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Today, I want to bring all Financial Freedom Fighters (FFF) together and talk about the X stages to Financial Independence. While this isn’t meant to be a step-by-step guide to move up towards financial freedom, I wanted to create a reference point as we all move up and improve together.

There are several other guides I’ve noticed but I don’t think they really do justice in the early stages of financial independence. On the flipside, I don’t think I’ll do any justice on explaining the later stages of financial independence.

Financial Stage 1: Shit Poor & Minimal Survival

Most people usually refer to this as “rock bottom” or being “completely poor”. Everyone has seen people like this. Often homelessness or lacking any funds that require actions for self-preservation determine the actions of an individual.

Usually having no money and no income requires an individual to panhandle, require the use of programs (homeless shelters, panhandling, etc.), and in some cases resort to crime.

In my opinion, this is correlated with zero financial knowledge and actions are instinctual. However, just because you have zero financial knowledge doesn’t mean you are in stage one.

(My best friend has hovered here a few times)

Financial Stage 2: Dependance & Assistance

I think there are a lot of people that hover in stage 2 more than we realize. This is the stage where you are able to provide for yourself at the cost of others. You can ‘afford’ an apartment or a home, but still would need food stamps to feed a family.

Or you might be a student that lives with their parents while you are in school to curb the cost of tuition. You might be able to support yourself but prior decisions (mainly spending more than what you bring in) prevent you from moving up.

Decisions are based on the amount of money in your pocket. Stage 2 is where people will do whatever it takes to not end up on stage 1.

(I was at this stage a couple times and hovered near stage 1 back in 2010. Related: My Debt Story.)

Financial Stage 3: Stability & Complacency

This is where you are living paycheck to paycheck, but you can support your household and pay bills. You might have debts (loans/credit cards) but as long as your income exceeds expenses you can paying down debts or saving money. Generally, this is where you can start to make moves financially.

This is also the stage where it’s easy to get complacent and basic financial knowledge tends to be forgotten. This is where you can stop calling yourself poor, and say you are broke if you find yourself in the red every month. Or if you make enough money and decide to put in more debt (mortgage, loans, etc) and still break even.

Side-hustles and finding ways to make extra cash help are used to expedite paying down debts or take vacations once in a while.

(This was me from 2014-2017, slowly paying down bills and loans).

Financial Stage 4: Money Savviness

This is the stage where you make enough money and start asking yourself, “What should I do next?”. You might have debt or a mortgage, but you have enough money saved up to avoid any disaster.

This is where decisions of “should I pay down my debt or invest”. I also like how Gary Vaynerchuk explains it as, “saving enough money to go on the offensive”. If you have enough money to pay off all debts, you are likely here.

You don’t have financial freedom, but you are free enough to make decisions for yourself and take chances. You start thinking “how can I make this money work for me”.

Side-hustles and finding ways to make extra cash help pad your income. The concept of “Time value of money” is nearly applicable in most instances.

Your financial knowledge is pretty good and you are looking to squeeze out any ounce of value (think credit card churning, balance transfers, moving debt, testing new investments).

(In case you are wondering, this is me right now)

Financial Stage 5: Security

Stage 5 builds from stage 4. You continue to invest money over time. Outside of a mortgage or business venture, you don’t really have any outstanding debts and for the most part, your income will continue to exceed expenses.

Maybe one in awhile you consider moving to the Philippines and living like a king for the rest of your life, but decide to vacation in Mexico for a taste of the easy life.

Most people like to call this “well-off”, you have money but you aren’t completely “free” yet.

(I aim to get to stage 5 by following my content passion)

Financial Stage 6: Financial Freedom

This is where you say, “smell ya later” to working, assuming you want to retire. You have saved enough money to where you no longer are dependant on bringing in new income and you can live off the rest of your life with the money you saved.

This can vary for most people. Some people retire in their 60s and live off that money. While others aim to achieve that much sooner like a certain blogger that is writing this article.

Financial Stage 7 (Bonus): “Eff You” Money

I think there are certain people that are simply meant to make money and change the world. These people often have a passion that translates into creating something where they not only reach financial freedom but also continues to drive them beyond what most people dream of.

The Zucks, Musks, and Bezos of the world are often thought of in this step. While Stage 6 you can pretty much live off what you have made, Stage 7 represents a status where you have so much money you don’t know what do with. Decisions are 100% based off of what you want with 0 care of consequence.

Other Insights & Final Thoughts

I didn’t want to write a book on the stages of finance. So hopefully I will be able to answer any potential questions you might have with these remaining thoughts.

  • “Poor” is primarily attributable to stages 1 and 2.
  • “Broke” is dependant on your financial decisions in stage 3
  • Broke college student with $50K in loans = stage 2. High school grad with no debt but lives paycheck to paycheck = stage 3.
  • My blog is primarily focused around stages 1-4. While I do have investments, I feel like a majority of my fanbase won’t relate as you need to get to stage 4 to start thinking about it.
  • You can absolutely move stage 6/7 to a stage 1 with poor life decisions. ESPN’s 30 for 30 on broke athletes are a prime example of people having so much money and ultimately end up broke.
  • Financial knowledge is the key to moving up, it’s not guaranteed though. But with proper budgeting knowledge, someone can easily go from stage 2 to stage 4 as long as they are disciplined.

This article is part of my “basic finance” series. The series isn’t complete (yet), but the goal is to help educate and provide guidance to those who need it. Everything I’ve learned I had to read & test it myself.


Downloadable Financial Freedom Stages Infographic Stages