5 Stages of the Financial Wellness Roadmap

The Financial Wellness Roadmap has five stages: financial literacy, financial capability, financial security, financial independence, and financial freedom.

I created the Roadmap to guide you to better health and wealth. I hope that you enjoy living today as you plan for a better tomorrow.

Financial well-being happens as you progress from financial literacy to financial freedom. Therefore, it’s not the goal but the result of your actions. Being financially well is having the ability to face economic issues with confidence.

It’s about having money skills that can lessen your financial stress and its impact on your health.

The Financial Wellness Roadmap

The Financial Wellness Roadmap helps you visualize the steps necessary to achieve financial and life goals. Understand that your happiness and satisfaction happen along the way, not at the destination. So, the journey is as important as the milestone.

On the road to financial wellness, you begin with financial literacy, a fundamental aspect of financial health, to understand the basics of money and finances. With more knowledge, you’ll be able to navigate the stages more quickly. However, keep in mind, learning continues at every step in the Roadmap.

The “final stage” is financial freedom.

I define financial freedom as a state of living where you control your time. In essence, you’re free to do as you want and when you want. As you work towards financial freedom from the starting point of financial literacy, I want you to envision how you will use your time. Let that vision guide you and motivate you to continue the work.

Now, let’s discuss the financial wellness stages.

Stage 1: Financial Literacy

Financial literacy is understanding the basics of personal finance, banking terms, and how money works. You’re able to recognize the products, services, and tools needed to manage your financial life. Becoming financially literate is an ongoing process, but at this stage, you’ve gained enough knowledge and awareness to help you manage money and set goals.

At stage 1, you could answer questions like: how does compound interest work? What is a checking account? Do you know the difference between a credit report and a score? Why contribute to a 401(k) plan?

Key features:

• understanding money and banking terms;
• budgeting skill;
• credit knowledge;
• investing and retirement basics.

Learn more about becoming financially literate.

Stage 2: Financial Capability

Financial capability is being knowledgeable and capable of making better decisions with your money. You’re knowledgeable about your financial options and capable of banking and creditor relationships. The World Bank defines financial capability as encompassing “knowledge (literacy), attitudes, skills, and behavior of consumers with respect to understanding, selecting and using financial services, and the ability to access financial services that fit their needs.”

At stage 2, you can answer questions like: where do you bank? What’s your credit score? Why do you save money? How do you spend?

Key features:

• abundance mindset;
• research and verification skills;
• assessing financial offers;
• using banking products and services.

Learn more about becoming financially capable.

Stage 3: Financial Security

The third stage on the financial wellness roadmap is about peace of mind and facing little to no financial stress. Financial security is when your income is enough to cover your monthly expenses and debt obligations well into the future.

An emergency will not derail your financial outlook with financial security, and you have money saved to cover unexpected events or financial setbacks. You manage money well. You can meet your basic needs and also enjoy some luxuries. Essentially, you’re creating wealth and on track to achieve financial goals.

At stage 3, you can answer questions like: what’s your budgeting method? What’s your net worth? How much is in your emergency fund? What’s your debt-to-income ratio? Savings rate? 

Key features:

• budgeting;
• an emergency fund;
• managing debt and credit;
• savings accounts;
• retirement planning;
• and investment income.

Learn more about becoming financially secure.

Stage 4: Financial Independence

Financial independence is when you have enough money to cover your basic needs and some luxuries too. Your savings accounts, income generated from assets or investments, and some work cover your monthly expenses. You must have sufficient wealth to live without depending on a job. The sign of financial independence is when working is a choice and not a requirement.

At stage 4, you can answer questions like: explain the 4% rule? What’s your retirement withdrawal rate? How fast is your savings account growing? Do you factor in inflation?

Key features:

• control lifestyle inflation;
• holds no debt;
• healthy savings accounts;
• earnings outpace withdrawal;
• passive income streams;
• diversified assets and investment portfolios.

Learn more about becoming financially independent.

Stage 5: Financial Freedom

The final stage on the financial wellness roadmap is about being financially free. Financial freedom is the stage when you can be and live how you want without the trappings of finances. You’re living the life you choose.

Similar to independence, financial freedom means your wealth covers lifestyle choices and expenses. Making money is not a priority, and work is purely a choice. Additionally, financial freedom can mean the ability to take on risky opportunities because finances aren’t an issue.

Financially free people have attained a high level of financial knowledge, accumulated enough wealth, managed money exceedingly well, and made mindful spending decisions. You have regained full use of your time to do as you wish or to serve a greater purpose.

At stage 5, you’re able to answer questions like: how do you spend your time?

Key features:

• control over one’s time;
• large financial nest egg;
• income-producing assets;
• passive income streams;
• investments.

Learn more about becoming financially free.

A Final Thought

It may seem impossible to achieve financial independence or freedom to many people, but that is not the case. A significant factor keeping many from moving to stage 4 or 5 is lifestyle inflation. The cost of your lifestyle continues to increase as your income rises. Lifestyle inflation prevents you from paying off debt or investing. The more debt you hold and having only one source of income (from a job) will prove to be road barriers.

Your individual lifestyle choices and goals affect your progress towards financial freedom. They vary a great deal from one person to another. Therefore, financial independence and freedom are different financial numbers for each person. Some people may live minimally, requiring less money, while others may want a luxurious lifestyle requiring more.

Want to get started? Begin your financial wellness journey here.

When you start your financial wellness journey, your priority is to create a vision statement and clarify your values. These are fundamental steps to set the intention and envision the life of your dreams.

What are your thoughts on the Roadmap? What path are you working on?