5 Stages of Financial Freedom: Beginner’s Guide
Financial freedom can be defined as both the journey, as well as the destination to financial independence. This is process and the state of paying for your living expenses with passive income from your investments. Finally, there is also a factor of early retirement in play. You can retire earlier than most people, with more in reserves than a lot of people could earn in a life time of labor.
If you’re wondering what steps are the right ones to take for beginners, you’ve found the right place. I share 5 stages and steps to financial freedom to bring about the endgame of fulfillment and happiness – regardless of your personal financial independence goal amount.
STAGE 1. Financial Awareness
What is financial awareness? It can be defined as the state of discovering your current financial condition. It also throws light on how to improve it. But caution must be taken to remove the guess work from this stage. Your first step in the 5 stages of financial freedom is illumination.
You must understand the power of intention. Most importantly to do those habits and take those steps that have worked for others – rather than trying to reinvent the wheel. It doesn’t matter what level of income you’re at now. You will assess your income sources, living expenses, and debt levels at this phase.
STAGE 2. Financial Literacy
What do we mean by financial literacy? The second phase in the 5 stages of financial freedom is financial literacy. This is the money education that is acquired by you. Getting smart with your money will help you make sense of your current income and living expenses. You will learn budgeting, living within your means and saving. You’ll also learn how to setup emergency savings and building an investment nest egg.
This skill is scarcely taught in schools and absent from formal education. You’d have to acquire this knowledge on your own – hopefully from the right sources. Furthermore, just like investments, the more diversified your sources are, the safer you’ll be. A few of the materials you’ll get your hands on may not contain accurate data. But through due diligence, you’ll compare notes from the different media and make a conclusion.
STAGE 3. Financial Confidence
Financial confidence is the third stage in the 5 stages of financial freedom. It is the undeniable state of being able tell the difference between what will work, and what won’t. This is the ability to discard 80% of the fluff you read from books or watch on YouTube. Sticking only to the 20% (according to Pareto’s principle) of tried and tested truths about money.
This is what fosters a millionaire mindset. Of course this mental confidence needs to be validated along the way. One of the best ways to pull this off is to find mentors. These should be people who’ve done the same things you’re striving for successfully. They’re easy to find. They’re on social media, and they’re opening sharing their contact info at the end of their published materials – such as books.
STAGE 4. Financial Empowerment
The next step is financial empowerment. This stage embraces the virtue of action. There’s no financial confidence on earth that could help you get to your first million dollars if you don’t take action. The most important phase of the 5 stages of financial freedom is to apply daily habits. Do what your mentor instructs you to do in faith.
Do not question the process. This stage requires you to fail a few times along the way. This is absolutely normal, and a crucially necessity. Financial empowerment is achieved through taking calculated risks. It is the idea of making bold investments even when close friends or family members behave indifferently. You’re better off building in silence and giving your effort the 100% it needs.
STAGE 5. Financial Freedom
Financial freedom is the endgame you’ve been waiting for. But wait – not so fast! This is not a permanent state of wealth and prosperity. A significant amount of people return to zero or back to debt after reaching this stage. The final of the 5 stages of financial freedom consist of having passive income from investments that pay for your living expenses year after year. Your annual withdrawals using the 4% rule will cover the projected costs in your initial plan.
Here, you’re required to hold fast the sound wisdom and virtue you’ve learnt within these few years. Let your habits become unbreakable, and your determination remain unshakable. Practice financial maintenance with diligence to prevent a relapse to your former self. On the other hand, prepare a next endeavor plan to work on stress-free labor of love that could grow your net worth even further – going forward.
A Few Parting Words
The 5 stages of financial freedom need not throw you into a life of discomfort. You will certainly set your own rules, and decide what personal sacrifices to make to get you through each stage. If you keep the vision and end-goal in mind, you’ll constantly gravitate towards where your focus is – to the path of financial independence.
Share in the comments below if you’ve started your journey towards financial freedom; and what stage are you currently on?
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