What level of wealth are you currently in?
Knowing the different stages of wealth can make a huge difference in your financial journey! Each stage has its own challenges, but when you know where you stand, it’s easier to set goals, dodge common mistakes, and make smarter money choices.
In this post, we’ll explore every stage—from struggling to thriving with abundance—and give you tips to help you move up. Figure out your stage, follow some helpful steps, and start planning your path toward financial freedom.
Ready to find out where you’re at and where you’re headed? Let’s dive in!
Stage 1: Clarity Wealth
Description:
In the clarity wealth stage, you might rely on government assistance, credit cards, or loans just to cover your daily expenses. This is a challenging place to be, but there are strategies to help you move forward.
15-20% of people fall into this stage, relying on government assistance, debt, or living beyond their means.
How to Move Up:
- Create a Budget: Write down a detailed budget to understand where your money is going. Identify non-essential expenses that you can eliminate.
- Identify Necessities vs. Wants: Differentiate between necessities and non-essentials. For example, a new phone or eating out frequently isn’t necessary.
- Start a Side Hustle: Find ways to bring in extra income, like freelance work, selling unused items, or starting a small business.
Stage 2: Self-Sufficiency
Description:
In the self-sufficiency stage, you’re no longer reliant on government support or family for financial assistance, but you’re still living paycheck to paycheck.
40-50% (or more) are here, often living paycheck to paycheck, covering bills but without financial flexibility or emergency savings. As you will see, most people fall into this category.
Tips to Advance
- Frugal Living: Reduce expenses by cooking at home, canceling unnecessary subscriptions, and finding cheaper alternatives.
- Build an Emergency Fund: Aim to save at least $1,400, the average cost of an emergency. This fund will protect you from slipping back to Stage 1.
- Relocate if Necessary: Consider moving to a more affordable area to lower your monthly expenses.
Stage 3: Breathing Room
Description:
You’ve started building a financial cushion, and you no longer live paycheck to paycheck. You’re putting some money towards investments and financial goals, but it’s important not to become complacent here.
15-20% have a little more security, with a small emergency fund and the ability to cover occasional unexpected expenses.
Key Steps:
- Automate Savings and Investments: Set up automatic transfers to save at least 15% of your income.
- Avoid Lifestyle Inflation: Resist the temptation to increase spending just because you have more breathing room.
- Watch Out for Traps: Monthly payments and small luxuries can quickly add up. Avoid financing big-ticket items that can hold you back from progressing.
Savings Rate (%) | % of Americans at This Level |
0% | 21% |
Less than 5% | 20% |
6-10% | 28% |
15%+ | Top 16% |
Stage 4: Stability
Description:
With a solid emergency fund and investments in place, you’re financially stable. You have enough savings to cover a few months without income, giving you the flexibility to make bigger life decisions.
10-15% have a solid emergency fund and perhaps a basic investment plan, but they’re still far from full financial freedom.
Tips for Growth:
- Continue Self-Investment: Use extra funds for courses, certifications, or skills that can increase your income.
- Maintain a High Savings Rate: Aim for a 25% savings rate or more to grow your wealth faster.
- Avoid Big Purchases: Be cautious with high-cost purchases like new cars or larger homes. These can lock you into expenses that make it harder to save.
Stage 5: Wealth Building
Description:
In the wealth-building stage, you have assets that generate income, such as investments or rental properties. You’re no longer dependent solely on your job, which allows you to take calculated risks that could increase your earnings even more.
5-10% are in this stage, where their investments or income streams are growing and beginning to support their lifestyle.
Wealth-Building Strategies
- Focus on Multiple Income Streams: Look into real estate, side businesses, or dividend-paying stocks.
- Set a High Savings Rate: Try to save 50% or more of your income.
- Invest in What You Know: Avoid the trap of investing in things you don’t understand. Stick to what you’re knowledgeable about, whether that’s real estate, stocks, or other assets.
Common Traps:
- Lifestyle Creep: Avoid increasing your spending just because your income is growing.
- Random Investing: Don’t throw money into trends or stocks without research.
Stage 6: Financial Independence
Description:
Financial independence means that your investments or income streams cover all of your living expenses. You’re no longer required to work, giving you the freedom to spend your time as you please.
3-5% reach financial independence, where investments or passive income cover their essential expenses, allowing them to live without needing a traditional job.
Types of Financial Independence
- Barista FIRE: You can work part-time to supplement your investments, covering all expenses without fully depending on traditional employment.
- Lean FIRE: Living on a minimal budget, your investments generate enough income to cover modest living expenses.
- Fat FIRE: A robust form of financial independence with a higher standard of living, allowing you to comfortably spend without worry.
Lifestyle Choices:
Travel as you wish, take up hobbies, or volunteer. You have the freedom to explore new opportunities and enjoy life without financial stress.
Stage 7: Abundant Wealth
Description:
At this stage, wealth is abundant, typically categorized as having assets over $10 million.
Money is no longer a limitation; you can make large purchases without hesitation or concern.
<1% of people achieve this level, having more wealth than they need for the rest of their lives. They often have diversified investments, high-value assets, or successful businesses.
Path to Abundant Wealth:
- Start a Business: Many people reach this stage through successful businesses or inventions.
- High-Yield Investments: At this level, you might invest in large-scale projects, high-value real estate, or multiple businesses.
- Strategic Asset Management: Focus on wealth preservation through diversified and high-yield investments.
“Having abundant wealth isn’t about affording more things—it’s about never having to consider what something costs.”
Conclusion
Achieving wealth is a journey that takes careful planning, discipline, and clear financial goals. Moving through the stages of wealth—from negative wealth all the way to financial independence—means making sacrifices, setting budgets, and learning continuously.
By figuring out where you currently are in the stages of wealth, you can take smart steps to move forward. Whether you’re just starting to save or already investing, understanding these stages can guide you toward financial freedom and, ultimately, a life of abundance.Question: Which of these stages of wealth do you think YOU are in right now??
Share in the comments below and tell us one action you’re planning to take to move forward! Let’s support each other on this journey to financial freedom.