I see similarities in the PF blogger community's stages of FI, that I’ve lived myself. Maybe going through each stage of FI is required to get to the next, or maybe there’s a chance one can recognize where they’re at and get a jump-start on getting to the next level.
These are just stages of FI that I noticed myself going through; some one at a time, and others simultaneously. I thought it would be interesting to discuss the various stages. My focus for the wealth blog isn’t necessarily discussing Financial Independence (FI), but I think it’s good to mix things up every now and then.
I was recently reading another blogger's post called, “Half FI Theory – Stop Sacrificing Your Happiness Now In the Pursuit of FI” written by Half Life Theory. After reading the post, I commented about my own experiences, like any kind blogger would. After doing so, it gave me the idea to write this post, so I figured I’d give some credit where credit is due.
To be honest, I’ve only recently started reading FI blogs since I started blogging on my own. I’ve always sought out knowledge through books and hands on experience. Since really taking the time to read other bloggers posts and trying to get more involved with the community, I’ve found many have gone through what I have or are currently in the process. It’s been really comforting to find so many others out there so similar to me. I really wish, even more so now, that I had started blogging sooner. Better late than never!
These are the stages of FI through my eyes.
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Finding FI
The first step is finding FI. That can be as little as realizing that you can take control over your finances, that you NEED to take control over your finances, or realizing you can generate income without having a traditional job. Some stumble across it, others seek it out, and some, if they’re lucky, have a friend share their knowledge with them.
For me it was recognizing I needed to make a change if I wanted growth in my life. I was working jobs that I knew I didn’t belong in, yet there was no one making suggestions on how to improve. It was an intrinsic desire for success that pushed me along, and motivated me to not be satisfied with the status quo.
I could no longer choose to be financially uneducated. Saying things like, “That’s not my speciality.” “I let my accountant handle that.” “What’s the point; the rich just get richer while we’re left behind.” “I don’t know how to be wealthy” “It is what it is; life just isn’t fair.” I could go on for days...I wasn’t happy just being stagnant; accepting the cards I was dealt.
I used any source of information, and inspiration, to make small steps of progression into a better quality of life.
What really turned me on to FI was an audiobook I listened to on Audible. This book literally changed my perception and my life. “Rich Dad, Poor Dad” Such a simple idea laid out in a few stories of the authors experiences. The gist: own assets instead of liabilities, as assets generate cash flow, and assets allow one to earn money without having to directly work for it.
Listening to that audiobook was my ah-ha moment. There was a light at the end of the tunnel after all, and clawing my way out of poverty was possible.
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Budgeting
After finding the general idea of FI, the next natural step is reviewing one’s financial picture and creating a budget. This is where many finally see just how far they have to go. This is usually eye opening and a huge shock just how much money flies out of your accounts on silly things, and how much you’re paying to borrow.
I remember thinking why haven’t I done this sooner; instead I let my checking account balance tell me how much I could spend. Oh right, because we're never taught this in school.
Many years ago, I started tracking my spending and debts with an excel spreadsheet I created. To this day, I can't let it go, and continue to use it. I was very resistant to using online tools, mainly due to the idea of having all my accounts in one area, but finally tried out Mint and eventually made the switch to Personal Capital.
I prefer Personal capital over mint, as it’s less buggy and I find its layout more user friendly, but I still find myself tracking with my old school spreadsheet. Guess old habits are hard to break, and I really like reconciling for some odd reason. But, Personal Capital is super useful and is great for getting an up-to-date snapshot of all my accounts. Still hoping they add coinbase and other crypto accounts in the near future, as, like it or not, cryptocurrency seems to be sticking around for good.
I remember starting each; logging in daily and watching it like a hawk. I would forecast out and update things a little ahead of time, just to see my progress unfold. I, like many people, went overboard with tracking every minute expense. Logging in too often to compare myself to the markets and others. Cutting the excess is great until it turns into an obsession.
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Getting out of bad debt
During the budgeting process one naturally becomes aware of all their debts and what they actually amount to. This is when financial strategies begin.
See how I paid off 55k of debt in 14 months
The realization that your bad debt is crushing you, and preventing you from being able to invest, becomes apparent. You feel the weight on your shoulders like a backpack full of bricks on a sprinter.
Debt becomes all you can focus on; you start talking to your friends and family about it during every conversation. The day is not complete without analyzing your debt. Your top three goals in life are all getting out of debt.
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Not spending
This is usually a snowball that’s started while paying off debt and is usually carried forward even after getting out of debt. It’s as if the more debt you pay off the less you allow yourself to spend.
I’m all for achieving a goal. I went to extremes to achieve some of mine, but it can turn into an extreme of self austerity.
Now that you’ve realized you need to get out of debt, or you’ve already achieved this, the thought of spending, on anything, gives you anxiety. A $100 expense feels like 10k of debt being added to your shoulders. Even denying yourself a $1 expense, feels as if your retirement account is growing 5k because of it.
You spend so little that you can no longer tell by looking at your checking account when you got paid; it just rarely goes down.
Your entertainment is going for walks or calling a friend. You’ve mastered how to get to FI, and it includes spending nothing. You believe you’ve solved the wealth puzzle and this is it.
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Getting Financially educated
This is usually happening from day one of finding FI; grown during the debt pay-down phase, and is kicked into high gear once the focus and pressure of getting out of debt is relieved.
You begin to realize there’s this massive world of financial knowledge just waiting to be learned. You read every financial book available at your local library, and head to other counties in search of new free knowledge.
Check out "What Should I do with 5k" for some ideas to start with.
The thought of spending money on a book goes against your financial goals but you finally come to realize the value you can get out of the right book could be almost infinite to it’s price, so you allow yourself to spend.
Learning becomes an obsession, but you realize it’s part of the marathon of life and that can never be fully completed.
You realize the true power in life comes from knowledge, and that it, plus action, is the key to success.
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Look for ways to earn more money
This is often started when you make the decision you NEED to pay off debt. It usually entails a side hustle that takes little effort to get started then morphs into basically a full time second job. This desire grows once you learn the exponential power of investing. You realize the only thing holding you back from FI is the rate at which you can earn more.
Nothing is off limits as a possibility of earning money. Soon your friend who specializes in creating jewelry as a side hustle, or waking at 4am to look for deals at garage sales to flip on Craigslist, no longer looks silly to you. They are now your next business partner; one of many.
You will then proceed to learn every way to make money possible until you find your perfect fit.
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Seek out ways to use your time more efficiently
You eventually come full circle and realize time is your most valuable resource. Multiplying oneself isn’t available yet, so the hunt for time saving techniques begins. Passive income becomes a priority. Scalable business is a close second. This is your expansion phase where your net worth really starts taking off.
You start looking at those who put in hours and hours for tiny gains, and wonder, don’t they know there’s a better way?
You force yourself to change; giving up what you’ve known for your new found knowledge. This isn’t an easy process, and it takes time, but you realize adapting to what the market is telling you, is most efficient.
Technology becomes your best friend, as you look for new tools to save you time and automate your processes. Your perception changes. The real winners in life are no longer the richest people, in your mind. No, the real winners become those who can earn the most, with the least amount of stress and effort.
You realize you don’t need 10 million in the bank; only a way to earn that lets you live as if you do. That becomes your new mantra.
You’ve found the true meaning of FI and focus all your efforts on perfecting it.
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Giving back
At some point money stops mattering. The amount it takes to get you excited continues to increase to a point where it stops having significance. You still hate to lose it, but earning it seems to matter less. You’ve realized you’ll get to FI; that it’s only a matter of time. You’re now educated in many ways to earn, save, and manage money. You begin wondering is this really it?
You see your friends being reckless with their spending and getting into financial traps and just want to shake them to stop. Eventually, you finally accept that you can lead a horse to water, but can’t make it drink, and this allows you to accept their choices. Some may even look to trade up for a horse that does actually drink, or knows how to find the water on its own. Your circle begins to change.
Your interest in the pursuit of wealth declines, while your search for more meaning during your time here takes precedence.
You begin being more generous than ever; finding ways to pay it forward. Doing anything you can to help someone else, because giving replaces the joy that earning money once did. It doesn’t take massive wealth to realize this; rather, mindset is the key to get to this place faster.
Being content with what you have in this moment of time becomes your greatest asset, and giving back becomes your life’s dividends.
You now feel complete.
Conclusion
Your path may be completely different than mine is or was, but I bet there's some consistencies. In a recent book I read called, "Resilience: Why things bounce back" Valdis Krebs was quoted in a section of the book. saying, "In a healthy network, you have to connect on your similarities and compete on your differences." That quote really struck me as such a great foundation for most things in life, including blogging.
I hope we can connect on our similarities during our journey together.
Does this sound similar to your stages of FI? Am I forgetting any steps? Anyone get to step 8 or stuck on a step?
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This is not financial advice in any capacity, as no one contributing to this blog at EMK is a licensed financial advisor, attorney, or certified public accountant, and no portion of the blog content should be construed as financial, legal, or accounting advice. Please consult a licensed professional before making a financial decision.
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Half Life Theory
Awesome post man! Very detailed, should be very helpful to anyone in any stage of FI. Our paths will be different, but the big ideas should be very similar and easy to take action on!
Cheers!
Jerry
Thanks! I find it helpful to have a guide for anything in life. Helps to know where I may be going and what I want to steer away from.
A Penny Kept
I am in the debt payoff portion of my journey. I have thought about getting a second job to work down the debt faster, but I haven't been able to convince myself to do it. I hope to be able to move through the other stages that you discuss in the future.
Jerry
If I had to do it over again, I'd focus on leveraging my time to earn money. Only way to pay down debt faster is to earn more quickly. You'll get there, just a matter of how fast. Good luck!