This post came as a logical extension of a post by Amanda from Centsibly Rich the other day on Mustard Seed Money. The post in question talked about what if Debt was not the default currency of our world. My mind of course took this to the next logical conclusion. What if the entire world had Universal Financial Independence?
In general pursuing Financial Independence has many benefits for the individual. You have less money stress, more options, the ability to structure income for lower taxes, and ultimately you can retire on your terms. I’ve stated before on this blog that everyone’s goal should be financial independence, as retirement is not always a choice. Either way everyone should be pursuing Financial Independence. But what if everyone was pursuing or had achieved financial independence?
What if Everyone Retired Early?
Everything in the economy of a country works off the concept of production. We measure the health and well being of a nations economy by Gross National Product, or the market value of all goods and services produced by a countries labor or property, regardless of national boundaries. Production is sourced from both labor and capital. Up to a point capital, like robots, can pick up the slack as labor declines. But ultimately with todays technology you still need labor to produce most things. So obviously if everyone retired in the economy it would be a bad thing since Gross National Product would fall. This would lead to a decline in the ability of the country to purchase things. It would also lead to a slow down in technological advancement. After all the smart well off people would retire sooner depriving the world of their inventions. We would all be worse off. Obviously we don’t want everyone to retire early.
What if we had Universal Financial Independence?
Financial Independence can be mutually exclusive from early retirement, as my myself have stated. But what is the impact of everyone working towards financial independence? Well lets start with the bad. Consumption would decline. People would buy less. Given there would be no reason to produce something that no one would consume we’d end up with a lower demand in respect to our current supply of many goods in the economy. This would initially result in a lowering of prices due to a glut of supply. Over time companies would lower their production. Ultimately we’d end up with a recession in the business cycle due to the lowering demand for goods. We would also end up in a reduction in government services due to the production declines. Neither would be good for your investments or job compared to today.
Now the interesting thing is, this lowered consumption state would mirror that of other cultures and our own pre the 1980s. Prior to 1980 debt was largely shunned by the populace, even if they were not purely pursuing Financial Independence. During the 80s the concept of heavy debt and leverage usage took off. I recently read a book on the take off of heavy company debt and also the purchase/sale of heavy indebted company bonds, otherwise known as junk bonds. The book, Liars Poker, talks about how Pre 1980 companies had difficulty selling Junk bonds simply because investors did not want to be associated with holding a companies deeply indebted companies. We were so adverse to the concept of being deeply in debt that we did not even want to hold other people’s debt, let alone be in debt ourselves. Some countries still are, as more than a few out there are still slow to even pick up the concept of credit cards. So one could argue that if the entire world was working towards financial independence we would return to our normal production levels. This may be true but like technological advancement the transition would be painful for many.
The Reality, there is Little to Fear.
Simply put the chances of a large part of the populace stopping their spendy ways and using mindful expenditures to work towards financial independence is as likely as me winning the lottery tomorrow. Note I do not even buy lottery tickets so that is an extremely low probability. Our culture has debt engrained into its very fabric. I thought 2008 would leave the populace hesitant about debt. Perhaps we could have seen some sort of sustained reduction. Yet, here we are almost ten years later and people are again loaded up. If a collapse due to debt in institutions through the whole economy could not get the populace to deleverage, nothing ever will. Which leaves us with you the reader. If you the reader, one of that vanguard of intelligent individuals who understand the benefits of financial independence take steps to become so, well then you would stand as a unique few. To illustrate how unique, I once told a coworker I intend to retire by 55. Mind you this is not what the more extreme blogs out there call early retirement. I’m not looking, or even want to, retire at 35. It’s not even a major stretch for someone making a higher income to retire by 55. And yet at least 2 coworkers are taking bets that I will not do this. They know I make good money, and yet the idea of being financially independent might as well be a martian landing on their house.
The Benefit of Being the Few, The Proud, Pursuing Financial Independence
Being the unique follower of Financial Independence you are means you will not see the societal downsides. There will be no contraction caused by lowered consumption related to Universal Financial Independence (though there may be other contractions). You will benefit in all the ways I mentioned in my second paragraph. Furthermore, because you are unique you will be able to do so in relative obscurity. If we had universal Financial Independence we would probably have marketing companies and con artists targeting everyone for their known wealth. In reality Stealth Wealth is possible in small pockets. So continue to work towards Financial Independence. Even consider encouraging other who seem curious to do so. For better or worse, the whole world will never pursue Universal Financial Independence. As such this is not a risk to fear. In fact, it’s a benefit to embrace including that positive feeling if you help someone get on this financial track.
What do you think? Will the US culture ever change to one of mass pursuing Financial Independence? Have you helped someone start down the path to financial independence?