Lately I’ve been getting the following question…
What does AI mean for those trying to build financial independence?
You’ve probably seen a bunch of AI predictions already.
And whether it ends up being mostly helpful, massively disruptive, or some weird mix of both, it definitely looks like it’s going to have a major impact on the world.
That’s what I want to dig into here.
I’ll mostly focus on people still working towards FI, because you’re obviously far more exposed to AI-related risks than someone who’s already financially independent.
But I’ll also touch on what it could mean for investments, and those who are already out of the rat race.
If you still need another 10 or 15 years to build enough assets to become financially independent, then changes to jobs, wages and business conditions are critical to your plans.
Of course, I’m no expert on AI. And even the experts disagree on how all this plays out. So this is really just a thought experiment on how I think about AI and financial independence.
First of all, I’m not sure I buy into the whole idea of large-scale joblessness. Based on the history of technological progress, that seems wildly unlikely. But it’s not impossible, so I won’t dismiss the idea in this article.
Here’s what seems evident right now…
Some jobs will disappear or shrink. Others will be made more efficient. Some industries will be affected more than others, and faster than others.
Broadly speaking, white collar office roles seem more at risk. And in high-income Australia, that’s a sizeable chunk of the workforce. So you could end up with large numbers of qualified people competing for fewer roles.
On the other hand, trades, healthcare, and jobs involving physical presence or human trust seem pretty safe. That’s good news if you’re a sparky, nurse, or a physio. Not so much if you work in an office doing what could be described as data entry or processing information.
What stands out to me more than ever is the following…
If your entire life depends on a single income stream from one occupation, in one industry, relying on no disruption for decades, that’s an incredibly risky position to be in.
So that’s the risk side of the equation. Is there any upside?
New technology disrupts jobs. But it also creates entirely new ones.
The same is true of AI. New jobs and businesses have already emerged using AI – whether it’s prompt engineering, creating automated workflows for companies, building products around AI and yes, even AI content (especially short-form video).
So, how can AI help those of us focused on financial independence? Well, it could help you:
— Learn and research faster
— Find more ways to save money
— Formulate a plan to boost your income (with endless ideas)
— Come up with personalised strategies for wealth-building and tax
— Create a business (or side hustle) using AI as a tireless assistant
Of course, everything needs to be double checked and verified, but it’s definitely a good starting point and will constantly improve.
Just talk to it like a human, give it as much detail as possible, and it will more accurately figure out what you’re trying to do.
For these reasons, AI could help the motivated person increase their earnings, savings, and get to financial independence faster.
If AI and robotics end up doing more and more of the work, that leads to massive cost reductions for companies. And at least some of that will flow through to prices.
You can’t simultaneously argue that we’ll have massive job destruction and companies reaping enormous savings, yet none of those efficiencies filter through to prices.
Think about the industries where labour is a huge cost. Restaurants, retail, insurance, warehousing, and marketing come to mind. Consumers who are worried about job security and income would inevitably gravitate to companies that are able to offer lower prices thanks to efficiencies from AI and robotics. Which, interestingly, could then further accelerate the uptake of said technology as other companies scramble to keep up.
Now, we’re probably a long way from embracing robot carers, for example. But it’s not unreasonable to imagine they’ll form part of care in the future as ‘assistants’ to health workers.
Seen through a multi-decade lens, very few jobs look truly immune to AI. Which is exactly why the best approach is to build enough wealth so that you don’t even need one in the first place.
But that doesn’t mean massive jobs won’t also be created because of AI. Like in past periods of technological change, we just don’t know what they are yet.
The optimists seem to expect a future utopia where where robots do all the work and we’re all rich. I’m not so sure about that one.
The pessimists seem to expect a future dystopia where robots do all the work and we’re all poor. I buy that story even less.
What seems likely to me – at this point – is somewhere in between. Robots doing a decent amount of the work without totally replacing humans. Society becoming wealthier overall, with many benefitting more than others. And the average person being somewhat better off by way of higher living standards.
Regardless, history has shown us that in modern developed economies, most people will simply spend to their maximum capacity – whether prices (relative to income) go up or down.
If prices go down and the average person gets richer – measured by spending power – we’ll just find more things to buy and other ways to splash our cash.
If prices go up and the average person gets poorer, spending will shift more to necessities and we’ll simply miss out on a few luxuries we’ve become accustomed to.
This also means that higher cost lifestyles are particularly risky in a world of greater job insecurity.
The sheer unpredictability of the future makes financial independence more important than ever.
If you think you’re just gonna sleep-walk through this shit, without bothering to save and build assets, it’s probably not going to work out well for you.
We need to control the controllables for as long as they’re controllable…
That means save a good chunk of your income before any possible disruption. Build assets while you still have the chance to. And build resilience and flexibility within yourself and your situation, so you can adapt when needed.
If anything, the more scared you are about the age of AI, the more motivated you should be to build a strong financial position now. Because FI is the single best insurance policy against the future.
And if the pessimists are right and we see an increasingly wide gap between those with wealth and those without, then you want to put yourself on the right side of it.
And sure, there might be wealth taxes or AI taxes or UBI (Universal Basic Income) to help even things out a little. But if you think your life is going to be made substantially better by government assistance and taxes… I would reconsider that.
A strategy built on hope, external factors, and changing ‘the system’ to your benefit is not a reliable strategy.
If I had to generalise, the safer jobs in the age of AI are probably the ones that involve people, trust, judgement, physical presence, and responsibility.
Here’s a few jobs that seem safer than most:
Teachers. Tradies. Nurses. Healthcare. Childcare. Salespeople. Managers. Business owners. Personal trainers. Crisis responders (Police, Fire, Ambo). Hairdresser/barber. Physio/masseuse.
Some of these might be assisted by AI, but they seem harder to replace because the jobs involve dealing with people, solving messy problems, and being there in person.
The jobs that seem more exposed are basically the ones built around repeatable digital work, such as:
Data entry. Office admin. Information processing. Copywriting. Simple analysis. Customer support (phone and online). Marketing. Graphic design. And any jobs which perform a similar function to these roles.
Even writing this blog could technically be outsourced to AI. But then AI can’t replicate my experience, opinions, and things I’m doing/learning in real time. Which then (I hope) takes the value away, because people usually like learning and hearing from a real person.
Now, I don’t actually think these positions are disappearing anytime soon. But it could mean fewer people are needed to do the same amount of work. So in that sense, less job security. We see this playing out already (bank branches closing, automated phone support, automated checkouts, free/cheap design templates, AI-written media).
I do think there’s a decent runway before most people are affected. And if you’re 5-10 years away from reaching financial independence, the risk is probably pretty low.
Even if your role does get disrupted mid-journey, being well on your way to FI gives you the ability to pivot and you’re now far less reliant on job income.
In any case, think about how you can be valuable in a world where AI exists. That could mean combining your human strengths with AI tools. To amplify your learning, increase your productivity, reduce your costs, or maybe just leaning into offline skills you might have (or building some).
The people who thrive most are going to be those who keep learning, and find ways to adapt as the world changes.
“But what about investing?” I hear you ask.
Even if your job won’t be affected by AI or robotics anytime soon, there are flow-on impacts to the assets you invest in.
Productivity gains historically benefit companies. Those companies can then afford to pay higher wages. In turn, those wages can afford larger mortgages, rents, and spending, which leads to further job creation.
This is how it has worked in the past, as technology and higher incomes led to more job creation than destruction. But what happens if this link no longer works the same way? What happens if AI and robotics means we simply don’t need as many employees over time?
Well, it would translate into higher wages for remaining employees, while the company banks a good deal of the gains. But it could lead to a smaller proportion of society in high-income work.
In that case, the stock market would benefit greatly. Each company operating with far fewer people would lead to much higher profits (and valuations).
On the other hand, the same outcome would lead to less high income jobs, so less discretionary spending, which would impact companies reliant on that (assuming they couldn’t make up for it via cost savings).
What about property?
Well, a big chunk of our capital city property markets are propped up by high income white collar roles. If those roles shrink or wages compress/stagnate, that’s a direct hit to borrowing capacity and what fuels property growth.
I’m not predicting anything bad, but it’s a potential headwind that index fund investors don’t face in the same way.
Overall, property markets will still be influenced by population growth, supply, credit, societal wealth, and government support. But from where we sit today, AI and robotics does look like a potential headwind for property and a benefit to shares.
Whichever companies prosper over the next 30 years, at least you’re guaranteed to own them if your biggest investments are broadly diversified index funds.
For that reason, I have more confidence investing in 1,000+ global companies than I do in a few rental properties suburban Australia.
Let me make a prediction.
AI is going to create a wave of cautious over-savers who use uncertainty as the ultimate excuse to delay their freedom. It’s going to become the most popular justification for One More Year Syndrome we’ve ever seen.
And look, there’s nothing wrong with a little extra cushion if it genuinely helps you sleep and allows you to pull the pin. But there’s a difference between being prepared and fear-based planning.
The truth is, the future is never certain. There’s always another risk to worry about. Always something out there that could knock your plans off track.
But keep this in mind:
— If you reach FI, you will never need another full-time job
— If you reach FI, you will never need another high-paying job
— If you have multiple backup plans at your disposal – cash buffer, spending and lifestyle flexibility, part-time job ideas, unused lines of credit, rent out a room, drawdown super, etc, this will see you through near-apocalyptic scenarios
Let me put it another way…
If you’ve set yourself up properly, just as you would under any non-AI scenario, then staying at work for longer than you need to is coming from a fear of losing status, rather than any rational fear of running out of money.
You’re in a better position than most!
In fact, you don’t really have a lot to worry about.
Your main risk is whether your investments perform. So there’s a couple of things:
— If you’re invested in specific companies, rather than index funds, these may suffer as the business landscape changes
— If you’re invested in specific properties, these could struggle if job losses hurt the demographic in that location
If these risks eventuate, and your rental income or investment portfolio declines, you’ll need to generate some extra cash to plug the gap (covered above).
Not overly difficult, but not ideal either.
I’m somewhat optimistic that AI and robotics makes us wealthier as a society.
In a future of increasing efficiency, a few things seem likely:
— AI probably boosts productivity quite a bit over time
— Some jobs get squeezed, while others are created that we don’t even know of yet
— Many companies, shareholders, and to a lesser extent their employees, benefit enormously
— People who stay adaptable, open-minded, and look for ways to use AI to their benefit will prosper
— Some things will get cheaper and more affordable, but we’ll just find new things to spend on that become ‘necessities’
— Those who save, own assets, and live within their means have nothing to worry about
— The living standards of the average person will be better in 30 years time, yet most people will still be endlessly complaining
Many of these factors are not new. They are a repetition of history, and how modern society has unfolded, just with a new type of technology.
AI does have the potential to greatly impact people pursuing financial independence. But that just makes FI even more important.
The future is unpredictable, as it always has been. AI is just the biggest and latest version of that running theme, with things changing faster than ever.
All this can make our lives feel precarious and fragile. The solution to that is what I’ve been telling you since 2017 – build financial strength: save hard, build assets, keep your costs reasonable and your mind flexible.
Not only does that insulate you from AI disruption, it also fortifies your situation for whatever comes after that too, giving you optionality and peace of mind.
The ones who experience the most struggle and stress over the next ten years are going to be those who never built a strong financial position in the first place.
Because regardless of how you feel about this new technology, the answer is the same.
The best way to deal with AI… is to become FI.
What’s your opinion on the impacts of AI? Share your thoughts in the comments.
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Hello ,
Nice one Dave 👍(apu) .
In regards to Universal Basic Income ( UBI) …I’m thinking if this is the scenario, meaning mass working disruptions and layoffs , this would at least cover the basics in terms of non negotiables such as food , utilities and rental (partial) , which will increase expenditures and reduce financial stress hence reduce poverty .
Also this would make many people think outside the box in terms of not worrying about a crap boss , job and working conditions and possibly create entrepreneurial start ups and create business additional income . Hopefully too , the government will step in terms of a much more fairer and equitable taxation system .
UBI has the potential to benefit all levels in our society or maybe even reduce some of the levels ( reduce poverty, increase upper middle class and hopefully decrease the profoundly wealthy ) . This will lead to better productivity, better health outcomes, higher standards of living and hopefully a more sustainable, equal and more joyful world !! …Time will tell 👍
However the scourge in human beings can also change all this .
Take care .
Thanks for your thoughts Jimmy. Yeah there’s definitely an optimistic version of how UBI plays out. It’ll just be very expensive to make it to a level that people are happy with (if that’s even possible), after getting used to $70-100k incomes. So it depends how many solid job options there are to make up the difference.
There have been some studies done on UBI experiments with seemingly mixed results so far, not leading to a whole lot of benefits like expected. I’d really like to believe all those things could occur, but I’m just not sure.
Your vision of a “joyful world” funded by UBI isn’t an economic policy, it’s a fairy tale written in crayon. You’re peddling the classic woke fantasy that we can just tax our way into a permanent holiday while the machines do all the heavy lifting. Let’s inject some cold reality into that fever dream:
The Landlord Bonus: You think UBI covers “rent and utilities”? Think for two seconds. If the government hands every person a “free” $2,000 bag of cash, every landlord in the country will hike their rent by exactly $2,000 before the ink is even dry. UBI is just a taxpayer funded gift to property owners. It doesn’t “reduce poverty”, rather it just makes everything more expensive for everyone.
The Couch Potato Economy: The idea that people will suddenly become “entrepreneurs” because they got a government handout is hilarious. Real innovation comes from pressure and the need to succeed, not from sitting on a couch waiting for a monthly “participation trophy” handout. You won’t get a “start-up culture”, but you’ll surely get a stagnant society of people.
The Magic Money Tree: Who exactly is paying for this? If AI has “disrupted” all the jobs, then there are no workers left to tax. You can’t milk a dead cow, Jimmy. If the companies are the only ones with money, they’ll just take their business to a country that isn’t trying to bleed them dry to fund your “joyful” lifestyle.
The Despicable CCP is Laughing: While you’re busy “thinking outside the box” and manifesting a “sustainable world”, CCP is busy building the robots that will make our entire economy irrelevant. They don’t give a damn about your “joy”. If we stop working and start living on handouts, we become a second-rate nation that survives on whatever scraps they feel like sending us.
The Government Leash: You talk about “reducing stress”, but you’re describing total dependency. If the government provides your food, your heat, and your roof, they own you. The moment you say something they don’t like, they can turn off your “joy” with a single click. That’s not a “standard of living”, it’s a digital leash.
Time won’t tell, Jimmy. History already has. Governments don’t “step in” to make things fair, but they will step in to take control.
Doses of reality this strong need to be administered more often to anyone who thinks robots and / or government will generate wealth and happiness for the masses.
Dave, I recommend you read or listen to a book called AI Snake Oil. This book breaks down the different types of AI and what they can and cant do. I highly rate this book as most people don’t understand how AI works and the real limitations. It helps you remove the noise between doom and gloom click bait and the fanboy hype often found in these discussions.
The two main types you missed are Generative AI and Predictive AI. Generative AI is the AI models that can create Videos, Art, Music, Movies and Graphic Design. These industries are being hammered by AI and to add insult the AI models are using their works to be trained on with no compensation to the creators.
The worrying type of AI is Predictive. (Snake Oil) Business and Government who are cash and time poor are turning to this. This type of AI is being sold to be able to make predictions and solve problems. This is error prone and can badly impact people. These models can only predict what their training model is. These types include the Resume Reading models for job applications and Bank application software. I highly recommend this book as it will help you understand AI and how it works better.
Thanks for the suggestion and adding your thoughts. I’ve heard of those issues before and I agree each is problematic for various reasons. To be clear, this wasn’t supposed to be a complete analysis on AI and all its variations, so I kept that it brief deliberately so. I was more targeting the practical implications for people pursuing FI right now.
Question ; how will the robots run a steel mill ? Think of it . Enough said !
Good Luck , Ramon .