Most people believe that financial freedom can only be achieved when you are 65 years old or older. That isn't correct! You can get to the fifth level of financial independence a lot faster than that. Financial independence may seem to be an unattainable dream that will never come true for you, but I'm here to tell you that it is possible if you set financial goals for yourself, reduce your expenditures, increase your income, eliminate debt, and save and invest as much as possible. The five levels of financial freedom that I will discuss in this blog are as follows. When you hear the term "financial independence," you might imagine someone who has millions of dollars set aside and spends their days sipping six Pina Coladas on the beach, but this isn't the case. Financial independence can be described in a variety of ways. So, without further pause, here are the five stages of financial independence, in my opinion:
SURVIVAL:
Survival is the first step toward financial freedom. You make enough money to cover your own expenses at this stage, but you're living paycheck to paycheck and are unable to save or move ahead. You have enough to survive on, but you are completely reliant on your work because you have no savings. Also, you're not able to save or invest towards your future when you have no assets and a lot of liabilities. So, this is a very typical first stage for young people just starting out. The only way to get past this first stage is to find a way to create a surplus in your budget.
Increase your earnings by starting a side business, having a raise, or simply working longer hours.
Reduce your costs by moving to a less expensive place, dining out less, or even moving in with your parents.
Get beyond the first stage by reviewing your budget and, of course, being more cautious about your spending.
If you've already pared down your expenses to the bare minimum and are still stuck, your only choice is to search for additional sources of income.
You've hit the second level of financial freedom once you've paid your living expenses...
PROGRESS:
You're way ahead of people who are living paycheck to paycheck if you've reached this stage. You will save money every month if you're in the progress stage. Your assets are increasing, and your liabilities are decreasing. This is a strong financial sign that you're on the right track. If you lose your job or have to stop working at this stage, you will be financially independent for at least a month, or even more, because you could live off your assets for a while.
Debt-free is the third level of financial independence...
DEBT-FREE:
It feels incredible to have reached this stage. You've worked hard to build a surplus in your budget, and now your net worth has reached a positive level. You have no liabilities since it is paid off, and you might have some money in your savings and investment accounts. You now have a lot of extra cash flow to save and spend because you no longer have monthly payments.
The fourth stage of financial independence is development, which follows the debt-free stage...
GROWTH:
You've amassed a significant amount of savings and investments by this point, and since you don't have any debt and your monthly cash flow is more than enough to cover your living expenses, you can continue to add to your savings and investments. You now have a full-fledged emergency fund, with three to eight months' worth of living expenses set aside. If you have stocks, shares, or real estate assets, they will continue to expand and provide you with passive income.
Freedom is the fifth and final level of financial independence...
FREEDOM:
At the freedom stage, your finances are so stable that you could leave your job today and never think about money again. You have enough money in savings and investments to live comfortably for the rest of your life on investment profits. If you've entered the stage of financial independence, your net worth is extremely high, and you have a significant sum of money in your bank account.
It doesn't matter how long it takes to achieve the fifth level of financial independence; what matters is that you're progressing in the right direction and moving from one stage to the next.
Don't get trapped in the first stage for too long. It makes no difference where you are right now; what matters is that you progress individually. Don't judge yourself for being at whatever point you're at right now. Create a strategy for how you're going to progress to a higher degree of financial freedom, no matter how old you are, and take it one step at a time. If you keep going, you will achieve the ultimate goal of financial freedom.
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