CONSIDERING the sums of cash ranging from minute to modest to massive that different families spend on the funerals — be they burials or cremations — of cherished loved ones, it's obvious our need for cash doesn't, immediately, end with our demise.
While this column truly isn't moribund, as you'll discover by reading on, I wanted to point out at the start of this piece that our need for money doesn't cease when we eventually breathe our last. Not quite.
Based on conversations I've had with clients, readers, and audience members over the 28 years, thus far, that I've earned active income from various facets of financial planning, I've discovered that a consistent goal shared by conscientious breadwinners is to NOT burden their children or other beneficiaries of their estates with hefty post-bereavement bills.
In that context, I have discovered that proactive people often choose to do two specific things to ease the stress on their loved ones when these impressive individuals pass away:
1. While they are healthy and of sound mind, these family heads gently but firmly inform family members that a simple funeral will suffice; and
2. They furthermore set aside the funeral funds themselves in earmarked savings or investment accounts for their planned (and intentionally budgeted for) terminal expense.
Practically speaking, though, almost all the money that we will ever require, be our lives short or — given planetary demographic trends — long, will be expended across three phases:
1. Our growing years, say the first 20 to 25;
2. Our active earning years, typically the ensuing 35 to 45 years; and
3. Our "kicking back" years, which probably will stretch out another decade or two (or three or more).
PHASE 1
During our growing two to two-and-a-half decades, our parents usually care for us and educate us with or without the help of loans and scholarships.
The willing capacity for magnanimity that loving parents possess to sacrifice their own future riches to educate their children is both commendable and ultimately logical if viewed through a multigenerational family lens.
About 2,400 years ago, the ancient Greek philosopher Socrates said, "Education is the kindling of a flame, not the filling of a vessel."
When that flame is adequately kindled, it flares up and sets off a chain reaction of intergenerational educational — and predictably economic — uplift.
In filial societies, the trade-off for parents investing their wealth in the education of their children is often the expectation of elder care and support to later on be extended to ageing relatives.
PHASE 2
Then, in the usual three-and-a-half to four-and-a-half "middle" decades of our lives, our prime economically productive period, we work for our money.
As we do so, we also often spend much of that money generally caring for and sustaining ourselves as well as those within our innermost circle whom we cherish the most, be they younger or older kinfolk.
Tough oscillating changes in our work environment have meant that most of us have to steadily ramp up our outlay of effort to earn enough — for both today's and tomorrow's needs, wants, goals and priorities. (Note: What we earn by the sweat of our brow and the output of our brawn and brain is our precious active income.)
If we manage our money badly, we shall spend MORE than our net active income after taxes, and will need to fund these cumulative deficits by either selling our existing assets or by incurring debt. Both such cash flow gap-covering moves weaken us financially.
But if we manage our money well, we will spend LESS than our net active income, and thus build up cumulative surpluses. If we save and invest that positive cash flow, namely our prized surpluses, and do so for a long time, we will succeed financially.
PHASE 3
The apex of financial success is attaining FF, or Financial Freedom. That happy state means generating, through owned assets, passive cash inflows like interest or profits earned from cash, dividends from Employees Provident Fund (EPF) and stocks, cash distributions from income-orientated unit trust funds, and rent from investment real estate.
Then, hopefully, for a sufficiently long period before we exit our mortal plane, we will be able to enjoy a golden retirement. (Note: Most retirees, however, never attain shiny final segments and, instead, have to settle for Phase 3s made of low-quality wood and straw.)
CONCLUSION
In light of the pragmatic realities marking each of those three life phases, what is the magic key to an incrementally improving second phase to fully fund a fun golden third — ideally, long and fascinating — phase? There are two:
A "what" key; and a "how" key.
This is what must be done:
Increasing our PI (passive income) steadily, inexorably, ferociously.
And here is how to do it:
Exercising delayed gratification.
So, to answer my opening question, it only becomes safe for us to stop working for our money, when our money starts diligently toiling for us.
© 2024 Rajen Devadason
Rajen Devadason, CFP, is a securities commission-licensed Financial Planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at www.linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com. You may also follow him on Twitter @Rajen Devadason and on YouTube (Rajen Devadason).