December 20, 2023
One of my articles not long ago generated a lot of interesting discussion.
I’m talking about is this one: Is Financial Independence Immoral?
In that post, I explore whether there’s anything questionable about what we’re doing here, after someone suggested to me the FIRE movement and my teachings are bad for society.
Anyway, it sparked great conversation and further questions which have since been rolling around in my mind.
Today I want to tackle the biggest one: What if everyone pursued financial independence?
To break this down properly, I’ll need to consider the following related questions…
— What if everyone became frugal?
— How would companies make money to pay us dividends?
— Wouldn’t the system fall apart?
— What if everyone retired… who would do the important jobs?
— What about taxes… how are we going to keep paying for services?
We’ll cover all that and more in this post. So without further ado, let’s get started.
A popular objection to the FIRE philosophy of ‘simple living’.
But really, I would frame it more like: less-insanely-consumeristic-spend-until-your-eyes-bleed living.
It’s fine for a few people to spend less, save more, and invest large chunks of their income. But what if everyone did it? Surely that’s not sustainable. There’d be no spending or jobs… so the whole thing blows up, right?
There’s definitely truth to this concern. If everyone reigned in their spending overnight, and began plowing money into their mortgage or investments, then yes, the economy would run into great trouble.
Frankly, it would be a shitshow. But I’m actually not worried about this in the slightest. Here’s why…
I know it seems like you’ve found a magic door to a more prosperous future.
And you have. But for many reasons (largely psychological), most people simply aren’t going to take wealth-building seriously, even if they know about it!
Why? Because short term desires win out for 95-99% of people.
So the reason it will never happen is simple: human nature.
It’s like saying you’ve just discovered how important health is, so you’re on a new plan to become an impressive physical specimen over the next 5-10 years. Then, after overhauling your nutrition, training regularly and seeing progress, you think, “Holy shit, everyone should do this.”
Your mistake here is assuming they actually will! Everyone will decide to become incredibly healthy so all the fast food companies, soft drink and snack producers will go out of business…
How realistic is that? Exactly. It’s hilariously misguided. You know the overwhelming majority of people are not going to follow your epic health plan and get in great shape, even if they see your results!
They can’t be bothered. They don’t believe they can do it. They don’t want to put in the work, ‘sacrifice’, learn the exercises and follow the meal plan.
Ultimately, they don’t value it as much as treats and short term comforts. Financial independence is exactly the same.
Even if it continues to catch on, just like the FIRE movement’s growth since after the GFC, the uptake of new ‘converts’ would be slow and steady.
I know it can seem like the community is growing like crazy, but when we step back and zoom out, it’s still only a small percentage of the population. Even if there’s 250,000 Aussies taking some type of action, that’s like 1% of the population.
That’s despite countless blogs, podcasts, videos, and even news stories on the topic. By all means, I won’t complain if this blog ends up with a million readers. But I just don’t see that many people seeing past the short term effort to get the insanely powerful benefits of FI.
Side note: I actually have a fantasy of creating a place called FIRE University. Where instead of learning how to get a single job or career, they learn how to create financial freedom, health, and a happy life regardless of their job. They would learn to master everything about finance, investing, mindset, earning, saving, and all the skills needed to take complete control of their lives and create the future they really want.
You could have expert ‘lecturers’ (who are successful, not just academics) who come in and teach everything they know about a certain subject. I think that would be so incredible, and far more effective and empowering than pushing people to pick a career and get a bunch of debt when they don’t even know how the world works or what they actually want to do.
Anyway, even as the message spreads and more people join our little cult, it will still remain a small portion of the population. So let’s keep that in perspective. Because while there more ways to earn and save money than ever before, there are even more ways to spend it (which most people succumb to).
If our spending patterns change, so will the things companies offer.
Many products and whole companies could well die out. But that’s the natural order of things anyway.
If we genuinely consume less, companies will be forced to become more productive to preserve earnings as best they can. That means profits and dividends may not fall as much as revenue, as efficiency becomes top priority.
At a broad level, people having greater savings means more investments can be made. If big companies perform poorly due to the above, people may choose to fund startups and small businesses with their friends, invest in rental properties and otherwise find new ways to make money and earn decent returns. Investments and cash injections into startups fund new technologies and innovations, which make society wealthier and more productive overall.
Think of it this way: we’ve already gone from less than 1% of the adult population following FIRE principles, to maybe 5%. What economic effect has it had? What impact on corporate profits and dividends?
We can’t even separate it from all the other things happening in the economy. So, by definition, the impact is tiny, despite the seemingly huge growth of the FI community over the last 10 years.
It’s true that lower spending would hinder company values and dividends, which would impact early retirees. But the level of impact depends on the level and speed of change, an individual’s net worth, whether they had any other income, and how flexible they are to adapt as things change.
By the way, I created a spreadsheet to keep a running estimate of my dividend income and wealth breakdown. I’ve used it for years as a way to help plan my finances and watch my progress over the years. You can get it below.
By spending less money on shit we don’t really need: unhealthy takeaway food, fast fashion, constant device upgrades etc, we’ll be facing a whole lot less waste.
Not only that, but reducing demand for certain goods in the economy overall can itself lead to lower prices and more of that forced productivity I was talking about. Also, you’ve gotta remember something: we aren’t spending nothing. We spend plenty. Just not as much as other folks.
Really, we just spend differently. Maybe we spend less on mortgages because we pay them off early. We might spend less on restaurants, electronics, entertainment, and vehicles. But there’s an important factor here that nobody mentions…
We might spend less now, but more overall. We actually have a greater capacity for spending over our lives than the average person. So even if our spending remains modest relative to our growing wealth, the dollars we can spend get bigger and bigger over time.
Maybe that gets spent on travel, or charity, or family, or building a dream house. It doesn’t matter. The point is, our delayed gratification and investments can actually mean more money is spent in the economy over the long run.
We shouldn’t assume it means less money spent now and forever. That’s not true. Wealthier people = greater spending capacity. In all likelihood, that ends up resulting in more dollars spent.
There’s a legitimate fear that if work became optional for a lot of people, many would simply opt-out of important work. For example, doctors, nurses, paramedics, those building and maintaining infrastructure, food production, and other critical roles.
But again, this is pie-in-the-sky thinking. Given so few will pursue FI, let alone achieve it, the idea of mass early retirement is delusional. Call me a cynic, but I would bet every dollar on it.
Now, it’s fair to say there’s an embarrassing number of jobs that don’t really do much for society. Many are just admin and management tasks we’ve accumulated over time. We know that’s the truth even if it doesn’t sound good to admit.
The critical jobs listed above (and many others) are unquestionably important and we rely on these for our way of life. So, society needs people to work… a lot of them.
Let’s play devil’s advocate and say we do reach mass FI. Here’s the great news: most people who reach FI or semi retire will still work. It just might look a little different.
Maybe they take a year or two off before picking things back up again. The amount of hours they work might reduce. Maybe they move into different work, picking something they enjoy more or care about. Work they think will make a difference in the world. Because that’s the thing – the desire to have meaningful contribution doesn’t go away. And work is one of the most common ways we achieve that.
This could mean educating others. It could be furthering a cause or mission they care about. Maybe they work for (or start) a business that solves an important problem in society.
And while that might sound unrealistic, to dismiss this point is to forget the economics, practicalities and adaptabilities in the way things evolve in society.
In an alternate universe where a good percentage of people managed to become FI, it would likely lead to less people in important jobs, or less hours worked overall.
Mind you, let’s remember something important: this is perhaps the single best problem we could have. Mass prosperity has literally been the dream utopia outcome since the dawn of capitalism.
So, how would we solve this problem?
If there became a desperate need for more people to do certain work, I believe more people would step up and do it. They’d re-train, or come out of early retirement and chip in. And maybe it wouldn’t be perfect, but it would undoubtedly help.
Because even though I’m cynical about people reaching FI, I’m far less cynical about people having a conscience (especially once they’re already in a good place). It’s far easier to step in and help out to fill a short-term need than it is to delay gratification and build wealth.
So yes, a wave of prosperity and financial independence could create skills shortages. But that could push up the wages and benefits of those jobs, as well as the moral compulsion to take on such a position. Some will do it to help, others for the paycheck, just as it happens now.
Even though people won’t need the cash, some extra spending money never goes astray!
Also, teaching doesn’t have to be done by actual teachers in all cases, but a collective group of individuals among the community (like a tribe). Plus, online education on any topic is now freely available to learn about any skill or topic we can imagine.
Don’t worry, we’ll still pay tax!
Sure, the first few years of early retirement might mean very little income tax is paid. But as that person’s wealth continues to grow, so will the taxes they pay.
Remember, most people will keep being productive, earning money and paying tax. Yes, even when they no longer need to. Which means flow-on benefits for society – jobs being created and filled, and taxes being generated.
Plus, the tax system is adaptable. If not enough taxes are being paid due to lots of non-working early retirees, there would be changes to boost revenue and balance things out again. And if those taxes are for important things, most people will be accepting of that. If not, then it might still force retirees to work again, which aids the previous problem of skill shortages.
More financially stable individuals also means less government reliance. For one, it means a steep reduction in pension obligations. That alone is a huge saving, and reduction in tax needs.
The level of disease and crime would also be lower in such a world. Given the abundance of finances, lower stress, and time available to afford and adopt a healthier lifestyle.
And let’s not forget, income tax is only one of many taxes we pay. There’s also GST on almost everything, stamp duty on homes and properties, capital gains tax on asset sales, car rego, house rates, taxes on petrol, alcohol, the medicare levy, and so on. It’s actually a little scary how many taxes we pay when you think about it.
All the above means more taxes generated than many people assume. Importantly, it also means less taxes required than is currently the case. Overall, I think the vast majority of FI individuals will easily continue to be net payers into the tax base during their lives.
Current pensioners are now getting 20 years (say) of funded retirement vs the 5 years they used to get, based on life expectancy alone.
Therefore, pensioners are now taking much more from the tax base than they used to. Should we change that? Is it unfair? I’d say no. Let’s just find other ways to generate tax revenue or work around it.
FIRE folks are not using taxpayer dollars to live on. We’re using our own dollars. So should there be more, or less obligation to pay additional taxes?
Now, there’s a distinction to make here. Some people plan to build just enough wealth to work part-time, life off their investments and then also get a full pension. Effectively maximising the amount they can get, while maximising their freedom at the same time.
I suppose there’s an ethical aspect to consider in that case. But I’m not sure where I sit with it. Is it much different to workers who spend like drunken sailors during their lives because they know the government will give them a pension later? Both are simply factoring the current rules into their plans. And nobody ever questions the drunken sailors since that’s just the standard approach.
People aren’t stupid – even the irresponsible ones factor this into their decision making. If they knew they had to provide for themselves later in life, I guarantee it would have an impact on choices.
To be honest, I do have a problem when people are obviously trying to game the system to extract benefits. Like those deliberately buying multi-million dollar homes, spending opulently on custom renovations, world travel, giving to kids, and shuffling money in all sorts of ways to try and qualify for a full pension they definitely don’t need. That’s far more questionable in my view, but that is an entire discussion in itself.
— As a community, our needs are lower than average to begin with. We’ve already seen through the smokescreen and the bullshit marketing machine. So we’re quite capable of adapting to new circumstances, and equipped to deal with future change, physically and mentally.
— Having said that, if you want to make backup plans in case you think everyone is going to have their own ‘light bulb’ moment and begin aggressively pursuing FI, do it! Just understand that will likely mean more time building investments, so consider the tradeoffs and the probabilities you’re dealing with. Safety comes at a cost, sometimes a big one.
— Most people aren’t working and paying taxes out of the goodness of their hearts. They’re doing it to survive and so they have money to spend. And unknowingly, many taxes are driven by demands for the government to provide certain things (yes, shockingly, they aren’t free).
— Why is the moral obligation being thrown at those who become self sufficient? Do they have a greater opportunity to do more good in the world? Absolutely. But should they also be free to live however they please without being a selfish drain on the system? Yes. So do we have a right to tell other people how to live, provided they aren’t harming anyone? No.
— Wealth is a positive sum game. Money and wealth are created and expanded over time. The world isn’t running on a fixed number of dollars. This is the difference between people who think in terms of scarcity and abundance.
— A wealthy person may have a lower tax rate than what we think is fair. But they’ll generally pay more dollars in various taxes. If they never generated wealth, there’d be less tax dollars generated and/or more benefits paid out.
We need all these people to keep slaving away and spending all their money to prop up our companies and keep paying taxes, so we can put our feet up and lay in the sun as the new fatcats of society. Right?
I don’t think we need to worry about this particular FIRE spreading. Frugality is often more enjoyable for you than blowing your money. Investing may naturally be more exciting for you than spending. You see the tradeoffs and impact of each decision. But the truth is that most people think the opposite, and that isn’t going to change anytime soon.
Very few people are willing to take action even if they know about it. Even those who do, only a few take it seriously. And only a tiny amount would actually go on to never work again.
So while I get the concern, I don’t see it as even remotely likely. Most people are simply more comfortable fitting in, doing as everyone else does. Doing what’s expected of them. What they think they should do. The well trodden path.
Human nature ensures this is the case. Trading pleasures today for freedom tomorrow doesn’t come naturally. Some of us can do it easily, Others can train themselves into it. But most simply won’t manage it, or the tradeoffs don’t seem worth it to them. They greatly overvalue how they feel today, and dramatically undervalue their future self.
Even though you’ve stumbled upon the keys to another dimension of freedom and possibilities and adventure… most people aren’t interested in joining you!
Where we see freedom, others see uncertainty. Where we see opportunity, others see risk. And where we see abundance, others see stress and hardship to get there.
So as hard as we try to spread this message, I firmly believe we’ll be taking this alternate path without that many fellow travelers.
But let’s say I’m wrong. Maybe I’m too pessimistic about my fellow humans.
Maybe we all get our collective shit together and dramatically change our futures. We end up with most people able to choose whether they work or not, and how to spend their time.
Doesn’t that sound like an incredibly good ‘problem’ to have? Mass prosperity and freedom? What a fantastic situation. Possibly the best case scenario we could dream of.
So the idea of a growing mass of people making positive changes to their lifestyles, incomes, savings, and wealth is something we should root for, not worry about.
Thanks for reading!
Here are some resources you may find useful on your wealth building journey:
My book: After 5 years and hundreds of articles and podcasts, I’ve now distilled everything down into an easy to follow book. Designed as a complete roadmap to achieving financial independence and retiring early in Australia. Available in paperback, ebook, and audio.
Mortgage broker: My personal broker of 10 years is More Than Mortgages. If you’d like help refinancing or getting the right loan for your needs, get in touch with MTM. They have fantastic reviews for a reason. I’ve worked with them for 10 years and they’ve been excellent.
Sharesight: A great portfolio tracking tool for share investors, and free for up to 10 holdings. It tracks all dividends, franking credits and capital gains, which is incredibly helpful at tax time. Saves me a lot of time and headache!
Just so you know, if you choose to use these resources, this blog may receive a financial benefit at no extra cost to you. Thanks in advance if you do. And to be clear, I only ever recommend things I use myself and genuinely believe in.