pyramid.
At this stage, the income generated by your assets covers all of your expenses.
- You no longer need to work to live.
Or
- You can continue to work if you want to. But it's no longer a financial obligation.
In truth, your investments finance your lifestyle.
You become completely free to choose:
- where to live
- how much to work
- when to retire
- what projects to undertake
- to travel indefinitely
For many people, this step represents the ultimate goal.
It generally requires several decades of discipline, saving, and investment. But once this step is accomplished, it fulfills a dream for many people: no longer being dependent on money from a boss or a client.
Conclusion
Financial freedom requires following certain steps.
Most people are looking directly at the summit.
They dream of financial freedom. But they forget that each level depends on the previous one.
A solid asset cannot be built without:
- manage your budget
- build up an emergency fund
- invest regularly
- Let time do its work thanks to compound interest.
Financial freedom is therefore not an event. It's a process.
Every franc saved, every investment made, and every good financial decision represents another stone added to your pyramid.
Start by building solid foundations. The summit will then come naturally.
FAQ: The financial pyramid for financial freedom
What is the pyramid of financial freedom?
The pyramid of financial freedom is a representation of the different stages to take to build solid wealth. It begins with covering essential expenses, then moves through emergency savings, investment, partial financial freedom, and finally, total financial freedom.
Why is financial freedom represented in the form of a pyramid?
A pyramid illustrates the fact that each level rests on the previous one. Indeed, it is difficult to invest with peace of mind without emergency savings, just as it is difficult to achieve financial freedom without having built up wealth over the years.
What is the first step towards financial freedom?
The first step is to cover all essential expenses: housing, food, insurance, taxes, transportation, and other necessary costs. Before looking to invest, it's essential to live without accumulating debt.
Why is it necessary to build up an emergency fund?
Emergency savings help you cope with unforeseen events such as car trouble, medical bills, or job loss. They prevent you from having to sell your investments or go into debt in case of financial difficulties.
How much should one have in emergency savings?
Most experts recommend setting aside savings equivalent to three to six months of living expenses. However, the amount depends on the stability of your income and your personal circumstances.
When should you start investing?
It is generally advisable to start investing once essential expenses are under control and a safety net of savings is in place. This allows for more confident long-term investing.
What investments allow you to build your financial freedom?
Diversified ETFs, growth ETFs, dividend ETFs, real estate, SCPIs (French real estate investment trusts), and even the third pillar (French pension fund) invested in the stock market (in Switzerland) are often used solutions for growing wealth. Therefore, the choice depends on your risk profile and objectives.
What is partial financial freedom?
Partial financial freedom occurs when the income generated by your investments covers a portion of your expenses. At this point, you can reduce your working hours, change jobs more easily, or launch a personal project with greater security.
What is total financial freedom?
Total financial freedom is achieved when the passive income generated by your assets covers all your expenses. You are then no longer obliged to work to live and can freely choose your lifestyle.
How long does it take to become financially free?
There is no universal timeframe. It depends primarily on your savings rate, the return on your investments, your spending level, and the length of time you allow your wealth to grow through compound interest.
Why is compound interest indispensable?
Compound interest allows your earnings to generate further gains. In fact, over several decades, this multiplier effect can represent a significant portion of your final wealth and accelerate your progress toward financial freedom.
Is it possible to become financially free with an average salary?
Yes. A high salary makes the process easier, but financial freedom depends primarily on your ability to save, invest regularly, and hold onto your investments for the long term. Discipline is often more important than income level.
What is the biggest obstacle to financial freedom?
The main obstacle is often a lack of savings. Spending all of one's income prevents building up assets capable of generating long-term passive income.
Why start as early as possible?
The earlier you start saving and investing, the more time compound interest has to work. Even small amounts invested regularly can produce impressive results after several decades.
Is financial freedom accessible to everyone?
It's a question of income versus expenses. Total financial freedom isn't always achievable for everyone, but moving up the pyramid remains accessible to many. In other words, each step you take improves your financial security, reduces your dependence on a salary, and gradually increases your freedom of choice.
The financial pyramid for financial freedom
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Compared to before, I was a person who consumed a lot until the day I realized that my consumption made me sadder and poorer 😑
Now I prefer the minimum of my needs to be happy and achieve my financial freedom.
Without realizingI started to focus on saving and investing to depend on a boss for as little time as possible and to speed up my personal projects.
For a few years now, I have been feeling happy and enriched in a way that I would never have imagined given that I have an average salary in Switzerland.
It is for this purpose that I decided to create this blog. In order to share and learn with other people who seek freedom and simplicity 😉
Are you rather minimalist or frugal Jonny?
I am as minimalist as I am frugalist. However, there are situations where I lean more towards an art of life.
To conclude, I think the most important thing is to feel comfortable in your lifestyle 😊
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