We discuss the importance of financial independence often in Money School. This topic is often mentioned on our blogs as well as in our curriculum for kids.
What does it really mean and why is it important to know?
What is financial independence?
Financial independence is being able to provide for your life without needing to work.
In terms of money it’s not necessary to earn any income to pay your expenses. There’s enough money (rent and dividends, as well as interest and so on) generated by your assets (cash bonds, shares and property, etc.) 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. This is what financial independence signifies (in my own experience):
Do not have to worry about bills that are unexpected,
The freedom of not having to go back to work until you’re ready
The excitement of a redundancy, instead of fretting for your property
It is important to be selective about the time it is and how you are working, the is your job and with whom you are working with and for,
Volunteering for causes you believe in,
Being aware that you’ll be well cared with financial support in the event of your death,
There is no need to worry about a slow month , for instance, or a quarter or year for your business,
Consider your superannuation to be a cream, not a necessary source of survival.
Be smug about changes made by the government to superannuation rules , allowances and pensions since they’ll not affect you in any way,
Relaxing at night, because you don’t have to worry about your finances, and
The ability to take risky decisions – such as taking a break from your job, moving to another country, or launching a new venture and not compromising the quality of your life.
Most importantly financial independence means that you have more choices and choices 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 say they’re satisfied 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 and it won’t ever happen.
If you are a part of any of them, this section is specifically for you:
The first reason to be concerned is The reason to care is that it happens.
Epiphanies appear in the most unwelcome form sometimes. Divorce, death, and ReDundancy (often known as”the Four D’s,” which is why I have a peculiar capitalization) typically are the financial wake-up calls you don’t need.
Lay-offs and redundancies are likely to keep on. Industrial 4.0 is expected to erase 40% of jobs over the next decade, beginning now. Your partner could die or choose to leave you for an alternative. You might get cancer.
We seldom see warning signs of these types of events – or if there’s any warning signs at all. We’re all convinced we’re immune and will somehow figure out the problem.
However, there’s no reason to save more money in the event that these events actually occur. They’ll 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 are in the position of being in. The Four D’s rolled around and they weren’t prepared. They’re forced to ruin their immediate and long-term financial plan to make it through their “D” without losing their homes.
There are those who believe that the it is still a mess years from now.
I’m not immune. You’re not immune. Your family members are not immune.
If the proverbial proverb strikes the blade that rotates financially, financial independence means you don’t have to worry about paying for your daily expenses while you handle it. It allows you to breathe. Additionally, it provides sources of income instead of borrowing if the amount is over the income limits.
The second reason to be concerned is Reason #2 to care: The future of the workplace is uncertain.
There might be a time in the next decade that you’re handed your DCM (Don’t Come Monday).
We usually think of it as happening to factory workers in muddy overalls during times of depression.
What’s up white collar workers and professionals: the layoffs are on the way for you. If you perform work that’s repeatable, even in your brain or on a computer Your days are over.
Some current examples:
Bankers are getting dismissed all over the globe in a plethora of numbers. 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 the future for architects? When you’ll be capable of printing and assembling your home without the help of a professional? Thank you3D printers.
Even the professions that do not have a significant reduction in headcount will be transformed by the evolving characteristics of the work. I’m just hoping Rutger Bregman’s prediction is correct and that we receive the universal basic wage and 15-hour work weeks that he proposes in Utopia for Realists.
You might love what you do but that doesn’t guarantee you a safe escape from having to leave your work. Financial independence doesn’t mean that you must quit working, but it does mean that your income from work isn’t vital to support your lifestyle.
The third reason to be concerned Why you should care: Governments
Imagine you’re aged 65. You’re not able to collect any pension and don’t even have an apartment. 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 what you were able to do or aren’t in the capability to learn.
The government will provide you at most $45 per week. In addition, you’ll have to feed, wash and shelter yourself. It’s important to master getting that $445 stretch because that’s the only money you’ll have in the next 15-30 years.
The extent to which you’ve made an important contribution to society doesn’t matter. The fact that you’ve had happy, healthy, well-adjusted children isn’t worth a dime. Your time and effort you’ve spent for the charities and community groups you support is not appreciated. You’ll receive the same pension benefits as the dole bluedger for life in the event that you’ve had identical balance sheets by age 65.
There aren’t any medals to be awarded that honor financial hardship. There’s no charitable organization that is waiting to shower a modest sum of money to thank you for your efforts.
It’s this shock that strikes people who are nearing retirement. They are forced to spend their final working years frantically trying to soften the shock which can mean huge sacrifices to their lifestyle at a time which is the time to enjoy your life.
The kicker is that pensions aren’t increasing. Australia is ranked 33 from 34 OECD nations for pensions and the modern government shows no desire to correct this. The introduction of superannuation meant that pensions would not be able to go. Your elected representatives will not increase the amount of pensions in the near future. Actually, people from my generation (I’m in the X/Y boundary) most likely won’t be able to access any pensions at all. The whole thing will be self-funded by superannuation.
If you’ve been able to relax your mind, do not forget that the federal government is in charge of the superannuation rules – which defines retirement age (it was recently raised 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.
Do you want to leave the power to influence your lifestyle for about 25 percent of its time to the government? You’re doing that in case you’ve got a future retirement date you’ve got in mind.
Fourth reason to care being female
Ladies Your female genitals are costing you. Big time.
There is the gender pay gap, which increases as you progress in the ranks. In addition the earnings decrease when you have children.
We’re not surprised that there’s an astounding 40% gender-based retirement gap.
There are more and many Marys (from Jane Gilmore’s “The cost of womanhood’ an enlightening read). This is a big reason why women over 55 make up the fastest growing demographic seeking help for homelessness.
Women are pushed with the ball in a huge way. Unfortunately, the power structures that created 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 gatherings to discuss the issue but we’re a bit sluggish in addressing it. For instance why isn’t the gender pay gap survey and correction required for all medium-sized and large-sized business? If Australia Post can do it surely the other ones could too.
In the workplace of previous times, employees were required to be superior to the most successful person at the same job to be allowed to be able to do the job. (It’d have been nice to think that those days are over however I don’t believe we’ve reached that point yet.) Similar to that, we’re now more efficient when it comes to money over our male peers. We’re required to spend less and spend more. We must be the ones to take this issue into the hands of our government.
The good thing is that it’s not as it is in the workplace. It doesn’t matter if you’re male or aren’t. It’s not possible to receive less of a dividend simply due to the fact that you’re female. There’s ample evidence that suggests women are excellent investors, therefore there’s absolutely no reason not to make your own pay and retirement gap by a little perseverance and practice.
5 reasons to be concerned it makes life more amazing
In all the depressing, sad, and scary things I’ve covered but there’s an even more powerful motive that could outweigh the rest:
Financial Independence can make lifestyle more pleasurable.
The freedom that comes from not being bound by your job is unimaginable.
You are able to choose
…quit this horrible job whenever you’d like to.
…make that tree-change or sea-change happen now, not after you’re old and gray.
…spend extra time playing with children while they’re still young.
…launch an enterprise without being afraid of having to leave your property.
…whatever you’d like!
That’s why.
Financial independence. AWESOME. Come and read our Financial Freedom Blog for more.
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