Financial milestones provide a clear path to achieving financial success. Starting from dependence on others for support, individuals work towards financial abundance where their investments generate more income than their expenses. Along the way, they must learn to manage debt, build an emergency fund, and make strategic investments to grow their wealth and achieve greater financial freedom.
Main Action: Learn to support oneself.
The first financial milestone is dependence, which is the starting point for many people. At this stage, individuals rely on the financial support of others, such as parents or guardians. The actionable step to move out of dependence is to start learning how to support oneself financially, such as by getting a job or developing marketable skills. This can involve going to school or vocational training to gain the necessary knowledge and experience to enter the workforce.
Main Action: Reduce expenses or increase income.
The second financial milestone is solvency, where individuals have an income but struggle to make ends meet due to expenses and possibly debt. To move towards solvency, the individual must either reduce their expenses or increase their income, while also staying current on all their bills. This can involve budgeting, negotiating bills, and seeking ways to increase income through side hustles or part-time work.
Main Action: Build an emergency fund.
The third financial milestone is stability, which involves building a buffer against financial emergencies. This includes building up an emergency fund that can cover living expenses for several months. To achieve stability, individuals need to save money by cutting back on expenses, earning more income, and actively managing their finances to avoid incurring new debt.
Main Action: Pay off bad debt.
The fourth financial milestone is freedom, where individuals have paid off any bad debt (such as high-interest credit card debt) and can begin to focus on more long-term financial goals. This involves freeing oneself from the burden of debt and establishing a positive net worth. This can be achieved through methods such as debt consolidation, debt settlement, or debt payoff strategies like the debt snowball or debt avalanche.
Main Action: Reduce expenses again or increase investment income.
The fifth financial milestone is security, which involves creating a reliable source of income to cover basic living expenses. This can be achieved through investments that generate a steady cash flow, such as rental properties or dividend-paying stocks. The goal is to create a passive income stream that covers all basic living expenses, so that individuals no longer need to rely on traditional employment for income.
Main Action: Enjoy your freedom.
The sixth financial milestone is independence, where individuals' investments generate enough income to cover all living expenses. This means that they no longer need to work for a living and can instead focus on building their wealth through investments. To achieve financial independence, individuals need to continue building their investment portfolio and growing their passive income streams through smart investment strategies.
Main Action: Make a positive impact.
The final financial milestone is abundance, which represents a level of financial abundance where the individual's investments generate more income than they need to cover their living expenses. This allows them to pursue their passions and help others through philanthropy or other forms of charitable giving. Achieving abundance requires a strong investment portfolio and a commitment to using one's resources to make a positive impact on the world.
