The seven stages of financial independence

There are many reasons why people want financial independence. Some of the most common are:

– Get off the hamster wheel. It’s getting harder and harder to get enough money to work long days at a job you don’t like. Financial independence allows you to pursue passions or choose your own work.

– To have more control over your life. Financial independence means that you are not dependent on your boss or finances. You don’t have to worry about losing your job or struggling to pay your bills, and you can spend your time as you wish.

– Spend more time with family and friends. You can travel more, take more semesters and spend more time with your family when you are financially independent. You can also get involved in volunteering or other activities.

– Pursue your passions. Having your passions in your life is easier when you are not stuck in a job you hate. If you want, you can start your own business, write a book or travel.

– Give back to others. Being financially independent can give you the power to change the world. If you want to help others, you can donate to charity, start your own foundation or volunteer.

This is where Grant Sabatier’s seven levels of financial freedom come in – a roadmap to evaluate and improve your finances to the point of financial freedom.

To achieve your financial goals, pay your bills and most importantly, enjoy your life, you need to feel safe, independent and secure. The problem is, how can you live with the high cost of living, exorbitant interest rates on debts, and all the other things that eat away at your wallet? However, you can build wealth, pay off debts or save for holidays if you follow these seven steps.

1. clarity

If you did not know the responsibilities of a new job, you would not accept it, right? Financial independence is no different. Therefore, Sabatier’s first level of financial freedom is clarity, which is understanding your current financial situation and improving your financial literacy.

Getting clarity starts with assessing your current financial situation and deciding where you want to go. To achieve clarity, follow these simple two steps:

– Calculate your net worth.

– What is your “why” for achieving FO (financial independence.)

Using improvement, you need a budget or personal capital, you can calculate your net worth. Through these programs, you can link bank accounts, investment accounts, credit cards, car loans, mortgages and student loans. This in turn should give you a solid idea of where you stand financially.

What about your ‘why’?

Well, there is no right or wrong answer. It’s really up to you. For some, they would like to become financially independent so they can travel or spend more time with their families. Either way, consider your reasons and write them down.

2. self-sufficiency

Being solvent or self-sufficient is the next step towards financial independence. To put it another way, you need to be able to meet your financial obligations without getting into debt or needing help from third parties.

The truth is that living on credit will keep you in an addiction phase and one step away from disaster. Why? Since a bank is not like your parents, it will demand repayment.

There is still an opportunity to create economic freedom at this stage, but it is limited. For example, you can invest, review unnecessary expenses and reduce your electricity use.

3. breathing

Here we get a chance to take a break. After all, if you’ve ever lived paycheck to paycheck, you know how suffocating it can be.

But what does breathing space really mean? Once essential expenses are covered, you have some extra money to invest in shares or for an emergency fund. Plus, you have more wiggle room to cover unexpected expenses like a big vet bill or home renovation. Again, you may have some debts that eat up much of your income.

Despite reaching level three, you may still want more from life. But those days of living paycheck to paycheck or relying on financial support from your parents or are over.

4. stability

At Level 4, people have paid off high-interest debt, like credit card debt, and have saved six months of living expenses for emergencies, notes Ryan Ermey for Grow. Building up emergency savings ensures that unexpected circumstances do not disrupt your finances.

“At this level you are not worried if you lose your job or if you have to move to another city,” says Sabatier.

Instead of just counting your regular everyday expenses when calculating how much you should have saved, financial experts recommend thinking about what your finances might look like in an uncertain economic future.

“If you lose the job, you would make some changes. You would probably reduce your gym membership and get rid of your subscriptions, such as, Christine Benz, director of personal finance and retirement planning at Morningstar, told Grow. “Think about the absolute minimum you need to survive.”

5. flexibility

A person who reaches this stage can live with their wealth for at least two years. At this point, you could consider changing jobs voluntarily or taking a sabbatical.

Simply put, you have the freedom to organize your life and time according to your preferences and you are not restricted to certain environments at work. Obviously, within a limit, which will define the years of financial freedom you enjoy.

Between this stage and the next, it is possible to reach a level of financial independence called Lean FIRE, which we can translate as “frugal or lean”. This means that you may be able to live off your savings by quitting work. But your lifestyle must change and your spending must be drastically reduced.

6. Financial independence

Although flexibility is great, you can’t really kiss your day job goodbye forever. To achieve this, you need to become financially independent. When you reach level 6, your investments generate interest, income and appreciation for you to support yourself.

These people rely on either a significant investment portfolio that generates interest or a real estate investment that generates rental income.

As you progress through the levels of financial freedom, you will have to work hard. In this case, you may need to stick to a strict budget and invest more money. The more time you have after financial independence, the better your chances.

7. Abundant wealth

“Every penny invested today is worth hours, if not days, of your freedom in the future,” writes Sabatier. By investing one every day throughout the year, you would not only have 365 kroner. Sabatier understood that investing your money is the only way to regain control of your finances once he went broke and retired early (all within five years).

Level 6 may have allowed your lifestyle to be sustained by investments. To keep an even day, monitor your peaks and dips carefully.

Once you reach level 7, you no longer have to worry about finances, and you have more money than you would ever need. The fruits of your labor are at hand, so you can pursue your passions without feeling stressed.

But how do you manage to pay for daily necessities? You won’t go broke if you stick to the 4% retirement rule from your investment portfolio.

Conclusion

If you are willing to work hard and make smart financial decisions, Sabatier says you can achieve financial freedom.

Follow these tips to move up the 7 levels of financial freedom:

– Set financial goals. What do you hope to achieve with your money? Is early retirement your goal? Do you want to buy a home? Are you ready to travel around the world? By identifying your goals, you will be able to develop a plan to achieve them.

– Create a budget. Every month you should make a budget for how you will spend your money. Saving money for your goals can be achieved by tracking your spending and identifying areas to save.

– Paying off debts. Debt is a major obstacle to achieving financial freedom. By paying off your debt earlier, you can save and invest more money.

– Invest for the future. For a successful retirement, you need to start investing early and regularly. As your money grows, you can benefit from compound interest.

– Live below your means. Living below your means is one of the best ways to achieve financial freedom. You need to spend less money than you earn to achieve this.

– Be patient and persistent. Achieving financial freedom requires time and effort. If you don’t see results immediately, don’t be discouraged. As long as you keep working towards your goals, you will eventually achieve them.

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