Hey hey guys it's Joseph and Tasha with one big happy today we're going to talk
about the seven stages of financial independence and how to go from living
with your parents in their basement to owning your own house in the Hamptons
and never having to work another day in your life if you don't want to we first
heard about these seven stages of financial independence while listening
to a podcast by Paula Pant from Afford Anything we'll drop a link in the
description box to her podcast and if you guys aren't listening to it you
totally should and it was an episode where she had Joshua Sheets who has a
podcast and a website of his own Radical Personal Finance and he was talking
about these seven stages and it just made perfect sense to us so we wanted to
make sure we shared them with you guys and these are really important because
it's very difficult to kind of see the bigger picture from starting wherever
you are to really getting to that ultimate goal of being independent and
having the things that that you want and that are important to you and so this
breaks it up gives you these intermediary goals to see where you're
going and how are you doing now yeah alright so let's look at the first stage
stage 0 financial dependence that is where we all start out usually and with
living with our parents as a kid you have no wealth of your own I would say
you that's 99.9% for everybody unless you just started with the trust fund and
you're kind of different yeah so I was in this stage up until I was 18 years
old then I joined the military and I became totally financially independent
at that point so I stopped I left that thinking I was 18 I stayed dependent
longer because it's nice it can be nice yeah
There are pros and cons right. But I had help during undergrad and my parents
bought me a car when I graduated high school that it's still going my brother
has it now and and so I stayed on until I graduated
and I kind of transitioned during college I got a job I was making about
the same as what Tasha was making the military which is sad our military so
underpaid but but that's an extra four years for me Stage one is financial
solvency this is where you are supporting yourself now for me I started
doing that right after I graduated from college then I'm moving on the law
school and my parents said yeah this is this is it you're done first degree we
help and then you're good like I said for me that started when I was 18
because I moved out of my parents house went off to the Marine Corps hundreds of
miles away and that was it I was completely supporting myself my parents
weren't sending me money I wasn't on their insurance anything like that for a
lot of people I feel like this is the kind of sink or swim moment because they
don't always have I think we all could have better financial guidance when we
were younger and so you just kind of have to hit the water and try to survive
hopefully you have have some basic knowledge of how things work yeah I had
no idea my parents didn't teach me like anything when it came to finances not
how to open a bank account not how to write a check like absolutely nothing so
yeah it was a big a big change for me it's probably always a big change okay
Stage two is financial stability this is where you move from just basically being
able to keep a roof over your head to starting to actually be responsible with
your money so you start having a budget at this point really starting to figure
out how everything works how you want to live your life and manage your money
hopefully and this is also where you finally start saving some money and and
that's why it's the the point where you start being responsible with your money
because you're not just spending all of it you're saving some of it for a rainy
day Stage three is debt freedom so this
isn't from all debt but toxic debt so if you during your sink or swim
moment got some credit card debt which most of us do with high interest rates yeah that's all
too all too often this is where you get rid of that you you get on a path and
pay off the bad debt and so like for us so it might not be all debt we might
still have mortgage we might have some low interest debt that will take longer
but any of that high stuff credit cards get that taken care of stage four is
financial security this is where your investment income any passive income a
pension Social Security is going to cover your bare bones expenses so that's
your house your food healthcare any immediate costs and little miscellaneous
things but not bigger things like travel or purchasing a brand-new car just the
bare minimum so and you can consider it financial security because basically as
you can support yourself indefinitely on a bare-bones budget so you're you're
really financially stable you're able to weather a lot of financial changes and a
good rule of thumb for financial stability is you need about a million
dollars for every $40,000 worth of living expenses so that's withdrawing
at what's considered the safe withdrawal rate which is four percent four
percent so that's forty thousand Stage five is financial independence
you've hit this stage when you have enough passive income to cover your bare
bones living expenses actually your current lifestyle the lifestyle that you want to
keep so your bare bones living expenses plus that nice little cushion to do the
fun stuff right so I would say that that this for most people is going to be
substantially higher than financial security so if you've seen our budget we
spend about sixty seven thousand dollars a year excluding childcare and if you
add in another ten thousand dollars for travel because that would be our ideal
lifestyle then we're looking at around eighty thousand dollars a year so we
need to save up two million dollars to reach this stage but of course your
numbers will be different right especially if you live in cheaper areas
very cheap areas and that's actually including keeping our current house so
if we move to a less expensive area and had a much lower mortgage then we
wouldn't need nearly as much money which is definitely what we would do or we
travel more ooh travel more yes and speaking of travel more stay tuned for our Singapore travel
series it is about to start we're gonna be doing weekly videos
talking about the the preparations that we're making and just kind of showcasing
some of the different hotels we considered and all that fun stuff oh
we're going over to it yeah all the things that we considered yeah it was a
lot traveling with the family especially with a small child lots of stuff stay tuned
stage six is financial freedom this is where you have enough money from all
those sources that we talked about and probably working at this point to nail
those big dreams so the only way to get to this stage after going through
financial security and then financial independence is now you're probably
gonna have to keep working yeah you have to that's the only way to keep advancing
up the financial independence ladder through these seven stages because if
you just stop at financial stability well your wealth is gonna is not going
to increase if you stop working if you don't have any income income extra
income coming in stage seven the final stage is financial abundance and
that's where you have more money than you can spend within reason cause I think
it's really possible to spend all your money no matter how much money you have
that's true don't be buying islands but this is the the point in your life where
you're able to I would say I consider it to be being able to pass on
substantial wealth to your to your dependents to donate to meaningful
substantial sums to meaningful causes basically you'll have a substantial
estate that outlives you and can continue to work towards the goals that
you had after you're gone this is something that were
but really looking forward to I think so now you don't really get to see all of
the fun because there's a point where well your estate will continue and you
won't but you can start by giving those donations and I think yeah we definitely
like I want to be able to donate a substantial sum to Yale because without
their generous financial aid and loan repayment programs I definitely would
not have been able to go to that law school so I think it's important for me
to give back too and I'll be doing similar things with different causes and
in my schools as well just amassing generational wealth I mean it's just a
wonderful goal to have everybody should be able to do that it is not something
that should be reserved for people that are already mega-wealthy we should all
be able to strive for this and have it be an achievable goal and reasonable so
those are the stages um we're gonna be talking a lot more about how you move
from one to the other but I think it's really important to notice that they
kind of overlap so right now we are in the working towards completing the debt
freedom stage we'll be in it for a while but we're also working towards the
financial stability stage and we might actually hit both of those right around
the same time so you know it's not necessarily that it's just you can only
focus on one and then the other then the other but it's like a progression as
you move through your life so we hope that you've enjoyed this and can focus
on those steps in your own life and all join us in financial abundance years and
years from now alright guys bye see you next time