Lighting the Way

by J.D. Roth

This is the fourth of a five-part series about the “stages” of personal finance. First, I described the zeroth stage of money management, in which I was fumbling in the dark, spending compulsively and accumulating debt. Next, I described the first stage, in which I finally saw the light and began to repay my debt. Last week, I shared the the light at the end of the tunnel: what happened after my debt was gone and I began to save. Today, I share the current state of my personal finances as I begin to explore the third stage of personal finance.

In February, I wrote that I was entering the third stage of personal finance. The first stage, I said, had involved repaying my debt and learning to control my spending. The second stage focused on building savings and developing smart money habits. Now that I had mastered these two steps, I wondered aloud what came next.

Several readers quickly noted something I had forgotten: The ultimate goal — the eventual fourth stage of money management — is Financial Independence, the condition of having saved enough money that you can do whatever you choose. When you reach Financial Independence, it doesn’t matter whether or not you elect to keep working — you have enough saved and invested to follow your dreams.

Once I remembered that my ultimate goal was Financial Independence, the purpose of the third stage became clear to me: it’s the long, slow process of utilizing everything I’ve learned in order to enjoy life while building wealth so that I am truly financially free.

My plan
Although I now know my destination, I’m still a little in the dark about the journey. All I know is that what I’ve been doing seems to work, so I’ll continue down this path. Here’s my current roadmap:

These are the things I’m doing now, but there are others I’d like to do in order to help me along the path to Financial Independence.

For one, I plan to learn more about investing. Right now, I’m putting my money in index funds. But over the next year I plan to spend a lot of time reading books and speaking with smart people, trying to discover other options. It may be that I decide index funds are the best choice for me. I want to explore my options, though, to see what else is out there.

What next?
So, to answer my own question, “what next?” is more of the same. It’s difficult to argue with this steady progress that I’ve made. I’m willing to continue down this path for many years to come.

I feel extraordinarily fortunate to be in this position. Just five years ago, I was deep in debt and struggling. Today I am debt-free (except for the mortgage), have a job that I love, and make a good income. I’ve learned to curb my urge to own things, and have even purged some of the stuff I bought before. I have a great wife, a great life, and a great future.

I do not yet have Financial Independence, and I may never reach that goal. That’s okay. I’m grateful just to have reached this third stage of personal finance.

Note: This series is intentionally less “polished” than most articles at Get Rich Slowly. It’s a chance for me to think out loud, to explore the stages of personal finance with you, the readers.

Updated: 22 March 2009

Do what's right. Do your best. Accept the outcome.
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