7 stages of financial freedom: How to achieve them and why you’ll be less stressed
Self-made millionaire and author of Financial Freedom Grant Sabatier knows what it takes to achieve financial freedom. In just five years, the once-struggling college grad living with his parents was able to increase his net worth to more than $1 million.
During his financial journey, Sabatier identified seven stages of financial freedom. As people reach each stage or level, their stress about money will decrease and they will have more options.
The first level Sabatier identifies is clarity. “You have to figure out where you are before you get where you want to be,” he said. Ignoring your credit card statements or letting your bills pile up will only make things more stressful.
Financial experts recommend creating a budget, but just the idea of creating a budget can turn people off to the idea. Start simple, track your expenses and income and figure out where you can cut back – unused subscriptions, dining out or online shopping.
Once you’re clear on what you owe and where you would like to be its time to move up to Level 2, self-sufficiency.
A part any sort of freedom is self-sufficiency, being able to provide for yourself. In order to be self-sufficient, you’ll have to earn enough so that you can live on your own, pay for essentials like food and transportation. You may have to temper your initial expectations — but this is, after all, only Level 2.
Level 3 is what Sabatier calls “breathing room.” After you have saved up six months’ worth of living expenses, you finally have enough room to breathe, especially in an emergency. According to Bankrate’s 2018 financial security index survey, only 39% of respondents would be able to cover an unexpected $1,000 emergency.
Now that you have saved up enough to cover an emergency, your next level is saving more money. Level 4 is stability: saving up a year’s worth of expenses. With this money saved, you should feel rooted.
Level 5 is the last level of saving and it offers flexibility. While saving up a year’s worth of expenses will protect you from any unseen emergencies, saving up two years’ worth will give you the flexibility to live how you want. Sabatier recommends that, once you reach this level of financial success, you reassess your priorities and give yourself a pat on the back.
The sixth level, financial independence, is when you have enough money to last you for the rest of your life. According to Sabatier, there are two straightforward ways to achieve financial independence. “No. 1, you can save over a million dollars, and then live off the interest of your investment forever,” he said. “Or, No. 2, you can invest in income-producing assets, things like real estate, that pay a consistent amount of money.”
The seventh and last level of financial independence is abundant wealth. Abundant wealth is when you have more money than you will ever need and can start to think about what legacy you want to leave behind. Whether it through charitable donations or college savings for children, you can use your wealth to set a strong foundation for future generations.
Working your way up through the levels of financial freedom will not happen overnight. But, for each level you achieve, your financial stress should shrink and your options — where your work, where you live, what you drive — will increase.
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