With Christmas right around the corner, I’ve been thinking a lot lately about giving back. I give very little back. It stinks, but charity and frugality just don’t go hand in hand. I’ve always justified it to myself by saying that investing my money helps people across the planet. When I invest in a government or a corporation, that money is used for technology, infrastructure and personnel. Countless people have jobs because others invest their money. I still believe this is true, but it got me thinking: if working, saving and investing help the economy, does retiring early hurt it?
Talent: Early Retirement Deprives the Economy of the Contributions of Intelligent, Motivated Individuals
Achieving financial independence at a young age takes motivation, dedication and intelligence. When people retire early, they might use these skills to start their own company, work part-time, or volunteer. In this case, the economy still benefits from their talent.
Then again, what if early retirees choose to spend their time reading, camping, or running? While perfectly reasonable uses of time, these activities don’t create a lot of jobs. The economy is surely hurt when it loses the talents of driven, smart people.
Spending and Investing: The Economy Suffers When High-Earners Don’t Spend and Invest In Proportion With Their Salaries
The economy is strongest when people spend and invest. This is clear in a recession. When the stock market falls, people get nervous about investing their money. They put it somewhere safe, like in bonds or a bank account. At the same time, people also become concerned about where the next paycheck is coming from, so they spend less. The result is more money in deposit accounts, and less in the economy. This compounds the problem and the country suffers even more.
What I wonder is, does the economy also suffer when high-earners don’t spend and invest in proportion with their abilities?
For example, let’s say you make $100,000 a year. You’re pursuing financial independence, so you invest $60,000 a year, and spend $40,000. When you retire, you continue to spend $40,000 a year, which you withdraw from your investment account. We’ll assume the balance in your investment account remains flat over time. The impact to the economy is -$60,000 annually. Surely, the economy is worse off, right?
If you continued working, corporations would have an additional $60,000 every year to spend on technology, infrastructure and personnel. When you consider pay raises, the impact over time would actually be much more.
How Can We, as Early Retirees, Stimulate the Economy and Give Back to Our Communities in a Way that is Sustainable for Our Own Financial Future?
Although early retirement is still a good ten years away for me, I want to start thinking now about ways I can stimulate the economy when I reach that point. I’ve also been exploring opportunities to be more charitable today without sacrificing my dream of financial independence. Here are some of the ways we, as FIRE seekers, can help the economy and our local communities in ways that are sustainable for our own financial futures.
1. Volunteer our time
Volunteering time doesn’t cost a thing, so I think I sometimes underestimate the impact in can have on the economy. When we volunteer our time to an organization, that’s one less paycheck that company has to write. They can use that money to instead benefit their cause. Maybe that money will pay someone else’s salary, or maybe it will improve someone’s life in another way.
2. Invest in organizations that prioritize environmental, social and corporate governance (ESG)
I’ve already discussed how investing stimulates the economy, but through our investments, we can also influence behavior towards the environment, corporate governance and social concerns. By choosing to invest in companies that are committed to addressing what’s important to us, whether it be climate change, human rights, or executive compensation, we can contribute to making the world a better place, and encourage other companies (who also want our money) to do the same.
3. Spend our money at companies that impact the economy and the environment in a positive way
What I just said about investing goes for spending, too. No matter how frugal we are, there are some things we have to buy, so we can choose to purchase them from companies whose values align with our own. That might mean driving a little further or spending a little more, but isn’t it worth it if in the process you are supporting a friend, or a local business, or a company that is committed to making a difference?
4. Donate our extra possessions
Donating our excess things is such an easy way to make a difference, and it has the added bonus of clearing out clutter without filling up landfills. I’ve donated everything from clothes, to crutches, to furniture. I have a friend who donated her old car to a family in need, and I’m sure it had a huge impact on their lives.
5. Include charitable contributions in our monthly or annual budget
I can be a little overzealous when it comes to reaching goals I’ve set for myself. That’s one of the reasons I almost never make New Year’s resolutions – because I’d absolutely HAVE to follow through, or I’d drive myself nuts with guilt. Right now, I don’t have a specific budget in mind for charitable contributions, but it got me thinking, what if I did? If we selected an amount that we plan to give away each week or month or year, I think it would be easy to do so. We wouldn’t feel guilty for blowing our budget, because the donations would already be factored into it.
6. Pledge to give windfalls away
Every once in awhile, I receive something I wasn’t expecting. Sometimes it’s in recognition of something I’ve done at work, or maybe I win something at a raffle or a trivia night with friends. Usually, I sell it if I can and invest the proceeds. Pledging to donate all, or some percentage, of these unexpected windfalls in the future seems like an easy way to make a difference without sacrificing my goal of financial independence.
How do you give back in a way that is sustainable for your own financial future?