Financial independence means work is optional. You can sustain your lifestyle from your passive income or investments. With a global job crunch coming, I urgently want to let you know why financial independence is such a worthwhile goal.
I also want to delve deep and find out how many New Zealanders may already be in this position.
It’s a subject close to our heart at Money Morning NZ. We want to help more people find freedom by understanding investing.
Financially independent New Zealanders…
An article in last week’s Herald had me thinking that our little country outperformed massively in this area. On Friday the Herald reported ‘the average net worth (assets minus liabilities) of the richest fifth of [NZ] households rose 26 per cent to $2.8 million per household.’
I felt astonished. Elated. And then very sceptical.
That figure puts us ahead of low-tax, wealth-shelter countries like Switzerland and Singapore — where approximately 4.3% and 3.9% of the population respectively are millionaires.
When we say ‘millionaire’ in this context, we’re referring to ‘high net-worth individuals’ (HNWIs). People with US$1 million (NZ$1.46 million) or more over and above their home.
For a HNWI, work could be very optional if you’ve invested well. A conservative 5% return on $1.46m provides over $70k a year. NZ sharemarket indices averaged 12.8% over the last 10 years. That would have delivered over $186k a year on average.
The same Herald article says that the top fifth of households own homes worth $939,000.
It looks to me they got it completely wrong.
With 20% of New Zealand households worth $2.8 million, homes comprising just under $1 million of that — 1 in 5 of our households could retire in comfort!
So I did my own digging…
As of 30 June 2018, Stats NZ tables show that 216,000 households have a net worth of more than $1.5 million, which is 12.5% of all households.
My hunch is a lot of that $1.5 million in net worth is tied up in the family home.
The Knight Frank Wealth Report in 2017 found there are 98,800 New Zealanders with assets (excluding their primary residence) of US$1 million (NZ$1.46 million). These people ought to be independent in their own right. They don’t need a job or money from the government. Out of a population of 4.8 million, that makes around 2.1% of all people — or 2.6% of people 15 and over.
And we want more of them in this country…
Most financially independent people are investing in financial assets — assets like shares that can deliver passive income. Income that you earn whether you’re at work or at the beach. Income you may earn from global assets but spend in this economy.
I’m passionate about investing. I’m trying to teach my kids from a young age about its power. I help my son invest his birthday and paper-round money. I discuss the shares we buy. It starts small, but it builds. And I nag him to put down Minecraft and work and save from a young age.
The reason I do this is because I’m worried about the future. [openx slug=inpost]
The coming job crunch
In her beautiful 2017 book, Give Work, Leila Janah mentions that there are more people in the world than ever before educated to a high level and on the global job market.
There may not be jobs for them.
Here in NZ, we have loads of people graduating from universities. But a December Industry Training Federation report found that tradies ‘earn more, buy houses and contribute to KiwiSaver earlier than their peers with bachelor’s degrees.’
Tradies start earning earlier. They’re less likely to need a student loan or to borrow as much. And in our service-based economy — where many jobseekers compete against global outsourcing — you still need tradies.
Some graduates might start earning more later on, but remember: early investing starts growing wealth.
Where have all the good jobs gone?
Recent governments have failed to support productive Kiwi manufacturing. When businesses are sold off or forced to compete on globally rigged markets, there’s been little but apathy.
A friend of mine invented an innovative product and owned a factory in South Auckland. I visited his initial production line some years back. He was proud of it and the people he employed. But he found little support in government policy for the contribution he was making. Last year, he had to sell it.
The mainstream tells you that traditional jobs have been replaced by automation; developed economies are now service-focused. What they don’t tell you is that, except for elite service professionals (who have increased both their income and job security), most workers face lower wages and more unstable jobs.
Real wages are in decline. We’ve been following other Western countries on that path.
According to the Economic Policy Institute of America, a good job pays at least US$18.50 per hour (the median hourly wage in 1979, adjusted for inflation) and offers health insurance and retirement benefits. In 1979, 37% of jobs held by men were good ones. In 2012, only 28% were.
It has been the same trend in New Zealand. Real wages peaked in the late 1970s and have not reached this level in real terms since.
What to do?
We can’t bring the jobs back or change the economy.
We can start investing now. And you can learn how to invest.
Start building financial independence today, so you’ve got some more choices tomorrow.
Over the course of our research at Money Morning NZ, we’ve managed to find some productive companies that are going against the trend. They offer some great prospects. We cover those in our investment research service — Small-Cap Speculator.
Analyst, Money Morning New Zealand
PS: We’d like to hear your stories on how you may have achieved or are planning to achieve financial independence. Reach us at [email protected]ymorning.co.nz