How to Save For Retirement – An Ultimate Guide to Retirement Planning

Sometimes, long-term financial goals seem impossible to achieve, especially when we are just starting our journey towards financial independence.

Many members of the “Financially Independent, Retirement Early” community find it useful to break down their goal of becoming financially independent into smaller and easier levels.

This allows us to keep track of our progress which helps us stay motivated. It also helps us overcome the initial hurdle of beginning to tackle this daunting task.

We will be going through all 10 levels of financial independence in this article. All 10 levels can be seen with examples of how to get to the highest level within a lifetime.

  1. Financial Dependency
  2. Financial Solvency
  3. Financial Stability
  4. Debt freedom
  5. Coasting FI
  6. Financial Security
  7. Financial Flexibility
  8. Financial Independence
  9. Financial Freedom
  10. Financial Abundance

Level 1 – Financial Dependency

When your living expenses and debt payments are more than your income, this is called a “debt trap”. This is when you are dependent on someone or something to pay your bills. If you’re a child, you don’t have any bills. Your parents are usually the ones who pay the bills.

This is the starting point for all of us and is known as financial dependence.

Level 2 – Financial Solvency

You are able to meet your financial obligations without outside help if you are current with all your debt payments.

Level 3 – Financial Stability

This refers to having an emergency fund, in addition to being financially sound.

Level 4 – Debt freedom

This is Debt Freedom, and it can be defined in different ways depending on who you ask. Some people define it as being debt-free. This includes mortgages and all other loans. Others might be able to get rid of high-interest debts such as credit cards, but still have mortgages or other debts such as student loans.

Level 5 – Coasting Financial Independence

Sometimes, this is called Freedom from the Employer. Once you have achieved financial independence, you can step down from a higher-paying job but it may be less fulfilling or stressful. Or both. You can also switch to a lower-paying job but it may be more fun or less stressful.

Because you’ve saved enough money in your early career years or more recently to be able to fund your retirement years. You don’t need to make much money in order to reach age 60, 65, 70, or whatever number you choose. The money you have already invested will allow you to finance your lifestyle as it has had enough time to grow.

You’ve worked hard in your first few years and saved a lot so you can retire comfortably.

Level 6 – Financial Security

When your cash flow from investments is sufficient to cover your basic survival expenses each year, this strategy can be effective. Survival expenses include only the essentials you require to survive, such as food, water and shelter. These expenses do not include subscriptions to Netflix or cable bills, or other similar items.

Although this is not the best place to retire, it gives you security. If you get fired, you can still survive until you find another job.

Level 7- Financial Flexibility

Financial flexibility is a step above financial security. This is when you can live on your current cash flow, provided you have a flexible spending strategy that adjusts for changes in the market.

Although this isn’t Financial Independence, it is close.

Level 8 – Financial Independence

You will most likely be able to continue your lifestyle in retirement. This means you can consider yourself financially independent. Even though one may not be able to reach them, there are still some levels you might consider.

Level 9 – Financial Freedom

This can be defined as the cash flow you receive from your investments that exceeds financial independence. While life goals will vary for everyone, this could include a trip overseas or moving to a place you have always wanted to go but don’t have the money.

Level 10 – Financial Abundance

Simply put, when your cash flow exceeds what you need.

These stages can help you make your retirement planning journey more manageable. You can also mark each stage as you reach it.