Money Fundamentals

6 Financial Wellness Stages for Better Health and Wealth

Financial wellness is about your health and wealth. It's about the overall quality of your life. I created the stages to better guide you on this journey.

It does not matter where you start, just as long as you’ve started the journey.

The financial wellness stages helps you visualize what’s necessary to achieve money and life goals. You begin with financial literacy to understand the basics of money and finances. It’s a fundamental aspect of financial wellness. With financial knowledge, you’ll navigate the stages with ease and with an understanding that learning continues at every stage. 

Before you begin the money journey, I want to emphasize that happiness isn’t the destination; you experience happiness along the way.

The journey to mastering finances and living your best life starts with financial literacy, which leads to financial freedom. I created the financial wellness stages to better guide you on this journey.

There are six stages of progression related to financial well-being:

  1. Financial Literacy
  2. Financial Capability
  3. Financial Security
  4. Financial Retirement
  5. Financial Independence
  6. Financial Freedom

Think of these stages as pitstops to living your best life.

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 that learning continues at every stage.

The “final stage” is financial freedom. I define financial freedom as a state of living where you control your time. Essentially, you’re free to do what 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 your vision statement motivate you to continue onwards.


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 gaining financial literacy.

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 it?

Key features:

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

Learn more about improving financial capability.

Stage 3: Financial Security

The third financial wellness stage is about peace of mind and living with 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:

  • following a budget
  • having an emergency fund
  • managing debt and credit
  • multiple savings accounts
  • investing for the future
  • contributing to retirement

Learn more about achieving financial security.

Stage 4: Financial Retirement

Financial retirement is when your contributions will set you up for a comfortable retirement in the future. Many work towards this stage, as it’s a common life milestone to retire later in life. However, you can also retire early, which can be a significant life milestone, offering you the opportunity to pursue personal interests, travel, spend time with family, or engage in volunteer work.

At stage 4, you can answer questions like: How much have you saved for retirement? Are you on track for retiring comfortably? Do you want to keep working until the traditional retirement age?

Key features:

  • meeting 401(k) contribution limits
  • investing using Roth IRAs
  • multiplying income streams
  • buying income-producing assets
  • knowing your Social Security benefits

Learn more about arriving at financial retirement.

Stage 5: Financial Independence

Financial independence is when you have enough money to cover your basic needs and some luxuries. It refers to the stage when you’ve chosen to stop working because your accumulated assets, savings, and investments can fund your lifestyle expenses. The sign of financial independence is when working is a choice, not a requirement.

At stage 5, you can answer questions like: Can you explain the 4% rule? What’s your retirement withdrawal rate? How fast are your investments growing? What will you do with your time?

Key features:

  • control lifestyle inflation
  • holds no debt
  • robust savings accounts
  • earnings outpace spending
  • multiple passive income streams
  • diversified assets and investment portfolios

Learn more about reaching financial independence.

Stage 6: Financial Freedom

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

Like independence, financial freedom means 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 6, you can 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 achieving financial freedom.

A Final Thought

Many people may find achieving financial independence or freedom impossible, but that is not the case. Lifestyle inflation is a significant factor keeping many from progressing to later stages. It prevents you from reaching savings goals, investment milestones, and debt freedom.

Learn more about getting on the road to financial wellness.

Jason Vitug

Jason Vitug is a bestselling author, entrepreneur, and founder of phroogal.com and thesmilelifestyle.com. His purpose to help others live their best lives through experiential and purposeful living. Jason is also a certified yoga teacher and breathwork specialist and has traveled to over 40 countries.

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One Comment

  1. Very interesting topic. I have never figured out or have a thought to understand at which stage I am currently in. It’s good to take a step back and strategize how long I need or how to achieve the ultimate financial goal based on my current state of financial wellness. Thanks for sharing.

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