We discuss the financial freedom of our students on Money School. It is a frequent topic on our blog and also in our teaching for children.
What exactly does it mean and why do you need to be concerned?
What is financial independence?
Financial independence is having the ability to sustain your life without needing to be employed.
In terms of money it’s not necessary to earn any income to pay your expenses. There’s enough money (rent or dividends, interest, and so on) that comes from your assets (cash bonds, shares and property, etc.) to provide for, house and clothe yourself in the manner to which you’ve grown used to.
These are definitions that are technical and are often obscure. What does financial independence actually signifies (in my own experience):
Never having to worry over unexpected costs,
The freedom of not having to go back to work until you’re ready
Feeling excited about redundancy rather than worrying for your property
It is important to be selective about the time it is and how you are working, the job you play and with whom you collaborate with and work for.
Being able to give your time to causes that you are passionate about,
Be assured that the children of your family will be cared with a financial guarantee in the event of your death,
There is no need to worry about a slow month , for instance, or a quarter or year within your own company,
Your superannuation fund is a cream, not a necessary source for survival.
Be smug about changes made by the government to superannuation rules , allowances and pensions, because they’ll not affect you in any way,
You’re sleeping well at night because you’re not concerned about your finances, and
Being able to take risky decisions – such as leaving your job, moving to a different into a different country, or starting a business without sacrificing quality of life.
Most importantly financial independence means that you have more choices and choices are yours to choose from.
Why do I need to be concerned?
A lot of people I speak to say they’re not concerned about their financial security. They say they’re content working or that money isn’t a factor for them, or they earn a huge cash-flow from their company therefore they don’t have to be concerned about their assets, or that they’re not well-organized with money therefore it’s unlikely to ever happen.
If you identify with one of these, our FIRE blog is specially designed for you:
Why you should care The reason to care is that it happens.
Epiphanies appear in the most awkward form sometimes. Death, divorce, illness and ReDundancy (often known as”the four D’s,” hence my unique capitalization) typically are the financial wake-up calls you did not want.
The trend of layoffs and redundancies is likely to keep on. Industrial 4.0 is expected to eliminate 40% of jobs over the next decade, beginning now. Your partner might die or choose to leave you for an alternative. You might get cancer.
We seldom see warning signs that indicate these types of events – or if there’s any warning signs at all. We’re all convinced that we’re invincible and will somehow figure out.
However, there’s no reason to accumulate more cash as these situations actually occur. They will come, and you must deal with them. Now, right here with the things you’ve got.
This is the reason why a lot of people get into the position of being in. The Four D’s came along and they weren’t prepared. They are forced to destroy their immediate and long-term financial plans to make it through their “D” without losing their homes.
Many find that the it is still a mess many decades later.
I’m not immune. There is no way to be immune. Your family members are not immune.
If the proverbial hammer strikes the blade that rotates financially, financial independence means you don’t have to worry about sustaining your essential expenses as you manage it. It lets you have some breathing room. Also, it gives you sources of income instead of borrowing if you are unable to meet the income limits.
The second reason to be concerned is Reason #2 to care: The future of the workplace is in doubt.
There could be a time in the near future when you’re handed your DCM (Don’t Come Monday).
We often think of it being the case for factory workers who dress in muddy overalls during times of depression.
What’s up white collar workers, as well as professionals: the layoffs are on the way for you. If you work in a way that’s repeatable, even when it’s done in your computer or in your head Your days are over.
Here are a few examples of current trends:
Bankers are getting cut off all over the world in a plethora of numbers. Now. Thank you blockchain.
Machines that are able to detect and provide advice with more precision than highly trained human beings are gradually replacing doctors and lawyers. Thank AI for your help, Artificial Intelligence (AI).
What’s in store for architects? When you’ll be in a position to print and build your home without the help of a professional? Thank you3D printers.
Even those occupations that don’t expect a drastic reduction in headcount will be transformed by the new characteristics of the work. I’m hoping Rutger Bregman’s predictions are right, and we will get the universal basic income as well as the 15-hour work weeks that he proposes in Utopia for Realists.
It is possible that you love your job however that doesn’t mean you are immune from having to leave your work. Financial independence doesn’t mean that you must quit working, but it does mean that the income you earn from your job isn’t necessary to live a full life.
The third reason to be concerned The reason #3 to care is that governments
Imagine you’re aged 65. You’re not able to collect any savings and don’t have any property. It’s impossible to find work because you are unable to locate anyone who will hire you, or you’re incapable of doing what you were able to do no longer and do not have the capability to learn.
The government will provide you at most $45 per week. This will allow you to feed, wash and even house yourself. It’s important to master making that $445 stretch since that’s all you’ll need in the next 15-30 years.
If you’ve made a significant contribution to society doesn’t matter. If you’ve raised happy, healthy, well-adjusted children is not worth a single jot. Your time and effort you’ve spent for the local groups and charities your donations are not considered. You’ll be able to get the same pension benefits as the dole bluedger for life in the event that you’ve had similar balances by age 65.
There aren’t any awards that honor financial hardship. There’s no charitable organization willing to confer a modest fortune to you as a reward for your efforts.
It’s this shock that hit people nearing retirement. They have to spend their final years frantically trying to soften the shock which can mean huge lifestyle changes at a time that you ought to be enjoying your life.
Here’s the kicker: pensions won’t be increasing. Australia is 33rd from 34 OECD countries in terms of our pension and the modern government shows no desire to correct this. The introduction of superannuation meant that pensions could be cut. Your elected officials won’t increase their pensions in the near future. Actually, people in my generation (I’m in the X/Y boundary) probably won’t receive any pensions for the elderly. The whole thing will be self-funded by superannuation.
If this has eased your mind, remember that the government has the power to set the superannuation rules – which defines retirement age (it has recently increased to 65 from 67) and the tax rates that apply to the money that is going into and out. The rules do not get more favorable.
Do you want to leave the ability to alter your lifestyle for up to 25 percent of the time to the government? This is what you’re doing in case you’ve got a future retirement date you’ve got in mind.
Fourth reason to care Females are more likely to care.
Ladies ladies, your female genitals are costing you. Big time.
There is an income gap between men and women that grows as you advance in the ranks. In addition you lose your income when you have children.
We’re not surprised that there’s an astounding 40% gender-based retirement gap.
We’re seeing more increasing Marys (from Jane Gilmore’s book ‘The cost of womanhood’ an eye-opening read). This is one reason women over the age of 55 constitute the fastest-growing demographic seeking help for homelessness.
Women begin with the ball in an enormous way. Unfortunately, the structures of power that led to this situation aren’t change quickly or in a decisive way. While we (society generally) enjoy discussing it for hours and even hold expensive breakfast meetings to discuss the issue but we’re a bit sluggish in addressing it. For instance why isn’t there an annual gender pay gap study and corrective measure required for all medium-sized and large-sized business? If Australia Post can do it surely other companies are able to.
In the workplace of earlier times, people were required to be superior to the top man at the same job to be allowed to perform a specific job. (It’d seem nice think these days are gone however I don’t believe we’ve reached that point yet.) The same is true for us. we’re now more efficient in our spending as compared to our counterparts in the male market. We’re expected to make less increase our income. We have to be the ones to take this issue into ourselves.
The good news isthat it’s not similar to the work environment. The money doesn’t care about whether you’re male or aren’t. There’s no reason to pay an inflated dividend just because you’re female. There’s ample evidence that suggests women are great investors, and there’s absolutely no reason not to make your own pay and retirement gap by a little persistence and practice.
5 reasons to be concerned This makes life incredible
For all the sad/scary/scary things I’ve covered but there’s an even more powerful motive that will outlast the rest:
Financial Independence can make lifestyle more pleasurable.
The freedom of not being dependent on the job you do is unimaginable.
You may choose to
…quit the job you hate whenever you’d like to.
…make the sea-change or tree-change real now, not after you’re old and gray.
…spend longer time spending with children when they’re young.
…launch your business without the worry about the loss of your house.
…whatever you’d like!
This is the reason.
Financial independence. AWESOME.
