The 4 Stages of Financial Success

The 4 Stages of Financial Success

It’s tempting to look at financial success as a binary thing: either you’re there or you’re not.

This is part of what makes it so hard to make progress. You see other people who seemingly have it all figured out and it feels like they’re so far ahead of you. The gap between where you are and where you want to be feels insurmountable.

The reality is different in two ways:

  1. Most people you see as “successes” have just as many doubts, insecurities, and struggles as you do. You just don’t see them.
  2. Financial success is very much a continuum, with small steps you can take along the way to make progress.

That first point is a whole topic to itself, and you can read more thoughts on it here and here.

The second point is the subject of today’s post.

Rather than seeing financial success as “there” or not, it’s much more helpful to think about it in terms of WHERE you are along the continuum and WHAT next step you can take to move yourself forward.

To some extent, this is the entire premise of my free ebook, The New Family Financial Road Map, which provides a financial order of operations you can use to see which important items you’ve already handled and which ones you should prioritize next.

But I’d like to lay it out a little differently here.

In this post we’ll walk through the four stages of financial success. I like looking at it this way because it helps connect you to the “why?” behind your financial plan, which makes it easier to stay motivated and take action.

Stage 1: Awareness

Main goal: Understand that improving your financial situation is something you both WANT to do and CAN do.

Before you can make any kind of financial improvement, you have to know that there’s actually improvement to be made.

Typically, this starts with either the recognition of a problem (like debt) or a new goal that you want to achieve (like buying a house).

But that alone isn’t enough. In addition to having a financial problem you want to solve, you need to know that it’s possible take control of your financial situation so that you can solve it.

And honestly, I think that’s the hardest part. Everyone has problems they want to go away and things they want to achieve. What’s holding many people back is the lack of awareness that they actually have the power to do something about it.

Have you ever read the comments in response to a personal finance article on any major site? The defeatist attitude many people have is alarming! No matter what the topic is, there are always people chiming in about how the world has made it impossible for them to make any kind of progress.

Look, I totally get that this stuff is hard. I also get that in certain situations your options truly are limited and you simply may not have the resources you need. Those things are real.

But in most cases you CAN take control of your financial situation. It IS possible. It might take time and it might require some difficult decisions, but you can do it. And in fact, the only chance you have of doing it is believing that to be true.

All of which is to say that the first step towards financial success is the awareness that improving your financial situation is both something you WANT to do and something you CAN do.

Here are some steps you can take to create that awareness:

  • Step back and be thoughtful about the kind of life you want to build (start here)
  • Get a handle on the specific financial moves that will help you get there (start here)
  • Read stories from people who have done some of the things you want to do. Your goal isn’t to copy their strategies verbatim (though it may help to see what they’ve done), but rather to truly understand that what you want to do is possible. There are all kinds of stories online about people who have made it out of debt, reached financial independence, started a business, stayed home with their kids, traveled the world, and every other goal you can think of. Seek them out, and if you have trouble finding them let me know and I’ll try to point you in the direction of someone who’s done what you want to do.

Stage 2: Control

Main goal: Create a system that allows you to direct your money towards the things you care about.

Whether it’s the accumulation of debt or simply the lack of progress towards your biggest financial goals, a lack of control over your money is typically the main culprit.

Rather than purposefully directing your money where you want it to go, your money kind of comes and goes as it pleases. If you’re regularly surprised by unexpected expenses or you feel like you’re living with your means but never have money leftover to save, you know what I’m talking about.

This stage is all about reversing that trend. It’s about figuring out where you are right now in your financial life and setting up a system that makes your money work for you.

I like tools like and YNAB for this stage for three reasons:

  1. Once you connect all of your accounts, you immediately have a net worth statement. Your net worth essentially adds up everything you own and subtracts out everything you owe to arrive at a single dollar amount representing your current wealth. In my opinion, it’s the single most important financial indicator.
  2. They provide tools that help you see where your money has been going in the past and decide where you want it to go going forward (YNAB is especially good at showing you exactly how to do that). This is the very essence of taking control.
  3. The software automation makes it easier in many ways than doing it by hand, though plenty of people prefer to create their own spreadsheets and track everything manually. Here are some templates you can try if that’s your preference.

Now, you may look at this and assume that I’m talking about budgeting. Which probably sounds awful.

But while it does work for some, I’m not a fan of traditional budgeting. It’s a lot of work and focuses on the wrong things, which means that it just isn’t effective for a lot of people.

Instead, I like to use a system that allows me to accomplish the same goals without micromanaging every penny. Click here to learn how it works.

Stage 3: Security

Main goal: Ensure that you and your family will always have the financial resources you need, no matter what.

Once you have control over your day-to-day spending and saving habits, you can start using that system to put the rest of the financial pieces in place.

To me, the most important first steps here involve building a foundation of financial security. There’s no higher priority than ensuring that my wife and kids will always have the financial resources they need to provide for themselves, no matter what.

Unfortunately, that means diving into a lot of icky and unappealing topics. Things like emergency funds, insurance, and wills.

These are not the most enjoyable financial moves to make. They’re dry, they force you to think about things like death and disability, and they often put you face-to-face with financial professionals who may or may not be trustworthy.

They’re also the bedrocks of a secure financial foundation. With them in place, your family is much more likely to weather any financial storm that comes your way.

On top of that, a secure financial foundation provides a stronger platform from which to pursue the things that truly excite you. For example, I wouldn’t have been able to start this business if it wasn’t for my emergency fund. That savings provided the basic living expenses my family needed as I got my business off the ground.

In other words, financial security isn’t just about protection, though that’s certainly a big piece. It’s also about making it easier to pursue your real life goals by decreasing the financial risk of them not working out.

Here are the major components of a secure financial foundation, with links to articles that will help you get started:

Stage 4: Independence

Main goal: Be able to make the lifestyle decisions you want to make without worrying about the financial consequences.

Financial success isn’t about accumulating a certain amount of money.

True financial success is about having the freedom to make decisions based on what makes you happy rather than what makes you money.

You choose to work because you love the work, not because you need the paycheck. Or you choose to stay home with your kids. Or you choose to travel, or start a business, or stop for ice cream on the way home from soccer practice, all because your financial situation allows you to make those decisions without worrying about the financial consequences.

So, how do you get there? In addition to the steps above it primarily involves two things:

  1. Getting rid of debt
  2. Investing

Debt keeps you beholden to someone else. You are required to make payments to them, and in the process it’s costing you money that could otherwise be earning you returns. Paying it off means you have the freedom to make decisions without answering to anyone else.

Investing is how you build long-term wealth. Between the tax advantages offered by certain accounts, the higher returns that investments offer, and the longer timeframe that the money is allowed to grow, investing is one of the most efficient ways to ensure that you have the money you need to make the choices you want both now and in the future.

If you do these two things right for a long enough period of time, you’ll eventually get to a point where you are no longer financially obligated to anyone AND your investments are earning enough on their own to provide for all of your basic needs.

THAT is true freedom.

Here are a few posts that will get you started on these two important paths:

What’s your next step?

As you look at these four stages, where are you in your personal journey? And more importantly, what’s the next step you can take to move yourself a little further down the path?

Let me know in the comments. I’d love to hear your thoughts and answer any questions you have as well!

Start building a better financial future with the resource I wish I had when I was starting my family. It’s free!

2 Comments... Read them below or add one of your own
  • Syed July 5, 2016

    Great post Matt. Most people are black and white when it comes to their finances. “That person has a big house and awesome cars so they must be rich and happy.” “I don’t have that stuff so I’ll never be happy.” We tend to look at certain benchmarks to see that we’ve “made it”, but everyone’s financial picture is different.

    I really like the steps you’ve laid out. I would say I’m firmly in Stage 3 and slowly getting to Stage 4 day by day. Automating my finances has been the biggest help to get me out of stage 1 and 2.

    Great points once again!

  • Michael Welter July 10, 2016

    Indeed it takes time to achieve financial success. Along the way, struggles will always be there as such it is important to have the right mindset when pursuing for financial success.

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