⚕️ Looking at the 7 Levels of Financial Health

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No matter if you’re brand new to investing or a seasoned pro…

We’re here to help you become the master chef of growing your dough!

Let’s get into today’s topics:

• 7 Levels of Financial Health ⚕️

• Should We Worry About Unemployment? 👷

• The Bull Market Continues To Confuse Investors 🤨

Today’s newsletter is a 5 minute read.

7 Levels of Financial Health ⚕️

Whether you're just starting out or aiming for financial independence, understanding the stages of financial health can help you strategize better.

Let’s break down these 7 levels:

1. Survival: The Struggle is Real

At the survival stage, you're living paycheck to paycheck, with no emergency fund to fall back on.

Meeting basic needs is a constant challenge, and financial stability feels like a distant dream. This is a tough place to be, but recognizing it is the first step to making changes.

2. Stable: Building a Foundation

You've managed to save a few months' worth of expenses in an emergency fund and can save a small percentage of your income.

While debt is still present, you’re managing it, though not paying it off aggressively. Stability is about laying the groundwork for a more secure financial future.

3. Secure: On the Right Track

In the secure stage, you’re on track to save enough for a comfortable retirement.

Your emergency fund covers 6-12 months of expenses, and you’re saving and investing a significant portion of your income.

Debt is low or being paid off aggressively. You’re not just surviving; you’re preparing for future stability.

4. Growth: Beyond the Basics

With a strong savings and investment strategy, you’re looking at multiple income streams and minimal or no debt.

Planning for large future expenses like children’s education or major purchases doesn’t strain your finances. You’re in a solid position to grow your wealth.

5. Wealth Building: Creating Passive Income

Significant investments are now generating passive income, and your net worth is substantial. Large financial decisions don’t impact your lifestyle, and you have a diversified investment portfolio.

This stage is about letting your money work for you.

6. Financial Independence: Freedom to Choose

Passive income covers all living expenses, making work optional.

With substantial liquid and illiquid assets, you have the freedom to pursue personal interests without financial constraints.

This is the stage where financial independence becomes a reality.

7. Abundance: Beyond Wealth

Wealth far exceeds your needs, allowing you to make significant philanthropic contributions and invest in high-risk, high-reward opportunities.

You’re planning a legacy for future generations and have influence in financial and social circles.

Abundance is the pinnacle of financial achievement.

Key Takeaway

Each stage of financial health requires different strategies and mindsets. Whether you’re in survival mode or living in abundance, understanding these stages can help you navigate your journey more effectively and make informed decisions to level up your financial game.

Should We Worry About Unemployment? 👷

The unemployment rate in the US has remained remarkably low since 2021, but recently some cracks have started to show in a few areas of the job market.

Leading indicators such as weekly jobless claims have worsened this year:

We’ve also seen job openings broadly decline in the past two years:

These aren’t at worrying levels just yet, but the trends seem to be headed in the wrong direction.

If the trends continue or even worsen, investors could get spooked about the possibility of a future recession.

Historically the data shows us that when the unemployment rate begins to consistently rise for more than a few months, it tends to spike higher thereafter:

Of course some of these episodes are shorter lived than others…

The experiences in 1991 or 2001 were much less painful than 2008 for example.

It’s also worth noting that we did see a positive data point in this week’s JOLTs job openings report, showing an increase in openings last month.

On Friday we’ll get the official US unemployment report for the month of June, so this will be a key report for investors to tune into.

If the unemployment rate ticks up again then be prepared for higher volatility in risk assets.

As always, we’ll keep you updated on the data and major takeaways here at the Daily Dough!

The Bull Market Continues
To Confuse Investors 🤨

The enthusiasm for the bull market is waning with two types of people:

1. Bears

2. Investors who want to get a good deal

Why does the stock market keep going up when people feel like things are worsening in the economy?

The data is actually weakening.

We’re seeing services slow, retail sales weaken, and unemployment rise (while still historically low).

The small business survey is also speaking volumes of weakness which we’ve written about before. Businesses are having a hard time finding help to run their businesses, and profit outlooks look grim.

Is the “vibesession” finally turning into a potential recession?

Is it just the election blues getting people down and clenching onto their pocketbooks?

Bull markets do usually run further and longer than people think they can. It appears momentum is driving a lot of this run.

It’s stemming from the “unexpectedness” of it. Most economists in 2023 were predicting a recession was unavoidable.

It was in fact, the most predicted recession that never actually happened. So, a lot of people were not participating in stocks because of this fear.

So, FOMO (fear of missing out) kicked it fast as the market continued its march higher and investors and wealth advisors had no choice but to allocate to stocks again.

But now, the stock market looks expensive. It’s not in nosebleed territory, but, it isn’t a value either.

This is a frustrating place to be for those looking to deploy capital: weakening data with a pricey stock market. It almost screams “wait for a correction”.

Of course, 2025 outlooks for earnings look rather promising. This can change very quickly, but, it’s what could be holding this bull market up longer than people expected.

The future earnings expectations if they DO pan out, could leave investors in the dust yet again.

This isn’t an easy place to be for cash infused investors, however, a great strategy could be to “dollar cost buy”.

You buy the market on a certain schedule (weekly, monthly, or quarterly) to combat the uncertainty we face today.

You can also dig into individual stocks that don’t fall into magnificent 7 territory for value. After all, big tech is driving a lot of this rally.

While we can’t predict what happens, we can closely watch the data and look for clues on how to manage our portfolios going forward.

Either way, it is a frustrating place to be for broad market value seekers.

Food For Thought 🧠

"The greatest enemy of knowledge is not ignorance,
it is the illusion of knowledge."
- Daniel J. Boorstin

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.