7 Stages of Financial Freedom #Finance

ralph waldo emerson famously said life is a journey not a destination i believe it is the same when it comes to financial freedom we all like to think that financial freedom is a final destination that we will one day reach and once we reach it there’ll be unicorns and fireworks and

all our problems will just vanish however if we were to think this way we would be in a world of disappointment hi if you’re new to the channel my name is tay from financial tortoise a channel dedicated to helping the standard generation master money and achieve financial security and before

i go on if you have yet to download your free copy of the standard generation’s guide to financial security 10 steps to securing your family’s financial future please go to my website at financialtortoise.com and do so i send out weekly newsletters with other great tips on mastering

your money and i wouldn’t want you to miss them financial freedom like life isn’t a destination it is a journey and like a good journey each stage has its own set of adventures and lessons we can learn from so in this CashNews.co i want to walk you through what i believe are the seven

stages of financial freedom each stage has its own unique value and its different level of freedom it can provide i’ll be curious to know at what stage you are currently in and what you’re learning from it please let me know in the comments below or shoot me an email because i love to

hear more about it and if you can do me a huge favor and hit the like button as well i would much appreciate it it really helps with the youtube algorithm and allows CashNews.cos like this to be shared with more people stage one of financial freedom is to have one thousand dollars in your bank

account as an emergency fund if this sounds familiar to you i borrowed it from dave ramsey and his baby steps dave ramsey was the first personal Finance expert that had a

real impact on my wife and i when we first got married and we were trying to figure out how to pay down our 105 000 student Debt following his baby steps really helped us feel like we were making progress in our personal

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finances for many of you you likely have already reached this stage so congratulations having 1 000 in cash may not seem like much and definitely far from complete financial freedom but it is an important step to

starting your journey some studies show that more than half of americans can’t cover a 1 000 emergency expense with their Savings by having a thousand dollar liquid cash in your checking account you’re doing better than half of people out there so if you’ve

already achieved stage one give yourself a pat on the back and let’s move on to stage two stage two of financial freedom is to pay off all Debt except a mortgage this includes Debt like Credit card Debt student

Loans and car Loans the pursuit of financial freedom requires that you aren’t being weighed down by Debt if you have accepted Debt as a normal way of life you have to start thinking differently Debt

shouldn’t be normal especially for those of us pursuing financial freedom when we normalize Debt we normalize lifestyle Inflation we normalize Debt payment as a regular part of life and worst of all we normalize a background hum of financial

stress if you have Debt right now vow to recognize it as something that needs to be rid of not to be accepted as normal way of life my wife and i use what dave ramsey calls the Debt snowball method to pay down our student Loans you essentially list

out all your Debts in order of balance from smallest to the largest regardless of the interest rate then you squeeze out as much as possible from your budget and tackle the smallest one until it’s gone once it’s gone you focus your effort on the next one second smallest

Debt until that one is gone as well you keep going until all your Debt is gone by tackling from smallest to largest you gain momentum in your Debt pay down journey like a snowball stage three is to have between three to six months of expenses saved

in your checking account as an emergency fund the specific months depends on your personal preference and the stability of your job my wife and i prefer the six months given we’re more risk averse when it comes to preparing for unexpected events but the key is to have enough cash in your

checking account to handle emergencies and life events life events like job transitions or emergencies like your water boiler breaking down because you have cash you don’t need to borrow money you have already paid off all your Debt in stage three so you don’t want to

get yourself into a position where you might need to be burdened by Debt again stage three really starts to give you both mental and emotional breathing room when it comes to your text-decoration: none;">Finances you can start planning for the long-term future you can strategize your career pathway you’re no longer making short-term financial decisions to survive stage four is to have one year of annual expenses saved and because this is a large sum of

money it will be a combination of your cash and Investments and this is what i believe is a real pivotal point where many of us go from short-term survival mode to long-term Wealth Building mode when you have one year of expenses saved you essentially have what gel

collins famously calls the fu money if you really don’t like your job you have the ability to quit and look for a new one without the fear of financial catastrophe if your company is downsizing and you’re unfortunately on that list you don’t have to stress out like many others you

kind of welcome the down time we live in a time where an average person will have multiple careers in his or her lifetime for me personally i’ve made three major career shifts in the last 20 years completely changing my occupation and the industry i worked in the world is changing quicker

than many of us can adapt to and having one year of expenses will give us the cushion to successfully make these transitions another interesting thing you’ll notice starting happening at this point is the power of compounding your Portfolio when you have one thousand dollars

in Investments and the market is returning 10 percent a year 100 doesn’t feel like a lot but when you have 100 000 in the market now that 10 annual return just made you 10 000 without you needing to do anything if the 10 return continues your 100 000 will essentially double

to two hundred thousand dollars in little over seven years this is how the wealthy gets wealthier and at stage four you’re getting a glimpse of it stage five is where you have five years worth of annual expenses saved invested if you arrive at this stage in an earlier point in your life like

in your 20s in the financial independence world this stage is what people call coast fi essentially where you have enough invest in the market that even if you don’t invest any more money going forward the compounding will allow you to have enough to retire when you reach the age of 65. if

you’re at this stage right now really congratulations you have really achieved more than the majority of americans will ever achieve in a lifetime and the compounding effect on your Portfolio is really kicking in now for example let’s say your annual family expense is a

hundred thousand dollars and you have saved and invested five hundred thousand dollars in the market at a simple ten percent market return your Portfolio is growing at fifty thousand dollars a year that’s half of your annual expense of course you aren’t spending this

amount and it’s being reinvested into your Portfolio which allows you to grow that Portfolio let’s say at the same trajectory of 10 a year which means that without you doing anything your investment will have grown to a million dollars in little over

seven years i’m simplifying everything here of course there are a lot of factors that go into market returns but the point here is that when you get to stage five you will really start to feel the power of financial freedom at this stage you can take calculated risks in your life my wife and

i definitely felt this when we reached this stage it allowed us to start dreaming about where we wanted to be in 10 years and if we wanted to pursue that new career or new experience you reach stage 6 when you have 10 years worth of annual expenses saved and invested at this stage your

Portfolio returns could equal your total annual expense using the same estimate as earlier assuming a hundred thousand dollar annual expense you now have a million dollars in your Portfolio at 10 annual returns your Portfolio is generating a

hundred thousand dollars from the market returns alone this is quite amazing if you think about it imagine how many hours you have to work a year to make that hundred thousand dollars a year your sweat blood and tears go into making sure your family is financially taken care of a hundred thousand

dollar pays for the house mortgage food on the table Insurance your son’s orthodontist expense when you have 10 year worth of annual expenses in the market is essentially is generating the same amount but without the sweat blood and tears talk about passive

Income right it’s quite an amazing feeling if you’re able to reach this stage you might even start to feel rich and this stage is also where you want to also check yourself because it represents a danger point for many when you have this much money invested in the

market and you feel the emotional freedom that comes with it it’s also possible to fall into complacency when it comes to your budget you stop looking at the right side of the menu when you order food instead of continually shopping in old navy you jump to banana republic i mean nothing wrong

with banana republic but what happened to gaap you can’t just skip it on your way to lifestyle Inflation you should definitely congratulate yourself when you get to this stage but also don’t lose focus stage 7 is 25 times your annual expense saved and invested this is

the ultimate financial freedom because when you have 25 times your annual expense invested in the market you have the choice to completely retire from work the rationale beyond 25 times your annual expense comes from what’s called the four percent rule the base of the four percent rule is

that when we pull four percent from our Portfolio a year the investment will continue to grow ahead of Inflation allowing us essentially to live off our Portfolio forever like a goose that continuously lays the golden egg in the example of a

hundred thousand dollar annual expense this means when you have a Portfolio of 2.5 million dollars 25 times 100 000 you’re basically financially free you can pull 100 000 a year from your 2.5 million dollar Portfolio for the foreseeable future and it will

never run out of course there are a lot of nuances here that i’m not covering like Inflation and prolonged market downturn but that’s for another time the basic notion here is that when you achieve stage seven you can retire from work if you choose to do so or you can

pursue a different career that you didn’t before because of financial reasons or you can choose to travel the world with your family the choice is yours and the world is your oyster if you feel like you’re too late to the game and you don’t think you’ll ever reach the stage

don’t lose heart there are many who are pursuing financial freedom even much later in life my friend has a website called late starter fire where she chronicles her own personal journey of pursuing financial freedom in her late 40s i’ll have a link to her website below so to make sure

to check it out if you feel like you’re late to the financial freedom game it’s never too late to start the choice is yours and if you’d like to learn more about my favorite vanguard fronts to help you achieve financial freedom check out my CashNews.co on 5 best vanguard funds to

buy and hold forever here thank you guys for watching and i’ll see you in the next one you