7 Different Stages Of Financial Independence And How To Achieve Them

Luckily, different stages of financial independence can give you the power to take back your freedom bit by bit so that you can slowly but surely break free from the trap.

Imagine knowing that the next 500 Mondays will be just as dread worthy as the one coming next week. It makes you want to quit your job almost immediately. Unfortunately, you have a mortgage, bills to pay, food to put on the table, and a car on finance. Thus you are resigned to the feeling that you are trapped in your job, and the concept of financial independence or early retirement is nothing but a pipe dream.

Luckily, different stages of financial independence can give you the power to take back your freedom bit by bit so that you can slowly but surely break free from the trap. By identifying your actual financial wants and needs, you can calculate if you have reached stability, can take a lower-stress job with less salary, or can quit the rat race altogether. The way I see it, there are seven stages, and each has specific criteria before you can join the club.

Stage 1: Financially Dependent

Everybody starts at this stage.

It’s when you must have a job to earn money so that you can pay for your expenses in life. That, or there is another person in your life bringing in the money and graciously supporting your cost of living, i.e., your parents.No financial indpendence

Without your job or financier, your income will drop to zero, and you will be faced with the challenge of paying your bills and debts or putting food on the table. You know… the basics and necessities of life.

Maybe you can last a short while, like a couple of weeks, before you need to start making difficult decisions – but that dreaded day is coming if you have no income.

This is pretty much the worst stage of financial independence because you have zero independence. Losing your job would be near catastrophic, and if you wanted to leave a job you didn’t like, you’d need to think twice to ensure you have somewhere safe to land.

The sad thing is that too many people are in this stage. If you’re among them, then your only priority should be to start gaining some more financial independence by focusing on three key things:

  1. Setting up your budget
  2. Paying down your debt
  3. Putting some money aside

Stage 2: Financially Stable

At this stage, you’re still entirely dependent on a job, but you’re in a much better position to handle a situation where you might stop earning for a short period.

You would have a sensible budget that works for you and focuses most of your income on essential debt payments, basic living expenses, and savings.A person looking at a person in a kitchen

Ideally, you want no debts besides your mortgage or a student loan, depending on the interest rate. Everything else must already be eliminated, such as credit card bills, car finance, and other loans with exceptionally high interest rates.

Depending on your specific situation, you’ll have an emergency fund that covers your cost of living for at least three months, ideally 6, and possibly more. This will give you breathing room if your income suddenly stops.

Finally, you’ll also have some savings for your future years, ideally in tax-sheltered or efficient accounts such as your pension or an ISA (Roth IRA if you’re from the US).

Being financially stable may afford you a decent life – one that’s certainly better than someone else’s who must keep worrying about what will happen if they lose their job next week. But it’s tough to break free from the rat race if you stay at this stage.

Developing your financial independence further will require you to find ways to grow your wealth outside of your average day job. Among these would be:

  1. Earnings from investment growth and dividends
  2. Income from side-hustles
  3. Passive income or royalties from your products

Stage 3: Financially Growing

When you have money that is earning even more or from something you already did in the past, you’ll become a member of this stage. Your job may still be your primary source of income, but it isn’t the source of all your income.

Author’s note: This is assuming you meet the conditions for Stage 2. If you have investment income, but you’re in a lot of credit card debt, then you’re not financially growing… at least not to your maximum potential.

One of the easiest ways to get your money earning more money is by investing it into a low-cost index fund that tracks a globally diversified benchmark and grows around 7% each year on average.

Don’t underestimate this “low” rate of return because it’s money you didn’t need to work to earn and with the power of compounding, your money will grow exponentially over time.Selective focus photography of pile of decorative stones

Besides investing, you might have some skills to monetize and earn a little bit of extra money. This will mainly require you to work actively – which has a limit due to time available – but if you’re savvy you might be able to direct those extra earnings into building more passive income streams.

With a bit of focus and discipline, most people can quickly get to this stage, but be prepared to spend a large amount of your time here. At the start, it’s going to be slow, but as you build the momentum, you’ll eventually reach escape velocity, allowing you to leave the rat race.

The accurate indicator is that as each month passes, you will become more financially independent, meaning you are less and less shackled to your job.

The mission is to keep this going until you’ve finally transferred all of your dependence away from your job and can live off your existing wealth and other income sources to the end of your life.

But there’s more!

Stage 4: Coasting to Retirement

As you continue transitioning your dependence away from your job, you will reach a stage where you have enough of a nest egg that effectively means you never need to save again.

There’s just one caveat – the money is only enough to last your traditional retirement and still needs to grow until you reach the age of 67 (or whatever the retirement age for you will be).

Let’s say, for example, you’re 45 years old, and your retirement age is 67, and you’ve calculated that you need £20,000 each year to live while in retirement. Your savings will have 22 years to continue growing and it will hopefully reach an amount that can support your retirement lifestyle.

At a 4% safe withdrawal rate, that would mean you’d need to have £500,000 on your 67th birthday to have money that would, theoretically, last you for the remainder of your life.Woman meditating on floor with overlooking view of trees

Assuming your savings are invested into a low-cost index fund that returns 7% each year on average, you would need roughly £113,000 saved up at 45 to achieve this. Here’s the math:

Savings invested into a low-cost index fund at age 45: £113,000

Years to grow: 22 years

Average annual return: 7%

Savings after 22 years of growth: £500,635

£113,000 x (1.07^22)

This means that once you’ve hit that £113,000 milestone for your savings, you can effectively stop and spend every penny you earn from that moment on without too much concern about your future – since you’ve already set something up for yourself.

Thanks to this, you’ll get your first taste of absolute financial independence because you can choose to keep working your job as usual -keep going – or take a lower paid but lower-stress job to keep you going until you retire.

The choice would entirely be yours!

In my opinion, this is also the stage where you can taste “F**k you money.” While you’re still going to need to work to support your “present-day” living costs – you’re not fully financially independent just yet – you don’t need to be too concerned about your financial future.

A top tip is to build up your emergency fund to an amount that could give you considerable time to live without earning any more money.

Imagine knowing that your retirement years were secure and having the money in an emergency fund to support your living costs for the next 12 months. The moment you get sick of your job, you could say “F**k it,” and move on.

Stage 5: Financial Independence


Fan of 100 u. S. Dollar banknotesAt this stage, you can finally decide to stop working and live off your current wealth and investments for the rest of your life, regardless of your age, albeit that lifestyle might be pretty basic.

You would have needed to continue to “Financially Grow” to get here beyond the “Coasting to Retirement” stage. The more of your monthly income you can save and invest, the sooner you’ll get here (obviously).

Let’s say you average £1,500 monthly on general living costs covering housing, bills, groceries, new clothing (infrequently), and other basic activities. At a 3.5% safe withdrawal rate, that would mean you’d need to have roughly £515,000 in your current investments to support that cost of living. Here’s the math:

The annual cost of living: £18,000

(£1,500 x 12 months)

Investments balance: £515,000

Withdraw 3.5%: £18,025

(£515,000 ÷ 100) x 0.35

New Investments balance: £496,975

Grows by 7% on average each year: £531,763.25

£496,975 x 1.07

You might have noticed that in this example, I am using a 3.5% SWR instead of 4%, like in the earlier example. This is because I assume you need your money to last longer, potentially much longer.

While the safe withdrawal theory says your money will keep lasting your lifetime or even increase over time (as seen in the above example), you never know what will happen in the future regarding returns on investment. Therefore the lower rate accounts for this, and you can always increase it if things are playing out quite well.

Author’s note: I’ve assumed that all of your money comes from investments you’re drawing down from. However, other passive sources of income, such as rental income or income from royalties, would also count and could lower the amount you need to have invested.

Now you have “F**k you money” because you no longer need to work if you don’t want to.

Bored of your job or what you’re doing – just quit!

Don’t like your colleagues, your boss, or your customers? – stick it to them!

Got fired – who cares?

You’re financially independent by this point, and any other income you earn on top of what you already have or would’ve been earning – for example, continued growth in your investments – would be “excess” and not “required.” However, it would improve your quantity of life.

This is an important difference between this stage and the next – at this stage, you’re fully independent, but your income can only support the basics of life.

You can enjoy simple hobbies like road trips, hikes, outdoor activities, family days, homecooked foods, and the occasional activity. But you’d need to think twice or plan a little to partake in some things that could be slightly more costly. If that’s what you’re looking for, you’ll want to keep going until at least the next stage.

Stage 6: Financial Freedom

This is the stage that most people are probably wishing to get to whenever they’re thinking or talking about financial independence. It’s where you can afford the relatively average lifestyle you want, including some luxuries you feel are worth paying for.Silhouette photo of woman against during golden hour

You could easily spend money on at this stage: Regular holidays abroad, a decent car, weekly meals out in more excellent restaurants, new clothes more regularly (but not the designer stuff), paid clubs and hobbies for your children.

While the actual amount of money spent each year will vary from person to person – or family to family – a benchmark number for this stage of financial independence seems to be $40,000, probably based on a 4% safe withdrawal rate on a million.

But let’s say £40,000 since this comes from a UK-based writer.

At a £40,000 income, you would have £3,333.33 to spend each month, which is more than sufficient to support a family of 4 people in most areas of the UK, especially if you’re mortgage free.

You’ll be comfortable if you’re living a normal life. You mostly cook meals at home, have a gym membership, go on family holidays once a year, and buy new clothes every couple of months. You know, the same things that you would’ve done when you weren’t financially independent

The only real difference is that you’re not trapped in a day job, and you can do whatever you want with those hours you have back in your life.

As I said before, when most people think about financial independence, they’re talking about this stage. But there is one more stage for those who want to live in more luxury.

Stage 7: Financial Abundance

This stage is when you have much more money than you need and can live a life of luxury. In other blogs, forums, or financial independence communities, you might hear this being referred to as “Fat FIRE.”Business, rich, money

Holidays abroad happen multiple times a year; you have a nice car (better than a decent one), you mostly eat out at restaurants, you have a pretty big house, you can buy designer clothes and accessories, and you can send your children to private school.

How luxurious a life you lead will, of course, depend on your income level, but the benchmark appears to be at least £100,000 a year in spending money. At a 4% withdrawal rate, you need an invested net worth of £2.5 million.

Getting to this would require quite some effort and possibly not worth it for people focusing on early retirement.

Let’s say you have achieved stage 6, Financial Freedom, and have a net worth of £1 million. If you were to keep saving and investing £1,000 each month from that point, it would take you another 13 years to surpass £2.5 million, assuming a 7% average annual return.

If you were to save and invest £3,000 a month, it would take 11 years.

At £5,000 a month, it takes nine years.

Don’t forget you’re starting from £1 million, not £0.

A little bit of luxury in life isn’t bad, but if you need to keep working another decade before you can “afford it” then you might want to think about the true value of those things – don’t lose sight of your original goal!

Final Scribbles

When I first started on my journey towards financial independence, I found it daunting due to the massive number I would need to reach.

Even by investing my savings, I was looking at quite several years before retirement was a real prospect for me. Even though I would be retiring early, in my mind, it wasn’t early enough, and I found it highly demotivating.

But, by breaking the goal of financial independence into stages and realizing that I wanted the last but one stage of “financial freedom,” the mission became much more digestible.

Whenever I feel hopeless about the whole mission, I remind myself of these stages, and when I see where I’ve managed to get myself since starting in 2015, I remember that everything is going very well.

Once I remember that small fact, I become much more focused, motivated, and, more importantly, patient.

Hopefully, it can do the same for you, too – keep going!

Household bills and Finance in Marriage

With Internet security’s continued development and improvement, paying household bills is much easier than it was a few years ago.

Who takes care of the bill payment center at your house? Does it matter who the financial guru is at home? With Internet security’s continued development and improvement, paying household bills is much easier than it was a few years ago. With services such as online auto or automatic bill payment, electronic bill payment, and online payment reminders. Paying a bill online is a breeze.

The question remains: Who takes care of the household finances, the husband or the wife? The obvious answer to the question is whoever is more organized and better with money, but it goes beyond this simple answer. The household finances should be a shared responsibility between both husband and wife. It’s ok to have one person, usually the more organized person, take care of paying bills and budgeting, but both should be involved with the overall process.

Since 50% of all marriages end in divorce and the number one cause of divorce is money, this should be an important job in the family. If the husband takes care of most of the finances, the wife should always be well informed of how much money they have to spend on the family’s debt. A husband can’t expect a wife to control her spending if she doesn’t know they are broke. The same goes for the wife; if she takes care of most of the finances, she should often update the husband on the current financial situation. Men tend to enjoy “toys,” which usually carry a hefty price tag; they need to know if you can’t afford to purchase big-ticket items.

Taking care of household bills and personal finances is a significant burden and responsibility. The couple should share the workload. Keep each other well informed of your current financial situation, and always talk before making any significant purchases. Maybe you can be one of the 50% that stays together!

Sales Tax Nexus – Do Not Ignore

Are you suffering from Nexus Perplexus?

Definition: A state of confusion regarding the degree of business activity allowed before a state may exert its jurisdiction to impose a tax.

Cause: The many (and often conflicting) definitions of Nexus for state tax purposes from legislative, judicial, administrative, and secondary sources.


  • A nagging feeling that there are potential tax liabilities in other states.
  • A suspicion that state taxes may be lowered as a result of apportionment of business income to other states.
  • A cold sweat resulting from the receipt of a nexus questionnaire from a state where one is not currently filing.

Are your products and services taxable in your home state? How about other states where you sell? Did you know that if you charge a fee for electronically filing an income tax return in Texas that the fee is subject to sales tax?

Regardless of the sophistication of the sales tax reporting system, the system still needs to be told what is taxable and what is not.

As businesses expand into multiple states (“multi-state”), the issue arises of whether the “foreign” states can force your company to register and collect use tax. Your company’s presence in a different part of a country or state is referred to as a “nexus”.  This may be through your salespersons traveling to those states, or your hiring of jobbers, repairpersons, or independent contractors who perform installation or maintenance in a state where the company is not registered may create nexus in that state.

The level of activity performed has a direct bearing on whether another state has the ability to impose a tax.  The critical issue is to determine if the nexus exists.  A nexus review will carefully determine the facts of a taxpayer in light of not just state rules and regulations, but all applicable federal legislation, as well as relevant judicial and administrative law.  The end result is a clear picture of potential state tax exposure.

Sales Tax Nexus issues can create serious tax liabilities because companies miss the opportunity to collect tax from customers and eliminate their own burden. In addition, there is usually no statute of limitation because the company never filed a return in the state where it created nexus.

Have you received a nexus questionnaire lately? If not responded to correctly, a state may conclude that nexus exists and assess tax, penalty, and interest for all periods from the first-day nexus exists. There have been many cases where taxpayers have filed returns and paid tax to a state where nexus did not exists, based simply on a nexus questionnaire that was not properly responded to.

The sales tax nexus requirements are very different from income taxes. In simple words, activities that will not cause nexus (a filing requirement) for income taxes will cause nexus for sales tax filing purposes. Companies typically delegate the sales tax filing function to clerk level positions. Consequently, high turnover in these positions can create inconsistency in the sales/use tax reporting function.

It is often difficult to find the time and the resources to prepare a comprehensive state tax plan. Outsourcing the planning function to a state tax expert can be a cost-effective way to ensure that all state tax options are being considered. A state tax plan starts with a review of the taxpayer’s facts and circumstances, as well as future plans and expectations. The end result is a recommendation of the best planning technique(s) for lowering state tax liabilities and/or exposure.


16 Quick Tips to Help Keep Positive in a Down Economy

Times are tough for everyone. People are losing their jobs left and right and unemployment is at its highest level. Businesses both large and small are struggling to stay alive. When money gets tight it can be very hard to keep a positive attitude. Negativity leads to depression, and depression makes it very difficult to move forward in life.

I recently lost my full-time job after 17 years with the same company. It was due to the economy, our clients were cutting back on their marketing budgets and only doing the minimum required to continue sales. Almost all the creative work we were doing dried up and trying to find new clients became harder and harder. I saw the writing on the wall and had been preparing for the inevitable for a while. I updated my resume and portfolio, started networking more, and lined up some freelance customers.

After I lost my job family and friends were calling to make sure I was ok. I told them I was and not to worry. Honestly, I was ok, actually, I was better than ok, I felt great! I felt like a huge weight had been lifted from my shoulders and now my life was my own again, I could do with it as I want. It was an opportunity for a fresh start and as the saying goes, I took lemons and made lemonade!

For many, a life-altering change like losing their job or a major decrease in sales for their photography business would lead to depression. In this article, I’m going to share 16 quick tips that helped me keep a positive attitude to continue down the road of success.

  1. Keep busy – Sitting around staring out the window is the worst thing you can do. If nothing else do house chores. Just keep moving and keep busy.
  2. Work hard – It doesn’t matter what you’re doing, just work hard to do it well. At the end of the day, you’ll have a sense of accomplishment even if you only cleaned the bathroom.
  3. Work even if you’re working for less money – If you have nothing going on and a small project comes your way, take it. Even if you have to do it for less than your normal rate, at least you’ll be working. Give it 100% effort just as you would with any other project and smile while you’re doing it. You never know what work that customer may have for you down the road.
  4. Take better than usual care of yourself – Start eating healthier and start working out. Everyone complains they don’t have time to eat right and work out, well now you do. Physical well-being significantly impacts mental well-being and response to stress.
  5. Get out of the Sweats – Hanging out in your sweats all day although comfortable, is bad for self-esteem. Get up, get a shower, eat a healthy breakfast, and dress for success.
  6. Forget about “the good old days” – Nostalgia is self-destructive. Learn from the past and think about the future you want.
  7. Network like crazy – You have some time on your hands now, start calling all your past customers. Contact people, you’ve been meaning to get in touch with. You need to stay in front of and on the minds of everyone.
  8. Take frequent breaks – You need to break up the routine. Take breaks for the usual stuff and maybe add in a few new ones.
  9. Simplify your life – Cut out unneeded expenses and distance yourself from people or activities that negatively affect you and cause stress.
  10. Surround yourself with positive people – Stay away from the doom and gloomers and find positive and successful people to spend time with, those traits have a tendency to rub off on you.
  11. Keep learning – Photography is always changing. Take this time to learn new photographic techniques, brush up on your software or learn more about a different part of our industry (HDR, DSLR video, etc.)
  12. Shoot for fun – We spend so much time shooting for others we sometimes lose sight of what makes photography fun and why we started shooting in the first place.
  13. Become a mentor – Helping other photographers learn the tricks of the trade is very rewarding for both parties.
  14. Celebrate your successes – Even small accomplishments deserve to be celebrated.
  15. Shrug off the losses – Don’t dwell on the negatives, stuff happens! Learn from it and move on.
  16. Be thoughtful – Think about others more often.

Next Steps…

Life is tough and sometimes bad things happen to good people. What separates us is how we deal with change and move forward. Being positive reduces stress, reduced stress will increase self-esteem and when you feel good about yourself, there’s nothing you can’t accomplish.

I’d love to hear how your lemonade turned out, please feel free to share your stories in the comments below.