We discuss the financial freedom of our students on Money School. It is a frequent topic on our blogs as well as in our curriculum for kids.
What exactly does it mean and why is it important to know?
What exactly is financial independence?
Financial independence is being able to provide for your needs without having to work.
In terms of money it’s not necessary to earn any income to pay the expenses. There’s enough money (rent and dividends, as well as interest etc.) generated by your assets (cash bonds, shares properties, cash, etc.) which you can use to provide for, house and clothe yourself with the same style to which you’ve become to.
These are definitions that are technical and are often obscure. What does financial independence actually is (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 over losing your house
It is important to be selective about the time your work and when, 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 you’ll be well cared with financial support when you die,
There is no need to worry over a slow month for instance, or a quarter or year within your own company,
Consider your superannuation to be 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 don’t have to worry about your financial situation and
Being able to take risky decisions – such as taking a break from your job, moving into a different country, or starting a business and not compromising the quality of your life.
Most importantly financial independence means that you have greater choices and options are at your disposal.
Why do I need to be concerned?
Many people say that they don’t really care about their financial security. They tell me that they’re satisfied working or that money isn’t a factor to them. Or they earn a huge cash-flow from their company therefore they don’t have to think about assets, or aren’t proficient with money, therefore it’s unlikely to occur.
If you are a part of one of these, the next section is specially designed for you:
The first reason to be concerned is Why you should care: Shits happen
Epiphanies appear in the most unwelcome ways at times. Divorce, death, and ReDundancy (often known as”the four D’s,” hence my unique capitalization) typically are the financial wake-up calls that you did not want.
Lay-offs and redundancies are likely to keep on. Industrial 4.0 could erase 40% of the jobs that are currently in existence within the next 10 years – from now. Your partner could die or choose to leave you for an alternative. You might get cancer.
We rarely see warning signs that indicate these kinds of events, or if there’s any warning signs at all. We’re all convinced that we’re invincible and will somehow figure out.
There’s no way to accumulate more cash in the event that these events actually occur. They will come, and you’ll have to take care. 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 rolled around and they were not prepared. They’re forced to ruin their immediate and long-term financial plan to finish their “D” without losing their homes.
Many find that the it is still a mess years from now.
I’m not immune. There is no way to be immune. Your family members are not immune.
If the proverbial hammer hit the blade of the rotating Financial independence means that you won’t need to worry about sustaining your essential expenses as you handle it. It allows you to breathe. Additionally, it provides sources of income instead of borrowing if you are unable to meet your income thresholds.
The second reason to be concerned is Reason #2 to care: The future of the workplace is in doubt.
There might be a time in the next decade that you’re handed an opportunity to receive the DCM (Don’t Come Monday).
We usually imagine this being the case for factory workers who dress in dirty overalls during the depression.
What’s up white collar workers and professionals: the layoffs are on the way for you. If you perform work that can be repeated – even when it’s done in your brain or on a computer the days of your work are coming to an end.
Read more on our Financial Independence Blog.
Some current examples:
Bankers are getting dismissed all over the globe by the thousands. Now. Thank you blockchain.
Machines that provide advice and diagnose with greater 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 capable of printing and assembling your house with no professional? Thanks, 3D printers.
Even those occupations that don’t expect a drastic reduction in headcount will be transformed by the new working environment. I’m hoping Rutger Bregman’s predictions are right, and that we receive the universal basic income as well as the 15-hour working hours as he suggests in Utopia for Realists.
It is possible that you love your job however that doesn’t mean you are immune from being fired from your position. Financial independence doesn’t mean that you must stop working, it’s just that your income from work isn’t vital to support your lifestyle.
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 pension and don’t even have any property. You’re not able to work because you are unable to find anyone willing to hire you, or you’re no longer able to perform the work you did no longer and do not have the ability to train.
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 getting that $445 stretch since that’s all you’ll need for the next 15-30 years.
The extent to which you’ve made an important contribution to society is not important. If you’ve raised healthy, happy, and well-adjusted children is not worth a single jot. Your time spent with the local groups and charities your donations are not considered. You’ll be able to get the same amount of pension as an all-time dole bludger, in the event that you’ve had identical balance sheets when you reach 65.
There aren’t any medals to be awarded to be awarded for sacrifices in financial terms. There isn’t a charitable group willing to confer a tiny fortune to you as a reward for your efforts.
It’s this shock that strikes people who are nearing retirement. They are forced to spend their final working years trying to figure out how to soften the shock which usually means massive lifestyle changes at a time which is the time to enjoy your life.
The kicker is that pensions won’t be increasing. Australia is ranked 33 among 34 OECD countries in terms of our pension and the modern government shows no desire to correct the situation. Superannuation was introduced so that pensions would not be able to go. Your elected officials won’t increase their pensions in the near future. Actually, people in my generation (I’m at the border of X/Y) probably won’t receive any pensions for the elderly. The whole thing will be self-funded by superannuation.
If you’ve been able to relax your mind, remember that the government has the power to set the rules of superannuation, including which defines retirement age (it has recently increased between 65 and 67) and the tax rates that apply to the money that is going into and out. The rules do not get more favorable.
Are you thinking of leaving the ability to alter your life quality for about 25 percent of the time to the government? You’re doing that in case you’ve got a future pension retirement you’ve got in mind.
The fourth reason to be concerned Females are more likely to care.
Ladies Your female genitals are costing you. Big time.
There is the gender pay gap, which grows as you advance in the ranks. In addition you lose your income after 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 “The cost of womanhood’ an eye-opening read). This is one reason women over 55 make up the fastest-growing demographic seeking help for homelessness.
Women are pushed with the ball in an enormous way. 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 in depth and hold expensive breakfast meetings to discuss the issue however, we’re not very effective in taking action to address it. For instance why isn’t the gender pay gap survey and correction required for every medium-sized to large 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 most successful person at the same job to be allowed to perform a specific job. (It’d seem nice think these days are gone but I’m not sure we’ve reached that point yet.) Similar to that, we’re now more efficient in our spending as compared to our counterparts in the male market. We’re required to spend less and increase our income. We must make this a matter of ourselves.
The good thing is that this isn’t similar to the work environment. The money doesn’t care about whether you’re male or aren’t. It’s not possible to receive less of a dividend simply because you’re female. There’s ample evidence that suggests women are great investors, and there’s absolutely no reason not to reduce your personal earnings and retirement gap with just a little persistence and practice.
The 5th reason to be concerned it makes life more incredible
In all the depressing, sad, and scary things I’ve covered but there’s an even more powerful motive that will outlast everything else:
Financial independence can make lifestyle more pleasurable.
The freedom that comes from not being dependent on your job is unimaginable.
You may choose to
…quit this horrible job whenever you’d like to.
…make the sea-change or tree-change real now, not later on when you’re old and gray.
…spend extra time playing with children when they’re young.
…launch your business without the being afraid of the loss of your house.
…whatever you’d like!
That’s why.
Financial independence. AWESOME.