There is a small but growing movement out there in the realm of financial independence (FI) and early retirement. I prefer the term financial independence because most people aren’t going to retire at an early age and never work again for money. I also don’t think it would be healthy for anyone to retire early and essentially do nothing. If you aren’t going to have a job or business, you should at least pursue some kind of calling.
I have been listening to a podcast called ChooseFI. The two hosts of the podcast tend to focus more on cutting costs than increasing income, but I generally find their discussions fascinating. I don’t agree with the mantra of investing in a low-cost index fund and holding it with the expectations of getting an average return of 8%. I advocate a permanent portfolio for relative safety. But aside from that, I generally like the concept pushed by the FI community of living below your means.
Financial independence does not mean that you must have enough money to never work for money again. Instead, it is accumulating enough money so that you feel free. If you don’t like your job, you can quit it. You can always find something more enjoyable that pays less. Financial independence also takes away the stress of everyday expenses. If an unexpected repair bill shows up, then it is no big deal if you have a lot of money set aside. Unfortunately, with the struggling middle class with little in the way of liquid savings, this is a real stress for many families.
A deep recession may set back many who are striving for financial independence. It may also set back some people who thought they had already achieved it. If the U.S. stock markets fall by 40%, I believe it will impact many in this growing movement. It may set in a new reality for many.
Still, I believe this growing movement of working towards financial independence is not going to stop. As more people get interested in some version of financial independence, there is going to be an inevitable question that comes up from critics.
The question is: What if everyone were to choose financial independence?
The critics will say, if everyone chooses to go that route, then it won’t be possible because there will be nobody left to actually do anything. If everyone is retired, then who is going to grow food and build houses?
This is really an economics question, and it deserves an economics answer.
First, and most obvious, not everyone is going to choose financial independence. There will always be people who need to work, unless technology advances to such a degree that everything is produced for us by robots. But if that were the case, then nobody would need to work because we would have everything.
Second, even if a large percentage were to choose financial independence and achieve it, it doesn’t mean that everyone will stop working. Think about some of the rich entrepreneurs both past and present. Think about Bill Gates, Warren Buffett, and Steve Jobs. They all could have retired at a relatively early age with tens of millions of dollars and set for life. But they all chose to keep working whether it was to accumulate even more money, or just because they saw it as something of a calling. Rich people – if they didn’t get rich through government favors – are rich because they served people. They generally like to serve people, whether it is out of kindness or for their own ego. Even when they get rich, they tend to still want to serve people.
Third, if everyone listened to the ChooseFI podcast or read Mr. Money Mustache at a young age, you would still have people working in order to get to financial independence. Even most people striving for FI do not achieve it by the age of 30. That means most people are going to be working for at least 10 years (typically more) before they will get to FI. They will put in at least a decade of productivity. There will always be people in their 20s who are working and producing.
Fourth, if nearly everyone were striving for FI, it means that people would be consuming far less. If people are frugal, then it means that less has to be produced. If nearly everyone is striving for FI, it will probably mean fewer massage parlors, fewer nail salons, and fewer high-end restaurants. It will mean a changing of consumer preferences. In a relatively free market environment, resources will shift to the highest consumer demands. If everyone is trying to achieve FI, then maybe there will be half the consumption than what is currently the case. If so, you would only need half the production.
In other words, as long as there is something resembling a free market economy, then resources will adjust to changing consumer preferences. If people want more leisure at the expense of consumption, then there is nothing wrong with this. The market will adjust.
When you work and produce something of value, then you get money in exchange. You can redeem your production by consuming something, or you can wait (save the money). If you produce a lot in value at an early age and consume little, then you are just delaying your consumption for later on. But you produced in great excess of what you consumed initially. There will be people in the future who will produce things for you to consume. They in turn will get your money as a certificate to redeem something for their production.
In a free market, it all works out. As long as you don’t get governments and central banks interfering, then there is no need to fear a mass movement of people wanting financial independence. There is no need to fear advancing technology and robots. Prices adjust and resources are reallocated in accordance with consumer demand.
In conclusion, I think it would be beneficial if more people were to strive for financial independence. Productivity increases with savings and capital investment. We probably need more savings and less consumption. The biggest problem is that we need the government to stop consuming so much in the way of resources, as it ultimately makes us poorer.