7 Simple Steps to Financial Freedom


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

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