I get the feeling that for most of the people reading this blog, life is pretty easy. Mostly it's the kind of people that not only can meet their needs with each paycheck, but there's money left over to save. I'm lucky enough to be able to say that's true for me.
I don't consider myself a super frugal person, but I aspire to be. If you are frugal and you save money it doesn't necessarily take too long before the money you've saved itself "earns" enough to cover your monthly expenses.
So for instance, suppose I was a more frugal person and could live on $30K/year. If I were to save $750K then my savings should cover all of my expenses. Forever. A general savings rule is that if you've invested in a broad range of stocks, perhaps via a mutual fund, you might expect that you can withdraw 4% of your total savings annually and the savings would never go away. Maybe you have 7% growth, you withdraw the 4%, and inflation eats 3%. Basically the money lasts forever.
Suppose I've hit financial independence, but I just keep working for a few more years. It doesn't take that long to go from $750K to $1.5 million because that initial $750K grows as well. If I wait a few years on retirement and still live on $30K when I do retire, by the end of each year I'd have $30K more than when I started. Despite the fact that I've lived comfortably, paid my utility bills and my food bills. I had many people that provided me services. And yet despite doing nothing I now have even more money than the year before.
How does that work? How is it that I can take advantage of services, pay for utilities, go out to eat, generally enjoy myself, all the while doing nothing, and when I've done that for a year now I have more than when I started? We're told that our money "works" for us. But it doesn't really. Money doesn't actually "do" anything. People do. People work. What money does is it entitles me to take a portion of the value that other people create. This is entailed in the concept of "property rights".
In other words, people work in factories and in so doing they add a certain amount of value. They only keep a portion of that value. Who gets the rest? I do. It goes to me. I don't necessarily know what they do. I don't know if the work is destructive to his body or his environment. I just get the money. And I haven't really done anything.
If I were to continue working as I do now for a couple of more decades a savings of $1.5 million is entirely conceivable, and I think living on $30K/yr is also plausible when the mortgage is gone. So what does this mean? It means that when I stop working I not only will watch my wealth grow, I'll be able to provide for my kids such that they could extract services forever and likewise never work. I just need to teach them the 4% rule. I'd be living on 2% on this scenario, so the amount I can withdraw annually without seeing any reduction in my real wealth increases
This scenario is very much within my reach, and it seems unfair. The idea that I can reach a point where I never work, yet my wealth grows, and further that my kids and their kids can likewise live off that same wealth. So you can imagine how extreme the unfairness is for people that are really sitting on large piles of money. They can hardly see their wealth diminish even if they try. Why? Because sweat shop laborers and other laborers are compelled to hand over the fruits of their labor to these rich oligarchs. Money the oligarchs don't need, but the sweat shop laborers do.
This is the system I participate in. We are the lucky ones that don't live hand to mouth. We've seen a big boost in our wealth over the last year or so as the stock market has come back. That's wealth that was created by the companies I partly own through mutual funds. Companies that have people that work for them, people that often live hand to mouth and just don't have the ability to save.
It's just kind of depressing to me, but I don't see that I have much choice. I've been working all these years and I haven't been allowed to keep the entire amount of value I've created. It's gone to stock holders before me. If I had been able to keep what I produce maybe I'd have enough saved that I wouldn't need to work any more, but that's not where I am. So like they have taken the excess value I've produced, I'm going to take the excess value produced by others further down the line. As I age it's going to get tougher and tougher to work for a wage. You're going to have to have savings. There are alternatives to investing, but they aren't so good.
What would be more fair of course would be to take back from the rich what was taken from us instead of taking from the poor, but our system of property rights just doesn't permit it. But this is one of the reasons I find it absurd to hear complaints from rich people about welfare. The biggest welfare system ever is the system of property rights, which compels the very poorest of people to give the value they create to people that are so fantastically rich they can't realistically even spend it.
Amongst some on the left a popular phrase is "Property is Theft". I think that's correct.