Eight articles based on the Money Framework, composed of five levels of investment and savings, introduce a practical tool to help you reflect on your financial options and build a map of your own money and assets.
The goal is to help you make the most of your savings and investments. However, this is not a magic formula for immediate success. There is no such formula, but a structured approach combined with perseverance can help you make more informed financial decisions and work towards better long-term outcomes.
The Money Framework consists of a pyramid or map with five money management levels and two supporting areas: health and wellbeing and insurance. We do not claim to cover every possible situation, as other approaches may also be valid. Instead, this framework provides a structured way of looking at the main areas that can influence your financial wellbeing and long-term financial independence.
It draws on extensive experience in financial markets, together with the knowledge and analysis of financial professionals within the Euroconsumers Invest Group. For more than 50 years, Euroconsumers has been asking questions, assessing the needs of European consumers and investors, and providing information and guidance through its specialised publications.
In the following articles, we will explore each level in greater detail.
The challenge is straightforward: we want readers, savers and investors to build their own financial pyramid or map and use it to work towards greater financial independence, both today and in the future. This applies whether you are in the wealth accumulation phase, which typically takes place after 15 to 20 years of work, or preparing for retirement.
Many people say that they “cannot save”, that “money in the bank does nothing” or that they have “lost a lot of money with their investments”. The Money Framework aims to address these concerns and provide a structured way to think about your financial path.
The Five Levels of Money Management
Each level of the Money Framework focuses on a different aspect of managing money, from understanding where your income comes from to making investment decisions and considering professional financial advice.
1. Where Is the Money Coming From?
The origin of your financial resources tends to be overlooked when discussing personal finance. In other words, what are your sources of income?
Understanding where your money comes from is the starting point for building a sustainable financial plan.
2. Make Smart Spending Decisions
This level focuses on the family budget. It is difficult to start an investment plan without first understanding how much money is available after everyday expenses.
By managing your household budget carefully, you can gradually create savings and financial reserves. The pace at which this happens will depend on many factors and will vary from person to person.
The Money Framework explores recommendations from the Euroconsumers Group through a “don’t spend today what you can spend tomorrow” philosophy. Establishing clear rules for different spending categories can be one of the foundations of effective money management.
3. Be the Boss of Your Money
You may think this level is the same as the previous one. It is not.
Level 2 focuses on how you spend your money today and how much remains afterwards. Level 3 focuses on what you do with that remaining money.
In other words, how do you manage and allocate your savings?
4. Let Your Money Work for You
When it comes to investments, we often hear people say: “I don’t like risk or the stock market, so I invest all my money in bank deposits.”
You can certainly choose this approach, but from our perspective, it is important to understand the difference between holding cash and investing. A bank deposit can provide a place to keep your money, but it may not offer the same potential for long-term growth as other financial assets.
If your main concern is investment risk, there are different options and levels of risk to consider. Understanding these alternatives is an important part of making informed investment decisions.
5. Asset Allocation and Professional Advice
This level focuses on money management with professional support. It is particularly relevant for people who already have a certain amount invested in financial products or assets and may benefit from building a more customised portfolio with the support of financial advice.
Professional financial advice is not necessarily exclusive to wealthy individuals or millionaires. However, access to financial advisers and the range of services available can vary from country to country.
The cost of professional support should also be considered in the context of the potential value it can provide, particularly when financial decisions become more complex. You may be comfortable managing simple financial decisions yourself, just as you might deal with a minor health issue without consulting a doctor. However, when circumstances become more complex or you are unsure about the best course of action, professional guidance can become increasingly valuable.
Nothing can compare to your health, but managing your money is also important. Whether or not you decide to consult a financial adviser, taking a considered approach to your financial decisions can make a difference.
Why Is Health Connected With Money?
You might wonder why health is relevant when planning your finances and investments. The connection comes from looking at the investor's entire life cycle.
A significant proportion of healthcare spending can occur later in life. The percentages vary depending on the country and its healthcare system, but from the age of 72, around 50% to 80% of total expenditure made throughout life can be related to healthcare.
If you do not regularly review your financial situation, it is also important to consider the transition into retirement. The retirement age varies across countries, from 60 in Luxembourg to 74 in Denmark. At this stage, the reduction in income for people who are still working can be significant — on average, around half of previous income, according to an OECD study from 2017.
We will explore these issues in greater depth in the relevant articles. Planning ahead and maintaining a balance between income, expenditure, savings and future needs can make a significant difference over the long term.
Last but Not Least: Insurance
Insurance is another important component of financial planning. Insurance professionals argue that without this sector, many advances and innovations would not have been possible. A classic example is the 1969 Moon landing mission.
The underlying principle is simple: as your assets and financial responsibilities grow, your level of protection should also evolve.
For example, if you buy a house with a mortgage, you will generally need appropriate home insurance. This can also apply to properties purchased without credit, with certain forms of fire insurance required by law in many countries.
Insurance requirements also vary significantly between countries. In Belgium, for example, liability for damages is taken particularly seriously, with family liability insurance being compulsory for those who have minor children.
These are just some examples of how insurance and financial protection can form part of a broader financial plan. More details will be explored in the Insurance chapter of our Money Framework series.
For a brief introduction to the Money Framework and its five levels of money management, watch the video: https://www.youtube.com/watch?v=GCSRnsOTUdQ