Episode 42: Four Levels of Money

This podcast is going to look at practical ways to improve our own situations with money.

The other day I read a news article about a couple who paid of a $114,000 debt in 23 months.

And it got me thinking about how we perceive money and what we can actually do to improve our own situations with money.

So today I want to talk about the four levels of money and how you can work within each level to start creating more money.


The Basics

Let’s start with some basics. At the 30,000 feet level – the very strategic level – there is money in and money out. 

If you want to create more money, you need to have more coming in than going out.

Two ways to create more money are earning it and investing it, where investing includes saving.

Some people go straight to cutting costs to save money – and while I think it’s a great strategy and an important thing to do, remember that there’s only so much of that you can do. 

It’s finite. Therefore it’s much easier to earn more money than to cut expenses.

It reminds me of a conversation I once had with my grandmother. 

It was a very hot day, and my grandmother said, “You know Melanie, I much prefer winter. There is no limit to the amount of clothes you can wear, but in summer when it’s hot, there is a limit to what you can take off.”

The same can be said about money.

I like to think about the energy that we create around cutting costs and being frugal – for some people it may create a lack mentality.

On the other hand if you focus on creating income or wealth, (which I’ll talk about in a separate podcast), this creates more of an abundance mentality.

And an abundance mindset is what we need to create a sense of wealth, and actual wealth.

So how can you balance up your money in, money out equation to create more wealth?

Let’s talk about the four levels of money and how to set up your own money creation system.

Level 1 – Debt

The first level of money is debt.

Debt is when you borrow money and it costs you money to do this.

Depending on the interest rate on the money you’re borrowing, every dollar you borrow might cost you 2 – 25c.

That means that you get somewhere between 75 – 98c.

So if you’re someone with debt, and you want to create wealth, it should be your priority to pay off your debt as it’s costing you money to have the debt, on top of the debt itself.

This doesn’t apply to you if you have a lot of money and are using debt to offset your income. I’m not talking to you, in that case.

Level 2 – Expenses

The second level of money is expenditure or spending.

Expenses are the things you need to buy to survive and run your business (if you have one) and your life.

Depending on what’s important to you and what you value, you might live very frugally and spend money just on the basics, or, you may live a more lavish or social lifestyle that costs you much more.

If your goal is to save money, then you can look at your basic cost of living and work out whether there are areas that you can stop or reduce spending, even if temporarily.

Perhaps you don’t need a pedicure every month, or to have new designer clothes, or dinners out, for example. 

You might be better off using that money to pay off your debts faster.

But if cutting costs like this feels terrible and creates scarcity, then perhaps you could rather focus on creating money instead.

Level 3 – Income

The third level of money is income.

This is the money you earn for value you create (which I’ll cover in a separate podcast) and from any investments that you have.

We need income to cover our expenses and any debts we have. Debt should be the priority here as it costs money to have it.

At the basic level, income is created in exchange for some sort of action you take – a service or product that you sell through you own business or for an employer.

We often correlate the income we earn through work with who we are as a person. 

We tend to make it personal.

We say things like, “I’m worth more than that!” or “I’m not skilled or capable enough to earn that much money”. 

But if we focused more on the value we bring, rather than who we are as a person, then we could more easily change that equation and create wealth more easily.

Level 4 – Investment

The fourth level of money is investment.

This is where you take the money you have earned and put it into a savings, share portfolio, business or other account that pays you interest.

In other words it’s the opposite of debt.

Each dollar you invest will earn you an extra 2 – 50c. So your dollar turns into $1.25, for example.

The safest way to invest in terms of lowest risk is into a savings account or a term deposit, or government bonds.

Riskier investments are things like the sharemarket.

But one place that investment might give you a good return is in your own business if you have one.

If you have a service or product that is proven, selling well in the market and has the potential to help more people, then it makes sense that you might invest some of your income into marketing, advertising and/or recruitment to help your business grow.

The Money Balancing Act

Just to clearly state it again, I’m not an accountant or a financial advisor. And I’m certainly not telling you what to do with your money.

But know this – if you want to create more money, you will do some combination of things at each level of money to achieve your goals.

The first step would be to create a specific goal, such as a specific amount of money you’d like to create, and by when.

Ready to better balance your money?

You’re invited! The Habitology Membership is the perfect tool if you’re truly ready to break old habits and get out of the rut. I encourage you to check it out. Learn more here: