What is Financial Independence?

Welcome to the first part of this intro series to “Finance and Fury”. This series is brought to you by THINKING, as thinking is where this all started! Thinking about the easiest solutions to reaching financial independence. And, in doing so, helping to give you greater value in the time you spend listening to us.

But trying to solve a problem where we would need a lot information and different perspectives to actually get to the root cause, we needed to start asking listeners and people that we deal with day to day what are the common set of problems that they face are.

Because if there’s a common set that everyone has, then that would be a pretty easy thing to focus on first to try to solve.

But like most people, most of their goals and the problems they faced to meet these were all different, and not only that, they had different ones over different time periods.

One thing though that they had in common was being frustrated that these were all still problems. So, frustration seemed like a pretty good place for us to start then because, just like a runny nose it is a symptom of an underlying cause. Frustration is a good sign that something’s wrong.

At lot of our frustrations come from knowing what can be, versus what is. Getting frustrated that we aren’t in the position of what we know can be.

I get pretty frustrated with my headphones when I get them out of my gym bag after they have been rolling around in there for a week or so, they tend to resemble a rubber band ball, and I get frustrated trying to untangling them because, I know what their functional state looks like and the longer it takes to untangle them, the more frustrating the situation becomes. But hey, if I didn’t want tangled headphones, I probably shouldn’t leave them in a gym bag.

Seeing stories of those who appear to have reached financial independence so easily has really shown a lot of society what can be. But it’s also really disheartening because for us, it’s not what is.

Especially with the majority of people that we are exposed to on TV, movies or music and just the entertainment industry, generally have little to worry about financially, and subconsciously I think we know it.

So, with these frustrations we had something to work with, and it’s a pretty good starting place to look for a common cause across all.

To kick the process off, we wanted to take a step back to look at maybe if the cause could be a macro issue, something that’s inbuilt into society affecting everyone. Because, if that is the root cause it’s going to be pretty hard to come up with a solution to it

In today’s society when we have greater access to investments, and the systems that allow us to actually accumulate wealth we have greater access than ever to laws to protect us, property rights to keep what we have, banks to save money, online access to buy a share just with the click of a button.

So, if we have the ability to purchase investments, be protected to keep what we have under the law, have places to deposit that and hold it securely, then society has the underpinnings of what it takes to actually be able to maintain and keep wealth. Obviously, this doesn’t hurt trying to reach financial independence, and especially with the fact that the world is actually becoming wealthier off the back of this.

And the proof of this comes from a study by the world bank where it shows that poverty’s been cut in half over the past 30 to 15 years depending on how they measure the time period. So, in most of our lifetimes at this point, more people have been lifted from poverty than during the whole of human history. In the last 15 years alone more than half of the world’s population has been lifted out of the standard definition of poverty so there’s more wealth being generated across the board for everyone. But is there someone who is taking the majority of this, or getting in our way?

For these people in society, we might look at the notorious 1%

But… you may know some of the people in this shadowy group.

Because the latest figures for Australia show that to make it, all you need to do (beyond learning the secret handshake) is earn above $237,000 a year. So, if you’re earning $237,000 per year, your take home pay after you pay tax is about $152,000. It’s a pretty decent income after tax. But does it really give you the wealth you need to have private jets and yachts and be this elite 1%?

And are they actually sucking up all of the wealth, as a lot of studies and publications are actually claiming?

To look at this we really need to break it down because I see two answers to the question, depending on how you view wealth is created, and more importantly, who should receive it.

Say for instance, every year a pre-set amount of money was just gifted to the population – cargo jets come in during the middle of the night and just drop trillions of dollars onto the population and the fat cat 1% dip their hands in, grab it all, grab as much as they can and by the time they’re done, we get the scraps. If that how it works, then it’s completely unfair. But, I haven’t figured out who this donor would be, or who’s piloting these big jumbo jets… because whoever is actually distributing this wealth in this system would need to generate it. Otherwise it would simply be that they’re borrowing the money to give out or they’re taking it from others to give out. Neither of those actually generates any wealth in society.

However, what if wealth is something that is created, by individuals through voluntary transactions with other willing participants for their goods or services, then that’s a different story.

Imagine that someone creates something that we all really want. Maybe an iphone, and people wanting this iphone purchase it.

This individual then is selling their product and collecting money from people buying it. The person that creates the best product and has the most amount of people buy it (giving them therefore the most amount of money) accumulates the greatest level of wealth.

How good their product is compared to everyone else’s determines the level of wealth they are able to accumulate.

To look at these people, we need to go to the top 1% of the 1%, or the Billionaires.

Is it these guys who are keeping us down?

From 1870-1890, John Rockefeller; one of the wealthiest individuals in history (you might have heard of him, if you haven’t just think about Rockefeller Square in New York – same dude). In this time period he was in charge of Standard Oil, and what he did was create oil (or petroleum) that was actually mass produced and accessible to people to a point where it was extremely affordable. So, they could now purchase oil for power for far less and they could spend their money on other things. If you have money to spend on other things, while your total level of income hasn’t gone up, your total level of technical wealth has gone up because you can now have more money to spend elsewhere.

And, here’s an example of one of the wealthiest men in history making everyone else a bit wealthier because they dropped the price of something that was an essential good for everyone. What’s also been theorized about that is now people could actually afford to light their houses for a longer period after dark especially, literacy rates rose drastically over this time.

Even for those of you environmentally concerned, because oil might not be seen as the best thing, it actually took over Kerosene as the primary fuel source for lamps. Remember, 1870 or so, cars weren’t really being mass produced yet so oil wasn’t really going towards the petrol side of the story, but instead for people to use as energy in lighting their houses.

This drop in Kerosene as the primary use created a drop in the price from the 30c to 6c a gallon. The primary source of kerosene back in the day, was whales.

This price drop reduced the US whaling fleet from 732 to 200 over the same 20 year period, after which it still continued to decline. Whaling is fairly expensive, fairly risky – not worth it compared to oil. So hey probably single handedly managed to save more whales than anyone in history.

And even in modern times, Bill Gates has made PCs affordable and accessible for everyone so not only can we all afford more than one computer in most Australian households, you now have more money to spend elsewhere thanks to that. And you’re more efficient because you can email, research things online…and think about Henry Ford and the mass production of automobiles – the amount of time he has saved us getting to places through making cars publicly available to everyone at relatively affordable prices has improved everyone’s lives.

I think that Billionaires do really improve our lives overall. We probably wouldn’t have Facebook, the iPhone, Computers or name any other thing that we use every day without most of them.

These inventions have come from individuals who want to accumulate wealth (and even if they don’t want to they end up accumulating wealth) off the back of creating something so good that people want to buy it.

Without them, as well, someone else would need to employ all the people they do from these companies that produce these goods and services. The people they employ, most of them are receiving a salary from their employment – and this is the key component in wealth accumulation for a lot of individuals.

While society portrays these billionaires as greedy hoarders, they provide massive benefits through flow on effects to everyone. It is just very, very hard to quantify and much easier to say they’re the single problem to today’s wealth inequality issue.

Sure, some may be corrupt, but that is because they are people.

People can be corrupt, greedy, violent across the board regardless of wealth. This is human behaviour.

Sure, having money can bring worse traits out in people, but it’s not the money’s fault – it’s the underlying traits of the individuals’ nature. Money just might give them the ability to start acting like a d**k.

But even though some people have become wealthy from committing crimes and ripping people off they often don’t keep it for long. They go to jail, they get caught, and that’s why we have the laws in place to protect individuals from these people stealing money and accumulating wealth from ripping other’s off.

Okay, so our access to goods and services is better than ever, there is more wealth in the economy than ever, survival has never been easier, our ability to keep what we earn has never been better…so…why hasn’t financial independence solved itself?

It’s simple – escaping poverty or becoming a billionaire are completely different to financial independence.

What the hell is financial independence anyway? And, how do you get it?

The news and entertainment shows that we see if they ever cover anything financial, it is a problem someone is facing; they’re defaulting, someone’s repossessing their house, or other ways that they show you is just saving up on your electricity bills or the best way to your water output.

And, learning to save on anything is awesome but it’s only great if the money that you saved isn’t wasted on spending elsewhere.

I get it! It’s hard to really educate properly when you are trying to entertain through a show – and that in itself determines what you see on TV more than anything; just the number of eyes that the program will draw will give you the content. That’s more entertainment value than giving someone a valuable piece of education

Instead, the complete opposite to the message of financial independence is more common to be broadcast – that equality of outcome is more important. And that’s actually the complete opposite to financial independence.

People should be really, really careful what they wish for, and when asking for the same outcome for all because even if everyone is on the same income today – everyone earns $50,000 regardless of what they do, it wouldn’t take long for some to start earning more.

Because, say if you’re earning $50,000, your living costs are only $20,000; you’re living on a bag of rice a day, you live very, very, very, very minimally, you’ll save a lot of money and you’ll be able to invest that to earn more and more income over time

If you’re spending $60,000 a year, you’ll be getting into debt and your disposable income will be going down over time. And therefore, you’ll have less than $50,000 because you’ll be repaying debt.

So, the level of tyrannical government control that actually would be needed to enforce a system to make sure that everyone is on the same equal playing field to make sure everyone’s financially independent, universal basic income, we give you all $50,000, no worries. That system has been tried. And it doesn’t work.

There’s a lot of evidence even over the past 100 years. If you want to look at how well it works just try to ask the hundred million people who have died under that system in the past hundred years – of state-controlled regimes that try to solve inequality and give the people the message of financial independence if only they just give the power to the state they’ll look after them and give them all the money that they want. The outcome of this is actually having no independence because everyone is dependent on a totally equal society where no one can get anything – not even food. People starve under these regimes.

If you don’t believe me, its currently going on right now. The Venezuelan President at the end of last year came up with a genius “rabbit plan” and it was actually to encourage the population to breed rabbits to eat as a source of animal protein. Children’s mortality rates had spiked 30% due to starvation related diseases and some blamed the oil collapse for prices and it certainly hasn’t helped because their socialist society was built on an oil-based economy, having the largest oil reserves in the world. However, why has no other oil producing country gone through the same thing?

And when you have the largest oil reserves in the world but yet you’re importing oil maybe that’s not a good sign that you’re running things efficiently. And if you’re not running things efficiently it’s very, very, hard to get any profit in society to give people growth and economic wealth

I spent a lot of time thinking about this. Why have other countries gone through a similar thing and why have others not? I have spent so much time we’re going to cover it in episode no.7 to save time here, but it’s essentially a system from a stable economy into a death trap within a few years. So, by this point if we’re not in a similar system currently it looked like the macro or society level was actually set up to help us gain financial independence. And that comes back to the micro level or individual level where the first steps is just defining financial independence because it’s something that everyone mentions, everyone talks about but when you ask someone what it is what that looks like, it’s more or less a different answer every single time.

This is just my definition, and what I think it really means at the core – financial independence is really reached once you have the ability to choose how you spend 100% of your time while maintaining the life that you want to live. So this is just my definition, as I said before everyone has a different idea of what the concept is and what financial independence actually looks like.

This is why turning to a collective power to give us financial independence has never worked because everyone’s different everyone’s got different needs and you cannot be financially independent through relying on a system of dependence

So if we are totally self-reliant and can afford whatever we want and have the freedom to travel to wherever we want does that actually mean you’re still independent and do the billionaires who use the same phones, laptops and have the same life expectancies almost as we do as well. And isn’t the feeling of independence the underpinning of the whole concept that we’re striving for. So independence is really the thing that people are wanting but the focus is so much on wanting the finance which is just a tool you use to support that independence

The great thing about society, and reality, is you can actually negotiate with the future …so you can control the future if you just work it out with the present – you negotiate with the present now, you set some stuff up and you can determine a better outcome for the future. So you can negotiate your future saying hey, we want to have financial independence in a certain amount of time, here’s what we’re going to do now to achieve it. And the future will reward you for that. Or you can just ignore it and see where you end up in the future. So, helping people to find this in their own lives and provide a system to really make it happen was something we wanted to put into place. And along the way we want to hear from you as well because, by the end of the series if you think we’ve left any causes, or anything, unaddressed please let us know because the more feedback we get the greater value that we can actually provide. And it’s not very wise to build a house and ignore someone telling you there’s a hole in the roof when there evidently is and the water’s leaking through

So now that we’ve got the macro out of the way, we’ll start going through the micro and the individual levels in the next episode where we start building the house

I hope you enjoyed it, and I’ll see you in the next one