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Have you ever wanted your dollars to actually make a difference? Well, unfortunately in most parts of our societies, they really don't. But there is at least one place where your dollars do matter, and that's here with Radical Personal Finance. No massive corporation, no massive board of directors, no big infrastructure support, just one guy and a show that hopefully you've come to enjoy listening to.

That show is supported directly by you, the patrons of the show. For information and details on how you can support the show, go to radicalpersonalfinance.com/patron. Today I want to dig into the stages of financial independence. I'm going to give you the roadmap to go from completely broke and dependent on others to absolute and total financial abundance.

Welcome to the Radical Personal Finance Podcast. My name is Joshua Sheets. This is the show where we talk about wealth. We talk about wealth from every single direction, but we have a heavy, heavy focus on financial independence. Today I'm going to give you the roadmap. This is my roadmap.

I've come up with this, and I want to get your feedback on it. I want to hear if it works for you. Stay tuned. As many of you know, I've been working, depending on when you listen to this, I've been working hard on getting the new website renovated and out.

As I record this, today is April 2nd, Thursday, April 2nd, that this show will be going out, 2015. The whole process and the project for the last few weeks has been to get the new website going. Well, that is and was a major challenge and continues to be. It's certainly not finished, but at least it's live.

Now I've got the massive task of properly categorizing all the past content while still pushing forward with the new content. That's what's taking up a lot of my time at this point. The biggest challenge of actually getting a new website released is how to organize the content and how to organize the information.

Frankly, if you are a regular listener or a long-time listener, you probably very rarely actually go to the website. You probably are listening to me through some sort of simple mobile podcast subscription app, usually on a phone. This may be iTunes, or it might be an Android app, or it might be our own app, which by the way, the best way to listen is just use the Radical Personal Finance app.

It's free, and it's in every mobile app store. Just search Radical Personal Finance and you can find that. So that's how most people listen and interact with the show. In some ways, that works really well, especially if you're starting from the beginning and you're listening from the beginning all the way through the end.

That would be a great idea. I'd love it if every listener did that because this show is a cumulative show. I try very hard not to repeat topics that have been covered before. If I'm repeating a topic that has been mentioned, it's because I'm bringing another angle to it or trying to bring something out of it.

So this show is intended to be a cumulative project. Certainly, I'm not perfect at that. Sometimes I do repeat myself or repeat a topic, but that's the guiding principle in my mind. So there's not really much of a way for me to easily organize things on a podcast app.

Basically, you just scroll through the listing and look at the show titles. If I do a good job with my show title, you'd be interested in one or interested in another. Then hopefully, most of you at some point will go back and start at the beginning and put up with the difficult ones, the ones where I was still learning.

If you get a little bit into a show and say, "This is not useful to me," then just skip it and go on. That's the hope. But then, however, at this stage, this episode is episode about 174. So by the time you get into 174 episodes, it's not realistic to think that new listeners will go and start from the beginning.

So I need to provide some way to actually organize these shows and organize this content. I've had an outline in my mind of what I'm doing. I've actually had a physical outline as well. The primary outline that I work from a list of show topics that I have, of ideas that I have, people that I want to talk to, things that I have come across in the last 10 or 15 years that I want to share with you.

Then it's just a matter of what's the best way to do it. Sometimes, the best way for me to do it is to sit down and do the show myself. Sometimes, I try to find somebody. Sometimes, an audience member suggests someone and I'm able to bring them on. That type of thing works.

But I also have been working from the CFP topic areas. One of my goals is to present to you over the course of perhaps 1,000 episodes all of the information that you would need to know to sit for and pass the certified financial planner exam. Then I'm systematically working my way through the formal financial planning topics.

So with the new website, I really struggled and tried to figure out how do I organize this information for a new listener? How do I give you a roadmap? The funny thing is there are various aspects and various ways that you need to look at financial information. There are some financial information that a financial planner would need to have that – let's say – let me use an example.

Let's say we're talking about something like elder care or long-term care planning. If you're 20 years old and your parents are young and healthy and on their own and not worried about caring for your grandparents or grandparents, you're not thinking very much about long-term care planning. So unless you're a financial planner, there's little need for you to sit down and become an expert in that area.

But a financial planner needs to become an expert in that area. So I'm constantly facing this challenge and I went into it with my eyes wide open. But because I've kind of made my show to appeal to in some aspects, professional financial advisors and in other aspects, laypeople, heavily interested laypeople who are not financial planners, just interested in their own financial journey, then I constantly have this tension between these two camps because the type of content and teaching that I would do towards a financial advisor is different than somebody who's just looking at their own situation.

So the major challenge for me with the site was how do I organize the content? And then also how do I profile the content in an attractive way so that if somebody lands on the site, then they're able to look at it and say, "Well, how do I navigate through this content?" And I'm going to share briefly with you what I came up with and how I've done that.

But I'm going to emphasize to you today and walk you through the stages of financial independence that I've designed. But here is what I came up with. I came up with four primary ways for me to organize the content. And these are primarily ways of thinking about the steps you can take because financial information needs to be processed at different levels.

At some levels, it's what am I doing now? What am I actually focusing on right now? At other levels, it's what's the technical information that I need to know as background information to make a decision? At another level, it's vision. What's my vision of where I'm going and what's my plan for how I'm going to get there?

So there are many different levels. And I came up with a total of four different paths through the content. And in my daily shows, I bring them out basically every day, mostly – just about every day. I am essentially working my way through these four different areas. And you need to keep these – well, for most of you, it's primarily three areas.

For those of you who are interested in financial planning, it's actually four. But you need to keep these things in your mind as frameworks. And so the first topics – and if you'd like to see this, you can go on the website at RadicalPersonalFinance.com, select the dropdown topics, and you'll see these dropdown in four different columns.

But the first column and the first area is actually what you can do and that's your wealth building strategy. That is the five-step wealth building strategy that those of you who are patrons of the show have received access to the presentation that I did, the very concise presentation that I did on these five steps.

But this is in essence my five-step, ten-word financial plan. These are the only five things that you can do. And it starts with the first three that I have mentioned on the show again and again and again, which is increase income, number one, increase income, number two, decrease expenses, number three, invest wisely, and then number four and five, I haven't mentioned so much on the show, but they are kind of – I call them lenses that you have to overlay on top of the first three steps.

Number four is avoid catastrophe and number five is optimize lifestyle. I'll do an entire show on that at some point. But for now, those of you who are patrons of the show, you have that information in that little video that was on the confirmation page that I made for you.

And if you're not a patron of the show, you should be and you can get that with as little as a buck a month to support the show. So it's a really excellent short little presentation that I did. It's a video presentation with some nice interactive slides. You can find that.

Go to radicalpersonalfinance.com/patron and you'll be able to see that yourself after you sign up as a patron. And so that first category, that's actually what you do. So every day, every week, every month, all you're essentially doing is the things that are in that first category. That's all you can control.

All you can focus on is increasing your income, decreasing your expenses, and investing the difference wisely. From time to time, you need to pick your head up, look at your situation, and look around, make sure that you're doing intelligent risk management planning and avoid catastrophe. And then all along the way, you need to constantly be assessing everything that you're doing and optimizing it and saying, "How am I increasing my income?

How am I decreasing my expenses? Or excuse me, how am I earning my income? Is it in an optimal way for me and my goals? How am I spending my money? Is it being spent in an optimal way for me and my goals? And how am I investing my money and my life?

Am I investing it in a way that's ideally suited for me?" And that's optimizing lifestyle. And I can fit everything that we do with financial planning into those five steps and those 10 words. At some point here, I'm going to write a book pretty soon, and that's my outline.

10 words, 5 steps. But then inside of those 10 words and 5 steps, there are nearly infinite choices of ways that you can mix those up in an individualized way. The second category is actually where you are. So the first category is what you do, what you can control.

Number two is where you are in your journey. And I call this the stages of financial independence. That's what I'm going to focus on today in just a moment after my introduction. I'm going to walk through those stages of independence, going from stage zero, financial dependence, to what I've called stage seven, financial abundance.

We'll come back to that in a minute. But that's where you are, and all of us are at different stages of that journey. The third category that I have on the organizational structure here is what I call traditional life event planning. And this is actually how most people think of financial planning.

They think of certain things that you're supposed to do at certain points of life and certain financial decisions that you should make. This is valid. That's why I've included it. This one has the most entries, actually. This is valid. But in fact, it's not the most useful because there's generally little or no vision attached to it.

And so what happens is people generally wander in and out of these decisions without knowing why they're making them. But it is important to understand the things that are going on at each of these decision points so that you can have an idea of what these categories are. I'm going to go through them, how I've split them out on the site, just because, again, this is an audio program.

So I don't want you to feel like you have to pull out your phone and do something unsafe while you're driving down the road. But here are the traditional life events that I have selected to profile. Education in college, buying or leasing a car, getting a new job, the loss of a job, marriage, renting an apartment, buying a house, having babies, training children, widowhood or widowerhood, divorce, elder care, pre-retirement, and retirement.

And these are not so much stages of life, but rather they are events of life. And they may or may not occur for some or all of us, and they may or may not occur in a certain order for some people. But each of these events has some specific considerations that you need to be aware of.

And so over time, there will be a curriculum associated with each of those life events. But those are unique to each person depending on where they are. And so part of that is just me organizing, saying these are important things that have major financial ramifications in our life, so I need to make sure that they're well covered in the show topics.

But then also part of that is kind of a sales hook on the website to get somebody who shows up there without being familiar with the show to look at it and say, "Oh, I'm interested in elder care," something like that. For most people, they will be most familiar with those first three categories.

But the fourth category is actually the professional advisor focus. This is the formal financial planning topics. The certified financial planner curriculum, and that's not the only curriculum, but it's just the kind of the most popular in the industry, so that's what I've loosely modeled this off of. But the certified financial planning curriculum is basically divided into five sections, into what they call general principles, income tax planning, insurance planning, investment planning, retirement planning, and estate planning.

Is that five or six? That's six. Excuse me. Six sections. General principles, income tax planning, insurance planning, investment planning, retirement planning, and estate planning. So in each of those categories, most financial planners or financial advisors will be aware of that outline. I've expanded it a little bit to try to make it a little bit more friendly to a layperson.

So here are the formal financial planning topics as I've listed them. I've called it general principles, education planning. I've split that out, and that usually comes in under general principles in the formal curriculum. Income tax planning, insurance planning, employee benefits planning, that is usually combined with insurance planning in the CFP curriculum.

Investment planning, retirement planning. I've included charitable giving here as a separate section because I've got a lot of content that I want to cover with regard to charitable giving over time. That's not just the formal CFP stuff. And estate planning. Now, within my outline, actually, I have many more topics that aren't covered on the CFP exam because obviously the CFP is primarily rules and regulations and specifics.

It's not so much larger consumer-focused planning ideas. So I've got a lot of stuff I'm going to cover that's not in that outline. If you're interested, by the way, many of you have asked about what are the different types of things, when am I going to cover this, and am I going to cover this other question?

I've gone ahead and included the outline that I have in my personal notes on each of the pages under that section. So under the formal financial planning topics, under general principles, you can click on that and you can see that I'm going to cover the financial planning process, financial statements, cash flow management, credit, debt, and personal financing strategies, financial institutions, financial services organizations, consumer protection laws, financial planning for special circumstances, behavioral finance, economic concepts, et cetera.

Now, I am aware, of course, that those – and if you go and look at that, you'll see that that includes the CFP outline for those of you who are financial planners, but it also includes more. So that outline in time, what I envision is each of those outline statements plus more that I'll be bringing in over time, each of those outline statements will ultimately lead to a series of shows or a show covering each of those topics.

So – and that's primarily the Wednesdays – usually I do them on Wednesdays – the Wednesday formal financial planning shows. For example, yesterday, the show on the introduction to life insurance, that actually covers one of the specific CFP outline criteria, which is personal uses for life insurance. That's why I covered that in the way that I did on the show.

So that's where we're going in the long term and there'll be many more things. There are lots of aspects of things that we talk about. What comes to mind is entrepreneurship. When I talk about entrepreneurship, where does that fit? There's no category here on the topic, although obviously it does – maybe it will have its own.

I tried to simplify these as absolutely as much as I could because I didn't want to be overwhelming, but I did try to make them make sense. Entrepreneurship, what are you doing there with entrepreneurship? Well, you're increasing income and you're optimizing your lifestyle and then also then there are specific aspects of it.

So at some point, I may create kind of another catch-all or a couple other categories, but for now I've kept it with these specific topics. So these are organizing principles. You can look at your wealth-building strategy and you can think about what do I do next. That's my wealth-building strategy.

You can look at your stages of financial independence and you can say, "Where am I in my process?" You can look at the life event planning and if you're facing a forthcoming life event, you can go and say, "I just lost my job. What do I need to be doing right now that I just lost my job?" Then you can look at the formal financial planning topics, which is in essence your academic curriculum that you need to be fully competent in our very complex modern financial life.

So that's how I've laid it out and I hope that's helpful to you just kind of as an intro. All these shows as of right now is in April 2. I've still got to go back through all the archive and I can't outsource because I'm the one who can map this stuff and map all of the shows in here.

That's not done yet. So feel free to go by the website and check it out. Then in time, that'll be coming. So hopefully that's a good introduction to you guys. I hope you'll benefit from that. Now, I'd like to share with you the stages of financial independence that I have designed.

I'm interested in your feedback. This is not something that I've covered on the show in a verbal format before. It's been something that's been in my private notes that I've been thinking about. Essentially, what I've tried and wanted to provide is a roadmap. Me personally, I'm very much a roadmap type of person.

I like to lay out a plan and say, "Okay, here are the steps that I need to follow." The way that I do goal planning, I say, "What's the goal? What are the steps I need to go?" and then just start working my way through the steps. I like to have an idea of where I'm going to go.

Simple example, sometimes people wonder, "Joshua, why do you have so many financial planning designations? Why do you sat down with a notebook one day?" I said, "I know I want to get a bunch of financial planning designations." I sat down and I looked through the entire course catalog that was available.

I figured out an ideal way to work my way through all of the classes in the most efficient way possible so that there would be maximum overlap between the classes and the different designations because some classes could be used for multiple designations. I laid it out. I just made a list of all the classes and I just started taking them as quickly as I could.

I just scheduled the exams. I'd usually schedule the exam three months out and get the book, read the book, take the exam, schedule the next exam for three months, get the book, read the book, take the exam. You just work your way through and all of a sudden, boom, you've got a bunch of financial planning designations.

It's not that big of a deal. So roadmaps are useful for me and as I've observed the financial industry in general, they're useful for other people. This is one of those things that gets a guy like me a little bit annoyed because I think, "Well, don't tell me how to get there.

I shouldn't tell people what to do." But the reality is most people seem to like to be told what to do. Now, whether that's something inherent in who we are as individuals or whether it is something that is conditioned into us by society, I have no idea. But it seems to me from anecdotal observation that most people just simply like to be told, "Here's what you need to do." Most people react well to that.

So it doesn't bode well for the style of teaching that I do with Radical Personal Finance where I don't tell you what to do. I just say, "Here's the information you need to make a decision." That's not very popular in popular culture but I can't quite go so far as to adopt what most people do and say, "Well, here's how you have to do these things in your life.

I think we should change culture." But roadmaps are valuable. The best example, probably the most famous one is I've marveled for years at the power both in my life and in observing other people's lives of Dave Ramsey's Seven Baby Steps. For those of you who are unfamiliar, Dave Ramsey is kind of the most admired and definitely the most popular, most followed personal finance guru in our current day at least in the United States.

His most famous book is called My Total Money Makeover in which he lays out seven baby steps. The baby steps are modeled on that movie. I don't remember what the name of it was but we're talking about the psychiatrist. You take baby steps instead of big steps. He gives people this very clear prescription and his prescription, let's see if I can remember the baby step one is save $1,000 in the bank which is basically what he calls a starting emergency fund.

Then baby step two is pay off all your debt. Baby step three is save six months' worth of expenses as an emergency fund. Baby step four is save 10 or 15% for retirement. Baby step five is save for college. Baby step six is pay off your house early. Baby step seven is get really wealthy and give and invest and something like that.

Those baby steps are brilliant for people who are struggling and in debt because it gives them, especially the first three, it gives them a clear game plan to run on. After that, the whole thing kind of falls apart because no one really knows exactly what to do and where does the 15% for retirement come from and how much should I save for my kid's college and should I really pay off my house early and et cetera and what does save and invest and get fabulously rich and give much money away actually mean?

What are the mechanics of that? So it falls apart over time but it gives people just this amazing action focus. So I've thought about that from the perspective of financial independence. If you look at all of the well-developed financial independence curriculum, there's some sort of progression in there. I can't remember – quote them off the top of my head but your money or your life, they give I think it was like eight steps – sorry, it's nine steps of – for your money or your life, nine steps to transform your relationship with your life, with your money and achieve financial independence.

So there are nine magical steps. Step one, make peace with the past. Step two, be in the present and track your life energy. Step three, where is it all going, the monthly tabulation. Step four, three questions that will transform your life. Step five, make life energy visible, make your wall chart.

Step six, value your life energy, minimize spending. Step seven, value your life energy, maximize income. Step eight, capital on the crossover point and step nine, managing your finances. So they give nine steps. So as human beings, we need some organization to our life is my point with all this.

The problem is that most of the steps, many of the steps that people talk about are not really steps that you can do. So for example, you can't do step four of your money or your life, ask three questions that will transform your life. You can't do that step.

You can just ask three questions. So people try to connect these oftentimes and try to organize financial information so it's actionable. Authors will try to connect things that are where you are versus what you do and they try to integrate these things. So in Dave Ramsey's seven baby steps, step one, save $1,000 is very different than step two, pay off debt because save $1,000 may be done in three seconds.

You might have it already and just allocate that and say, "This is my emergency fund." Maybe it wasn't separated before. But paying off debt might take years, become fabulously wealthy and get a bunch of money in one way. Step seven, that's the rest of your life. So when I thought of this, I said, "It should be a difference of what you do and where you are.

But where you are is important because it gives you an idea of where you're going." So that's why mine, your wealth building strategy, this is what you do. Stage is a financial independent. This is where you are. So it starts with stage zero, which is financial dependence. Forgive me if I went too long on that.

I'm just trying to give the background to this of how I came up with this. But as I came up with it, here are the ones I've come up with. Stage zero is financial dependence. All of us begin from a place of dependence on others. Some of us revert to a place of dependence on others.

We all begin as babies. We're dependent on our family, on our parents, on our guardian, on an orphanage. We're dependent on someone else to provide for our needs. So we need to transition from that stage of financial dependence to being on our own. It might not just be that we're young.

It might be that we've had a setback in life. Perhaps we have lost our job and lost our house and moved back in with your parents or maybe had a terrible accident and became disabled for a period of time and you're being cared for by an institution of some kind.

My point is it doesn't matter why, just simply that stage zero is financial dependence where we're dependent on other people. So we've got to move from stage zero to stage one, which I've called stage one, financial solvency. So the first stage of financial independence is to become self-supporting and to be financially solvent.

Specifically, that means that you're able to support yourself on your own income without the aid of others and that you're current on all of your bills. I had to include both of those things. I originally in my mind had this split out into two stages. I had financially self-sustaining, which was on your own basically.

Then I had financially solvent, which was current on all your bills and I decided it was too complicated. It needed to have fewer steps. So I've collapsed them into a single stage, supporting yourself and current on all of your bills. That's financially solvent. Now, going from stage zero to stage one, going from financial dependence to financial solvency might be very simple and very easy or it might be massively challenging.

For example, if you're just getting your first job and all of a sudden you go from no income to having income and if your expenses are low, then it's very simple. You can quickly go from financial dependence to solvency. Or if let's say that things have been really tough, you've fallen behind on your bills, you're starting out, you had a very low income or an unreliable income and you need to – you're behind on your bills and so then to become financially solvent might have a lot of work associated with it.

You might need to work really hard. You might need to cut expenses to the bone. You might need to renegotiate with all of your creditors and get caught up on your bills, renegotiate your debt agreement such that you can actually handle your payments. It doesn't matter why you're behind.

It just matters that you've got to transition to solvency where you're supporting yourself on your income and your current on all of your bills, paying as agreed with all of your creditors. Now, also I should say that this – you can run these things depending on how you run your finances.

If you're a family unit, then I just pull this as a family unit. If you're an individual, run it as an individual. However, you want to do that, it doesn't really matter. I think these stages can be applied regardless of how you organize your finances. So get financially solvent.

That's stage one. Then from financial solvency, we need to move to financial stability and that's stage two. Once you are current on all of your bills, you need to build a buffer account. I don't care. Call it what you will, an emergency fund, cash reserves or any day fund.

It really doesn't matter. The point is that you have money saved, a little bit of a buffer account. This is an incredibly important stage and this money needs to be money that's easily available to you, both for the bad times and for the good. Things happen. Problems happen. Unexpected problems happen.

Cars break. Jobs are lost. Kids break their legs. There are unexpected medical bills and illnesses and disabilities, unexpected pregnancies and all kinds of things. Problems happen and you need to have some cash in your life where you can deal with them. But also, unexpected opportunities happen. You're driving down the road and there's a great deal on a beautiful car if you have cash and you can walk over and hand the guy $100 bills and get yourself a great deal.

You're down at the flea market or you're cruising Craigslist and all of a sudden, there's a real steal of a buy if you can move quickly. You need financial stability and you need savings and savings give you financial stability. Now, how much savings? I don't know. Frankly, I think that's going to be very different for most people.

At this point, I would err on the higher side, higher than most people because I look at cash as opportunity. So unlike some financial advisors who say, "Well, just have three months of cash and then put everything in retirement accounts," I really don't like that advice. I like to have a lot of cash because I've seen the power of back to optimizing lifestyle.

I've seen the power that cash can have on your ability to optimize your lifestyle. If you have cash, you can really do some amazing things. You can buy the RV for the summer vacation because you see it on the side of the road at a real steal of a deal.

You can own it for two months and then you can flip it and turn around and do more. Well, you can't do that if all your money is locked up in your 401(k). But if you have cash where you can buy it, run it, and sell it and maybe your total cost was you lost $500 on taxes and you sold it for what you bought it for, that leads to really being able to optimize your lifestyle.

So I don't know how much the money should be. I love also Dave Ramsey's $1,000 emergency fund. I think he's proven, if you look at the success that people have had following his program, he's proven that having that just small amount of money can really be a good kickstart for so many normal, everyday, median income earners.

Saving $1,000 can mean the difference between going deeper into debt and getting out of debt. So for some people, it might be $1,000. For others, it might be $10,000. For others, it might be $100,000. And I think that should vary depending – for others, it might be more. It should just simply vary depending on where you are.

But my point is you need financial stability and that means you need savings. And I think you need to sit down and figure out what is my goal for a target level of savings. If you don't have a goal, I would say go with six months of expenses. It's as good of a rule of thumb as any.

At some point soon, I'll teach the CFP curriculum. They give either three or six months of expenses depending on whether you are a single individual with a job or whether you're a married couple with dual income versus single income. They always go back and forth between the three and six months.

I think six months is as good as anything. But if you want to use a different number, use a different number. If you have some savings and if you're current on all your bills, then you are now financially stable. You're at stage two. And you can move from stage two to stage three.

Stage three is debt freedom. Now, unfortunately, because of my more nuanced ideas and approaches to debt, I can't be as simple and declarative as get out of debt. You have to get out of debt at stage three. Not all debt is created equal. It's simply not. So you've got to look at an individual situation.

There are massively different types of debt and you've got to look at what your investment options are as well. But I do think most people should consider getting out of debt early in the process. And the reason is because I think that if you're able to get out of debt, then you're simply more free.

And remember that our long-term goal is financial independence and financial freedom. The ability to simply adjust your life and your lifestyle to whatever your current income is, that is powerful. It doesn't really matter why the debt exists. If you don't have any pre-obligated income payments, you haven't obligated your future income, which is what a debt is, then you're able to pivot on a dime and change.

You're able to leave one job and go to another job in another city that you're starting at a lower pay, but it's really got much bigger potential. You're able to leave the mind-numbing corporate job and move to the risky startup. And all you've got to do is just simply transition a couple of things and cut your current spending, but you haven't pre-committed all your income.

See, this is the major trap of debt, especially consumer debt, not investment debt. The major trap of debt is that you are requiring a future higher income. You're a middle management employee doing well, enjoying your corporate life. You pre-commit, you're earning $100,000 a year. You've a couple of car payments, a little bit of student loan payments, a mortgage payment, maybe a vacation property, whatever, just normal American lifestyle.

And then all of a sudden, you get a call from a friend. You're in the computer business. You get a call from a friend and you know this business has massive potential, but your friend is bootstrapping it, can't afford to pay you a lot of money. Well, if you don't have any debt, then you can take that risk because you're not pre-obligated with payments.

But if you've got a lot of debt and in order to make the risk, you got to go home and convince your spouse that we're going to sell three cars, we're going to move out of this house, we're going to move, it just doesn't go so well. And so you're more likely to stay with the theoretically safer option and you might miss out on the big win.

You might also miss out on the big loss. You'll have to judge the opportunity. My point is that freedom is not that hard to buy and it's largely involved with freedom from debt. So you got to sit down and look at your debt and create a plan to dump the debt or at least dump the debt that's not getting you closer to financial independence.

You've got seven mortgages on 11 rental properties, then I think you're well on your way to financial security and financial independence even if the debt is not paid off. So to me, this is not a clear saying that you must pay off debt before you get to this other stage.

You simply need to consider it and have a plan. For the debt, being debt-free is powerful from a lifestyle perspective. It's simple, quick freedom. Next stage is stage four, financial security. So we're going from stage three, debt freedom, to stage four, financial security. Here how I define financial security is essentially the start of independence and freedom.

If you are trying to go from zero dollars of investment income to enough dollars of investment income to cover your entire lifestyle, that's going to be a big difference. If you're going from zero dollars of savings to covering $100,000 a year from savings, that's going to take a long time.

So how do you stay motivated? Well, how my mind works is I stay motivated by partitioning off certain levels of expenses and saying, "These are now covered." On Monday, I shared with you episode 171. I shared with you to adjust the scale of your budget numbers for maximum mental impact.

I shared with you how I think of my income from radical personal finance. If I have somebody that signs up – let's say I have somebody that signs up for my Patreon account at – well, let's say I have five people that sign up at – let's say I have 10 people that sign up at $10 a month.

Now all of a sudden, I know, "Okay, there are my hosting fees. My monthly hosting fees are covered." So I've bought myself independence from my hosting fees. Or if I have somebody that signs up at $25 a month and I say, "Well, there's my cell phone costs." So I'm financially independent from my cell phone costs.

So what I'm trying to apply there, I'm not fully financially independent, but at least I have income. I have a paying subscriber who's able to – who's paying me and now I'm decoupling just a little bit. I'm a little bit more independent than I was before. So that's the idea that I was trying to bring to this.

So these next three stages are all based upon that. So I call stage four as financial security and that is where you are able to cover your basic living expenses from your investment income. So you get to define this for yourself. What I suggest is you got your housing expenses covered, rent or mortgage payments, your basic utilities, basic food, basic transportation and basic insurance.

Those are the basic need levels of life essentially. When those are covered by your investment income, you're well on your way with regard to financial independence. You've achieved financial security. Perhaps you would choose to measure that in terms of a minimum number. At least if I had $3,000 a month, I would be secure.

It's not what I really want to spend which is $7,000 a month but it's $3,000 a month. Figure out what is the basic level of lifestyle that you're trying to cover that would help you to feel financially secure to know that if you lost your job or your primary source of income that you're covered for at least the basics of life.

That's stage four financial security. Once you get to financial security, then the next goal is financial independence. So I've defined financial independence is when your current lifestyle expenses can be met with your investment income. Then you're financially independent. So whatever your current lifestyle is, assuming that you're living the lifestyle that is pretty much how you want it to be, when that is covered with your investment income, you're now financially independent.

That means that you could disconnect yourself from work if you want to. Now, does everybody do it at that stage? My experience has been that no, most people don't. If you're very focused on an early retirement financial independence goal, then you probably would but most people don't because most people you know they usually have some things they want to do that's a little bit more than what they're doing right now.

That's where you go into stage six financial freedom. So stage five, we've gone from stage four financial security with basic living expenses covered by investment income into stage five which is financial independence which means your current expenses, needs and wants are covered by investment income. We move into stage six which is financial freedom.

Financial freedom means that all of your lifestyle goals are able to be met by your investment income. So if you say, "I could get by on this but I'd really love to have a nicer lifestyle in this area." For some people, it's, "I'd like to travel a little bit more luxuriously.

I'd like to have two boats or a boat or an RV. I don't want to choose between this house and the other house. I want to own both houses." Whatever your ideal lifestyle goals are, sit down and write them down and figure out how to meet them. Once you can meet those ideal lifestyle goals from your investment income, you now have financial freedom.

The key is that it's your list of the things that you actually care about, not my list, your list. When your list is covered by your investment income and by your financial plan, you are now fully financially free. Which leads us next into stage seven which is financial abundance.

I've added this stage because this is a stage that many people don't think about. It's the most challenging stage of all in my opinion but it's not a bad challenge. It's a different challenge. See, going from financial dependence to financial solvency can be a major challenge for some people.

But the hardest challenge of all is when you have more money than you need to meet any goal that you have and you have to figure out, "What do I do with it?" If you've never been there or if you've never interacted with people who are there, perhaps you don't believe me.

Most people say, "Oh, that's a challenge I'd like to have." It's a challenge you will have probably. If you do the stages and work your way through it, it's a challenge you will have. Then you'll look back and say, "You know what? That was really challenging." Because now you have to decide how to responsibly manage the surplus.

You've got more money and more wealth than you're ever going to need to fund your own lifestyle expenses and there's a margin of safety built in. But now, what do you do with the rest of it? How do you allocate it properly? How do you make sure that it accomplishes something good and not something evil?

Who's going to control it? Who's going to control it when you can no longer control it? It's a major challenge, but it can be an enjoyable one. That's why I've included it here is stage seven, financial abundance. There's a different set of planning and ideas and major different set of thought process that you have to achieve.

You will probably go from, in stage four, five and six, you're focusing on what are the investment returns and what's the best investment plan for me to cover my lifestyle goals and my lifestyle needs and my income needs. Then you'll transition to saying, "How can I invest this money for impact?" Or if I've invested it purely for income, "How can I invest this income for impact?" Those are my ideas.

Those are my stages of financial independence that I've come up with. I'm interested in your feedback. The feedback that I got on this previously was that it's too many, too complicated. Well, I didn't want it to be so big. I could collapse some of these, but the problem is if you collapse them, you lose out on the ability to measure where you are.

I think, for example, for me, I'm celebrating $2,000 a month of income from radical personal finance. Right now, with the Patreon page, we've got 114 patrons and $1,191.50 a month. I'm celebrating that number. It's not the $6,000 number I need in order to turn away advertising, but it's a good start.

I've achieved a degree of financial security with that. I've achieved a degree of financial independence. I want to measure that and celebrate that. It's not financial freedom. It's not financial abundance. It's nowhere near what I need to meet my financial goals, but it's worth celebrating. That's the point that I'm trying to get across.

I really don't want to put these down anymore. I've already gotten rid of a few stages that I thought of that just weren't really tangible. Here's what I would like to leave you with. First, just quickly recount them in order so you can think about them. I'm going to leave you with an action step.

Stage zero, financial dependence, where you're dependent on others and you need to transition to being dependent on yourself, to be self-supporting. You're going to go from stage zero, financial dependence, to stage one, financial solvency. Solvency means you're able to support yourself on your own income without the aid of others and that you're current on all of your bills and obligations.

Moving from stage one, financial solvency, to stage two, financial stability, requires that you set aside some cash reserves, money that's available for unexpected problems and unexpected opportunities. To transition to stage three, debt freedom, you need to sit down and make a plan and say, "What's my plan for paying off debt?

Should I go ahead and eliminate my student loans or should I not? Should I pay off my mortgage or should I not?" That's debt freedom, make a plan. Sometimes the answer is, "I need to clear all these debts," because clearing all the debts leaves you free to go and do something different.

Sometimes it means, "No, I'm comfortable with these debts. They're all on favorable terms and they're not a factor in my life and so therefore I'm going to allocate my money into a different direction." Then we need to go from stage three, debt freedom, to stage four, financial security. That's where your basic living expenses are covered by your investment income.

Moving to stage five, financial independence, your current lifestyle expenses are covered with investment income. Moving to stage six, financial freedom, all of your lifestyle goals that you have set for yourself are covered with investment income. Once your list is funded, you're financially free and you move into stage seven, financial abundance, which is where hopefully you'll be for the rest of your life.

Here's my action step for you. You'll notice that this is primarily a mental construct and I haven't really defined numbers behind these things. That's intentional because you've got to decide this for yourself. My goals are not your goals. Your goals are not my goals. For me to tell you, "You have to save this percentage of your income," or, "You have to have this certain goal," that's a foolish thing to say.

It's different for all of us. I don't particularly value Lamborghinis and yachts and a condo in Miami and a condo in New York and a condo in Paris. I don't value those things, but it doesn't mean that you don't. The things that I value, you might not. The key is to define them for yourself.

Here's my action steps for you today. Figure out where you are on these stages and figure out what it would mean to you to go from the stage where you are to the next stage. Are you dependent? If so, what would it take for you to become solvent? Are you solvent?

If so, what is your number for when you will declare yourself stable? Is it six months of cash or is it two years of expenses? Is it $5,000? $1,000? Because you're getting started? $5,000? $50,000 or $100,000? What would it take for you to be free from debt and should you be focusing on that first?

What is financial security defined as for you? What is financial independence defined as? What is financial freedom? What are all those stretch lifestyle goals that you may or may not do but you think you'd probably like to do? Then ultimately, what is financial abundance and what would you like to do?

That's a show for another day, but the reality is if you can skip mentally right to stage seven, I think it'll transform the rest of your life. If you can skip right to the point of saying, "How can I invest for impact?" That goes back to what you can do with optimizing lifestyle.

It can transform things, but that's a show for another day. Those are my ideas. Those are my stages of financial independence modeled in some ways off of other people's things but largely just due to me sitting down and trying to think through it as I can't really copyright an idea in this type of space because in many ways, these things are self-evident, but I think they're the most useful to me.

If you'd like to look at them, I've got some pretty cool little icons chosen for them. I like the icons that I picked. Go to RadicalPersonalFinance.com and click on Topics and just click on the Stages of Financial Independence and figure out where you are. I hope they're useful for you.

I hope they can be a useful mental organizing model for you. Really, that's primarily all of what financial planning is and what these financial topics are. It's mental. A financial plan is a mental thing. It's a plan. It's not all it is. Yeah, it's got fancy paper and fancy graphs and all that stuff.

That's just all salesmanship, which is valuable, but the most valuable thing is you knowing where you are, having a vision, having a plan, having a goal. Yes, these are mental things and they're different for each one. That's where there could be problems with one stage versus another, but it's just a mental construct, but it's a useful mental construct because it keeps you focused.

You know where you are in your journey. Define them for yourself so that you can know when you have enough. The key is to know what's enough for you. It's pointless to chase after more, more, more, more, more. Unfortunately, especially in the U.S. American context, that's basically what we do is just constantly chase after more, more, more, more.

Get off that treadmill and define the plan for yourself. Define what each of these stages means. Define what enough is. Remember, it's your plan. You could change it any time. If you reach a certain stage and realize, "You know what? It's not enough. I need to change something," no problem at all.

Recognize that you can't do anything. You can't do any of these stages. You can only increase your income, decrease your expenses, invest wisely, avoid catastrophe, and optimize your lifestyle. That's what you can actually do. Focus on what you can do. Learn what you need to learn from the life event planning or from just the comprehensive financial planning curriculum.

Understand where you are, but apply it to your life with what you can do. That's it. That's all I got for you today. If this has been helpful for you, I'd be thrilled if you would become a patron of the show. If you're not already, to those of you who are, thank you.

I don't say that enough. Thank you. I am honored and thrilled that so many of you have chosen to support the show financially and that you're making this crazy crowdfunding thing work. We're on our way. The first goal is $2,000 a month. Once we get there, we're currently, as I said, at $1,191.

Once we get there, I got a new intro that I will commission for you. And then we're on our way to $6,000 per month to keep the show ad-free by June 1. If you can help get there, I'd be thrilled. Go to RadicalPersonalFinance.com/patron. Thank you. Thank you for listening to today's show.

If you'd like to contact me personally, my email address is joshua@radicalpersonalfinance.com. You can also connect with the show on Twitter @radicalpf and at facebook.com/radicalpersonalfinance. This show is intended to provide entertainment, education, and financial enlightenment, but your situation is unique and I cannot deliver any actionable advice without knowing anything about you.

Please, develop a team of professional advisors who you find to be caring, competent, and trustworthy, and consult them because they are the ones who can understand your specific needs, your specific goals, and provide specific answers to your questions. I've done my absolute best to be clear and accurate in today's show, but I'm one person and I make mistakes.

If you spot a mistake in something I've said, please help me by coming to the show page and commenting so we can all learn together. Until tomorrow, thanks for being here. With Kroger Brand products from Ralph's, you can make all your favorite things this holiday season because Kroger Brand's proven quality products come at exceptionally low prices.

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