5 Levels of Financial Durability

Posted On 10 December 2024

Financial durability is not something that you either have or you don’t have. It is more of a spectrum. On that spectrum, we can break it down into 5 levels. These levels are intended to encourage you to improve your financial durability in an even, balanced manner.

In this post I will walk you through the 5 levels of financial durability. Even if you are tempted to jump to level 4, you can’t because it takes time, effort, and learning. Being aware of the different levels can not only speed up the journey for you, it could even make you aware of the fact that there are the levels, and you now have a map of how to get there.

Level 0: Broke (Child / Not Financially Educated)

This first level is the person who does not really understand money, and only has money occasionally. They usually handle money under supervision. Think of a young child. Their parents manage their money for them. I gave this level the rank of zero because the people at this level are not capable of handling money by themselves. This is a financial starting point, and the characterizing features of this level are:

• No steady income
• No Savings
• No Bank Account / or only Savings Account
• Money is to be spent

Level 1: Fragile / Vulnerable (Young Adult / Limited Financial Education)

Level 1 in where the person is in a fragile financial state. It doesn’t take much for them to have a “crisis”. I put quotes around the word when I use it here because the problems experienced are small, even though to the individual, they seem Earth shattering.

This level shows that the person is growing financially. At least they’ve grown out of the broke stage. They are learning how to handle money. Mistakes made in this level are beneficial because they are small and won’t have lasting effects. If the lessons are learned, they can help the individual for years to come.

The person who is a Level 1 has the following financial accomplishments:

• Meager Income
• Both Checking & Savings Accounts
• Little Savings
• No Credit
• Live paycheck to paycheck
• Save money in order to spend it, if they save at all.

Level 2: Responsible (Average / Typical)

Welcome to the level where the typical adult stays for the rest of their life! This is not a bad place to be. They are responsible with their money. They pay their bills. Due to a lack of financial education, they may even feel like they’ve “arrived”.

You can see that the levels are more complex as we go. If a person is content be stay at this level, they can stay. While they are not a drain on society, they are also not in as secure of a position as they could be.

What does a responsible adult have financially? They are going to have everything in level 1 plus the following:

• Steady / Stable Income
• 1 Month Savings
• Good Credit
• Carrying Cash ($100+)
• Building Up Pantry
• Some financial discipline

Level 3: Resilient / Durable (Confident)

People are often told that if they reach level 2 that they are in good shape. Those individuals who move up to level 3 have financially moved from good to better. They are confident with their finances.

These financially durable people realize that life does not always roll along smoothly. They’ve worked hard for what they have, and they don’t want to lose everything simply because circumstances outside of their control have changed. For example, I recommend prequalifying yourself for a mortgage at a 10% rate. Yes, 10%! If you can afford the payment at that rate, you can afford it even if rates were to climb. Always look for the lowest rate you can get.

When problems come along these people can simply shrug them off. The bumps in life don’t bother them. They are comfortable with money – you could say that they have a good relationship with money. It is easier to continue on when we are not leveraged (in debt) to the max.

The individuals who reach this level have the following financial achievements:

• More than 1 Source of Income
• 3 Months’ Expenses in bank
• Carrying Cash ($250)
• Cash at Home (less than $1k)
• Full Pantry & Freezer
• Very Good Credit
• Debt is under control
• View Money as a tool
• Read about finances & personal development

Level 4: Antifragile (Unstoppable)

This is the final level! I call this antifragile from the concept that Nassim Taleb wrote about in his book Antifragile. (It’s an excellent book by the way!) Antifragility is the opposite of being fragile. When someone or something is antifragile damage makes it stronger. Think of working with our hands. As we inflict minor damage to our hands, our skin develops calluses and becomes tougher.

The financially antifragile person gets better when adversity comes along. Instead of panicking, they see businesses, stocks, or other assets as being on sale. They buy when the masses are selling, and they sell when the masses are buying.

In addition to the other levels, the antifragile people have the following:

• No Consumer Debt
• 6 Months’ Expenses in Bank
• Carrying Cash ($500)
• Cash at Home (1 months’ Expenses)
• Excellent Credit
• Full Pantry, Freezer, Extra Tank of Gas for each Vehicle
• Understand that wealth is more than just money

Read a wide range of topics (money, psychology, health, science, relationships, technology, spirituality)

You will notice that I did not include net worth in these levels. I left it out on purpose because a person can have a lower net worth and still be antifragile, while another person can be a multimillionaire and because of the amount of debt, they are in a fragile position.

People can earn six figures and still live paycheck to paycheck. That is not financial durability. I am spreading the word and teaching people how to become financially durable. It’s not something I have heard talked about very much.

Financial durability is a system that a person applies to their money and life. Since they are focused on being intentional, they will tend to end up where they want to be.

The funny thing about financial durability is that when a person is applying these principles while they are earning good income, they will become wealthy. They will attract opportunities and then act on them because they have the money to act on those opportunities.

Now, a person can be earning a meager income and they can still apply this financial durability system to their life, and they will find that they can actually live better and have more wealth than others with the same income. I encourage you to apply this financial durability system to your life and see what a difference it makes. It does take some time to turn finances around. Have patience and keep working on it. Not only will you be glad that you made these changes, you will be on the path to becoming unstoppable!