The 5 degrees of Financial Freedom


My first article for ran over the weekend. Click on The 5 Degrees of Financial Freedom for the full article. It talks about how many terms in personal finance are used interchangeably, and often imprecisely: financial security, financial independence, retirement and especially financial freedom.

I suggest that most of us travel through a financial life cycle as predictable as the human life cycle, and there is a corresponding hierarchy of growth stages that we need to keep in mind in order to continually meet and exceed our financial goals. But because the term financial freedom can apply to so many stages, I argue it’s better to use more precise terms to identify the various degrees of Financial Freedom.

From the 5-stage hierarchy below, I argue that the key milestone in our financial lives is Findependence (a contraction of Financial Independence), a turning point that I define as the moment all sources of passive income exceed your monthly living expenses. Note that the full version at contains three key bullet points for each of the stages, for a total of 15. Below, I summarize just the stages themselves.

Stage (Sub) 0: Indebted Wage Slavery

We may start out our financial lives with student debt, credit-card debt or mortgage debt in the early years of forging careers and raising families. Whatever its nature, debt keeps you chained to employment or work of some type.  Since those starting their financial journey in debt haven’t really begun their financial journey at all, I call the preliminary stage Stage 0. As a character in my financial novel, Findependence Day, tells a young Millennial couple still in debt: “You can’t climb the tower of wealth while you’re still mired in the basement of debt.”

Stage 1: Financial Security

The next level to aspire to in the ascending hierarchy is Financial Security. In this stage you have eliminated your debts and have accumulated enough wealth so that your absolutely necessary monthly expenses (rent/mortgage, food, utilities, travel and basic entertainment) are taken care of for the near future.

Stage 2: Financial Vitality

It can take a long time just to establish a modicum of financial security but I argue you need to aim higher than mere financial survival and embrace what Tony Robbins dubs Financial Vitality. You want enough flexibility in your cash flow that, after the necessities are taken care of, you can enjoy little luxuries like new clothing or intangibles like gym or yoga memberships, and attend the occasional sporting or cultural event. It’s the difference between financially surviving and financially thriving.


Stage 3: Financial Independence (aka “Findependence”)

Now we arrive at Financial Independence, or Findependence, in which you can cover almost all the daily living expenses that occur without ever having to go back to work again. Not only are you free of any debts and the obligation to service them, but in place of employment income you instead have a “money machine” that spits out interest, dividends and capital gains. You’ve arrived at a point where you can live indefinitely from passive investment income without having to work again—not just for a few years but for as long as you live.

This perpetual stream of income is generated by a nest egg that may take decades of saving and investing to accumulate during Stages 1 & 2. The day you believe you can live for life off your multiple streams of investments, pensions and annuities is what I call Findependence Day. Henceforth you may still work, but you will do so because you choose to, not because you must.

Stage 4: Victory Lap

Some might call this stage true or absolute Financial Freedom, which means you no longer have to work and that virtually anything you want is covered financially. But I prefer the more precise term of Victory Lap, which starts on your Findependence Day and can be considered a transition period between employment and the traditional full-stop Retirement that in times past often occurred at age 65. You could call it semi-retirement or self-employment but in our book, Mike Drak and I use the term Victory Lap Retirement.

You’re free to work or not, and at a certain point it doesn’t matter how many zeros are in your investment accounts. Once in the Victory Lap, you are able to live out your big dreams with no financial constraints. Neither you nor your family lack for anything.


One thought on “ The 5 degrees of Financial Freedom

  1. Well delineated stages. Many will not reach this final stage and not for lack of effort. Fee drain, lax regulatory oversight of industry practices that harm not help retail investors, and a government that assume others in the Chain of oversight and accountability are fulfilling their duties as promised. (noting the new class action law suit against td discount brokerage and hidden fees in mutual funds offered to such account holders charging fees for advice in an account that does not offer advice and where no advice from the funds was offered but consumers are dinged none the less for services not requested and not received.

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