Stages of Financial Independence

This post is inspired by Paula Pant and Joshua Sheats who discuss this concept in detail on Paula's excellent podcast - Afford Anything. Josh is a host of a popular podcast - Radical Personal Finance. I highly recommend that you take a look at both of these guys. The following are the stages of financial independence:

• Stage 0 - Total financial dependence - that's the time when we rely on our parents to provide for us. Hopefully this ends when we grow up and get a job. 
• Stage 1 - Financial solvency - that's time when you can support yourself and you are current on your bills. Unfortunately many of us stay in this stage not thinking that there's anything above. Unfortunately also many people get stuck between stage 0 and stage 1 by borrowing large amounts that they struggle to pay back. More on that in next post. 
• Stage 2 - Financial stability - You can support yourself and you also have an emergency fund. This means that you won't get caught out by any surprises such as car breaking down or short term illness. This money is very often referred  to as F**k Y** money. It means that you could have freedom to walk out of the job if your boss is no longer tolerable or that you could take advantage of opportunities that present themselves, but require some form of  monetary outlay. ​

• Stage 3 - Debt freedom - you are free of debt. I like to look at this in terms of net worth as sometimes you may decide that it isn't worth paying your mortgage down even if you could, so if your net worth is positive when taking into account your mortgage, you are officially debt-free. 
• Stage 4 - Financial security - you have enough investment to cover your barebone living expenses. That's where we plan to be in ten years!
• Stage 5 - Financial independence - you have enough investment for interest/income from that investment to support your current lifestyle. That's our goal in twenty years!
• Stage 6 - Financial freedom - you have gathered enough investment to splash out and upgrade your standard of living without a detrimental effect on your investment. 
• Stage 7 - Financial abundance - that's the point where you would struggle to spend your money on 'normal' living. That's the Bill Gates moment. Your money will outlive you and you get to give it away to charities and support causes you care about. 

I believe that anyone can get to stage four in their lifetime. You should strive for that because otherwise, you may have to rely on social security programs or government pension which may not be around when we retire. Striving to be able to survive without any help should be the goal. Why you may ask, and I'm glad you did. The world is unpredictable, you may lose your job or ability to work as you are now. You may decide to support your family or spouse through a difficult time. All of these situations will be just fine if you have the ability to say, 'hey I can do this because my investment will sustain me through this time'. In some way not striving for financial independence seems irresponsible and reckless. What do you think?


Thanks for reading and please let me know, which one of these stages you see yourself in ten or twenty years. Which one is your goal?! 
Below a couple of links to books related to the subject, which I read or they're on my to-buy list:


Great book on getting out of debt and control of personal finances by Pete Matthew with the long title of - The Meaningful Money Handbook: Everything you need to KNOW and everything you need to DO to secure your financial future
One of the books I read in less than 24 hours - The Simple Path to Wealth: Your road map to financial independence and a rich, free life  by a personal finance guru J.L Collins. An excellent book on the subject on personal finance. Section of the books only relates to the situation in America, but even with that, it is well worth reading in the UK as contains some great lessons. 


The above links are going to take you to the amazon product page. If you decide to buy through those links I will be paid. Any income I make on those sales will go towards keeping this blog online and building community.