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  • Hey hey guys it's Joseph and Tasha with one big happy today we're going to talk

  • about the seven stages of financial independence and how to go from living

  • with your parents in their basement to owning your own house in the Hamptons

  • and never having to work another day in your life if you don't want to we first

  • heard about these seven stages of financial independence while listening

  • to a podcast by Paula Pant from Afford Anything we'll drop a link in the

  • description box to her podcast and if you guys aren't listening to it you

  • totally should and it was an episode where she had Joshua Sheets who has a

  • podcast and a website of his own Radical Personal Finance and he was talking

  • about these seven stages and it just made perfect sense to us so we wanted to

  • make sure we shared them with you guys and these are really important because

  • it's very difficult to kind of see the bigger picture from starting wherever

  • you are to really getting to that ultimate goal of being independent and

  • having the things that that you want and that are important to you and so this

  • breaks it up gives you these intermediary goals to see where you're

  • going and how are you doing now yeah alright so let's look at the first stage

  • stage 0 financial dependence that is where we all start out usually and with

  • living with our parents as a kid you have no wealth of your own I would say

  • you that's 99.9% for everybody unless you just started with the trust fund and

  • you're kind of different yeah so I was in this stage up until I was 18 years

  • old then I joined the military and I became totally financially independent

  • at that point so I stopped I left that thinking I was 18 I stayed dependent

  • longer because it's nice it can be nice yeah

  • There are pros and cons right. But I had help during undergrad and my parents

  • bought me a car when I graduated high school that it's still going my brother

  • has it now and and so I stayed on until I graduated

  • and I kind of transitioned during college I got a job I was making about

  • the same as what Tasha was making the military which is sad our military so

  • underpaid but but that's an extra four years for me Stage one is financial

  • solvency this is where you are supporting yourself now for me I started

  • doing that right after I graduated from college then I'm moving on the law

  • school and my parents said yeah this is this is it you're done first degree we

  • help and then you're good like I said for me that started when I was 18

  • because I moved out of my parents house went off to the Marine Corps hundreds of

  • miles away and that was it I was completely supporting myself my parents

  • weren't sending me money I wasn't on their insurance anything like that for a

  • lot of people I feel like this is the kind of sink or swim moment because they

  • don't always have I think we all could have better financial guidance when we

  • were younger and so you just kind of have to hit the water and try to survive

  • hopefully you have have some basic knowledge of how things work yeah I had

  • no idea my parents didn't teach me like anything when it came to finances not

  • how to open a bank account not how to write a check like absolutely nothing so

  • yeah it was a big a big change for me it's probably always a big change okay

  • Stage two is financial stability this is where you move from just basically being

  • able to keep a roof over your head to starting to actually be responsible with

  • your money so you start having a budget at this point really starting to figure

  • out how everything works how you want to live your life and manage your money

  • hopefully and this is also where you finally start saving some money and and

  • that's why it's the the point where you start being responsible with your money

  • because you're not just spending all of it you're saving some of it for a rainy

  • day Stage three is debt freedom so this

  • isn't from all debt but toxic debt so if you during your sink or swim

  • moment got some credit card debt which most of us do with high interest rates yeah that's all

  • too all too often this is where you get rid of that you you get on a path and

  • pay off the bad debt and so like for us so it might not be all debt we might

  • still have mortgage we might have some low interest debt that will take longer

  • but any of that high stuff credit cards get that taken care of stage four is

  • financial security this is where your investment income any passive income a

  • pension Social Security is going to cover your bare bones expenses so that's

  • your house your food healthcare any immediate costs and little miscellaneous

  • things but not bigger things like travel or purchasing a brand-new car just the

  • bare minimum so and you can consider it financial security because basically as

  • you can support yourself indefinitely on a bare-bones budget so you're you're

  • really financially stable you're able to weather a lot of financial changes and a

  • good rule of thumb for financial stability is you need about a million

  • dollars for every $40,000 worth of living expenses so that's withdrawing

  • at what's considered the safe withdrawal rate which is four percent four

  • percent so that's forty thousand Stage five is financial independence

  • you've hit this stage when you have enough passive income to cover your bare

  • bones living expenses actually your current lifestyle the lifestyle that you want to

  • keep so your bare bones living expenses plus that nice little cushion to do the

  • fun stuff right so I would say that that this for most people is going to be

  • substantially higher than financial security so if you've seen our budget we

  • spend about sixty seven thousand dollars a year excluding childcare and if you

  • add in another ten thousand dollars for travel because that would be our ideal

  • lifestyle then we're looking at around eighty thousand dollars a year so we

  • need to save up two million dollars to reach this stage but of course your

  • numbers will be different right especially if you live in cheaper areas

  • very cheap areas and that's actually including keeping our current house so

  • if we move to a less expensive area and had a much lower mortgage then we

  • wouldn't need nearly as much money which is definitely what we would do or we

  • travel more ooh travel more yes and speaking of travel more stay tuned for our Singapore travel

  • series it is about to start we're gonna be doing weekly videos

  • talking about the the preparations that we're making and just kind of showcasing

  • some of the different hotels we considered and all that fun stuff oh

  • we're going over to it yeah all the things that we considered yeah it was a

  • lot traveling with the family especially with a small child lots of stuff stay tuned

  • stage six is financial freedom this is where you have enough money from all

  • those sources that we talked about and probably working at this point to nail

  • those big dreams so the only way to get to this stage after going through

  • financial security and then financial independence is now you're probably

  • gonna have to keep working yeah you have to that's the only way to keep advancing

  • up the financial independence ladder through these seven stages because if

  • you just stop at financial stability well your wealth is gonna is not going

  • to increase if you stop working if you don't have any income income extra

  • income coming in stage seven the final stage is financial abundance and

  • that's where you have more money than you can spend within reason cause I think

  • it's really possible to spend all your money no matter how much money you have

  • that's true don't be buying islands but this is the the point in your life where

  • you're able to I would say I consider it to be being able to pass on

  • substantial wealth to your to your dependents to donate to meaningful

  • substantial sums to meaningful causes basically you'll have a substantial

  • estate that outlives you and can continue to work towards the goals that

  • you had after you're gone this is something that were

  • but really looking forward to I think so now you don't really get to see all of

  • the fun because there's a point where well your estate will continue and you

  • won't but you can start by giving those donations and I think yeah we definitely

  • like I want to be able to donate a substantial sum to Yale because without

  • their generous financial aid and loan repayment programs I definitely would

  • not have been able to go to that law school so I think it's important for me

  • to give back too and I'll be doing similar things with different causes and

  • in my schools as well just amassing generational wealth I mean it's just a

  • wonderful goal to have everybody should be able to do that it is not something

  • that should be reserved for people that are already mega-wealthy we should all

  • be able to strive for this and have it be an achievable goal and reasonable so

  • those are the stages um we're gonna be talking a lot more about how you move

  • from one to the other but I think it's really important to notice that they

  • kind of overlap so right now we are in the working towards completing the debt

  • freedom stage we'll be in it for a while but we're also working towards the

  • financial stability stage and we might actually hit both of those right around

  • the same time so you know it's not necessarily that it's just you can only

  • focus on one and then the other then the other but it's like a progression as

  • you move through your life so we hope that you've enjoyed this and can focus

  • on those steps in your own life and all join us in financial abundance years and

  • years from now alright guys bye see you next time

Hey hey guys it's Joseph and Tasha with one big happy today we're going to talk

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