Reaching Financial Independence: See Our Ten Stages

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Hey guys it’s a mom and kristina from aris journey today is a very special show i mean i say that all the time but this one is really exciting because today we are going to talk about our ten stages of financial independence if you have been watching our channel you know that we are right there at financial independence we can see it in the distance and we are just

About to cross it and so today we are going to talk about the stages that we’ve gone to gone through to get to this point to being able to call ourselves financially independent now this process of getting so close to financial independence is really what it is it’s a process that consists of several stages and we are getting closer to financial independence and the

Reason why we know this is because we have a financial independence number and we have been tracking that number in order to get where we are where we are right now and having that number in mind is very important because when we first calculated our number it was this huge financial independence number and we would see it on the horizon and say we are never going

To get there but we were able to break it down into incremental pieces to make it feel more achievable and so today we want to talk about why everyone should have a financial independence number and why you should break it down into stages and by sharing how we have gone through each stage hopefully it will inspire you to continue to move towards your financial

Independence number so before we get into the stages let’s briefly explain how you can actually calculate your financial independence number so you start by calculating your anticipated expenses your year-long expenses and once you get that number you multiply that by 25 that number times 25 is your financial independence number and that’s the number you want to

Reach in order to become financially independent so let’s use actual numbers let’s say you’ve calculated your annual expenses and that equates to $40,000 a year now $40,000 times 25 is 1 million dollars that means your fi or your financial independence number is 1 million dollars this is the amount of money that you need to have in assets or investments in order

To reach your financial independence so when people talk about financial independence if you are not familiar with investing it’s really hard to kind of wrap your head around this theory but i’ll use our robin hood portfolio as an example if you look at our robin hood portfolio we right now are collecting a dividend from that portfolio about 7% annually so if we

Grew that portfolio to a million dollars and we took out 7% and in fact we wouldn’t even need the 7% we only took out 4% the portfolio would still be growing because we’re collecting 7% in dividends but we’re only spending 4% of that 7 so the portfolio is actually still going up well this theory of financial independence is based off of exactly that you have a

Stock portfolio that grows with appreciation and from dividends and all you’re taking out is 4% and because the average portfolio the average stock market portfolio grows about 7% the year you are not depleting that portfolio so now if you’ve watched some of our other videos we explain in more detail the concept of the 4% rule and you’ll also know that we don’t

Just have a robin hood account that’s a very very tiny amount of our investment portfolio so the idea here is that we’re investing in other types of investments and we are very close to reaching financial independence so please check out those other videos to understand more about financial independence and how we plan to live off of the portfolio’s that we talk

About in those other videos but let’s talk about the stages of financial independence because when we first started this journey we started in negative we had negative assets that means we had a net worth that was below zero all right so stage one of financial independence is where you have a net worth negative that means that your debt equates to more than your

Actual assets now you’re probably wondering why is this stage one of financial independence well at this is this is the point where you realize what you’re trying to achieve when you sit down and write down all of your assets and your debts and you realize that you’re negative that is a point where you’re actually starting your financial dependence it’s coming to

The realization of where you’re at now after you’ve come to this realization that you want to strive towards financial independence the second stage is where your net worth is zero so network zero is when your debts and assets are equal and this is for people that are living paycheck to paycheck where they get money and they spend it to service their dead most

Americans are either here or net worth negative the third stage is where your net worth positive by one dollar now this may not seem like a big deal but like a mom said most people are stuck at stage one and stage two when your net worth positive by one dollar that means that your assets are greater than your debt by at least a dollar it’s really the seed that one

Dollar is the seed to grow a money tree so just being net worth positive that means that you are on the right track and number four is having a net worth of ten thousand dollars now this is such an exciting point because round numbers are very psychological you are very motivated when you add up all of your debts and assets and you see that you are positive positive

By ten thousand dollars now it’s important to remember that we’re talking about net worth which means that you can still have debt but what we’re saying is that your assets are more than you did you see you’re trying to get to a point where your assets are growing faster than you did now phase five is where your net worth gross to $50,000 now we gave an example at

The beginning of this video where someone needed to save a million dollars in order to reach financial independence once you get to this phase where your net worth is fifty thousand dollars you’ve actually saved enough money to live for one year based off of your living expenses so when we say that you have enough money to live off of one year let’s say worst case

Scenario you had to sell everything pay off your debts and the net worth that was left was that $50,000 that would be the $50,000 that you could live off of so when we’re talking about financial independence it’s this money that if you had to live off of it this is what would be left and the sixth stage is when your net worth is 10% of your financial independence

Number so in the example of someone who’s fi number is $1,000,000 10% of that would be a hundred thousand dollars and a hundred thousand dollars means that if you lost your job tomorrow you are financially independent for two and a half years so i just want to stop and really focus on what aman just said right here at this sixth stage this is why it’s so important to

Understand financial independence and what your financial independence number is and to break it down into stages a lot of people see this long journey and having to reach a certain number at the end but when you’re breaking it down into stages at this sixth stage if you break it down you can understand that you can actually live live for two and a half years with

No job no income coming in i mean that’s a huge huge accomplishment there’s so much you can do at this stage if there’s a parent that wants to stop and homeschool their kids or take care of their kids if you only want to live on one income if you want to pursue a different career you have so much freedom associated with being able to reach this stage i also like

This stage because you can walk around your office with some swag if somebody acts up you said i don’t need this job i got two and a half years worth of living expenses in the bank but seriously though it gives you that freedom to be able to make choices in life too many of us don’t have choices we have to go to work every single day because we are living paycheck

To paycheck but imagine having two and a half years worth of living expenses in assets that you can walk away from a job without anyone telling you anything stage 7 is where your net worth is 25% of your financial independence number now if we’re looking at the person that needs to reach 1 million dollars in order to reach financial independence this particular

Person would have to have a net worth of 250,000 dollars now if you break that number down you’ll see that that number would allow someone to live for six years based off of that number alone with no job and no other assets coming in so getting to 25% of your fi number that is a huge milestone and you should certainly celebrate that but you know what when you’re

At that level and we’re gonna show you guys this as you start to move into the next phases it works like investing it’s like compound interest because that 25 turns into 50 turns into 75 very very fast and it did for us and stage 8 is when your net worth is 50 percent of your financial independence number this is huge because you get so much confidence when you

Get to this number and we are speaking from experience when we got to 50 percent of our financial independence number we knew we were gonna make it we were so focused but you could almost get a little overwhelmed by this because when you’re halfway there you tend to want to cheat so you need to really be focused at this point stay on your plan don’t do things silly

Like quit your job too early or start to take on more debt you are halfway there and stage 9 is where your net worth is 75% of your fi number now this is a huge accomplishment this means that if you had 75% of your fi-in investments in the stock market for example and you never touch that money and you never invested again in it it would actually double over the

Course of seven years so what christina said is powerful that is the power of compound interest that means when you’re at 75 percent of your fi number in seven years your money would double you would reach financial independence and not have to do anything but what is powerful is when you get to 75 you are still contributing and this is what we’re talking about

And this is what happened to us when we got to 75 percent we were just a matter of years away from getting to 100 percent because we were still contributing to our portfolio and number 10 the final stage to your fi number is when your net worth and your assets are 100 percent of your fi score this is such a sweet moment for you and we are so close if there’s

Someone that is 95 96 97 percent of the way it’s very hard to go to work and not just you know what today’s my last day but don’t do that i mean you can if you want to you’re almost there but when you get there it’s gonna be a very sweet sweet moment and you will be surprised at how fast you get there so those are our 10 stages of financial independence we have

Been on this journey for what felt like a very long time but when we go back and look at it it actually happened a lot faster than we thought it would i mean when we got really intentional about financial independence it only took us about five years now we had already had a head start because we were already investing our money we were already buying real estate

But the difference was we got intentional we got more focused on these numbers and going through those milestones so you guys can do the same in fact by watching this video you have the advantage that we didn’t have you have a guide so if you like this video please give it a thumbs up subscribe to our channel and join the journey

Transcribed from video
Reaching Financial Independence: See Our Ten Stages By Our Rich Journey