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The seven stages of financial independence - where are you at?

In this article, we look at the key milestones of becoming financially independent. Where are you at on your financial journey? And what is the best way for you to achieve true financial independence?

From childhood we are taught about the importance of financial independence. Remember when you got your first pocket money? Remember when you paid your first proper bill as a teenager? Remember the first time you paid rent? They’re standard milestones of financial independence. But not everyone moves towards financial freedom at the same pace. Some people rely on parents, siblings or a partner for income for most of their lives. On the other hand, some people buy their own homes in their early 20s or retire in their 40s.

If you feel like you're not really in control of your own spending and saving, it's important to look at why that is, and what you can do about it. The first step is working out where you're at in terms of financial independence.

  1. Completely dependent
    If someone else is paying all your bills and expenses, and supplying all of your spending money, this means you're completely dependent. This was a common situation in the past. In the 1950s, for example, only 30% of married women (aged 15-64) were employed and relied on their husband's income once they started a family. The proportion of employed women who are married doubled to around 60% by 1998, and has edged higher since then as more women continue to work after they're married.1
  2. Some money of your own
    If someone else pays all (or most of) your bills but you earn your own spending money, this is the stage you’re at. For example, if you live at home with your parents and don't pay rent (or only pay a little bit), and are free to make decisions about what you earn from work.
  3. Equal partners
    Are you equal partners with whoever you live with—parents, housemates or partner? Could you afford to live by yourself if you had to? If you answered 'yes' to the first question but 'no' to the second question, you're at stage 3.
  4. Independent on paper
    Do you live alone, comfortably covering all your expenses? Could you theoretically pay all your bills and have a bit left over if you had to move out by yourself? Then you're at stage 4. If you're not sure whether you're 'independent on paper', try making a quick budget where you deduct rough living expenses from your current income.
  5. Protected from emergencies
    Being able to pay your bills month to month is one thing. Coping if something goes wrong is another thing altogether. Are you protected in case of an emergency? Stage 5 means knowing you'd be able to maintain your income and lifestyle if you couldn't work for a bit, or couldn't do as much work. Usually this means three main things: 1) multiple insurances, 2) being free of 'revolving door' debt (like credit cards you never quite pay down), and 3) having an emergency fund. Most financial authors recommend that you build up a fund equal to at least 3 months' worth of regular expenses.
  6. Independent in future
    So you're independent month to month, and you're protected from emergencies. What's the next step? Stage 6 involves planning for the future. This means thinking about your retirement and other long term goals. How much will you need to have in your super when you retire in order to have a comfortable lifestyle? Do you have that amount yet, or are you on the right track? Do you own your own home, or alternatively, will you have enough money to cope with any rent increases? These are all questions you should be able to answer positively at this stage.
  7. Independently wealthy
    Once you can cover your expenses, protect yourself from emergencies and plan for a secure future, the last step is growing your wealth. From here, it's about improving your lifestyle and perhaps being able to provide a better start for your children and grandchildren. For example, you might own a home and have a retirement plan at stage 6, but at stage 7, you might be financially independent enough to go on regular overseas trips while you're still working and when you're retired. Or, you might have enough money left over to give generously to your favourite charities.


Ready to start working up to the next stage of financial independence? There are lots of options for you to explore at VicSuper that can help you do just that:

Learn more about our advice services.


Important information
This is general information only and does not take into account your specific objectives, financial situation or needs. We recommend you seek professional advice for your own circumstances. Contact us to make an appointment to see one of our representatives. When members receive advice, they receive it under our financial planning business Aware Financial Services Australia Limited’s own AFS licence. Aware Financial Services Australia Limited ABN 86 003 742 AFSL 238430 is wholly owned by Aware Super Pty Ltd as trustee of the fund. You should read their Financial Services Guide before making a decision. Issued by Aware Super Pty Ltd ABN 11 118 202 672, AFSL 293340, the trustee of the Aware Super ABN 53 226 460 365.

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