The 4 Phases of Financial Freedom

Michael QuanEducation, FI / FIRE, Misc6 Comments

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4 phases of financial freedom

If you were to ask 100 people if they’d like to achieve financial freedom, chances are good that 99% of them will say “yes!”.

It’s also true that the majority of these individuals will never achieve financial freedom within their lifetime.  Why is that?

As someone who’s been blessed to have achieved financial freedom, I have a theory. Most people never get past Phase 1.

And secondly, they never find a blueprint that shows them the path to financial freedom.

In this post, I’ll break down the 4 Phases of Financial Freedom based on Your Financial Freedom Blueprint.

Where are you on this journey? If you’re just starting out… welcome.

Phase 1: Mindset

Phases of Financial Freedom - Phase 1: Mindset

As I mentioned above, most people never get past Phase 1. The reason why is because of our conditioning.

When growing up, we form a lot of beliefs about our surrounding world. Learning about money is no different. Unfortunately, our mainstream media and culture teach us a model of money which is based on leverage and debt financing. So, it’s no wonder why our kids grow up not even realizing that financial freedom is within their reach.

However, there are some exceptions to the rule which we’ll concentrate on below.

  1. Someone who grows up with family and friends who are wealthy. This knowledge and understanding are passed down generationally.
  2. Someone who gets fed up enough with their current situation that they seek out an alternative way.

I’m a bit partial to #2 because these individuals are the hungriest. Is this where you live?

For me, I had to first overcome the limiting belief that becoming a millionaire was even possible.

There were plenty of reasons to think about why I would never have this in my life, but when I began to learn and get inspired by people who had done it, my beliefs changed.

You see Phase 1 has everything to do with creating the proper mindset. How do you create a millionaire mindset?

  • Decision
    • Decisions lead to new action
  • Clarity
    • What is the outcome?
  • Belief
    • YES I CAN
  • Accountability
    • Hire a coach, join a mastermind, or find a mentor

Following these steps will craft your millionaire mindset and therefore allow you to move to Phase 2

Phase 2: Accumulation

Phases of Financial Freedom - Phase 2: AccumulationPhase 2 of Financial Freedom is much more tactical. As you saw in Phase 1, you dealt with the belief of what’s truly possible.

It’s time to get down to the tactics and position yourself for wealth.

This could include your actual financial education. While there are some things you’ll want to outsource in life, managing the outcome for your wealth shouldn’t be one of them.

All too often I see people handing over the keys to their portfolios without thinking twice. That’s lazy. No one will ever value your money as much as you ever could. So take some time to educate yourself.

Some fantastic books that helped me along my journey were:

  1. Think and Grow Rich (Napoleon Hill)
  2. Rich Dad, Poor Dad (Robert Kiyosaki)
  3. Cashflow Quadrant (Robert Kiyosaki)
  4. A Simple Path to Wealth (JL Collins)
  5. I Will Teach You to Be Rich (Ramit Seti)
  6. The Total Money Makeover (Dave Ramsey)

Getting the proper education will also allow you to determine your financial metrics.

How else can you know where you are unless you’ve got something to measure?

Therefore, at a bare minimum, you should know your net worth, cash flow, and asset allocation.

Phase 2 also includes the process of getting your financial house in order.

  1. Eliminating Debt
  2. Creating a manageable spending plan/budget
  3. Creating an emergency fund
  4. Establishing insurance to protect you and your family
  5. Investing and Saving aggressively

Finally, in Phase 2 you are beginning to think about your FI (financial independence) Accelerator. This is an investment vehicle that has the ability to grow exponentially. It also won’t affect your long term wealth building efforts. It could be in the form of extreme savings/investing, entrepreneurship, and/or real estate investing.

This leads us into Phase 3.

Phase 3: Prioritization

Phases of Financial Freedom - Phase 3: PrioritizationPhase 3 is all about growth, acceleration, and the prioritization of your time.

Now that you’ve established some foundational systems to earn income and save/invest. How can you accelerate this?

This could come in the form of a salary increase.

  • Seek a higher-paying position
  • Negotiate a higher salary
  • Start your own business or start a side hustle

The goal is to replace your income over the course of the next 10 to 15 years.

Furthermore, if you’re not making the progress you want in this phase, consider leveling up your resources or hiring a financial coach.

Simultaneously as you accelerate your income make sure you understand the opportunity costs.

You don’t want to lose sight of the big picture. For example, if you’re doing this for your family and your begin chasing income at their expense, it’s time to re-evaluate.

Finally, don’t forget to continue self-growth and development. Just because you’re earning more money doesn’t mean problems will magically go away.

As a result, this will lead us into our final phase 4.

Phase 4: Creating a Wealth Legacy

Phases of Financial Freedom - Phase 4: Wealth LegacyPhase 4 is all about tying together. You’ve traversed the 4 Phases of Financial Freedom! You’ve created the wealth you set out to find. Now what!?

Take some time to celebrate! You deserve it.

If you haven’t already, make sure your time is aligned with your values. Chances are your financial freedom will afford you the flexibility of time.

But just because you’ve achieved financial freedom doesn’t mean the journey is over. In some ways it’s just beginning!

Therefore, it’s time to explore time as a function of your values.

How do you want to grow from here?

  • Create a business?
  • Set up a non-profit?
  • Coach or teach others?
  • Volunteer?

What is your wealth legacy? Will you pass down your assets and knowledge to family and friends?

It’s a great time to re-look at your estate planning and figure out how your gifts will affect others beyond your death.

I realized recently that leaving a lot of money to my children could be a disservice to them. I want to make sure that they have enough challenges in their lives to stretch themselves. Therefore, we plan to space out their inheritance and spread it across multiple locations.

Finally, how will you pay this forward?

One of the best gifts of financial freedom is the ability to help others who are unable to help themselves.

Who would you like to be remembered as?

Final Thoughts

If you found these 4 Phases to Financial Freedom interesting, then you’ll definitely want to see my read my book The F.I.R.E. Planner.

I hope you’ve found this post insightful and you should know that there are millions of people cheering you on your journey!

Financial Freedom is so much more than money. It’s about who you will become in the process. It’s about how you will learn and how you will learn to love.

Wishing you all the best.

Readers, where do you find yourself on the 4 Phases of Financial Freedom? Where would you like to be in 5 years?

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6 Comments on “The 4 Phases of Financial Freedom”

  1. I read your book. It helped me put my thoughts in order, as if I was talking to an old friend.
    I think the most important thing is the third point, because properly prioritized always helps to achieve any goal.

  2. Why have I not discovered this blog much earlier?

    I love this post so much! it’s totally relatable! So much to learn and so much to ponder over.

    A real-time information for anyone who wants to change their financial status and better their money habit.

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