Stages of Financial Independence
If you have an average income now, it doesn't mean that you will never become independent. Just don't think of financial freedom as an all-or-nothing proposition. Move towards it gradually, moving from one stage to the next. Remember that every step, even the smallest one, brings you closer to peace of mind and new opportunities.
At this stage, you are totally dependent on others. We all start there because as children we are unable to support ourselves. Some stay at this stage for the duration of their studies and some for longer.
It is normal that you may not know something. For example, how do you file taxes for both W2 and 1099 forms? Sometimes you need the help of competent people, the main task is to move forward, develop and learn.
However, you are in a dependent position not only when your parents or partner support you, but also when you spend more than you earn. For example, you take out microloans or borrow money from friends to make ends meet. Either way, you are relying on someone or something to cover your expenses.
If you are stuck at this stage because of your debts, try to negotiate a lower interest rate or other modification of terms with your creditors to make life easier.
This is the first stage of survival. You have reached it if you are able to pay all your bills and do not rely on anyone else's help. You may have debts (e.g. credit card debt), but you make your payments every month and do not add new debts. Some people reach this stage while still studying, and some never do at all.
To move on, try to pay off your high-interest loans first. Think about how you can increase your income or reduce your expenses to pay off these debts faster.
At this stage you are regularly meeting your financial obligations, have already paid off some of your debts, and have learned to cut back on your spending. Now it is important to build up a financial safety net. This will save you from taking on new loans in case of unexpected expenses.
You are now in control of your expenses and not living from paycheck to paycheck. You have also set aside some money for an emergency fund. This makes you less dependent on your job. If you lose your current job or want to leave on your own, you can live comfortably for a while.
After this stage, you will move from survival to prosperity. Money will become not a safety net, but a tool with which to build the life you want for yourself and your family. The next step for this is to invest
Investment income gradually grows to the point where it can support your current standard of living for the rest of your days. You can now afford to leave your main job and not have to worry about anything. You have enough money to travel, do creative work or do anything else you have been dreaming of for a long time.
For many people, this stage is the ultimate goal. It's impossible to check whether or not you've reached it by reference to a specific amount because everyone has different lifestyles and different needs.