Stages of financial independence

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I was talking with my co-worker about financial independence and I notices we have different ideas about it. He thought that if he was financial independent he could drive sports with pretty women in some paradise island and that he would have millions on top millons cash in some safe. In my idea it’s much smaller, just to have enough that it will generate income that I can get by. Mine is million on top of millions smaller in the amount money it will take to be financial independent.

But this got my thinking is there actually different levels or stages of financial independence and I do think there is. So I went on the search for what these might be and I found this really good video on YouTube about them. So, there is six stages of financial independence, or seven, depends how you calculate them.

Stage 0 – Dependence

This is actually the starting point when thinking about stages of financial independence. At this stage you depend on others or taking on debt for surviving your financial obligations. You are spending more than you make and if you don’t find a way out of here you will never be able to be financial free. When you start earning more that you spend or you start spending less than you make, you take the first step to becoming financially free.

Stage 1 – Solvency

This is the stage where you can meet your financial obligations without help from others or from needing to take on more debt. You are spending less then you make. You might have some big debt payments still, but you can manage them. Also, I think that not all debt is bad to have, those comsumer debts, like credit cards and such are bad but your mortgage is not. I myself are struggling to be in this stage, I spend less then I make, sometimes there is problems but my buffer can handle those, and most of my money goes in to paying off debt. With hard work on saving and being frugal I hope to reach next stage soon.

Stage 2 – Stability

This is the stage where you have paid off all your comsumer debt, or bad debt. You have buffers so when you have suprises, your buffer can handle those without needing to take on more debt. This is stage at the moment I’m working towards. There is some distance before I will reach it but with hard work and frugal habits I should reach it.

Stage 3 – Agency

This is the financial independence stage where you can live and work as you choose. You have paid off all the debts or you could do that if you wanted to. There is actually reason why you should not pay off all your debts.

Stage 4 – Security

This is stage you reach when your investments can cover your basic expenses, like housing, food, clothing. It’s not finest life style, but you could stop working and live like this for rest of your life. This is the stage that I was thinking about when I was talking with my co-worker. People dream of different things.

Stage 5 – Independence

This is stage where your investments can cover your current lifestyle, I presumed that your living a lifestyle now that’s over the basic, like most of us are. At this stage you would not need to change anything but the working part, you would not go there anymore.

Stage 6 – Abundance

This is now stage that my co-worker where thinking about, being so rich that you can do anything you want, when you want it, for as long as you want it with whoever you want it with. This is something I did not even dream for myself, I’n not interested being the richest man in the world. I think I would just try to good with the money that goes over what I would need to be financially independent on. Like start a charity or something.

Comment on where are you at the moment and what stage are you hoping to reach, I would like see what others are driving for.



Income and Expenses for May 2016

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I have been following my income and expenses for couple years now. It started for as a way to see how I actually was spending my money and for the first few months I was spending a lot more than I was making. I did some corrections to my spending to make sure I did not spend more than I make.

I hope that by following actively my spending, it will keep me for spending too much. Also I want to spend my money on the right things and pay off my debts.

Other thing is that I want to show that even if I do not earn the most. I still can save and invest and hopefully reach financial independence.


Paycheck: 2,343.00€



maintenance fee: 171.95€
Mortgage interest: 225.00€


Food and others budget: 500.00€
Washing machine: 410.00€
Gym: 66.00€
Fuel: 60.00€
Daycare: 46.00€
Internet: 19.90€

Debt payments

Mortgage: 750.00€
Student loan: 125.00€
Credit card: 100.00€
Spending loan: 100.00€

Total: 2,483.85€

Income in May was higher than normally because of overtime, but expenses where still even higher. Our washing machine broke and we needed a new one. In a 3 person family washing machine is something that we really do need. I managed to find one on discount and it washes and dries our laundry. It was also 19 years younger model then the previous one, so it saves on water and electric compared to the old one, and takes less space because it’s only one machine when we used to have separate washer and dryer.

Other than that, this was usual month with spending. I paid off over 1,000€ of my debts, that’s a good thing. Without this washing machine thing I could have paid off more and save some also. But no such luck this month.

I need to talk with the gym for them sending my bills. I have card thing I get from work and I paid with that already, so there should not be any bills coming to me, but for some reason they keep sending me those, I paid those but next couple should be free, and they I get more money on the card from work.

I also changed to the weekend shift this month, so, next salary should be higher because of the extras, those sunday compensations. I don’t know to they pay extra in everywhere for working on Sundays, but in Finland they to so it makes sense to work on Sunday for me.



How much is needed for financial independence


How much I need for financial independence

I hope to reach financial independence at some point. That point would be for me when I make about 2,000€ a month in passive income. At that point I would not need to work but passive income would cover all my expenses.

To reach that point I would need about 24,000€ of income after taxes a year. So, before taxes that would be something like 35,000€. Finland and taxes, we sure know how to tax. If I can get 10% return on my investment I would need 350,000€ of capital to gain it. To play it safe, I would say 500,000€ would be enough to reach that income.

How long would it take to save that

If I could save 10,000€ a year it would take me 50 years to reach that. So, I need to get my savings to work for itself so that I could reach that sooner. I really hope that I could retire when I’m 50 years old at the latest and that is 18 years away. So, I really need up my savings and make them work for me faster.

I got about 40,000€ at the moment, so I need 460,000€ more to reach my goal. I did some calculations and if I save 725€ a month and I can get 8% return on my investment, I could reach my goal of having 500,000€ by the time I reach 50. That is the target that I’m aiming.

Playing it safe

To make sure I reach that target I will try to safe more then 725€ a month and try to gain more then 8% return on my investment. Maybe If I double my investment to 1450€ a month I could reach my target 6 years earlier, just play it save that I really could retire at 50. Maybe if could get double the return on my investment I could retire 6 and half years earlier. Maybe I could be able to do both, I would be be able to retire 9 years earlier to my target.

And retiring at 50, it’s actually 20 and half years earlier then my retirement age is at the moment to get full pension from goverment in Finland. The pension systems are different in every country, but in Finland it works this way. You go to work, you get paid, goverment takes taxes and something for the pension fund. You work for a while, in my case till I’m 70 and half years old, and then goverment starts paying me my pension. Amount of the pension depends on the amount you have earned during you’re working carreer. But what I know about the system, it’s less then you made working, and it doesn’t rise with inflation, so every year you will need get by with less and less.

So to play it safe, I think it’s important for me to save something to the side that actually rises every year, like passive income streams for stock that keep raising their dividends.