The 7 Stages of Financial Independence

By 26 September 2018 September 27th, 2018 No Comments

Joshua Sheets’ 7 stages of financial independence. I could expand these out even further and I might do that sometime. I also think the stages oversimplify because wealth isn’t linear and you can straddle multiple ‘stages’ at the same time. Regardless, it’s that simplicity that makes any model valuable, even if it’s imperfect.

Stage 0: Financial Dependence

Depend on parents, welfare, charity.

Stage 1: Financial Solvency

Your income covers your bills.

Stage 2: Financial Stability

You have a buffer account / buffer account / cash reserves to cover unexpected problems (avoid catastrophe) or seize new opportunities.

Stage 3: Debt Free

Dump the debt that’s not moving you towards financial independence (esp. high-interest rate debt). Pay student loans (cannot write-off if bankrupt in US). Eliminate consumer debt tied to depreciating assets.

Stage 4: Financial Security

Investment income covers basic living expenses (housing, utilities, food, transportation, insurance). Still need to work to grow.

Stage 5: Financial Independence

Investment income covers current lifestyle expenses. Work is optional.

Stage 6: Financial Freedom

Investment income covers lifestyle growth. Options incl. philanthropy.

Stage 7: Financial Abundance

Wealth exceeds lifestyle costs + margin. Basically fuck-you money (my words, not Josh’s).

Need to allocate surplus responsibly – philanthropy, generational wealth.

Source: The 7 Stages of Financial Independence | Radical Personal Finance