The main reason for becoming financially independent is to protect yourself and your family from the uncertainties of life. As people are learning as they enter their fifties and early sixties, planning to work until they are seventy or even eighty because they have not saved for retirement, only to be laid off and then not able to find another job, you can’t count on working to meet your needs indefinitely. There may not always be a job you’re suited to do, or you may have health problems that prevent you from working. There are also times in your life when you may lose your job and it may take some time to find another suitable position. You might also have medical emergencies, burglaries, major home damage, vehicle accidents, or other events that require a large amount of money in short order to fix.
A second, equally important reason to become financially independent is a moral reason: Someone who is able to take care of himself should not rely on others. If you spend all of the money you make as it comes in, you’ll likely find a time in your life when you’re burdening others because of the bad or irresponsible financial decisions you have made. You may need to go into a nursing home and rely on Medicaid to pay for it. You may need a major operation and leave the hospital with the bill. You may need to send your children through college using financial aid or student loans that are later “forgiven,” leaving others to pay the bill. It is not right to leave others with the bills because you have not saved the money when it was available.
A third reason for becoming financially independent is to be able to give to others. At first this idea may seem to go against the previous paragraph. If everyone is supposed to take care of themselves, why should people give to others? Take a deeper look, however, and you’ll see that giving is critical in making the free enterprise system, which allows people to become financially independent, work. There is good giving – that which helps people and without which a society would fall apart – and bad giving that hurts people and destroys the production of wealth.
Good giving is critical to maintain society and for the preservation of all. Certainly no man is an island and we all need to rely on each other to survive and prosper. Most of the time this reliance depends on trade between individuals, where each creates things of value and trades for what is needed. There are times, however, when a person is truly in need. For example, after an earthquake, flood, or other natural disaster, people need food and shelter for a period to get their lives back together. Likewise, a friend or neighbor may have a personal disaster in the form of a job loss, a home fire, or an injury. At times we need to rely on each other because, despite all of our planning and best efforts, things beyond our control impact our lives.
Being financially independent allows you to help people when they are in need. If you have your feet firmly planted in financial security, rather than sinking in debt, you are able to find the resources to help others. It may be a matter of simply diverting some of the money you were using for luxuries to help someone else out. You might also buy assets whose proceeds are specifically meant to be used to help others. Maybe you buy a mutual fund and give away the proceeds generated by the fund each year. Maybe you buy a building and let charitable groups use it free of charge.
Bad giving hurts people and hurts society. It is wrong to give to people who could provide for themselves but choose not to do so. This causes them to continue to make bad choices that keeps them in the position of needing help from others. If there are too many people not doing what they can, it reduces the total wealth of society and discourages others from pulling their weight. More importantly, giving to people who don’t need the help robs them of the chance to do things for other people. A person who sits at home all day and gets their food, rent, and clothing provided is free to think only of himself. A person who must get up go to a job and work for a living does things for other people all day long. A sandwich maker provides food to hungry people. A construction worker builds homes for people. A secretary in a doctor’s office helps sick people get care. It is by expecting others to do good things that we truly show them respect and give them their dignity.
So how do you tell if what you’re doing is good giving or bad giving? The question you must ask is whether you are making their lives better. If you give a person on the street money and see him there the next day and the next week and the next year, you are hurting him by enabling him to continue to make bad choices. If you support an organization that takes people on the streets, helps them defeat their addictions, and teaches them employment skills, you are helping them.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.
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