How to go from Broke to Affluent: A Guide to the Seven Wealth Stages of Financial Freedom for Millennials

Table of Contents

What Stage Are You At Now?

Summer is heating up. The pandemic is loosing steam or fatigue is setting in. Bikini season and Slayage in full effect. The travel industry is reemerging like the phoenix against all variants. Losing Pounds in England. Throwing Euros into Trevi Fountain.

While Instagram looks more and more like a music video with multiple yacht parties; I’m sure you are either on a flight reading this article, out of boredom; or, taking an Instagram hate-liking break (that’s when you like the pic but you secretly want to switch places).

The Political Stage and its Actors

Though the Democratic Debates are long gone. Uncle Biden is smiling his way through the presidency. Crazy Uncle Bernie is still being mad intense. Everything will be “FREE” approach.

While Aunt Liz is promising to pay off all our student debts. It’s a great time to be a millennial (maybe). With all the promises floating around, someone has to ask where is the money coming.

Where do I stack up?

This is a concept expanded from the three stages of personal finance.

Free resource: Money Management Estimator

Stage 0 – Baby Dependence

There is no way to go but up. We are pretty much woke up like this. This is where you ask your parents for money; they say “No”. You walk away (maybe angry) to try again another day. Some people go through college fully dependent on their parents. Your parents are your wingman. You likely have little to no income.

The Blank Slate with No Major Mistakes

This is also a fast debt accumulation phase. If you are not careful, you can easily owe up to $5k in credit card debt and anywhere from $20k-40k in undergraduate debt, as well as a car loan for $7.5k. It’s the death by a thousand cuts approach. You likely won’t know about it until your credit card is declined for the first time and your credit score deeps below 600.

By all accounts, you are a child. This stage can last until you are 35 if you aren’t’ careful. Going back to live with your parents is a great financial strategy to save, pay off, and build but most people get stuck. They often buy expensive cares to make them feel like an adult but they have a curfew.

Baby Dependence can also have happened if you are a single parent whereas you depend on your partner to chip in the support for the kid/s. Technically you are dependent; if the person said there are no funds, you are screwed.

Stage 1 – Insolvency and Blissful Ignorance

Insolvency simply means you cannot meet all your financial commitments. The umbilical cord is severed but you are barely living paycheck to paycheck. You are accumulating debt but aren’t tracking your net worth so you don’t really know the damage.

Blissful Ignorance of the College Stage

Blissful Ignorance is an amazing state of happiness often found YOLO-ing through your 20s. You are hopeful and determine that once you meet (insert blank), your life will automatically change. Once you earn (insert blank), everything will be forgiven and repaired.

This is likely the worst step to be stuck. This can last through your 40s before you realize that you wasted all your prime saving/investment years.

Stage 2 – “Barely Making it” Solvency

When you are barely making it, you have reached this stage of financial solvency. You can pretty much pay for what you owe but if anything else happens you are screwed.

Your emergency savings account is really a “will use in a few months” account.

Saving $100 a month makes you feel amazing but spending it six months later on your vacation or for a wedding and voila back to “barely making it” status. Fear not, this stage gets old quick (or it should). You still owe way more than you think and you aren’t saving anything to compensate. It’s an uphill struggle.

It will force you to either start considering the next stage, or you will get angry and fall back into stage 0 or 1. Consistent change is not an easy feat especially for a generation that can barely wait for a video to load in 30 seconds. The average age for this stage 20s+ because college is a heck of a drug.

Read The Case for Saving as Early as Possible to get some perspective.

Stage 3 – Financial Stability Pt.1: “Assisted Faux”

Congrats you have made it to assisted faux stability. This is the stage when you can pay your bills, save at least 5%, while casually using your credit card for brunches, day parties, lavish wedding spending, and #travelnoire vacations. You look great, toned and drink green drinks while detoxing once a month.

You actually worked the nerved to pay an adjusted student loan payment or you are paying for a new car. This is a feel-good moment. For some reason, you still have no clue about interest rates or financial literacy but as stated before you look great.

You started to repaid your excessive consumer debt of about $7,500+ (likely in your 30s). At this rate, you are itching for some savings. You are finally strong enough to tell your friends, the turn-up is unnecessary. In this stage, what appears to be successful people owe as much as $60k to $115k. They are one emergency away from a full mental breakdown.

You have an idea of what you need to do but you don’t have a plan just yet.

Stage 3a – Financial Stability Pt.2: Adulting-but-Kinda

You are now an adult. It likely took you 32 years but you made it. You achieved the Adulting but Kinda Stability level. You have a plan. Or something that looks like a plan.

You repaid your consumer debt, and started a modest savings account. Consequently, you are finally matching your 401k at work. You know stuff. You even have decent credit. This is the moment that you start to drink cold brews. You are ready to look for a home!

Stage 4 – Big-Baller Free Agency

This is the final phase of your financial infancy. You are actually doing it. Riding out without training wheels, and going downhill quickly. You know how much you are worth. You are living kinda debt-free minus student loans, and mortgage debt. Be the Yoga warrior. You are even on automatic bill pay. Now you are ready to invest and start to build an empire even in a small condo.

They refer to this as moving from Survival Mode to Thriving Mindset.

Money is no longer an object to throw aside, it’s a tool of opportunity. You will start to grow in confidence. Your mind is stable. You no longer look at the Joneses for your financial cues.

You will even start to formulate plans to have your money work harder for you. This is the idea generation phase. House hacking. Jumping into a business. Becoming the cool entrepreneur that never sleeps. Buying real estate and flipping. Genting rental property. This is the time to consider how to accelerate your money moves.

The average age is about 32+

Stage 5 – Financial Security

Congrats you made it to financial security.

Your investment income from the dividends or the rental income property can cover your basic needs. Based on how much you have saved and invested, you are on track. You are moving with a plan and a purpose in life. If you are married with kids, you are formulating a long term strategy and are preparing for all possible outcomes.

You are cutting pointless expenses and doing what you love instead. Unfortunately, you have friends but you know when to say no and when to party harder. You are in financial control. At this stage, you barely need to show up to your 9-5. You can throw the deuces or professionally write the letter (insert blank) date for your boss and voila.

You technically never have to work another day in your life, if you don’t want to.

Stage 6 – Financial Independence

Financial independence was the goal of the journey. You likely want to reach this numerically by 50. However, the FIRE movement acolytes have been doing this by 35+. Life isn’t all about money so you can also count your kids as your ultimate investment.

At this stage, your savings and investment income cover all your standard of living annually with a 4% depletion.

The goal is to leave a ton for your kids and grand kids. The basics should be paid for. Debt should be negligible or flat out zero. You are in a great position to ride the horse to the end.

You have enough. And you are genuinely comfortable.

Stage 7 – Abundance, Affluence, and Influence

This is the final stage of financial independence and freedom. You have “enough — and then some”.

You are taking extended trips overseas. However, you are the top 20% that are hated by the average American. You put in the work and the effort. Your passive income from all sources will not only fund your lifestyle indefinitely but grant you the freedom to do whatever you want. This creates an abundance cycle. You can now afford to invest in others, thus generating wealth for yourself and anyone else.

You are fine and your kids’ kids will also be fine. This is the level that I’m shooting for. Can it be done? Yes.