5 Stages of Financial Freedom

If your goal is to be financially free, where your investments are completely paying for your life and you have choices to do what you want with your time then these stages are great signposts on your way to that goal.

Understanding what stage you’re in can help you stay motivated and help you to know exactly what to do to get to the next stage.

0:00 – Introduction
1:35 – Stage 1: Survival
3:47 – Stage 2: Progress
6:41 – Stage 3: Debt Free
8:57 – Stage 4: Growth
13:11 – Stage 5: Freedom

Recommended:

How I Got Myself Into Debt

How I’m Paying Off Debt

Transcription:

hey you incredible people today i want to talk about the five stages towards financial freedom so if your goal is like me to be financially free where your investments are completely paying for your life and you have choices to do whatever you want whether that be go to the beach every day or pursue a job that you absolutely love then there’s actually stages to get there we don’t just get there overnight and these five stages five stages of progress towards financial freedom i find it just really good benchmarks really good goal posts so we can look at it and we can say okay where am i at right now in this journey and what do i need to do to move towards the next stage something really interesting in my life is that a couple years ago i was what i called sudo financially free started business an online business that was generating me enough income that i didn’t need to work and so i had a couple of years where i basically didn’t work because my business was paying for my life but what i didn’t realize at the time was i was actually only in stage three of the journey towards financial freedom i hadn’t even moved to stage four or gotten to stage five yet whereas if i knew this if i knew what the stages were i could have realized instantly you’re only in stage three ryan you’ve got to keep working or you’ve got to be smarter with your money to move to stage four to ultimately get to that long-term financial freedom so that’s the journey that i’m on now i’m excited to share these stages with you and i hope that you go through this and look at okay where am i at stay motivated what do i need to do to get to the next stage so starting with stage one this is the worst stage to be in and that’s the survival stage this is the stage where you’re just struggling to get by you’ve got a lot of bad debt consumer debt so that might be credit cards or car loans or personal loans or student loans you’re kind of buried in debt you’re buried in the expenses of life chances are in survival stage your income is actually less than your expenses so you’re getting to the end of each and every pay cycle and you don’t have enough money to keep living this means you either just go without you know fasting can be healthy so maybe you do that but more likely you’ve got a credit card and you’re using that to get by at the end of each pay cycle so you’re in this really bad situation where you’re not getting ahead you’re quite far behind already in terms of net worth you’ve got more debt than you have assets and so it’s just it’s just difficult and to be honest this is the stage that i’ve been in for the last year last two years maybe so i was in stage three with my business doing well and just kind of getting by and then my business went through a downturn i went through a separation ah a lot of stuff happened and i moved back to stage one so while we would like to be constantly moving up towards financial freedom stuff happens in life right life isn’t a straight line it’s not perfect things go wrong and that’s definitely what happened to me i didn’t prepare i didn’t do well enough and so i ended up back in stage one which is survival now i’m still in this stage no i’m not i’m in stage two a year ago i was in this stage and it was horrible i couldn’t really pay my bills i was living week to week paycheck to paycheck so to speak and i was getting to the end of each pay cycle not really having enough to get by and i was robbing from peter to give to paul i was just in this bad kind of debt cycle and bad situation and so that’s stage one and when you’re in stage one it’s time for some drastic change you gotta make some changes in your life in order to move into stage two stage two is where things start to click the rubber starts to hit the road and you start to actually build the skills that you’re going to need in order to get you towards financial freedom technically it’s still the stage that i’m in it’s the stage i’ve been in probably for the last year and this is where you’re actually making progress so stage two is progress where you’re increasing your income you’re decreasing your expenses so you’ve got money left over at the end that you can go and put onto your debt so you can start to pay off debts so you’re still in a negative net worth situation you’re still not in a great situation you may be living below your means in a way that isn’t long-term sustainable i’ve definitely been doing that for the last year where you know i just haven’t been spending money and it’s not long term a great way to live but for now i’m just not spending money so that i can pay off my debt as quickly as possible so stage two progress is all about paying off your debt it’s learning how to budget it’s learning how to pay yourself first so when you get paid each and every cycle a percentage of that money goes towards paying off your debt first and then you have to live off the rest or if you can’t live off the rest no credit cards no getting into more debt you’ve got to work out how can i earn some extra money so i can get by but your debt repayment should be automatically happening ideally or if they can’t automatically happen you’re just living frugally so that you’ve got money left over to pay off your debt so this is a really exciting time because you’ve taken control you’ve taken responsibility as well to say that i got myself into this bad situation i’m not going to be a victim of this anymore yes life may be hard yes it may suck that i’m in this situation but i’m here and what am i going to do about it hey i can do this like i just remember a year ago being nearly bankrupt or a bit more than a year ago now and just being like i’m going to get myself out of this situation i’m going to build up my income i’m going to build up my business and then things would happen time and time again where i felt like the universe was just kicking me down i’ll put a meme over this video that just shows um how i felt like i was drowning putting my hand out for help from the universe and the universe was just like giving me a high five and saying you can do it it wasn’t giving me a hand out it wasn’t helping me it was just kind of like kicking me while i was down but in this such situation i was like no i’m gonna do this i take responsibility that i got myself in this situation i’m taking responsibility that i’m going to get myself out of this situation start getting creative with it how can i just drastically reduce my expenses how can i grow my income and make more money so i can pay off my debt faster that’s stage two which is the progress stage where you’re making progress towards not being in a negative net worth situation and start moving towards actually acquiring assets and financial freedom stage three is the debt free stage so this is where your debts are completely paid off your bad debts i’m talking about so consumer debt car loans personal loans student loans etc things that aren’t generating you income or aren’t paying for assets so i wouldn’t classify a home mortgage in this because ideally the value of the home would offset the value of the mortgage if you had to sell your home it would cancel itself out or maybe your home’s worth more so i’m not kind of counting that i’m just looking at bad sort of debt in this situation so stage three is debt free where you’re not necessarily making progress and acquiring a lot of assets but you’re also not getting into more bad consumer debt so when i was pseudo financially free through my business so when i had those couple years where i wasn’t working because my business was just paying for my life what i didn’t realize was that i was actually stuck in stage three i was actually stuck in a situation where i was basically spending every dollar that i earned now towards the end of my pseudo-financial freedom i actually moved into stage four started saving money before business took a nosedive life took his twists and turns and i went back to stage one so i did actually get to stage four for a few months before i dropped back to stage one but yeah stage three is like okay i’m debt free i don’t have these liabilities net worth is basically zero or maybe i’ve got some superannuation or something but i’m not actually moving forward i’m not actually getting any passive income from assets i’m totally reliant on the income that i can drive through my work or through my business so it’s a good situation to be in in one state because you’re probably living a pretty decent life you’re not getting into bad debt but it’s a bad situation in that you’re not actually moving forward towards financial freedom you’re just kind of staying flat any pay rise that you get you’re spending that extra money to improve your life and to catch up to where you felt like you wanted to be and if you’re not careful you can stay in stage three forever i had a financially free business and i was still in stage three and so stage three is debt-free it’s like kind of a respite before okay let’s tackle this again let’s move to stage four let’s move towards financial freedom so stage four is the growth phase this is i guess similar to the progress phase where we had extra money while paying off debt but now instead of that money paying off debt we’re actually using that money to acquire assets that are going to grow in value and going to deliver us passive income now what those assets are are up to you you might invest in stocks you might invest in bonds you might invest in property or cryptocurrency or whatever it is you want to invest in but the idea here is that you’re still focused on increasing your income you still focus on reducing your expenses or keeping them low so you’ve got extra money left over to actually purchase investments to purchase assets and to move towards financial freedom these assets that you purchase are going to be your stepping stones towards financial freedom or they might even be the assets that deliver you financial freedom in stage five this is a really exciting stage to be in because each and every day or each and every pay cycle you’re moving closer towards your goal of financial freedom and things can also get easier as well with the value of compounding so as you’re in stage four as you start to acquire assets and those assets deliver you passive income okay now your income’s going up and if you don’t let your expenses creep up with your income your expenses stay the same then these assets that are generating passive income if you reinvest those you can get this compounding effect where things start to grow exponentially so stage four is really exciting you’re not financially free yet and it can be pretty frustrating to be in stage four because a journey from you know stage three where you’re debt-free and just kind of living even and then you decide okay i’m gonna move towards financial freedom i’m entering stage four then stage four can last for years decades even until you reach stage five but it’s a really exciting time it’s a really great time because you’re building up your assets it’s also a good time to build up an emergency fund in this time i totally undervalued an emergency fund and how valuable it is but it can be so valuable because if in stage four you’re still relying on the income that you generate through your job or through your business and if you were to lose your job then your investments don’t pay for your life yet and so you would start going backwards so having an emergency fund that you can live off for three to six months means that if you do lose your job or something happens you got three to six months to work things out or maybe you got three to six months of income plus the passive income from your assets which could help you out and that could even stretch out to 12 months so who knows but buying yourself time so that let’s say the stock market crashes we go into a recession like we have and you don’t have an emergency fund okay now you’re forced to sell your shares at the bottom of the market in order to fund your lifestyle you just made a huge loss on your investments and you know it’s just a bad situation to be in so building up an emergency fund is really important well i’m currently in stage two of progress and paid off all my debt i’m also kind of in stage four i’ve built up my emergency fund so i’ve actually got about a nine month emergency fund at the moment now mine’s a bit different i don’t have that cash set aside but i’ve got a business that generates passive income so i know that with the cash i have set aside plus the income that’s almost guaranteed not definitely but pretty sure i’ve got about nine months of emergency fund where if things don’t go well in my business if i’m not earning above like if i’m not earning the active income that i earn through my business i’ll be fine for nine months so i’m in progress stage but i’m also kind of in that growth phase i’ve got my emergency fund which i think is super important so yeah stage four is increasing your income still keeping your expenses low building up your assets building up your emergency fund and also spending a lot of this time to learn as much as you can about investing whether that be in the share market whether that be in property whatever you decide to invest in learning about it building up your skills in those areas so that you can accumulate wealth faster get better return on your investments and move into stage five quicker as well the last and final stage stage five is the freedom stage and this is where you are now round of applause financially free you have built up enough assets over that growth phase that those assets spin off enough passive income that it can completely support your lifestyle now for me i put stage 5 as not only does it support our lifestyle but there’s also extra money left over so we’ve got our assets we’ve got our passive income from our assets which pay for our lifestyle but there’s actually more passive income than our lifestyle demands which means that our assets are going to grow because we’ve got more income than expenses that extra income gets reinvested and we’re on this upward growth trajectory of financial freedom where we can’t even spend as much as we earn because we have the life that we want we’ve got enough income coming in and now we are just building wealth upon wealth and so that is the fifth stage of financial freedom now in that stage it’s really exciting now while i never technically reach stage five i guess i had a taste of it for a couple years because i didn’t have to work and so i know how exciting that stage is and i often say in interviews with ben that stage five or the financial freedom stage is where your journey really begins because that is the time where you can say okay i don’t have to work anymore like i actually don’t have to work anymore and so i can decide to do what i want this is the time where it’s like okay who the hell am i what actually makes me happy what am i passionate about at that stage maybe you’ve got there already and we definitely encourage people that while you’re on this journey towards financial freedom you also find yourself also find out what you’re passionate about so when you reach stage five nothing really changes because you’ve got a passionate life but for most people when they reach stage five it’s like okay who am i now at stage five you can choose to not work take time off just relax at home or maybe go traveling or you can take the time to continue to work in a job if you’re already passionate about it or to grow your wealth or to change careers at that time go back to school go back and study pursue a different career path where the money doesn’t matter for a couple years as you’re learning and building up that career path because you’re financially afraid anyway but something you think you’re passionate about and you can pursue it so well i didn’t reach stage five at a couple years and it was so invaluable to me because when i reach financial freedom it wasn’t a pot of gold at the end of the rainbow being financially free and having those choices doesn’t automatically make you happy so if you’re not happy on the way to financial freedom you’re not going to be happy when you get there and that’s what happened to me i reach financial freedom at 28 or pseudo financial freedom that was my goal for so long reach it thought i would be happy and it’s like oh this does not make me happy and now i don’t have a goal to pursue because i achieved my lifelong goal and it was like i entered this deep dark depression kind of like one of the worst oppressions of my life and it took me a good 18 months to really explore who am i what do i want to do what brings me happiness what make what am i passionate about and so that’s a really exciting phase to be in and ideally you’re doing that on the journey but yeah when you get there so exciting to explore that and then to find something okay i am passionate about this i’m going to pursue that maybe it’s travel and you just kind of live your life on your own terms or maybe it is a career or a business that you pursue for now i am super passionate about my business that having a taste of phase 5 allowed me to work out who am i who is ryan what do i value what makes me happy are you going to take those lessons i got to pull those lessons all the way back into the start of the journey of survival now in survival i didn’t get to do everything i wanted to do definitely some sacrifices to be made there but now that i’m in the progress stage and paying off my debt going to be debt free in six to 12 months and be in the growth phase i’ve already got that happiness that i would have had at stage five and so it was just so valuable to get there so do it along the way but yeah when you get to stage five the journey really starts so there you have the five stages of financial freedom these are great kind of signposts of okay where am i at on my journey what do i need to do next to move forward and to actually see okay here’s the next phase for me i’m super excited to reach that so i’m going to stay motivated and do what needs to be done so where are you at in your journey towards financial freedom let me know in the comments down below you stage one stage two stage three stage four are you already in stage five i would absolutely love to hear about it leave a comment down below otherwise go ahead and check out some older videos i did about you know stage one here’s how i got into debt why did i get into debt and here’s a year ago how i plan to pay off my debt which has been working for the last year so some cool older videos to check out there otherwise until next time stay positive