The Stages of Financial Enlightenment


In my head I like to imagine there are four stages of “financial enlightenment”, which describe how much someone understands the importance of financial independence. Here are the four stages:

Stage 1: Unaware of the concept of F.I.

Most people roaming the planet right now are living in stage 1. They’ve never heard of the concept of Financial Independence and the possibility of retiring before age 65 seems completely unrealistic. These people believe strongly in the idea of “I worked hard so I deserve to spend on myself.” They have no aversion to debt; they consider it to be a necessary part of life. It’s normal. They spend as much as their paycheck permits and often more. Saving money is a foreign concept to people living in Stage 1. After all, only old people need to save for retirement, right?

Stage 1 Profile:

Here’s the typical profile of someone living in Stage 1:


People in stage 1 take great pride in what other people think of them. They’re conscious of what others think of their car, their house, their clothes, and job title. They stay on their toes to make sure their life looks great from every angle. They’re highly resistant to trying new ways of living or deviating from the norm. Nobody thinks these people are crazy.

Stage 2: Discovers F.I., Hesitant to Change, But Knows Saving Money is Important

Stage 2 is when someone discovers the concept of financial independence. They most likely stumbled upon a popular personal finance blog like Mr. Money Mustache or Early Retirement Extreme and read about how people have actually embraced financial independence to escape the rat race in 10 years or less. They think F.I. is a neat concept, but they’re hesitant to radically change their lives. Their interest in getting better with money and learning how to save more is heightened. They think their might be some truth in this whole “money can buy freedom” idea. They’ll most likely take baby steps to start saving more money: maybe finding a cheaper cell phone plan, eating out less often, or trying to earn money online.

Stage 2 Profile:

Here’s the typical profile of someone living in Stage 2:


People in stage 2 are open to making small changes in their daily routines. They’re willing to look for ways to cut back on spending and increase their income. A few of their close friends and family might think it’s a little odd they’re deciding to save money all of a sudden, but they don’t question it. People in stage 2 experience the first dose of not caring what other people think of them. They begin to realize the subtle joy of focusing on their own lives and worrying less about what everyone else thinks of their lifestyle.

Stage 3: Experiments with New Ways of Living, Widens Gap Between Income and Spending

Stage 3 is a natural extension of Stage 2. It’s where money realizations begin to click. Oh, I don’t need nearly as much as I thought to be happy. There really are ways to live with less. There are so many ways to make money through side hustles. This is the great experimentation stage. What’s it like to live with a TV? Or bike to work? Or shop at cheaper grocery stores? Or boldly ask for a promotion? It’s the stage where people decide they are serious about widening the gap between their income and spending and are willing to live more radically to achieve their financial goals even faster.

Stage 3 Profile:

Here’s the typical profile of someone living in Stage 3:


People in stage 3 are beginning to care less and less about what other people think of them. They’re experimenting with many new ways of living – possibly cutting their cable, biking to work occasionally, picking up extra work on the side, reading finance blogs constantly, and seeing what does and doesn’t work for them when it comes to saving money. Their peers begin to think their lifestyle is becoming more and more weird and possibly voice their concerns. But people in stage 3 have already begun their climb out of the bucket of normal living and care too much about freedom to care what others think of them.

Stage 4: Full Blown Financial Awakening

Stage 4 is where people have a full blown financial awakening. People begin to realize: Wow, this truly is my only life. I need to prioritize my finances so I can live a life of freedom and be in complete control of my time. I will do whatever it takes to reach financial independence as soon as possible. These people take their financial game to the next level. They use biking and public transportation as much as possible to avoid car-living. They downsize their house or find roommates to live with to keep their housing costs to a minimum. They optimize their grocery bill and avoid frivolous spending on eating out, all so they can reach financial independence as fast as they can.

Stage 4 Profile:

Here’s the typical profile of someone living in Stage 4:


These people don’t care what anyone thinks of them. They’re on a mission. They don’t have time to worry about what other people think of their lifestyle. They’re willing to try new routines and habits to optimize their financial life. 95% of people think they’re crazy. The other 5% are the ones who are just as “crazy” as them. 

The Evolution of the Four Stages

As one progresses through the four stages and becomes more and more serious about optimizing their finances, a common trend appears: They begin to care less and less about what other people think of their lifestyle and they become more willing to try new ways of living. 

A shift in mindset takes place as you advances from one stage to the next. You naturally start to care less about what other people think of your life and you zero in on what is important to you. This focus on what is important to you allows you to cut out all the excess fat that doesn’t matter – the unnecessary expenses, the overspending on crap you don’t need, the desire to impress others with your fancy lifestyle, etc. Once you reach stage 4, your lifestyle looks absurd to most people, but by that point you have too much financial control over your life to even care 🙂

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10 Replies to “The Stages of Financial Enlightenment”

  1. We may have been separated at birth..I just penned something eerily similar for my book! I look forward to referring to this piece when I go through it. I called it Levels of Financial Awareness..Same same though..I also add – preoccupations! ie Preoccupied with consumption or ‘keeping up’ in Stage I without the means to really pay for it etc. Keep writing, I’m also having my kids read your stuff.

    Andrea Kennedy

    1. “Keeping up” is another great term to add to stage 1. I like to think of stage 1 as the “competitive for no reason” stage as well. We’re trying to outdo our peers but we don’t realize it’s a never-ending competition. There will always be something else to buy and something else to spend on to outdo others.

      Thanks so much for sharing my content, I hope your kids find it valuable as well 🙂

  2. Awesome post Zach! Not caring what other people think of you is a really important lesson to learn and will help in all areas of your life. The sooner you can learn that, the better off you’ll be.

    1. Yes! Not caring what other people think of your lifestyle is such a useful skill to develop, arguably more important than any financial knowledge you could ever acquire. It’s also such a freeing sensation not being consumed with worrying about what your life looks like from the outside. Thanks for the feedback, Maggie 🙂

  3. Hahaha, so true! This is exactly what we went through. Although, admittedly, some days we backslide into the “learning” phase again but we’re doing our best. And yeah, plenty of people think we’re crazy. 😉

  4. Great post Zach, I enjoyed it immensely. The concept of “social indifference” with respect to status symbols and consumption really is, I think, one of if not the most important factors in achieving financial independence. A few weeks ago I wrote a post titled “People Think We’re Poor. And I’m Cool With That” going through what this can look like. But what I often see in friends and family is that they’ll never progress beyond your Level 2 because even if they understand this concept in principle, they simply are not willing/able to implement it at the practical level.


    1. Joe, I agree with you about the difficulty of progressing beyond level 2. Most people understand the idea that higher savings rate = shorter mandatory working life, but they simply don’t change their habits, routines, and lifestyle to increase their savings rate. As creatures of habit, it’s hard to change our mindset and even harder to change our actions to match.

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