We see financial freedom as the ability to make certain choices without worrying about being able to provide for your own livelihood.
To achieve real financial freedom, you usually need a plan as with the FIRE approach the case is to get there. And this is where we can still have a tendency to get stuck.
We are often bogged down in the daily life that achieving financial freedom seems like a dream far away.
But when you think about achieving financial independence in bite-sized stages, we find that the goal becomes more attainable and realistic.
It also makes the journey less overwhelming. If you can manage to pay an outstanding bill hanging over your head, that's great.
The thing is, any action, regardless of size, will likely bring you closer to financial freedom.
The stages of financial independence also lead you to learn good money habits - a core part of smart money management.
So where does it all start?
Dependent
At this level, things are not easy and you may not be satisfied with your financial position.
You are likely to be financially dependent on others. And in this state, you can probably only go on like this for a short time. It is wise to get things in the right direction to minimize the problem for the future.
Soluble
Solvency or "survival" is when your fixed costs and expenses are lower than your income.
At this stage, you are likely to be able to meet your financial obligations, pay all your bills, and not rely on anyone or anything to help you cover your expenses.
Stable
Once you are able to consistently meet your financial obligations, pay off some debts, and keep your expenses low, you can start saving. First for your emergency fund to always have something on hand in case of unforeseen costs, then for your financial growth in the longer term.
But you are probably not completely debt free yet. And that's okay. You may still have a number of debts or indebtedness, such as paying off your student loan, or a mortgage that you are slowly paying off.
Safe and more secure
Once you've built up your emergency fund and always have something to hand, we think it's time to consider investing something.
Hopefully, once you've built a solid investment base, you no longer need to rely solely on your income to cover your basic expenses. You may then successfully build and manage your wealth, and then earn your way to financial freedom.
Independence
At this point, you most likely have solid long-term investments underway. And your investment returns are enough to cover your current lifestyle. At this stage, your good investments will literally be paying dividends.
Financial Freedom
This is the stage that people often dream of. You can afford all of the basic necessities in your life, but you can also afford comfort and luxury.
In this phase you can also potentially take greater risks and opportunities. Now you can buy that lakeside vacation home, turn your hobby into a career, and travel abroad regularly whenever you want.
Abundance
Ta-da! You now have sufficient income from investments and more than you actually need. Your focus from here should be on wise management of this wealth for all beneficiaries.
Finally, on financial independence
It will take time to achieve financial independence, but the peace of mind, confidence and control over your future will be well worth it.
Achieving financial independence is not easy, nor is it the road much traveled.
But it is possible. A lot of people make a decent amount of money, but never get beyond the first few stages because they also spend abundantly. Remember, it's about the choices you make that will help you get where you want to be in the end.
Don't get overwhelmed by the thought of financial freedom. If you step away and look at your situation from the sidelines and then make smart money choices, we think you can get there to the place of your dreams!
Sources including Forbes (link), ICFP (link), FinancialSamurai (link), Spaceship (link)
