Starting a new hobby or learning a new skill is often filled with excitement—until you realize just how much room there is for improvement. We’ve all been there. Whether it’s trying to master a musical instrument or picking up a new sport, you begin as a beginner, eventually moving through stages of competence until you reach mastery.
The same progression applies to personal finance. Everyone, no matter their level of financial expertise, must first recognize where they currently stand. Understanding this is the crucial first step toward building lasting financial success. And that’s where the concept of the wealth ladder comes in.
Introducing the Singaporean Wealth Ladder—a framework to assess where you are in your financial journey. While variations of this model exist, here’s a detailed look at the Singaporean version and practical tips for moving up to the next level!
The Singaporean Wealth Ladder in a Nutshell
The Singaporean Wealth Ladder consists of six key steps, each representing a distinct stage in financial growth, from clarity to abundance.
Jump to:
- Financial Clarity
- Financial Stability
- Financial Security
- Financial Flexibility
- Financial Freedom
- Financial Abundance
How Long Does It Take to Scale the Wealth Ladder?
According to a study by St. James’s Place, it takes the average affluent Singaporean about 32.3 years to reach financial abundance. Keep in mind, the definitions used in the study may differ slightly from the stages outlined here, and the data was based on a sample of households earning between $70,000 and $250,000 annually.
But let’s not lose sight of the bigger picture—while financial growth is important, life is about more than just money. It’s about balance. However, if you find yourself below the stage of financial security, it’s worth focusing on climbing higher!
Financial Clarity: The Starting Point
Welcome to the first step on the wealth ladder: Financial Clarity. If you’re reading this, you’re already making progress.
Financial clarity is about shifting from confusion or ignorance about your finances to having a clear understanding of where you stand and where you want to go. You might be earning a good salary, but without financial literacy, you could still be living paycheck to paycheck. If you’re unsure where your money is going or how to manage it, the Seedly Money Framework can help you find your way.
Having clarity on your financial situation forms a solid foundation for everything else that follows.
Financial Stability: Building the Foundation
The next step up is Financial Stability. This is where you have a steady income that covers your essential living costs, such as rent, utilities, and groceries.
However, at this stage, you’re still susceptible to financial shocks, like losing your job or unexpected medical expenses. Don’t stay here for too long—it’s essential to start building buffers that will protect you from life’s uncertainties.
Financial Security: The Goal for Many
Financial Security is a critical milestone on the wealth ladder—it’s where most Singaporeans should aim to be.
Once you reach financial security, you’ll have enough income to cover your living expenses, save a portion for future goals, and maintain an emergency fund that can last for at least six months. Achieving this requires discipline, effective budgeting, and sticking to a “do-not-touch” emergency fund for those unexpected life events.
Consider exploring strategies like the 50-30-20 rule and choosing the best accounts to park your emergency savings.
Financial Flexibility: The Freedom to Choose
Once you’ve accumulated an emergency fund and have extra income at your disposal, you’ve entered the realm of Financial Flexibility. This stage allows you to make choices that were once outside your reach—whether it’s indulging in personal desires, upgrading your lifestyle, or travelling the world.
However, if you’re serious about progressing further, use this extra income wisely. Set aside funds for investments rather than splurging on luxuries. By following the 50-30-20 rule, you’re already on the right track to building a portfolio that can grow over time.
Financial Freedom: The Ultimate Goal
Financial Freedom, or Financial Independence, is the pinnacle of most personal finance journeys. At this stage, your investments and assets generate enough passive income to cover all your living expenses.
The beauty of financial freedom is that it allows you the choice to continue working if you wish—or to retire early if you prefer. This stage is the foundation of the Financial Independence Retire Early (FIRE) movement, where planning, investing, and saving are crucial for long-term success.
Financial Abundance: More Than Enough
Congratulations, you’ve reached Financial Abundance! At this stage, money is no longer a concern. You have more than enough to live comfortably, support your family, and achieve any aspirations.
If you have children, this is the time to start passing on your wealth and financial wisdom so they can kick-start their own journey up the wealth ladder. For those without children, you may find fulfillment in philanthropy, supporting causes that align with your values. At this point, it’s not about accumulating more wealth, but about the legacy you leave behind.
The Bottom Line: Is an ILP Right for You?
By understanding the steps on the wealth ladder and identifying where you are, you can take the right actions to climb higher, whether it’s through improved financial literacy, smarter savings, or wise investments. Remember, the journey to financial abundance is a marathon, not a sprint. Every step you take counts, and your efforts today will pay off in the years to come!