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Are you in Stage 3: Thriving?

You are in Financial Stage 3, Thriving, once you have no consumer debt and have saved your Financial Independence Fund. In this stage, you are focusing on building your net worth and being generous. You are still following your financial plan, including a budget. The biggest change is going to be that you are now starting to invest and very aggressively payoff any and all debt that you have still (e.g., a fixed rate mortgage).  You are also not going to obtain any new consumer debts, ever again. You are setting aside money to save for large purchases (e.g., a car). You do not lease things, you buy them.

Payoff all Debt

The most reliable way to build your net worth is to payoff all your debts. There is often a debate about whether you should quickly pay off larger debts, like a mortgage or huge student loans, or invest that money.  The argument being that you could potentially make more money investing than the interest rate you are being charged on the loans.  Here is my take on this.  Your investments have risk while a paid off debt does not. Once you have a home with no mortgage and no other debt you are pretty much financially indestructible. If you are making no debt payments then you likely have a lot more of your income that is now discretionary in nature and can therefor invest even more because your minimum mandatory expenses are so low.   Keep in mind as well that once you are completely debt free and you are at a point where you are withdrawing from your investments (for retirement, career transition, travel, etc.) the funds will last you longer because your expenses are lower.

This is when you are truly becoming financially independent and have the freedom to choose your work.  Once you have no debt and savings in place, you view risks differently.  For example, starting a business or taking a sabbatical isn’t risky to you any longer when it could be seen as risky to others that have not paid off all their debts. However, for you these moves will no longer be risky because you have a budget, cash saved in your financial independence fund, and no debt. I highly recommend you focus heavily on paying off all of your debt as soon as humanly possible.

Investing Goals and Guidance

During this stage you will be building your net worth through investing. You will need to determine how much you should be investing and where you are to invest to obtain the results you desire. You may have heard a lot of percentages recommended by others in the past in terms of how much to invest. I believe that you should determine your investing goals versus relying solely on an arbitrary number. You should determine how much money you need to achieve your financial goals and choose how long you would like it to take. Once you have your goals in mind you can calculate how much you need to save each paycheck, month, and/or year to achieve the goals. Use conservative investment returns for the types of assets in which to choose to invest. Consider using tax advantaged accounts and accounts that offer employer matching, if available. At this stage, I believe it’s best to keep things very simple. Be sure to know all of the investment fees and tax implications of your investment choices. You should become a student of investing to the best of your abilities. Read books that offer simple, proven investment approaches and methods. If you don’t understand the investment, don’t choose it. Either increase your knowledge and gain comfort over it or move on to another investment option. I would suggest looking into whether it’s right for you to consider simple, low cost index funds. You may also want to consider mutual funds (if you’re pleased with their net returns after all fees and loads – aka commissions). At this stage, you should probably shy away from individual stocks, commodities, or really focused funds unless you’re a real risk taker and are okay not reaching your financial goals. If you choose to invest and are not comfortable doing it alone consider hiring an adviser to help you.  If you do, be sure you pick someone you trust and make sure you are very clear on how they get paid.


During this stage you are able to give in a very generous way. You are becoming wealthy at this stage and you are easily able to give to organizations and people in a substantial way. Your world is opening up and you are able to make a real impact in the lives of others. You are a cheerful giver because you choose to maintain the appropriate mindset about money and it’s purpose is becoming clear to you at this stage. If you haven’t yet, go back and read the Generosity Series in it’s entirety now to read how a generous person approaches money; including the mindset that money is not finite, giving expectations, how much to give, and when to stop giving.

Moving to Stage 4

You are ready for the next financial stage once you have paid off all of your debts, you are on track to reach all of your investing goals, you are increasing your net worth regularly, and you are giving generously.