Financial independence part 1
Threats and defense – or why it is about more than just money
The fear of age
In many countries, the official age of retirement is 60+ and increasing. That was established when the life expectancy was 8–10 years after retirement with reduced spending due to health restrictions, which has substantially changed since. When looking at work performance, decades of exhaustion do show. It is not like we just stay young longer. Often older people are way faster and make less mistakes due to experience, but if it comes down to hours, they lose, and companies love to measure hours, because it is easy. It is a fact that companies try not to hire 50+ people. For many people, raising the retirement age just adds years of unemployment before retirement. But apart from being unable to work hours like in the 30s or 40s, life is still enjoyable otherwise. Living to work or working to live?
No matter if a mandatory public pension plan based on employee fees exists or people invest in a pension plan product on their own: The changed demography and the changing economy requires changes in financing retirement. Few countries changed from Ponzi schemes to that. Few people understand how pension plan products work. The majority of private financial planning is based on assumptions of the past as well. The mantra is “it always worked out somehow”, ignoring that economical conditions were very different for many generations before.
At young age, time is our capital and we have a lot of that. We sell living time and energy for money and spend money for living, decreasing time and not gaining capital.
In this economy, the question “When will I retire?” becomes “Will I be able to retire?”. Looking at possibly spending 30 years in that phase of life leaves some options:
I work and live in dependency until I die.
I trust in the government to take care of me when I can’t work any more.
I trust in a religion that promises reward for suffering.
I win the lottery.
I care for my own well-being.
That sheds some light on the popularity of lotteries.
The broken promise
We spend most of our living time to make a company richer and richer that does not care about us and only pays a fraction of the money it makes off us. In the great financial crisis, banks were bailed out, while ordinary people lost their money and employees lost their jobs. Each year companies lay off many employees when they feel like it and the executives get a bonus for reaching cost cutting goals, then hire back cheaper to lay off more the year after. Loyalty to a company is penalized by lowering raises and delaying promotions, while inflation increases the cost of living. Unlike many decades ago, where people often worked in the same company until retirement and there was a company pension plan based on capital, a job is not security anymore. It became a risk. Working hard to earn a promotion may be cut by a layoff. And somehow managers are much less prone to a layoff, which after a few rounds changes the ratio of managers and employees substantially.
The mental cost of bullshit jobs
In most jobs, being successful in the corporate environment requires masking. If we are not treated fair, we complain only where and when it is acceptable and mask smiling professionally otherwise. We get used to listen to corporate buzzword bullshit bingo and even to speak it. We show passion on projects you are assigned to. We express negative feelings if something did not work out, to show our dedication to the company, when we could not care less, because the failure was clear from the beginning to anybody but the responsible managers. It is a fact that many jobs today for the most part do not make sense, but fulfill the goals of managers, not those of the company or its customers, and that is why many companies don’t do great. Essentially we are trained dogs that perform tricks for salary.
First we listen to the internal presentation of the company having amazing fantastic products that are best in class. Then we read the harsh reality in the official business report. Lying became the new norm.
Masking all the time is exhausting and creates a steady tiredness. Too tired to be creative, too tired for all the other things besides work, like shopping groceries, doing your taxes, or even learn something you always wanted to. The weekend is great while it comes closer, but Sunday afternoon is already spoiled by thinking of Monday morning. It is tempting to fill that void by consumption, which requires more money, asking to work more. Debt and consumption are designed to keep people dependent on companies and that dependency is being abused. And that is why despite ever increasing productivity, people are forced to still work 40 hours a week, except unlike decades ago, most households requires two incomes now: People consume and spend more, because they have a miserable life.
The way out
And that's the real issue: The dependency is the actual economic threat.
Our society is built on wage slavery, but that is not factual reality, just social reality.
At least at old age, we need a new source of income that does not sell life time for money. Not spending some of the money earned to invest it obviously will be more successful the longer it is done. Best start at young age, when we still have lots of time to sell.
Taking responsibility for our own well-being obviously is linked with obtaining financial competencies to face the economic threat.
That is the income side, but we still need to address the dependency.
Financial independence means freedom, the ability of choosing a different style of life, the vehicle for living self-determined. It does not mean unlimited consumption or owning many durable consumer goods, which actually makes us economically dependent. It does not mean laziness and comfort all day long. It means to own our time and live our purpose in life, being our most authentic self. That could even be a fulfilling, but poorly paid job. This concept is so alien to our western culture that it is best described as the indigenous term “good life”, which means the balance of human desires and nature and living in a respectful relationship with the world, not being afraid of the future. It is not something a few sentences can describe, but well worth reading about. As Thích Nhất Hạnh put it, “There is no way to happiness – happiness is the way.”
Grasping that is actually the hardest part of it all, as the previous articles about identity showed. We need to understand our motivation, our needs, our abilities. We need a clear view of us and the world.
It does not appeal to everybody, but those who like it make the transition as early as they can.
Part 2 of this series contains with a meta view on investment and psychology. Part 3 deals with asset allocation requirements for sustainable independence.