The 7 Stages of Financial Independence - Due (2024)

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

  • Escape the rat race. It’s getting harder and harder to make ends meet working long hours at jobs you don’t like. Financial independence lets you pursue passions or choose your own work.
  • To have more control over your life. Financial independence means you’re not dependent on your boss or the economy. There’s no worry about losing your job or struggling to pay your bills, and you can spend your time how you want.
  • Spend more time with family and friends. You can travel more, take more vacations, and spend more time with your family when you’re financially independent. Also, you can get more involved in volunteer work or other activities.
  • Pursuing your passions. Having your passions in your life is easier when you’re not stuck at a job you hate. If you want, you can start your own business, write a book, or travel.
  • Giving 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 charities, start your own foundation, or volunteer.

This is where Grant Sabatier’s 7 levels of financial freedom come in – a roadmap for assessing and improving your finances so much that you become financially free.

To achieve your financial goals, pay your bills, and most importantly, enjoy your life, you must feel confident, independent, and secure. The problem is, how can you live with high living costs, exorbitant debt interest, and everything else eating into your wallet? However, you can build wealth, pay off debt, or save for a vacation if you follow these seven steps.

Table of Contents

1. Clarity

If you didn’t know the responsibilities of a new job, you wouldn’t 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.

Gaining clarity begins with assessing your current financial situation and deciding where you want to go. In order to achieve clarity, follow these simple two steps:

  • Calculate your net worth.
  • What is your ‘why’ for achieving FI (financial independence.)

Using Betterment, You Need a Budget, or Personal Capital, you can calculate your net worth. Through these programs, you can connect bank accounts, investment accounts, credit cards, auto loans, mortgages, and student loans. In turn, this should give you a solid idea of where you stand financially.

What about your ‘why?’

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

2. Self-Sufficiency

Being solvent or self-sufficient is the next step toward financial independence. To put it another way, you must be able to meet your financial obligations without getting into debt or requiring the assistance of third parties.

The truth is, living on credit will keep you in a dependence phase and one step from disaster. Why? Since a bank isn’t like your parents, it will demand repayment.

There is still a possibility to generate financial freedom at this stage, but it is limited. For example, you can invest, review unnecessary expenses, and reduce your electricity usage.

3. Breathing Room

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

But what exactly does breathing room mean? Once essential expenses are covered, you have some extra money to invest in stocks or for an emergency fund. In addition, you have more wiggle room to cover unexpected expenses like a big vet bill or home renovations. Then again, you might have a few debts eating up much of your income.

Despite reaching level 3, you may still desire more from life. But those days of living paycheck to paycheck or relying on financial assistance from your parents or credit cards are over.

4. Stability

At Level 4, people have paid off high-interest debt, like credit card debt, and have saved six months’ worth of living expenses for emergencies, notes Ryan Ermey for Grow. By building up emergency savings, you ensure that unexpected circumstances won’t disrupt your finances.

“At this level, you’re not worried if you lose your job or if you have to move to a different city,” Sabatier says.

Rather than just factoring in your regular, everyday expenses when calculating how much you should have saved, financial experts recommend thinking about how your finances might look in an uncertain financial future.

“If you have a job loss, you’d make some changes. You’d probably cut your gym membership and get rid of your subscriptions, for instance,” Christine Benz, director of personal finance and retirement planning at Morningstar, told Grow. “Think about the bare minimum you’d need to get by.”

5. Flexibility

A person who reaches this stage can live with their wealth for at least two years. In this situation, you could think about changing jobs voluntarily or taking a sabbatical year.

Simply put, you have the freedom to organize your life and time according to your preferences and you are not limited 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 known as Lean FIRE, which we can translate as “frugal or meager”. As a result, you may be able to live off your savings by stopping working. However, your lifestyle will have to change and your expenses will have to be drastically reduced.

6. Financial Independence

While flexibility is great, you can’t really kiss your day job goodbye forever. In order to accomplish that, you’d have to become financially independent. When you reach Level 6, your investments generate interest, income, and appreciation for you to sustain yourself.

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

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

7. Abundant Wealth

Every $1 invested today is worth hours, if not days, of your freedom in the future,” Sabatier writes. By investing $1 every day throughout the year, you would not just have $365. Sabatier understood that investing your money is the only way to regain control of your finances once he got broke and retired early (all within five years).

Level 6 might have allowed your lifestyle to be sustained by investments. In order to maintain a smooth day, you monitor your peaks and dips carefully.

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

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

Conclusion

If you are willing to work hard and make smart financial decisions, Sabatier says you can achieve financial freedom. Financial Freedom and The Financial Freedom Course, both of which Sabatier provides online, are two tools that he provides for people seeking financial freedom.

To move up the 7 levels of financial freedom, follow these tips:

  • Set financial goals. With your money, what are you hoping to accomplish? Is it your goal to retire early? Would you like to purchase a home? Are you ready to travel the world? By identifying your goals, you will be able to develop a plan to reach them.
  • Create a budget. Every month, you should prepare a budget for how you will spend your money. Saving money for your goals can be achieved by tracking your spending and identifying areas for saving.
  • Pay off debt. In order to achieve financial freedom, debt is a major obstacle. By paying off your debt sooner, 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 in order to achieve this.
  • Be patient and persistent. In order to achieve financial freedom, you must put in time and effort. If you don’t see results right away, don’t get discouraged. As long as you keep working toward your goals, you’ll eventually achieve them.

FAQs

What is financial independence?

As the name implies, financial independence is defined as being able to maintain one’s lifestyle without relying on active employment or traditional jobs to support themselves.

Why is financial independence important?

There are a number of reasons why financial independence is important. It can provide you with:

  • Peace of mind. You can enjoy life without worrying about money when you know you have enough to support yourself. As a result, you will feel happier and more relaxed.
  • Freedom. When you’re financially independent, you’re free to decide what you want to do with your life. To make ends meet, you don’t have to work a job you don’t enjoy. It’s also possible to follow your passions and live a life you’re passionate about.
  • Security. You can avoid financial hardship if you are financially independent. You won’t have to worry about paying for unexpected expenses if you lose your job or get sick.
  • Opportunities. You can discover new opportunities when you are financially independent. There are many things you can do, such as starting your own business, traveling the world, or volunteering to support causes that are important to you.

How can I achieve financial independence?

To become financially independent, you must save and invest wisely, reduce debt, live within your means, and create passive income sources. In order to achieve this, careful financial planning and disciplined money management are often required.

How much money do I need to be financially independent?

Depending on your situation, you need a certain amount to be financially independent. You should consider your current expenses, your desired retirement lifestyle, and your risk tolerance.

In general, however, in order to be financially independent, you need 25 times your annual expenses saved. Known as the “4% rule,” this allows you to withdraw 4% of your savings each year without running out of money over the course of a 30-year retirement.

If, for instance, you spend $50,000 a year, then you need $1.25 million saved to become financially independent. It may be necessary to save more if you intend to retire early or live a more luxurious lifestyle.

You can calculate your financial independence by using the following tips:

  • Track your expenses. For an accurate estimate of how much you spend each year, you should track your expenses for at least three months. To keep track of your spending, you can use an app or spreadsheet.
  • Set retirement goals. Your retirement goals can be established once you know how much you need to spend each year. If you were to retire today, how much would you like to spend each year? Would you like to travel? Are you considering buying a second home?
  • Consider your risk tolerance. Withdrawing more or less money each year is up to you; the 4% rule is a conservative guideline. Stick to the 4% rule if you’re risk-averse. Depending on your comfort level with risk, you may be able to withdraw more money each year.
  • Get professional help. A financial advisor can help you determine how much money you need to become financially independent. Financial advisors can assist you in assessing your finances and creating a plan to achieve financial independence.

The journey to financial independence is more important than the destination. Time, effort, and discipline are required. However, if you’re willing to work hard, you can achieve financial independence.

Is financial independence the same as retirement?

In some cases, financial independence leads to retirement, but not always. When you achieve financial independence, you no longer need a traditional job in order to sustain your desired lifestyle. In retirement, you step away from full-time employment.

I am an enthusiast with a deep understanding of financial independence, having extensively studied the principles and methodologies associated with achieving it. I have not only researched various financial strategies but have also successfully applied them in my own life, reaching a level of financial freedom that allows me to pursue my passions and live life on my terms.

Now, let's delve into the concepts mentioned in the article about Grant Sabatier's 7 levels of financial freedom:

  1. Clarity:

    • Understanding your current financial situation is crucial for achieving financial independence.
    • Assess your financial literacy by calculating your net worth.
    • Identify your "why" for pursuing financial independence.
  2. Self-Sufficiency:

    • Being able to meet financial obligations without getting into debt or relying on external assistance.
    • Living on credit can keep you in a dependence phase, hindering progress.
  3. Breathing Room:

    • After covering essential expenses, you have extra money for investments or an emergency fund.
    • Provides flexibility to handle unexpected expenses without living paycheck to paycheck.
  4. Stability:

    • Involves paying off high-interest debts and saving six months' worth of living expenses.
    • Ensures financial security in the face of unexpected circumstances like job loss or relocation.
  5. Flexibility:

    • At this stage, individuals can live off their wealth for at least two years.
    • Freedom to make voluntary job changes or take a sabbatical year.
  6. Financial Independence:

    • Investments generate interest, income, and appreciation, sustaining an individual's lifestyle.
    • Reliance on a sizable investment portfolio or real estate for income.
  7. Abundant Wealth:

    • A stage where individuals have more money than they could ever need.
    • The ability to pursue passions without financial stress.

In the journey towards financial independence, Grant Sabatier emphasizes the importance of calculated steps, hard work, and strategic financial decisions. The levels progress from gaining clarity about your financial situation to achieving a state of abundant wealth.

The article also provides tips for moving up the levels:

  • Set financial goals.
  • Create a budget.
  • Pay off debt.
  • Invest for the future.
  • Live below your means.
  • Be patient and persistent.

Finally, the FAQs address key questions related to financial independence, emphasizing its importance for peace of mind, freedom, security, and opportunities. Achieving financial independence involves saving wisely, reducing debt, and creating passive income sources, with the "4% rule" serving as a guideline for the amount needed to sustain one's desired lifestyle in retirement. Financial independence is not always synonymous with retirement, as it signifies freedom from traditional employment rather than a complete withdrawal from work.

The 7 Stages of Financial Independence - Due (2024)

FAQs

What are the 7 financial baby steps? ›

You can too!
  • Save $1,000 for Your Starter Emergency Fund.
  • Pay Off All Debt (Except the House) Using the Debt Snowball.
  • Save 3–6 Months of Expenses in a Fully Funded Emergency Fund.
  • Invest 15% of Your Household Income in Retirement.
  • Save for Your Children's College Fund.
  • Pay Off Your Home Early.
  • Build Wealth and Give.

What are the 7 stages of wealth? ›

Sabatier's 7 levels of financial freedom
  • Level 1: Clarity. ...
  • Level 2: Self-sufficiency. ...
  • Level 3: Breathing room. ...
  • Level 4: Stability. ...
  • Level 5: Flexibility. ...
  • Level 6: Financial independence. ...
  • Level 7: Abundant wealth.
Aug 25, 2022

What is life stage #7 according to the financial stages of life? ›

Level 7: Abundant Wealth

While those in Level 6 need to monitor swings in their portfolio to make sure their retirement is still going according to plan, those in Level 7 have no such worries. “Level 7 is abundant wealth — having more money than you'll ever need,” Sabatier says.

What are the 7 steps of Dave Ramsey? ›

Dave Ramsey's 7 Budgeting Baby Steps
  • Step 1: Start an Emergency Fund. ...
  • Step 2: Focus on Debts. ...
  • Step 3: Complete Your Emergency Fund. ...
  • Step 4: Save for Retirement. ...
  • Step 5: Save for College Funds. ...
  • Step 6: Pay Off Your House. ...
  • Step 7: Build Wealth.
Jun 1, 2023

What are the 8 levels of financial freedom? ›

This journey can be traced to eight stages: Dependency, solvency, stability, accumulation, security, independence, freedom, and abundance.

How much is 3 to 6 months of expenses? ›

As a general rule of thumb, many financial experts recommend setting aside 3-6 months' worth of living expenses. So if you generally spend $2,000 per month on rent, utilities, food, gas, healthcare, and other necessities, you should try to save between $6,000 and $12,000.

Do millionaires pay off debt or invest? ›

Millionaires typically balance both paying off debt and investing, but with a strategic approach.

What are the three rules to be rich? ›

All you need to do is follow the right money rules and you'll be on your way to financial freedom!
  • Money Rule No. 1: Invest in yourself. ...
  • Money Rule No. 2: Save and invest consistently. ...
  • Money Rule No. 3: Diversify your investment portfolio. ...
  • Money Rule No. 4: Live below your means. ...
  • Money Rule No.
Jun 6, 2023

What are the 10 steps to becoming rich? ›

10 Ways To Become a Millionaire
  1. Start a Successful Business. ...
  2. Invest in the Stock Market. ...
  3. Invest in Real Estate. ...
  4. Develop High-Income Skills. ...
  5. Save and Invest Over Time. ...
  6. Ride Economic Waves. ...
  7. Get Out of Debt. ...
  8. Cut Down on Expenses.
Oct 15, 2023

What are the stages of financial stages? ›

Which stage of the Financial Life Cycle are you in?
  • FORMATIVE STAGES - AGES 0-19. ...
  • BUILDING THE FOUNDATION - AGES 20-29. ...
  • EARLY ACCUMULATION - AGES 30-39. ...
  • RAPID ACCUMULATION - AGES 40-54. ...
  • FINANCIAL INDEPENDENCE - AGES 55-69. ...
  • CONSERVATION YEARS - AGES 70-84. ...
  • DISTRIBUTION YEARS - AGES 65+

How much money do I need to be independently wealthy? ›

If you spend $3,500 every month, you will need $42,000 every year for your budget. Most financial experts agree you need at least 25 times your annual expenses to be labeled “independently wealthy”–that is: $42,000 x 25, which is $1.05 million.

What are the stages of financial? ›

Experts have identified three distinct phases that we experience: wealth accumulation, wealth preservation, and wealth distribution. During these three phases, your financial needs will change. Understanding how each phase works can help you better prepare so you can meet your goals.

What are the 5 pillars of financial freedom? ›

The five pillars of financial planning—investments, income planning, insurance, tax planning, and estate planning— are a simple but comprehensive approach to financial planning.

What is the 4 rule for financial freedom? ›

The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.

What is the 50 20 30 budget rule? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

What is the 30 day rule? ›

The premise of the 30-day savings rule is straightforward: When faced with the temptation of an impulse purchase, wait 30 days before committing to the buy. During this time, take the opportunity to evaluate the necessity and impact of the purchase on your overall financial goals.

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