8 Stages of Wealth

How wealthy are you?

Are you financially free?

Usually we don’t know how to answer these, and good thing we can have some measurements and indicators to know where we are.

This is for us to know how we can achieve that financial freedom we’ve always wanted.

For some, achieving financial freedom is close to impossible thing

and it’s frustrating.

It will make sense when we dissect them into smaller milestones.

In this post, I will tell you how we can move onto the next stage.

Some who are lucky enough to be born in rich families can absolutely jump to higher stages of wealth.

Most of us would go through all of these stages like ladders step by step.

I enumarated here the 8 stages of wealth and how we can get to the top.

Stage 0 – Financial Dependence

This is the stage where a person depends on others for survival, education, luxury, and other expenses.

We start here when we were born up to the time we start earning our own money.

This is a stage 0 since we all started where we don’t even earn our own money.

As a kid, we rely on our parents or guardians for food, shelter, clothes, toys, education, and literally all our expenses.

Once we graduate, we look for jobs to gain Earned Income.

You may still be under this stage if you are still dependent on your parents or guardians.

This usually happens when you started working and still live with your parents

In this stage, you will have negative net worth (assets < liabilities) and negative cash flow (income < expenses).

I’m not saying being in this stage is bad, we all started here.

This can still be good depending on which assets or expenses you are paying for.

To get to the next stage, you will need to have at least basic knowledge in tracking and managing your own finances.

My blog posts are intended to help you overcome this stage.

Let me help you by reading all my blog posts.

What’s more is there are bonus excel sheet templates that you can use.

Stage 1 – Financial Solvency

This is the stage where a person starts earning money, and becoming more responsible.

He/she shows motivation, change in money beliefs and values.

You already have goals in mind that you know can’t be done without earning money.

You start seeing money as a fuel to a better life and not as a root of all evil.

In this stage, you will have a positive net worth (assets > liabilities) and positive cash flows (income > expenses).

Net worth can still be negative, but you stop getting more loans.

You start getting positive cash flow because of getting earned income and decreasing your loan payments.

To get to the next stage, you should start paying those loans especially those with high interest yield
then start building your savings preferrably at least 1 month worth of your current expenses.

Stage 2 – Debt Freedom

Once you are financially solvent, you start adding additional payments to all those loans.

This should fast track your loans and lower total interest yield.

Some may argue that this is insane since mortgages usually takes 25-30 years to pay off completely.

Mortgages are exceptions to this stage.

Prioritize paying loans especially those with high interest yields.

You will know that you have overcome this stage when you have 0 outstanding balance from your loans.

You might be using your credit card, but you can pay it all immediately to avoid accrued interest.

Paying off your loans will increase your net worth and cash flow as you decrease your liabilities and loan fees & charges expenses.

Once you paid off your loans, you can now build your savings and get to the next stage.

Stage 3 – Financial Stability

Once you are debt free, financial stability is the stage where you start building up emergency funds and other risk management tools such as insurance.

This is important so as not to disturb your savings and cash flow.

If you will rely on your income when an emergency comes, you will totally be screwed with your financial goals.

You may be able to cover the emergency expenses with your income now, but your other expenses later on will surely get you to get loans either from family, friends, or banks.

In this stage, aside from building your savings you also build emergency funds.

Starting from this stage onwards, you will have a positive net worth and cash flow.

Please note that emergency funds is better separate from your savings to make sure it will not be tapped for other expenses.

Once you can stand an emergency, you can now consider yourself as financially stable.

To get to the next stage, you should have an emergency fund or insurance that will cover your emergency needs.

This is to ensure that you will not have to resort to high interest loans.

Stage 4 – Employment Flexibility

Since you are now financially stable, your next goal is to build, build, build your savings.

In this stage, you may want to divide it into smaller milestones such as 6-months, 1-year, and 2-years.

You may either increase your income by adding some side hustles or decrease your expenses up to the most minimal survival.

First, build your savings for you to be able to build a 6-months worth of your expenses.

Compute your average monthly expenses on a minimal lifestyle enough for you to survive in 6 months through this formula Savings = 6 x monthly survival expenses.

If your average monthly expenses is 15,000, then you should have 90,000 balance on your savings.

This is to ensure that if a crisis happens today, you will still be able to survive for 6 months.

Once you achieve this milestone, you will have the confidence in surviving even if you lose your job today.

Next milestone is a 1-year worth of your expenses.

You get to have confidence in looking for better career opportunities or business ventures. Even without work, you will still get to survive up to 1 year.

However, you’ll grow old going into this milestone even if you tighten your expenses.

You will realize that you need another income that would help you get there. Either you can add side hustles or make your assets work for you.

In adding side hustles, we will still have a limit since we only have 24 hours a day.

Additionally, we exhaust our mind and body just to get additional earned income.

The best way to get here is by adding passive income using your assets.

Passive income can be in the form of Interest Income, Capital Gains, Dividend Income, Rental Income, and Royalty Income.

You may want to check out the Income Types.

Getting to the 2-years milestone should be easier once you get to the previous 1-year milestone.

You’ll just have to make sure that you acquire more of these passive income with the help of earned income.

Check out my list of Income Options that I’ve already tried and tested:

Income Options

Since Income is the most crucial part of our finances, we decided to dedicate a page to list out all the options we can choose from.

Keep reading

Aiming for that 2-years milestone will also teach you that it’s better to  acquire wealth machines that would not depreciate to keep pumping you the cash flow needed.

More than income statement, you should now be balance sheet fluent.

Getting to next stages should then be easier and so once you get here, CONGRATULATIONS!

Stage 5 – Financial Security

In this stage, you can afford to not have a job since you now have an army of assets giving you more income.

It is your money making money for you.

These are all passive income so you will not have to put in much time and effort anymore.

You grow these assets until it provides you passive income > minimal expenses.

You can live without work, but you can’t afford luxuries yet.

It enables you a riskier career move, since you can already retire.

Although you can already live without working, I would advice that you still keep your job.

To compute how much asset capital you will need, list down all your expenses in the most frugal lifestyle.

Say you can survive at 12,000 per month total expenses at the minimum, your wealth machines yield 5% and the inflation rate is 4%.

You should only get at most 1% of your passive income so you can reinvest that 4% to account for the inflation.

If we get all of 1%, total asset capital = 12,000 / 0.01.

You will need at least 1,200,000.

Stage 6 – Financial Independence

In this stage, you account for the current expenses instead of your minimal lifestyle expenses in Financial Security.

Indicator is when passive income > current expenses.

You can live your current lifestyle even without a job.

You have independence from your job.

Although we don’t want to get rid of our job yet especially if we want to get to the next stage faster.

Stage 7 – Financial Freedom

In this stage, you get to have Financial Independence plus luxury.

You can already quit your job since you can now pay for any luxury you want even without a job.

By luxury, we mean anything we want to buy or have.

It can be travel to Europe, or luxury bags.

Indicator is when passive income > current expenses + luxury. 

Everyone wants to achieve Financial Freedom because we want to have the things that we want without having being restrained from a 9-6 job.

Stage 8 – Cash Heaven

Why stop at Financial Freedom?

Cash Heaven is where we should aim to be.

You get Financial Freedom plus even more luxury.

You can even start to make a change in the world without financial restraint.

Donating or Establishing a charity surely wouldn’t hurt your bank balance anymore.

Indicator probably is when you are in the top 1% net worth in your country.

This stage is usually referred to as Financial Abundance.


As you may notice, I didn’t include here the nice cars, nice house, or those luxury bags as indicator or measurement of wealth.

These looks good on the outside, but we really can’t see whether we are going close to that financial freedom.

You might have that car, but you are still paying that car loan which lowers your cash flow.

If I can’t meet the financial metrics, will I fall back to the previous stages?

The answer is no.

Keep in mind that it is not always the money that will bring us to higher stages, but the wisdom we obtained from the previous stage.

When we have the wisdom to go to the higher stages, we will be confident that we will always be in this stage even when we encounter drawbacks in life that gives us financial difficulties especially when the foundations are strong.

Without the proper wisdom, rich kids would later know that they are not financially confident and will go back to their appropriate wealth stage.

Money metrics will just be a measure and financial wealth is the result of how strong our grasp of these wisdoms are.

Published by Cash Heaven

Excel Expert and Financial Analyst Excel / Google Sheets / Financial Modelling, Valuation and Analysis Effective communicator / High quality / Affordable / Reliable / Quick Turnover I've successfully completed over 200 financial modelling, valuation and analysis projects with start-up stage and corporate companies over the past 4 years. I love to solve problems, have an eye for design, and have built business excel templates. I fix Excel formulas in 10 minutes.

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