6 stages of financial independence

If you now have an average income, this does not mean at all that you will never become independent. Just don't think of financial freedom as an all-or-nothing attitude. Move towards it gradually, moving from one stage to another. Remember that every step, even the smallest, brings you closer to calmness and new opportunities.

0. Dependency

At this stage, you are completely dependent on others. We all start with it, because in childhood we cannot provide for ourselves on our own. Someone stays on it all the time of study, and someone longer.

However, you are in a dependent position not only when you are supported by your parents or partner, but also when you spend more than you earn. For example, you use or borrow from friends to make ends meet.

Either way, you rely on someone or something to cover your expenses.

If you are stuck at this stage due to debt, try to negotiate with your lenders about a lower interest rate or other change in terms to make life easier.

1. Solvency

This is the first step in the survival phase. You have achieved it if you are able to pay all the bills and do not rely on anyone's help. You may be in debt (for example, on a credit card), but you make installments every month and do not add new debts. Someone reaches this stage while still studying, and some never at all.

To move on, try to pay off high interest loans first. Consider how you can increase your income or lower your expenses to pay off those debts faster.

2. Stability

At this stage, you regularly fulfill your financial obligations, have already paid off part of your debts and have learned how to reduce spending. It is now important to create a financial cushion. She will save you from new loans in case of unforeseen expenses. Start saving at least 5% of your income every month, and over time, increase the amount to 10%.

Make this process automatic so you don't be tempted to spend your money on something else.

At the stage of stability, you may still have a large debt, for example, a mortgage, but you have freed yourself from consumer loans, and you do not need to take a new one.

3. Self-reliance

Now you are in control of your expenses and do not live paycheck to paycheck. You have also put some money aside in the reserve fund. This way you don't depend so much on your work. If you lose your current place or want to leave yourself, you can live peacefully for a while.

After this stage, you will move from survival to prosperity. Money will not become a safety net, but a tool with which you can build the life you want for yourself and your family. The next step for this is to invest the funds that you are saving.

4. Confidence

You are at the stage where the investment income covers basic needs (housing, utilities, food, travel expenses). Nevertheless, you cannot yet work at all and live on passive income.

It will be enough for the most necessary needs, but not for a comfortable life.

To move on, keep increasing your income and investing money.

5. Independence

Gradually, the return on investment rises to the point that can support your current standard of living for the rest of your days. Now you can afford to leave your main job and not worry about anything. You have enough funds to travel, be creative or whatever you have dreamed of for a long time.

For many people, this stage is the ultimate goal. It is impossible to check whether you have achieved it or not, focusing on a specific amount, because everyone has a different lifestyle and different needs.

6. Abundance

In the last stage, passive income provides you with a vengeance. Not only do you have enough funds, there are even more of them than you yourself and your family need. At this stage, many decide to build their own business or do charity work.

Now is the time to think about the skillful management of not only finances, but also assets.

Decide how you will control the sources of passive income, how to distribute the profits from various investments, to whom of your loved ones they will subsequently pass. And remember to be smart about your money so you don't go back a few stages.