EduCounting

EP1145: Financial Independence (cue the fireworks)

What is financial independence and how to achieve it?
Money with Mak & G

SHOW NOTES

This week, Mak and G dive into the world of financial independence, the power of savings over debt, and work out what it really takes to become financially free…

 

Money can give you the freedom to buy what you want or it can trap you in bad debt, bills, and back payments.

 

So what is financial independence, and how do we achieve it?

 

This week, Mak and I look at some of the mistakes people make with money, and what habits we can implement to achieve financial freedom…

 

“It’s about being able to choose what you want to do, without being scared of the consequences.” – Mak

 

“Spend less than you earn.” – Mak

 
Time Stamps:

00:25 – What infrastructure is, why it’s important, and how it can stimulate the economy.

03:05 – What areas of life Biden’s infrastructure deal is going to improve.

03:42 – How the market has reacted to this infrastructure deal.

04:29 – Why Biden is raising taxes to pay for his infrastructure deal.

04:57 – What financial freedom is and how it differs from person to person.

07:18 – How money can act as a financial prison and what makes someone financially free.

07:51 – What bad debt is and how easy it is to lose control of your financial freedom.

09:21 – The power of savings and the importance of having a budget.

 

Connect with Ben Jones:

 

TRANSCRIPT

DAD:  Welcome back to Money with Mak & G, don’t forget to LIKE, SUBSCRIBE and COMMENT on the podcast.  This episode is for the week ending June 25, 2021. It’s been a couple weeks since we covered the markets, so let’s jump in.  Mak, I’m going to hand it over to you.

MAK: It was a very interesting week as President Biden announced that they put together an infrastructure deal of $1.2 trillion, with almost $600 Billion in new spending.  All that cash will stimulate and strengthen the economy. That means more jobs, which means more people will have money to spend at Walmart, Disney, NetFlix and many more places

DAD: When there is more money moving around the economy, that usually means more companies are profitable and stock prices rise as demand for them rises.  Infrastructure is a funny word with “structure” at its core.  Structure is another way of explaining how things are  set up and work together.  A plant’s structure has roots, a stem, branches and leaves.  It all works together to deliver food from the soil to support the plant.  The leaves work with the sun to process food.  We all know that fun word, “photosynthesis”. That’s how the plant is structured to be healthy and thrive. It has the various parts working together.

MAK: It’s the same for a country. The structure supports the entire economy and health of it’s people with roads, bridges, tunnels, a clean water supply, sewers, electrical grids and telecommunications.  These are all the things that are essential for promoting growth and allowing US to thrive, just like a plant.

DAD: Without electricity, there would be no TV, computers, video games, lights, heating or air conditioning to name a few.  You’d have to read by candle light just like “Honest Abe” and all the traffic lights wouldn’t work.  Plus, if we couldn’t drive on roads, then there wouldn’t be Amazon deliveries, no driving ourselves to the doctor, no vacations and lots of other stuff we just couldn’t do.  Let’s not forget clean water to live.

MAK: And, we NEED a sewer system.  Can you imagine if we couldn’t get the poop and pee pumped out of our homes and treated.  Imagine having all that waste sitting in a small pond behind the house.  YUCK! That would clearly make the nightly walk a bit more challenging to handle.

DAD: We’d never get rid of our face masks.

MAK: Good one DAD!

DAD: Thanks. “Infrastructure” is important. It’s the basic facilities and systems that support our homes and businesses.  Just like a plant, it’s how our entire country is set up.  Without all this stuff, businesses, schools, and our homes would be much tougher to live in.  It’s been quite a while since we’ve gone through some updates in the U.S. Things have been getting a bit old, and I know I’ve seen lots of potholes, and some bridges that could really use the help.

MAK: Agree. In this agreement between the parties in Congress there is money set aside for airports, roads, electric vehicle charging stations, water storage and many other items.

DAD: It will help with better internet, upgrading the railway system to improve the  transportation of materials, bridges and all kinds of stuff.  With all that spending, the stock market definitely liked that.  Right Mak?

MAK: Yep. As it makes things better for us, it will also help businesses be faster, more efficient and safer. This is an extra shot in the arm that will help as we continue to re-open the country after the COVID shut down.  Here’s what happened in the markets.  We saw the S&P hit a record high that reflects this new agreement helping many different parts of the economy.  It also pushed technology higher, which meant the NASDAQ hit an all time high.  And, the Dow continues to hover around it’s high as well.

DAD: That is big, a couple new records and all three indices are up double digits for the year.  However, Bitcoin has been dropping and is now risen by less than 10% for the year. Crazy.  My trading account continues to get hit, and Apple is slightly better, but still down for the year.

MAK: That infrastructure agreement with over $1.2 Trillion in spending is a huge deal.  It’s hard to really grasp how big that is.  It will have a huge effect on the economy.  But, we have to realize that the money will need to come from somewhere.  In this case, it means more taxes. President Biden says he’s going to raise taxes on those earning over $400,000 per year to pay for it all.  It will definitely be interesting to see what happens next.

DAD: I saw looking at a lot of papers before we started. I was doing some research. Since the fourth of July is coming up and is our country’s Independence day, it made me think about financial independence or financial freedom.

MAK: What is financial freedom? Is that when you set yourself free from all the worries about money?

DAD: Wow, that’s an excellent way to look at it.  But, it means something different for everyone. Here’s a question.  What does the word “freedom” mean to us in the United States? You might be a little surprised that it means something different for a lot of people, depending on their point of view.

MAK: You’re right. I pulled an article that had some good quotes from different people.  But don’t you think we should look to the dictionary for the definition of freedom?  It’s “the power or right to act, speak,or think as one wants without hindrance or restraint.” Sounds good.  But, what does it mean to you Mak?

DAD: When I think about it, I think it’s the right to shoot off fireworks whenever you want! New York spends over $6 million on fireworks, which is crazy.  For our fourth of July people are free to drink $1 billion in beer and buy over $5million in flags. Yes, FLAGS!  You’re also free to compete in Nathan’s Famous Hot Dog competition and win $10,000 for first prize.  It’s been going on for over 100 years.  Last year, the winner, Joey “Jaws” Chestnut ate 75 dogs in 10 minutes. And, if I did the math right, that’s one every 8 seconds.

MAK: Very funny Dad. But, seriously, people have very different views.  One person said it’s “having the right to be different”. Another said it’s all “about democracy, rights, liberty, opportunity and equality”. George Orwell was a famous writer and he said “freedom is the right to tell people what they do not want to hear”.

DAD: Ok, I get it.  Freedom is the ability to choose your religion and not be persecuted for it. Your right to speak your mind.  Allowing the press the chance to pursue any issue freely and we get the right to get together, or assemble peacefully.  Lots of countries don’t have that.  So, I’m very thankful WE are free.  

MAK: So, it’s about being able to choose what you want to do without being scared of the consequences.  Sounds like if we spoke about financial freedom, it might give us a lot of choices without the fear of having enough money to pay for food, shelter, health, retirement and other things. If I had choices, I think I’d like the flexibility to choose to hang out with my friends more, play more tennis and take vacations.

DAD:  Good idea Mak  For quite a few people, money can be like a financial prison.  It takes away a lot of your choices.  You’re not free to do what you want.  Some people are financially free with a small house, an old car and outdated clothes. While others are financially free with a big house, nice cars, nice clothes and other stuff. What’s the key?

MAK: Spend less than you earn!!

DAD: Perfect answer. Way to go.

MAK: Let me get this right. You can look rich, or not so rich and be financially free? 

DAD: Yep.  Or you can look rich and NOT be financially free. If you earn $100 for the month, and you go out and spend it on clothes and say.. ice cream, you have nothing left.  As adults, if we’re not tracking that $100, we may pull out a credit card to buy a video game.  But, since I’ve already spent the $100 that I earned from my job, I have to borrow it.  The credit card allows me to borrow that money and pay it back later. You have a limit, but if you’re under it, they don’t care.  What is that?

MAK: Bad debt!

DAD: You’re right.  Next month I have to try and return the money to the credit card company, or they will ask for a lot of interest. If I couldn’t spend less than my $100 budget last month, it might get bigger. Now, I’m stressed to pay it back or pay high rates of interest for a LONGGG time..

MAK: So, you’re now focused on paying back the debt, don’t have savings, and your choices go out the window. It would be hard to go on vacation if you didn’t save for it, and you have a lot of debt, right? 

DAD: You got it.  Now, you’ve lost control.  You can’t save, the credit card company calls asking for its money, and you’re not building your investments to work for you. You’re going backwards.

MAK: So, it’s like quicksand, that’s hard to move in once you start.  If you had savings, it sounds like you may not have to worry as much about losing a job and an emergency fund can cover unexpected stuff.  WE wouldn’t have to worry about going to college, if we saved for it.  So you can choose your lifestyle, because you’re not worried about those financial decisions. You can get a coffee at Starbucks if you want, change your job, travel and more.

DAD: Yep, and the less you spend out of your earnings, the FASTER you get there. Having a budget is huge to make sure it all works. You could give money to that Dog Shelter we visited, or spend time helping out those dogs that need it.  Doesn’t it just feel GREAT just talking about doing things you want to do, and not being stressed about money? Think about what it would actually FEEL like.

MAK: So, implementing the right behaviors early is important. I don’t want to be in that prison, or any other for that matter.  Independence and freedom sound like a great way to go.  I want to break the chains of tyranny like our forefathers did when our nation became free 245 years ago.  So, remember this 4th of July as we celebrate our freedom and independence that having financial freedom, big or small is something that is special and should be celebrated. Just think if you start this year, the fireworks next year might be for your success!!

DAD: Thanks for being here, and we’ll see you next time for more Money with Mak & G.

MAK/GRANT/DAD: HAPPY 4th of JULY!!!

Scroll to Top