This is episode # 8, which is the first of a two-part series, all about taking charge of your finances. We’ll explore what I think of as the Five Stages of Financial Freedom, to help you assess where you are, right now. And hopefully, it will also show you how far you’ve come, already! We’ll dig into the Three Levers you can pull on, to increase your financial freedom. And we’ll talk about what one of my favorite personal finance thinkers, Ramit Sethi, calls your Money Dials: Which areas of your life you want to crank your spending way down… or way up… so that you get the most from your money.
And because you know me, I’ll also share some of my own money stories, the best tools I’ve found for managing my finances, and some of the most helpful books that I’ve read, at each of those different financial freedom stages.
As always, if you have questions or stories to share, send them to podcast@getyourselftogetherchica.com. And you can visit the show notes for links to any of the resources I mention in this episode at www.getyourselftogetherchica.com/podcast.
But first, I want to share what’s bringing me joy right now. My son’s senior pictures! I’m fortunate to have found a fantastic photographer here in Raleigh, Gail VanMatre, and she’s done several incredible photo shoots for me over the years. But nothing moved me as much, as seeing my son’s high school senior photos. It’s funny how you can see someone almost every day, but not really see them. Because when she showed us the proofs of his session, ahhh. I got all choked up, just seeing how much he’s grown, from an adorable chubby cheeked little toddler what seems like yesterday, into this striking young man. And when I shared the photos with some of my family and friends, they all just said, wow. He’s so handsome. When did he grow up? I’ll put a link in the Show Notes, in case anyone listening is in the Triangle area of NC, and happens to be looking for an incredible photographer.
Let’s jump in and talk about the Five Stages of Financial Freedom. We’ll talk more about each of these, but at the highest level, this is how I see them.
Stage 1 is treading water. That’s when it feels like you’re putting in a ton of effort, just to stay afloat each month. (There’s also a version of stage 1 where you’re dependent upon regular infusions of cash from your family, to stay afloat. I like to think of that as the “wearing arm floaties” variation of stage 1.)
Stage 2 is, essentially, doggy paddling around the pool. That’s when you move beyond just surviving and staying afloat, and actually start to be able to thrive a bit. You can handle some of the emergencies that life throws your way, and you have space for some little luxuries like a modest vacation… but you probably can’t handle if those both have to happen at the same time. You’re getting a taste of financial freedom, but you’re also getting the reminder, every so often, that you’re not there yet.
Stage 3 is swimming and learning different strokes. That’s when you can manage most of life’s emergencies, and you can enjoy many of life’s little luxuries, and you’ve got some money stashed away for a rainy day. You’d still be anxious if you lost your job, but as long as you didn’t go too long between gigs, you’d be alright.
Stage 4 is freestyling with confidence. That’s when you are a pretty badass swimmer. You’ve got plenty of money saved and invested for the future, and you’ve got a good handle on both your income and your expenses. If your job became toxic, you could walk away without a second thought, even if it took a while to find the next one. There isn’t much that feels like a major financial setback for you, by stage 4.
Stage 5 is diving off the boat, into open water, and doing what you want. That’s when you’ve got enough saved up and invested, that you’re no longer concerned about your future. You probably couldn’t stop working forever, but if you never invested another dollar into your retirement funds, they’d grow big enough over time to support you. Or you’ve got enough skills or assets that you know, you won’t be eating cat food when you’re 80. From what I’ve seen, by the time you get there, you’ve already reached about the peak of financial freedom. You’ve basically solved the money problem. The beautiful challenge that you’ll face at that stage is… figuring out what to do next.
So take a moment, and think about where you are today. Are you treading water, most of the time? Doggy paddling? Swimming and learning new strokes? Most folks I meet are somewhere between phase 1 and phase 3. And of course, there’s no clear line between one phase and the next. You’ll oscillate back and forth between them, as you do the work of improving your financial situation. And also, as life throws unexpected opportunities and difficulties your way.
The key is to be intentional. So I want you to picture that your finances are a dashboard. On that dashboard, there are a set of three different levers that you can push and pull… and also, there are a whole bunch of little round dials that can be adjusted up or down.
The three levers are this.
First, Your Income: That’s your day job, side hustles, trust fund, windfalls, money from your mama or daddy, any child support or alimony checks you receive, even that twenty bucks you won from the scratch-off lottery ticket… whatever comes your way, counts. Some people are really good at pushing and pulling that income lever, and making more money come their way.
Second, Your Debt or other “tough to change” financial obligations: That’s your student loans, credit card debt, car loans, home equity lines of credit, mortgages, second mortgages, medical bills or home repair bills that you’re paying-over-time, private school tuition, insurance on a luxury car that you don’t yet own, child support, alimony, rent, expensive medical conditions & medications… the list goes on and on! This is the lever that most people want to get control over, but it’s hard, because Yesterday You probably made some choices that Present Day You now has to figure out what to do with… even as Present Day You is often making some choices that Future You isn’t going to be real happy about. It’s a tricky little lever.
And third, your Spending habits & expectations. This is the lever that often operates on auto-pilot. Some people are really good at keeping tight control over that lever, but for most people, it’s a mysterious little lever that seems to move around on its own, almost without you even touching it.
And actually, see on that dashboard, below those levers, that endless array of dials that I told you about? Each dial has a little label. One’s marked Housing. Another is marked Transportation. Another reads Food. Another is Grooming & Beauty. Another might be Education. Another might be Music or Fitness or Travel.
These are your money dials. They’re the infinite number of ways that you can spend your very finite amount of money. Turn too many of them up way too high… and those two levers (the Debt and the Spending Habits levers) start moving, too. Unless your income lever keeps cranking out more money, you’re probably going to find yourself in trouble.
But if those dials all cranked down to the lowest possible setting, then you’re probably not feeling very happy about your life, either.
I like how Ramit Sethi thinks about these dials, which is basically, forget what everyone else thinks. Figure out those one or two dials that are really important and rewarding to you, personally. And be as extravagant as you want and can, with those. Cut the rest of your spending down to the bone, because it’s not worth it.
I’ll link to his book, I Will Teach You To Be Rich, and also to an article he wrote, just to get you thinking. His book wasn’t around yet, back when I was in the earliest stage of financial freedom. But I read it more recently, and I thought it was a really helpful take on figuring out, is your income the problem? Or is it your spending? Or is it your debt? Or is it a combination?
Okay, let’s dive in (pun intended 🙂) and talk more about the stages of financial freedom.
First, recognize that there is actually a Stage Zero, and that is: #0. Drowning. You are drowning if, quite simply, there is always (and I mean always, not sometimes) when there is always more money going out of your life, than money coming into it.
You are drowning when you have tapped into all of your resources–your savings, your friends, your family, your tax refund, any social services or charitable assistance that you’re eligible for–and there is still, consistently, month after month, just no way to stay afloat, and pay everything that must be paid, to keep the roof over your head, and enough food in your belly, and still have enough funds leftover to get yourself to and from a job, get any kids you have to and from school, etc.
I label that stage zero because people don’t stay in the Drowning stage for long. Quite simply, you can’t. What usually happens is, if you’re fortunate and resourceful, you find something that you’ve forgotten about… say, that one person who you really don’t want to call, but who will help you out. Or you figure something out, that you discounted a while ago as an option, but now you’re desperate enough to consider it… such as, selling your broken down car for scrap metal money, putting your baby in that unlicensed (but probably okay) daycare down the street, and walking the two-point-four miles to and from work each day.
I’m giving you extreme examples, to be sure, but I’m sure you can calibrate it to your own income level and what you’d think of as seriously desperate measures to take.
For the five stages, you actually can be in most of those, regardless of how much money you earn. If I’ve learned anything from watching people over the years, it’s that some of us are capable of spending more than almost any amount of money that comes our way.
But what I want most of you who are listening to realize is this. At worst, you’re actually probably in Stage #1. Treading Water. (Or, as I mentioned earlier, if you are receiving financial assistance from relatives, then you might think of Stage 1 as Wearing Arm Floaties).
You’re treading water when you sometimes feel like you’re drowning, but you have just enough of what it takes to pull your head back up out of the water, when a wave crashes over you. Sometimes you gasp in a couple great big mouthfuls of water, for sure. Sometimes your head stays under a lot longer than is comfortable.
And if I put the metaphor aside for a moment, you’re treading water when you try to sit down and make a budget, using the helpful guides and apps and blog suggestions… but the numbers just don’t ever seem to add up, for what’s coming in and what needs to go out.
Still, somehow, you have a way of navigating most of the emergencies that come your way. You can’t quite save up for them, yet, at least not on paper. But somehow, maybe you are able to pull back your spending just enough to make the payments on that emergency room bill. Or you have some way of generating a little extra money, to fill those gaps. But whether it’s spending less or making more, it’s not something you can seem to make yourself do all the time. It’s just available when you absolutely have to.
Again, if your method of making ends meet is getting a little (or a lot) of help from your family, then that’s kind of like wearing arm floaties in the pool. It can be super helpful, in that it keeps you from drowning. But it can also be really hard to learn to swim on your own, when you know that ultimately, there’s an easier way available to you, to stay afloat. Most people who end up in the Arm Floaties zone for more than a brief window of time, from what I’ve seen… well, it’s just a little too comfortable. They only really seem to get out of it, when their families stop supporting them… or when that support comes at a cost that they’re no longer willing to pay. Such as being controlled or shamed by their parents.
This seems like as good a moment as any to pause and tell you what I’ve been listening to this week. You know that old saying: When the student is ready, the teacher appears? Well, it’s interesting… just this morning, the universe sent a meditation my way, led by Lynn Fraser Stillpoint, called “The Fear of Being Authentic.” And it was just what I needed to hear.
Friends, I’m not sure I’ve ever agonized quite so much over an episode, as I did for this one. Should I share this detail? Should I be open about that, or will that alienate or discourage some of my listeners? That’s because personal finances are just that… personal. It can be really hard to relate to someone who is at a completely different stage of life.
So as I share some of my own stories with you, I want you to keep two things in mind. First, from age 19 through 34, I spent almost all of my time in stages 0 through 2. Those were really hard years, where it seemed like I wasn’t making very much progress. Now, I started out my adult life back in, let’s say 2002, with more than $70,000 in student loan debt and no degree yet to show for it. I had just gotten married to someone in a not-quite-that-bad but pretty close financial situation, also with no degree yet to show for it. Plus we had a new car loan, to the tune of another $25 grand. And I had a little credit card debt, too. So… yeah. It was overwhelming, to say the least. Especially when we were both earning, like, 10 or 15 bucks an hour.
But I’m strangely grateful for that struggle, because it forced me to think differently. Nobody was coming to save me, and doing things like everybody else… just wasn’t going to work. I looked around me, even at just 18 or 19 years old, and I felt the truth in Henry David Thoreau’s observation that “the mass of men lead lives of quiet desperation.” I didn’t know how I was going to dig myself out that hole, but I knew that I wanted a future where I felt free. And that was enough to keep me going and keep me trying new things.
The second thing I want you to keep in mind is that my path… and my opinions… are exactly that. They’re mine. They won’t all apply to you. So use them as inspiration. As food for thought. But don’t take any of this as gospel. Take what works for you, and leave the rest behind.
Okay. Back to the stages of financial freedom. It used to be that if you spent most of your adult life in Stage 1, treading water, not the arm-floaties version, but the truly treading water on your own version… well, you probably came from several generations of parents and grandparents who had lived like that, too.
And while generational poverty has major downsides, it does give you some really sharp survival skills and second-nature abilities that other people have to learn when they’re thrust into stage 1 suddenly and unexpectedly.
These days, with all of the changes to the global economy, with the rising cost of education, and with forces at play like outsourcing and automation and AI, with the rise of easy access to way too much credit, at way too high of interest rates, with the constant barrage of advertising and influencers, making people feel inadequate and stoking the urge to solve that by buying stuff… well, I am seeing more and more adults who came from middle class or upper middle class families… and then end up in this treading water stage. What I see is that they don’t have much in the way of survival skills.
So if you’re treading water, how do you move from that, to the next stage?
A couple things I’ve found to be helpful here. First, take some cues from people who have lived for many years in a state of need, especially multi-generational families or super low income communities. You’ll almost always find that they have some sort of reciprocity network in effect. Think of this as a form of mutual support. An informal “we help each other out” system of some sort.
This takes a lot of different forms. It might be that when I need $20, I can go ask almost any of my neighbors or friends, and they’ll spot me. And when they need $20, I’ll spot them. In some apartment complexes, it seems like there’s just one twenty dollar bill, floating from person to person, but it’s enough to get the job done for everybody. Kind of like a modern day version of that story with Jesus and somehow multiplying all the little loaves and fishes.
And inside those informal reciprocity networks, everybody knows the people who will borrow from you in a heartbeat, but never have anything to lend, when you need it. Those folks sit out on the edge of the network, and they don’t benefit from it in quite the same way.
A reciprocity network might take the form of: I know you work nights, and you can’t afford a sitter when your kid get sick. So you call me, when you need somebody to stay with her. And I call you, when I need a ride to the grocery store, or somebody to help me out after surgery.
A similar kind of reciprocity sometimes forms among extended families and close friends, when folks don’t have a lot of money to spare. For example, in my family, we passed hand-me-down clothes around. Relatives would watch others’ kids, instead of hiring sitters. We had musical instruments (a saxophone and two pianos, as I recall) that got passed around from one cousin or home, to another.
If you grew up seeing this around you all the time, and your family participated and benefitted and helped others out, too… then you naturally have that skill inside you. You probably use it, to this day. Or if you don’t, at least you’re not super intimidated at the idea.
But if you didn’t… it’s a skill that can help you increase your financial freedom.
For example, I remember years ago, sitting at lunch with a couple of coworkers, who all had dogs. They were talking about how unbelievably expensive it was, to get someone to care for their dogs when they had to travel for work or to see family. And then, almost in the same breath, they started talking about how much their dogs all loved playing together, at the park the weekend before.
I suggested, “If your dogs get along, couldn’t you work out some kind of a system where, when one of you needs to travel, one of you can keep their dog, and vice versa?”
It was interesting to see how surprised they all looked, at that suggestion. They were like, “Oh, I wouldn’t want to impose…” and “How would we make it fair?” and “Sometimes we have to travel at the same time…”
But after a couple minutes, and with me offering some gentle suggestions like, there’s probably a way you could keep track of how many days each person has contributed… and it wouldn’t have to solve for every single trip, to save you all a lot of money… they actually did work out a system.
So give it some thought. There are lots of ways that you can build a support system like that, to help your money go further, and help someone else, too. It actually strengthens your relationships, because you don’t feel like you have to hide that you’re human and sometimes need help. And when you’re building your own support system like that, you have the added benefit that you’re all focused on improving your life situations, not just surviving until next week. So people are happy when you succeed and advance.
Because that can be a downside of those networks that form out of poverty and necessity: sometimes when you start to get ahead, you actually have to leave everyone else behind, at least for a while, because otherwise too many people start to come to you, wanting your help, seeing that you’re doing better than everyone else… but also before you’ve really built enough of a foundation to be able to support them. If you’ve made it up and out, you probably know what I’m talking about, there.
Okay, another thing that helped me a lot, at that stage, was to rethink and reconsider my own expectations. Because it’s interesting to observe how two people can earn the same amount of money, and live in the same city, and have similar family sizes… and feel dramatically different about their financial opportunities. Maybe because I have a lot of immigrants in my family, and because I’ve always grown up around people who recently arrived in the US, it’s been easy for me to see that we’re often victims of our own rising expectations.
I’ve known tons of folks who were perfectly happy sharing an apartment with several other people, eating the same simple low-cost meals several days a week, and sending almost every dollar they earned back home, to their families in a country where they could never dream of earning what anyone in the US can earn.
They found their own creative ways to hack the system they were born into, and the system that we live in. Many of them eventually went back home, and they were able to own real estate there, because of how they lived and worked here. Something that would have otherwise been an unattainable dream. So the tighter the spot you’re stuck in, the more creative you’ve got to become, to get yourself out of it.
Okay, another thing that’s helpful is to track every dollar that comes into or goes out of your life.
For many years, I’ve used an app called YNAB (that’s short for You Need A Budget) to do this. It does have a monthly or annual fee, but it more than pays for itself every year. It’s truly the single best way I know, to take charge of your money. I’ll post a referral link in the Show Notes, where you can get a free month trial. They have fantastic free webinars to help you get everything set up, and help you figure out the best way to use the app for your specific situation. So again, highly highly highly recommend giving YNAB a try.
But you can also just use a pencil and a little notebook. I did that for years, before YNAB came along and made it easy. For at least 30 days, record every single dollar that comes your way, whether it’s a traditional paycheck from work, that check for $20 that your Grandma sent you for your birthday, or even just a five dollar bill you found in your couch cushions. And record every dollar that goes out of your possession, whether that’s the power bill, the $5 you handed over for the school field trip, or the $22 must-have dress from the clearance rack that you treated yourself to, for that birthday you just had.
Track it all. Without judgment. Without trying to change anything. Just observe. Don’t obsess over finding the perfect system, or making the perfect spreadsheet, or anything like that. Just start tracking where your money comes from, and where it goes.
The third thing I found helpful, to get myself out of the treading water stage, was to read as much as I possibly could, about how to spend less and how to earn more. I went over to my local library, and almost every visit, I would check out (or request) another book about frugality or saving money. At that time, I didn’t realize that I should also be learning more about how to earn more money.
But for me, even just learning to manage every dollar better, made a huge difference. My favorite, of all the books, was Amy Dacyzyn’s The Complete Tightwad Gazette. It’s from the 90s, so it should be getting popular again, any moment now. 🙂 What I loved about this book was that she presents thrift as an alternative lifestyle. A way to use your creativity and intelligence to achieve your dreams. It’s not about deprivation. It’s about intentionality.
Now, I don’t love that she perpetuates the narrative that staying at home with children is often a financially preferable choice to working. I think that’s actually quite short-sighted, and I have seen firsthand how often it can put women, in particular, in a really precarious position. But regardless, that aside, it’s a really good resource.
I was fairly frugal before I started reading books, but Amy D. takes it to a whole new level, with things I never would have thought of. Like how to create a Price Book for groceries, and stock your pantry with the foods you like to eat, all purchased at the lowest possible cost.
And finally, if you track all your money, and you come to the conclusion that a big part of the challenge you’re up against, is simply too much debt… then one thing I found super helpful, when I was in that position, was building a debt payoff plan. And even though I don’t agree with a lot of Dave Ramsey’s thinking anymore… I did find listening to the debt payoff success stories, on his Show, to be really inspiring.
There’s definitely one thing Dave Ramsey gets right, and that is: It’s a good thing, if folks think you’re weird. Because these days, normal is broke. If you live like no one else does today, you’ll get to live like no else does, tomorrow.
My own life is proof enough of that principle, for me. I have, for many years, made choices that other people found weird. But that’s what’s given me all the freedom and choices that I have now.
Okay. That brings us to the second stage of financial freedom is #2 Doggy paddling around the pool. Remember, that’s when you can handle most of the emergencies that life throws your way, and you have space for little luxuries like a vacation… but you probably can’t handle if those both happen at the same time. You’re getting a taste of what it feels like, to be financially free, but you’re also getting the reminder, every so often, that you’re not there yet.
The good news is, the same things you were doing to get out of that Treading Water stage… that’s what you’ve got to keep doing, now. And you’ll keep getting better at it, too. You’ll start putting away a little bit of money, and planning ahead, instead of just going on vacation or just paying for that emergency, as if it’s a total surprise that such a thing might happen.
It’s at this stage that I highly recommend you start putting away money for retirement. I know, you won’t feel like there’s enough money available to do that. But do it anyway, and trust that it will work out. At least, get the employer match on your 401k, and set yourself up to automatically increase by 1% each year. At this stage, too, you’ve got to start really focusing on increasing your income. Both of those things are not as hard as you think, and when you start to succeed at building your nest egg and earning more money, it’s going to be super motivating to you.
I really believe that the first $10,000 you invest is a life changer. For me, when I saw my 401k pass that first, five digit number… ten thousand freaking dollars!... I realized, Wow. I am someone who can generate and hold onto a large amount of money.
Yes, I might have a massive amount of debt, many times more than what I have invested. But for the first time, I could see… really see… that I was the kind of person who someday, would be worth many times more than what I owed in debt right now.
When you get to the ten thousand dollar mark, you also can start to see for the first time, Wow. My money is making money! It’s growing, all by itself, just because it’s invested. That moment, seeing ten thousand dollars just sitting there, for the first time, in my possession… it gave me the confidence that I really could manage my own money. It started me down the path to where I am today.
And friends, I have seen, time and again, that when women get serious about their money and start being able to doggy paddle around the pool… they improve their swimming skills FAST.
That’s why this is also the point at which I recommend that if you have a life partner or spouse, consider separating your money. At minimum, have a portion that belongs to you alone, and one that belongs to them, alone. Even if it’s small at first. And you make sure that you are sitting in the drivers seat, when it comes to your money. Don’t let anyone convince you that you don’t know enough to do this. You can figure it out. And frankly, it’s a lot easier to do that alone, which is why I’m such an advocate of keeping your money separate.
We’ll talk more about that–and dig into the last three stages of financial freedom–next time, in part two.
Well, it’s time to tell you what I’ve been cooking up in the kitchen this week. We’re in that brief, fleeting window of Fall where the grocery stores are selling two of my favorite squashes. The delicata squash, and the honeynut squash. Both of these are pure magic because they’re sweet, they’re small and easy to cut, and you can eat the skin. So I’ve been roasting a few every couple days, and they’re just so good. I’ll put some instructions in the Show Notes for you, in case you’ve been eyeing those cutie little squashes, too.
