Four Financial Progressive Stages

State 1: Financial Stability

You have a stable source of active income, and perhaps some passive income to enjoy the life style that you want. But, you have some outstanding debts and you cannot sustain any prolong period of lost income without getting into defaulting your debts.

State 2: Financial Security

You have a stable source of active income, and perhaps some passive income to enjoy the life style that you want. You have significant saving and, you are debt free. You can sustain loss of income over a longer period without any debts payment worries.

You may be moving between these state 1 and state 2 if you paid off your housing loan, but later on upgrade your house and take on a new housing loan.

State 3: Financial Independence

Your nett worth excluding the value of your residential home is more than enough for you to enjoy the life style without ever worrying about losing your active income. You are out of the rat race. You may choose to work, and if you are unhappy, you can FIRE your boss immediately.

State 4: Financial Freedom

Price is never an issue. You just live the lifestyle in whatever way you like.

-------------------------------------------------

Like Chinese Kung Fu, not many people can reach the highest stage. I believe no matter how hard I try, probably I will unlikely to reach State 4. I only aim for state 3 - Financial Independence. I definitely have no desire to go back to State 1 - Financial Stability as I want to be debts free for as long as possible.