Broker Check

Financial Independence

Seven Stages of Financial Independence

Financial advising can be a lot like helping someone find directions on a map.  The clients we serve count on us to show them where they are and how to get where they want to go.  Sometimes there is difficulty in clarifying the process and defining the choices that must be considered along the way. We are all in various financial stages of our lives. Here are seven stages along the path towards financial independence:

Stage 1 – Financial Dependence

Everyone begins in this stage.  From the moment you’re born, you are completely dependent upon others to sustain you.  For most people, this remains true through the end of their adolescence.  And unfortunately, some adults remain in this stage.  Sometimes this is through no fault of their own (perhaps there is a disability), and sometimes it’s a “failure to launch” type of situation with adult children.  Financial dependence means that you cannot live on your own without the financial assistance of others.

Stage 2 – Financial Solvency

This next stage can best be described as the ability to sustain yourself financially.  You are able to pay for your own living expenses, are current with any debt payments, but you don’t really have much margin for financial strain or emergencies.  Many people spend the vast majority of their lives in this stage.  Often when someone says they’re “living paycheck to paycheck”, they are still in Stage 2.

Stage 3 – Financial Stability

If you are able to cover all of your living expenses and your current debt obligations, you are thought to be “current”.  Additionally, if you have savings that could allow you to pay for an emergency without having to borrow money, then you are considered to be in Stage 3.  You are “financially stable” and this is valuable! If you are fortunate enough that no emergencies arrive and you are disciplined in your spending you may eventually find yourself with a surplus in savings.

Stage 4 – Debt Freedom

This stage might come before Stage 3 depending on the financial plan you’re means that you have eliminated all non-mortgage debt.  This is the first stage where you could honestly consider yourself financially independent.  All debt, regardless of the collateral, commits you to some actions in the future; so if you want financial freedom, being free from debt must be achieved.  Having significant debts can also prevent you from making major decisions in life.  For instance, you may have to continue working a job in a location you don’t enjoy just to pay for the debts you’ve accumulated.  Being debt-free could allow you to move or change careers.  If needed, perhaps you could stop working for a brief time to care for a loved one.  Being debt free also allows you to use more of your income to invest for the future.

Stage 5 – Financial Security

Stage 5 is characterized by investing some amount of your discretionary savings.  Over time and through implementing a sound investment plan, the return on your investments is enough to cover your most basic living needs. Here you are considered financially secure.  Being financially secure means if you were to lose your job or become disabled, you could still meet your basic living expenses. You wouldn’t be forced to liquidate possessions or “downsize” your home to continue in your basic lifestyle.  You may not be able to afford luxuries or extravagances, but you can certainly make it.

Stage 6 – Financial Independence

Stage 6 is almost everyone’s desired destination.  Financial independence means you can maintain your current lifestyle (both needs and wants)  based on the income and growth of your investment portfolio.  Everyone hopes to reach this stage by the time they plan to retire but not everyone actually accomplishes it.  Some arrive at this stage even before they have any desire to stop working.  Financial independence means you could stop working and completely maintain your desired lifestyle using the assets you’ve accumulated.

Stage 7 – Financial Abundance

Who doesn’t dream of this stage? This is “generational wealth”.  It is described as having significantly more assets than you really need or plan to use in your life.  You have many more luxurious and extravagant options at your disposal.  Not only can you pay your bills and live your regular daily routines with the income you generate from your investments, but you can fund even more.  Financial abundance allows you to live a life focused on giving, philanthropy, and leaving a legacy for future generations.

These are the seven stages of financial independence.  We would welcome the chance to help you reach each stage, no matter where you are on the journey.

Will Sanders

Financial Advisor


Will joined H.I.S. in April of 2022 after beginning his career at Edward Jones. Prior to working in the securities industry, Will graduated from Ouachita Baptist University in 2019. At Quachita Baptist will received his BA in Finance...

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