6 stages separate you from financial freedom

6 stages separate you from financial freedom

6 stages separate you from financial freedom

6 stages separate you from financial freedom

As is the case with most of us, everyone strives to reach financial freedom, and it is
That phase of your life where you can quit your boring job without worrying about your expenses
In this article, we will lay out a roadmap towards financial freedom, and you will find that it is easier than you think
The path towards financial freedom passes through six basic stages, each stage has a specific goal that must be achieved before moving on to the next stage

Stage zero (total dependence on others)

At this stage, you are completely dependent on others to provide your needs and livelihood, and you do not have any kind of income, and we all went through that stage where we were young, totally dependent on our parents to spend on us, there are many adults who still depend largely or completely on their parents to provide their needs,

You are in the zero stage if your monthly spending exceeds your monthly income and you are forced to borrow from family and friends, or you may rely on a credit card to pay your bills. In both cases, your debts will become larger and larger every month. At this stage, you are unable or unwilling to earn enough money to meet your monthly expenses. .

The first stage, (I can barely manage)

At this stage, you live from salary to salary, but at least you earn what pays your expenses every month. Nothing more than that. It is the stage that most of us went through early in our lives, where the salary is modest, the apartment is small, and the car is dilapidated, but at least we achieve self-sufficiency and no longer depend on Our parents anymore

Unfortunately, many are stuck at this point, barely living from paycheck to paycheck and barely able to pay their monthly expenses

At this point, you have some debt in the form of mortgage payments, car payments, and credit card payments. You will not have any savings or investments, or rather your balance will be negative!

If you are in this stage, your primary goal is to increase your income, even if you have a job, the wages of which may be low. If you have a job, you must get a promotion or get another job to increase your income so that you can pay your expenses and obligations and get out of this stage.

The second stage, (the stage of progress)

At this point your income has increased slightly and now exceeds your monthly expenses and now you have a little bit of cash left over each month and that extra cash is crucial for you to eventually achieve financial freedom

Congratulations.. You are now better than those who are stuck in stage one and can barely manage from salary to salary

In the second stage, your main goal is to start paying off debts until you get a net debt (zero), and this can be done in two ways.

The first, which is recommended by most experts.. is to target debts with the highest interest first

Let’s say you have student installments, car installments, and credit card debts. Pay the minimum amount for student and car installments, and then direct everything that remains with you towards paying off credit cards because they are most likely to have the highest interest among them.

After you completely get rid of the credit card debt, then direct it to the next highest-interest debt, which is most likely the car installment, and so on until you get rid of them all.

The second method that some people prefer is to target the lowest debt first, then the one that follows it. For example, if you have five different debts, according to this method, you will start with the lowest value, then the next.

The benefit of this strategy is more psychological than logical. When you got rid of the least debt, you now have four debts instead of five, and so on until you get rid of all your debts.
Generally the only debt that is allowed to stay with you at this point is the mortgage payment and the reason for that is that it is worth it

Rents over the last 100 years have been increasing by 3% every year, so when you pay that premium, you’re actually making income from that house in the form of equity and avoiding paying rent for a house of the same size, which would be very high.

The third stage, Debt liberation and release

Now you have got rid of all your debts except for the home installment and your net balance is positive and you finally start saving some money for yourself and at this point you have to start with what is known as an emergency portfolio

It is equivalent to three to six months of your monthly expenses. Let us say that you need 3,000 thousand riyals per month to meet household and living expenses, electricity, internet, car fuel and all your other bills.

Then you have to save from 9,000 to 18,000 thousand riyals in the emergency portfolio, and the purpose of this portfolio is when you are exposed to any emergency situation, you will not have to resort to borrowing and fall into the debt trap again

Your main goal at this stage, as experts recommend, is to create an emergency fund in a savings account that is completely separate from your regular current account.

The fourth stage, the stage of growth and making money

At this stage, you got rid of debts, built a savings portfolio, reached a stage of financial security, and saved some money for investment. Your goal at this stage is to make your money work for you to bring you more money, and there are two broad categories to invest your money in.

Stocks and real estate You can invest in buying and selling stocks or real estate, or you can invest in stocks that distribute profits, which is considered passive income (which is good and required)

The fifth stage, financial freedom

The fifth stage is financial freedom, you now have enough money as savings and you also have investments that generate more money for you. At this stage, you may leave your job and retire early.

It is not possible to specify a specific amount of money to reach this stage. Some may suffice with an average annual expenditure, while others may not.

Also, it depends on what you plan to do after you reach the stage of financial freedom. You may plan to change your lifestyle to a more spending and luxurious style, and others may want a less open and simpler life. In any case, you can do whatever you want without the cost being the basis for your choice.