The 7 Stages Of Financial Freedom

What do you think about when you hear the words financial independence? What does it mean to you? In truth, financial freedom can mean different things to different people. Most people believe that it means having enough money to avoid working unless you want to, and that there are many paths to get there. When the time comes to retire we must have a plan to continue living comfortably. Do you understand where you'll need to be financially to ensure you can retire comfortably? Do you think that you will get to old age without having to work? Do you even know where you are now and where you need to get to? If not, it may be a good starting point for you to start planning for your own financial independence. Hello and welcome back to the channel. Financial freedom can be a daunting concept as a whole, but today we'll break it down into 7 stages. These are meant to simply inform and give you an idea of where you may be right now, and the possible future stages you'd want to ensure you hit as you prepare for retirement or changes in your financial journey. So let's jump right in. Stage 1, Dependency. This is the exact opposite of financial independence, but we all start here. This stage marks where your expenses are higher than your income. You may need others to help keep you afloat, or you may rely on loans to get you from paycheck to paycheck. Whatever the dependency, this stage requires you to evaluate your situation closely. You need to get a clear picture of where you are and make a clear plan for where you want to be. You must check your credit scores and log into your bank and credit card accounts. You'd also have to do the unpleasant work of getting your bills together and adding up how much you spend each month. Make a financial plan and take charge of your money. It's essential in these changing times. Remember to keep a check on your spending and investments. This is where you should begin to keep track of your net worth, spending, and assets. This will give you a better idea of where you stand and potential paths out of clearing your debts. Use this stage to get into the habit of setting spending and saving targets. Work to increase your ability to earn more income, either by taking on side hustles or increasing your skill set. The dependency stage can often feel defeating, especially as an adult, but you can move past it with intention and determination. Stage 2, Self-Sufficiency. This is the point where you can begin to consider yourself independent. As of right now, you're most likely not getting assistance from parents or the government. You're able to meet and pay your monthly bills. Now, you're probably still living paycheck to paycheck and in debt, but you're no longer dependent. Even though it may not feel that way, the most important concept is that you're now in charge of your financial life. Many financial experts also call this stage solvency. You're making enough to keep yourself afloat. Saving and investing might not yet be an option, but you can take care of yourself and your needs month to month. Stage 3, Stability. At this level, you can finally start saving money. You succeed in breaking the cycle of living from paycheck to paycheck and all the stress that comes with it. Many would say this is the stage at which you first begin to save your emergency fund. Save $1,000 right away. Consider this the first step of your emergency fund, regardless of other bills or obligations you may have. Make this a priority. Licensed financial advisor Adrian Taylor-Wells from Tailored Wealthsaver stresses having cushion money in light of the current high rate of inflation, which is the highest it has been in 41 years. While you're working to pay off your debt, your emergency fund will keep you from reaching your credit card in an emergency. Access to cash is essential in emergency situations like a breakdown of your vehicle, roof leak, or medical issue. Remember, this initial fund should only be used for unexpected expenses, not for entertainment or discretionary spending. Stage 4, Security. If you're still living paycheck to paycheck, saving six months' worth of expenses may seem like an impossible task. However, you need to be consistent and patient. The road to financial independence requires intentionality and getting to level 4, the security stage. Generally entails removal of debts and saving of three to six months worth of expenses. Financial security comes once you've eliminated your debt, or at least have the assets to pay off your debt if needed, and you can withstand loss of employment for a short period of time. If you have been consistently saving and investing in stages 2 and 3, then entrance into this stage is assured. This stage, you've made your money a safety net, but now you can also make it a tool to build wealth. You may begin to consider investing in other assets such as brokerage accounts, real estate, small businesses, and more. Stage 5, Flexibility. After you build up a solid rainy day fund and remove most, if not all debt from your life, you can now start heavily investing that extra cash. It's the same principle at work. Little by little, day by day, month by month, year by year, the results will add up. This will bring you to stage 5, Flexibility. Between stages 4 and 5, you'll continue to make as much money as you can, save and invest. Now your investments get to a point where you can cover most, if not all, of your base essential living expenses. You may not have enough to quit working entirely, but you start to see the fruits of your labor. Advisors like to mark this stage with enough money saved to cover your living costs for one to two years. Now you have the freedom to take a year off work to do whatever you want with it. Go on a grand adventure, spend more time with your loved ones, or finish writing that novel you've always wanted to. It grants you true flexibility to remove yourself from work, at least temporarily. Stage 6, Financial Independence. At this point, you can finally walk away from your job for good and depend entirely on the profits your investments bring in. Congratulations! This is an outstanding achievement and a personal finance success. You can consider yourself financially independent if you make it to stage 6. You could technically retire at any time and not have to worry about how to pay your bills. The amount needed for financial independence varies from person to person because lifestyles, hobbies, and passions differ for everyone. This stage signals that whatever your weekly, monthly, or annual needs, you have enough money saved and invested to cover you for the rest of your life. Stage 7, Financial Abundance. This last stage does not need much explanation. You can now jet set around the world and dine at fine restaurants without looking at the costs because you have more money than you'll ever need. Congratulations! You've just entered the top one percent. Have fun and remember to help those in need. Financial independence will take time to achieve, but the peace of mind, confidence, and control over your fate will be well worth it. The process is simple, but we'd never say it was easy. If it were, everyone would be financially independent. It will take intentionality and determination, but it's possible. Many people make decent money but never advance past the first several phases. Remember that the decisions you make will help you get there. Financial independence is more of a process than a destination. To make effective decisions, you must know where you are along this path. Keep in mind that the destination is very personal, which is why you must set your own goals that describe the perfect future that you're striving for. We hope you enjoyed this information on the stages of financial freedom. Tell us below where you are in your journey. Share this video with your friends and don't forget to like and subscribe so that you don't miss out on future videos.