The 6 Stages of Financial Freedom – Where you at!?

Greetings, friends!  How was your weekend? Got any fun stories to share?

My wife and I have been spending weekends at the beach. We’re trying to give our dog some “swim therapy,” which the vet recommended to help regain strength in his back legs. Meanwhile, I’m also trying something called “surf therapy,” which helps me maintain my overly happy disposition in life!

Anyway, in today’s post I’m going to lay out the 6 stages of financial freedom. I first came across these stages on the blog Get Rich Slowly, written by the legendary JD Roth.

The 6 Stages of Financial Freedom

Years ago I used to think financial independence was a single milestone … The exact point where you transitioned from “working for money” —> “money working for you.” It’s a common misconception when people discover the FIRE movement — only focussing on the early retirement finish line.

But after reading JD’s post (and following several other personal finance OG blogs), I started to think differently. I realized that financial independence is a journey, not an “all or nothing” situation. There’s a messy middle that everyone goes through before actually reaching FI.

Better yet, I learned that as people progress through the journey, more and more freedoms become available. Every person gets to decide how fast or slow they want to move through these stages, based on how happy they are with the freedoms they have.

Here are the 6 (really 7) stages of financial freedom:

Stage 0: Dependence

Everyone is born here. As a baby you are 100% dependent on your parents or other adults to survive. Growing up (even if you have some income) you still depend on others for financial support and covering most of your cost of living.

There’s not much freedom in this phase. Since some (or all) of your existence is supported by others, you don’t have full control of your life. 

The path to financial freedom begins when your personal income can fully cover your personal expenses.

Stage 1: Solvency

The first level of independence starts when you can fully meet your financial obligations without needing help from others. Even if you have large debts or a negative net worth, you are solvent if you can cover your payments and full cost of living.

There is very limited freedom in this phase. You are paying your own way and making your own life decisions, but if you are spending everything you earn, it feels like a treadmill. 

Progress is made once you are earning more than you spend.

Stage 2: Stability

In this phase, you’ve built up a decent cash cushion for emergencies and have no consumer debt. You are earning more than your basic cost of living and have wiggle room in your budget.

Stability gives you a bit more freedom. Since you have an emergency fund, you’re able to take small risks and use your cash buffer as a safety net. And since you’re earning more than you spend, you have the freedom to choose what to do with excess income.

**Many people stop and stay in this phase, forever. They use their excess income to upgrade their lifestyle, and repeat each time their income grows. This also feels like a treadmill (a faster one with each upgrade).**

To progress past this phase, you need to save and invest your excess income. This is the foundation of building wealth.

Stage 3: Agency

In this stage, you’ve built up a substantial savings pile and investment portfolio. Not only is your excess income being saved and invested, but your assets are growing and contributing to your net worth, too.

There’s a TON of freedom and flexibility in this phase. As your investment income grows, the need for personal income shrinks. This gives you more options to work and live as you please, designing your own life.

It’s important to note that “work” is still needed in this phase. You can’t fully quit working forever until you’re in the next phase, when your investments are producing enough income to cover your expenses.

Stage 4: Security

This is the first phase of financial independence. It’s when your investment income can cover your basic living expenses (but not a whole lot more). “Lean FI” is what some people call this point.

You’ve reached financial freedom! And you no longer have to work to cover your basic living necessities. However, there’s no room for extra discretionary spending or personal luxuries.

When people reach financial independence (especially early in life), they typically want to travel, pursue new hobbies, share their wealth, give to charity, and treat themselves! To be able to do all this, you will want some additional wiggle room in your spending projections.

Stage 5: Independence

This stage is what most of us are all striving for. You reach true financial independence when your investment income covers your living necessities, as well as most personal luxuries. There is a cushion built into your annual budget for added flexibility.

You have reached “enough,” and the freedom here lasts forever.

**It’s not uncommon for people to still have lingering “worry” feelings about money, even after FI is achieved. Sequence of returns risk, caring for aging parents, or massive unexpected emergencies can be scary to think about. Many people who have achieved FI still continue to work and save, which pushes them into the next phase.**

Stage 6: Abundance 

At this point, your investment portfolio is making more money than you need in life. The gap between what you have and what you need will continue to grow and grow naturally over time.

This stage gives you ultimate freedom. You can make all decisions in life based on happiness, not dollars. When you’re in abundance, you’re in a great position to share, give back, help out friends and family, or set up long-lasting generational wealth.

Financial Freedom Is Not a Race. Take Advantage of Your Freedoms in the Here and Now!

Like most people, I’m ultimately striving for stages 5 and 6, independence and abundance.

But, I’m not in a rush to get there. Here’s why…

If you asked me why I’m working toward financial independence in the first place, I’d list some of these things below. This is kind of my wish list for when I reach FI…

  • To work if I want, where I want, on my own schedule
  • To treat myself and wife to big-ticket items, if and when we want to
  • To be able to travel, move, or live wherever we want in the world
  • To surf anytime I want
  • To dress however I want, all day every day
  • To pursue any hobby I want to try
  • To be in a position to support friends and family if they need help
  • To give generously and spend time volunteering
  • To be at home and support my future kids (if we decide to have kids)
  • To coach, inspire, or otherwise provide value to strangers out there
  • To build generational wealth for my family

Being in stage 6 (abundance) would give me everything on this list. It’s worth shooting for and that’s eventually where I’ll end up one day.

Currently I’m in stage 3 (agency), a long way from stage 6. BUT, I’m beginning to realize that most of my wish list is already available to me in stage 3. I already have the freedom and flexibility to do most of these things.

If I wanted to, I could get a high paying job, a second job, and hustle my ass off on the weekends to speed up my path to stage 6. This would give me access to my entire wish list, as early as possible. But, in order to do this, I’d have to give up some of the freedoms I’m already enjoying today in stage 3 (work freedom, dress, surf, travel, hobbies).

As of right now, the sacrifice isn’t worth it – I’d rather stay in stage 3 and progress at a slower pace, knowing that I’ll inevitably be at stage 6 one day.

I realize this prolongs my eventual goal, but it allows me to enjoy the overall journey more – starting today.

This is my thinking right now. I know many others who feel the opposite and are trying to speed up their journey. Some people are very eager to reach financial independence, quit working and unlock all the freedoms they’ve earned.

Different speeds, same end goal.


What phase are you in? How are you enjoying what you have currently?

Have a great week!
– Joel

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  1. SL June 7, 2021 at 9:52 AM

    Stage 3, pursuing stage 4 as best I can. Whenever I hit that pay ‘upgrade’ all the extra gets taken out before I see it and is put into savings from which I handle new moneys into investment.

    1. Joel June 7, 2021 at 1:13 PM

      Love it! It’s nice moving money into savings before it comes to your regular accounts. Easy way to avoid lifestyle creep!

  2. Chadnudj June 7, 2021 at 11:14 AM

    I’m in 2 or 3, but I imagine most would say 3 and that I’m probably being hard on myself suggesting I’m lower.

    And I’m in somewhat the same boat — trying to move faster towards Abundance, but making some choices now for our family that will allow us to enjoy this time (when our kids are younger) even if it extends out the date at which we reach abundance. My wife is planning on leaving a job that’s been good to us but has lately started to make her miserable and be a stay-at-home mom for awhile. That’s going to slow down our path drastically (although hopefully not too drastically), but it’s the right decision for our happiness and one that reaching this stage 2-3 has afforded us the opportunity to make.

    1. Joel June 7, 2021 at 1:15 PM

      You’ve earned the freedom to choose Happiness > Money. Congrats and good luck with your wife leaving her job!

  3. Ade June 7, 2021 at 12:44 PM

    This would be really great with a quiz

    1. Joel June 7, 2021 at 1:19 PM

      Great idea. I’ve seen several versions out there… One of my favs is this one by Mel at Partners in FIRE… I just like how the questions aren’t specifically revolving around money.

      I just took it again. Surprise surprise, I got Coast FIRE as my answer. :)

  4. David @ Filled With Money June 7, 2021 at 7:26 PM

    This is a great post! I like the acknowledgement of the different milestone in the huge journey known as financial independence.

    I think it would have been better if there was a general numbers guideline between each of the milestones as I’ve been wondering if I’m either too impatient in the financial independence journey or not. Good post regardless.

    Independence is where happiness lies.

    1. Joel June 7, 2021 at 9:44 PM

      I purposely left money milestones out because everyone has different dollar figures. I also like to think about the freedoms we are achieving when we progress on the journey. Having a $2M net worth might seem like a killer milestone to some people, but if it comes with zero freedom and flexibility, it’s actually not really what we’re shooting for.

      I also like the money milestones (for celebrating new achievements!) but maybe that’ll be a new post idea :)

  5. Dividend Power June 8, 2021 at 8:43 AM

    I think I am at No. 4 since we still have a mortgage.

    1. Joel June 8, 2021 at 11:20 AM

      If your mortgage isn’t impacting your freedom, then I don’t really see a difference. Congrats on FI!!!

  6. J June 8, 2021 at 4:17 PM

    I would say I’m on Stage 3 knocking on the door of Stage 4. Hopefully, in one more year I’ll be officially at Lean FI using the 4% Rule of Thumb. That being said, I think I’m ultimately more comfortable looking at the 3.25% rate that Big ERN suggests when it comes to deciding when I might be comfortable calling myself full FI. I’m also debating upping the desired annual spend part of the calculation. Here’s to hoping compounding over time is on my side!

    1. Joel June 8, 2021 at 6:31 PM

      Cheers to Big ERN! I was lucky enough to meet him once and hear him speak at FinCon. He changed the way I think about SWRs too, particularly for early retirees. Congrats on Lean FI next year!!


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