Becoming truly financially independent is the dream. To never worry about money and be able to only do the things you love to do. No more dead end job or disappointing side jobs to pay the bills. You would finally be able to pursue your dream job, whether it’s profitable or not, or even retire early.
The true number of savings they would need to reach this stage intimidates many. However, there are several more steps before this that you can aim for. Maybe you don’t need to have an abundance of money flowing in. Perhaps having enough just to cover your bills is enough for you to be happy in life. Everyone is different and that’s okay!
The idea of retiring early is so enticing, many become obsessed with the FIRE movement in order to achieve this. They pursue cutting their expenses mercilessly and increasing your income for maximum results. A savings rate of 50% or higher is typically what you would need to be on their crazy level.
I’ve always believed that financial independence meant having enough money to never work again. It’s not a singular goal to achieve, but a process towards a better and less stressful life. After all, money is the #2 cause of problems. #1 is building IKEA furniture with a significant other. Trust me.
Stage 0 – Dependency
This is the stage most people are at currently and start with from birth. You are in this stage if you still depend on support from your parents or are spending more than you earn. If your debt payments are exceeding what you bring home, you’re in this stage.
Depending on your parents to help with living costs, like dressing you and feeding you counts as being in this stage. Drowning in debt? Yep, still in this stage. Keep in mind, the first steps are known as “surviving stages.”
Stage 1 – Solvency
This is the moment when you no longer depend on financial support from Mom and Dad and are making more than your expenses. You are no longer drowning in debt and are starting to make a dent in those credit card bills.
Those shackles of debt are starting to feel a little lighter and you’re starting to see the light at the end of the tunnel. Your income is now being put to use in a smarter fashion.
You’re officially “adulting”, feeding yourself, taking care of all the adult stuff and being responsible with money. This is a great stage because it’s typically a turning point towards something better.
Stage 2 – Stability
This is the true starting point towards true financial independence. This stage means you are officially debt free and no longer dependent on that shiny new credit card. Student loan debt and mortgage debt are excluded from this stage as they are considered having growth potential and not as deadly as consumer debt.
Being in Stage 2 also means you have a little money saved up for any emergency and financially prepared for whatever life may throw at you. You’re in a stable position and ready to move on to the next stage.
Stage 3 – Agency
In this stage you are officially debt-free! No more mortgage, student loan debt or consumer debt. You are living your own life without those dark clouds of debt holding you back.
There is enough money in the bank to cover your back. You are now a free agent; able to work and live however you want. You are in the position to quit your job whenever you want.
This is the last surviving stage and from here you are more focused on building wealth.
Stage 4 – Security
You’ve reached this stage once your investment income can cover all your basic living expenses. You’re able to earn a basic standard of living passively through your assets. Keeping a roof over your head and food on the table.
This stage can be kept indefinitely, but you can’t afford too many luxuries in life. But that’s totally a personal choice for you to make.
Stage 5 – Independence
This is typically the final goal most people strive to achieve. You have officially saved enough money to completely cover your current standard of living and then some. You have enough.
You don’t need to work another day in your life if you don’t want to.
Stage 6 – Abundance
The final stage is the ultimate goal of financial abundance. Your passive income from investments will cover your lifestyle and then some. You now have the freedom to do whatever you want. Sharing your wealth, traveling the world or whatever else you can dream of. The world is your oyster.
My Two Cents
The more money you save, the more freedom you have, and the greater risks you then take. Passing each stage towards financial independence can slowly chip that wall of stress and anxiety because of money away.
Take each stage as a learning experience to help you continue to grow your wealth and strive for financial freedom. If you have debt, take that opportunity to learn how to cut your expenses and stop relying on credit cards. When you starting to build wealth, learn how to properly save your money in the smartest way you can. Be responsible with your money and think before you swipe that card.
These stages are great goals to have, but remember to enjoy this experience. So many want to rush to Stage 5 or 6 and then decide to live their life. Looking back at the achievements you’ve accomplished is an amazing feeling and what keeps the fire burning under me.
So what stage are you at? Don’t be disappointed if you are still at Stage 0. I was stuck there for more years than I’d like to admit. But once you take that first step into Stage 1, there’s no stopping you.
