5 Stages of the Financial Wellness Roadmap

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There are 5 stages on the Financial Wellness Roadmap. You’re probably familiar with these terms: financial literacy, financial capability, financial security, financial independence, and financial freedom.

5 Stages of the Financial Wellness Roadmap

I created the Roadmap to guide you to better health and wealth. My hope is that you enjoy living today as you plan for a better tomorrow.

Achieving well-being isn’t the final destination on the Roadmap. Financial well-being happens as you progress from financial literacy to financial freedom. The knowledge and ability to face financial issues with confidence coupled with better money management and planning can lessen the financial stress and its impact on your health.

The Financial Wellness Roadmap

The Financial Wellness Roadmap helps you visualize the steps necessary to achieve financial and life goals. Keep in mind financial wellness takes into account how you’re feeling today and desire to feel tomorrow.

Ultimately, the goal is to regain control over our time. Time is more valuable than money. Once the time is spent we can no longer make more of it. On the other hand, money can be created in various ways. The reality is that most of us exchange our time for a paycheck or indebted to creditors ensuring our time is allocated to work rather than fun.

On the road to financial wellness, my Roadmap begins with financial literacy, a fundamental aspect of financial wellness, to understand money and finances. You’ll be able to navigate the stages more easily as you gain more financial knowledge. However, keep in mind, learning continues at every stage in the Roadmap.

End-stage is financial freedom.

I define financial freedom as a state of living where you control your time. In essence, you’re free to do as you want and when you want. As you work towards financial freedom from the starting point of financial literacy, I want you to envision how you will use your time. The process of creating a vision for your life and clarifying your values will help you set the right financial goals.

Learn more about financial wellness.

Stage 1: Financial Literacy

Financial literacy is understanding the basics of personal finance, banking terms, and how money works. You’re able to recognize the products, services, and tools needed to manage your financial life. Becoming financially literate is an ongoing process but at this stage, you’ve gained enough knowledge and awareness to help you manage money and set goals.

At stage 1, you could answer questions like: how does compound interest work? what is a checking account? do you know the difference between a credit report and score? why contribute to a 401(k) plan?

Key features:

  • understanding money and banking terms;
  • budgeting skill;
  • credit knowledge;
  • investing and retirement basics.

Learn more about becoming financially literate.

Stage 2: Financial Capability

Financial capability is being knowledgeable and capable to make better decisions with your money. You’re knowledgeable about your financial options and capable of banking and creditor relationships. The World Bank defines financial capability as encompassing “knowledge (literacy), attitudes, skills, and behavior of consumers with respect to understanding, selecting and using financial services, and the ability to access financial services that fit their needs.”

At stage 2, you can answer questions like: where do you bank? what’s your credit score? why do you save money? how do spend?

Key features:

  • abundance mindset;
  • research and verification skills;
  • assessing financial offers;
  • using banking products and services.

Learn more about becoming financially capable.

Stage 3: Financial Security

The third stage is about peace of mind and facing little to no financial stress. Financial security is when your income is enough to cover your monthly expenses and debt obligations well into the future.

With financial security, an emergency will not derail your financial outlook, and you have money saved to cover unexpected events or financial setbacks. Money is managed well. You can cover your basic needs and also enjoy some luxuries. Essentially, you’re creating wealth and on track to achieve financial goals.

At stage 3, you’re can answer questions like: what’s your budgeting method? what’s your net worth? how much is in your emergency fund? what’s your debt-to-income ratio? savings rate? 

Key features:

  • budgeting;
  • an emergency fund;
  • managing debt and credit;
  • savings accounts;
  • retirement planning;
  • and investment income.

Learn more about becoming financially secure.

Stage 4: Financial Independence

Financial independence is reached when you have enough money to cover your basic needs and some luxuries too. Expenses are paid from savings accounts, income generated from assets or investments, and some work. Basically, you must have sufficient wealth to live without depending on a job. The sign of financial independence is when working is a choice and not a requirement.

At stage 4, you can answer questions like: explain the 4% rule? what’s your retirement withdrawal rate? how much money saved? how much is your savings earning? do you factor inflation?

Key features:

  • control lifestyle inflation;
  • holds no debt;
  • healthy savings accounts;
  • earnings outpace withdrawal;
  • passive income streams;
  • diversified assets and investment portfolios.

Learn more about becoming financially independent.

Stage 5: Financial Freedom

Financial freedom is the stage when you can be and live how you want without the trappings of finances. You’re living the life you choose.

Similar to independence, financial freedom means your wealth covers lifestyle choices and expenses. Making money is not a priority and work is purely a choice. Additionally, financial freedom can mean the ability to take on risky opportunities because finances aren’t an issue.

Financially free people have attained a high level of financial knowledge, accumulated enough wealth, manage money exceedingly well, and make mindful spending decisions. You have regained full use of your time to do as you wish or to serve a greater purpose.

At stage 5, you’re able to answer questions like: how do you spend your time?

Key features:

  • control over one’s time;
  • large financial nest egg;
  • income-producing assets;
  • passive income streams;
  • investments.

Learn more about becoming financially free.

A Final Thought

To many people, it may seem impossible to achieve financial independence or freedom, but that is not the case. A big factor keeping many from moving to stage 4 or 5, is lifestyle inflation. The cost of your lifestyle continues to increase as your income rises. Lifestyle inflation prevents you from paying off debt or investing. The more debt you hold and having only one source of income (from a job) will prove to be road barriers.

Financial independence and freedom are based on individual lifestyle choices and goals. They vary a great deal from one person to another. Therefore, financial independence and freedom have different financial goals for each person. Some people may live minimally requiring less money while others may want a luxurious lifestyle requiring more.

When you begin your journey on the road to financial wellness, start by creating a vision for your life and clarifying your values. Prioritize spending on what adds value to your life. Be mindful of credit use and save purposefully towards future purchases. Remember, the goal is to regain control over your time to do more of the things you love.

Remember, the goal is to regain control over your time to do more of the things you love.

What are your thoughts on the Roadmap? Have you achieved any of these stages?

Jason Vitug

Jason is the founder of phroogal, creator of the award winning project Road to Financial Wellness, and author of the bestseller and New York Times reviewed book, You Only Live Once: The Roadmap to Financial Wellness and a Purposeful Life.

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One Comment

  1. Very interesting topic. I have never figured out or have a thought to understand at which stage I am currently in. It’s good to take a step back and strategize how long I need or how to achieve the ultimate financial goal based on my current state of financial wellness. Thanks for sharing.

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