Why Financial Independence Is Getting Easier – Part Two (The Future of FI)

So last time we covered how and why Financial Independence is getting easier over time.

This week I’ll share my thoughts on the future of FI. 

We definitely have some challenges on the horizon, and I’m sure it won’t be smooth sailing.  But I think we’ll come out the other side more prosperous than ever before.

Okay, let’s dive in.

 

What does the future look like?

Now, I’m no more enlightened about the future than anyone else (probably less so!).  But I’ve come across several pieces of information in the last year couple of years that I’m finding hard to ignore.

Remember how I said that new technology, innovations and efficiency has made us wealthier over time?

Well, guess what’s coming around the corner?  

A large number of game-changing technologies which look set to create huge efficiencies and dramatically lower the cost of nearly everything.  Maybe even lower in dollar terms, not just relative to our incomes.

Below is a list of what could be the most important developments for our cost of living over the next decade or two.  Full credit goes to tech entrepreneur and philanthropist Peter Diamandis for the insights this post is based on.

 

Clean Energy & Storage

The cost of solar power has been coming down relentlessly over multiple decades.  And it’s still falling, as more research is done to increase efficiency and optimise materials used.

Combine this with growing investment in energy storage and you’ll end up with a low-cost clean energy source which can be stored efficiently and gets cheaper over time.  This article is a good read on the topic.

As this trend continues, we won’t need to rely on people choosing solar because they want to help the planet.  People will choose clean energy purely out of self-interest, because it’s going to be the cheapest option.  It already is in many places.

So the amount households spend on electricity is likely to be lower in the future than it is today.  This trend is important because it goes hand-in-hand with some of the other technologies here.  

Consider manufacturing.  If you’re a manufacturer of some sort, one of your biggest expenses is power.  As power prices fall (or you invest in solar panels/storage yourself), your cost of production will fall too.  This means you can undercut your competitors who haven’t done the same.

Result:  The cost of electricity and manufactured products are likely to fall.

 

Transport

Nearly everyone would be able to see where the future of transport is heading. 

Yes, I’m talking about electric cars.  And thanks to the above, the cost of powering those electric cars will be even cheaper than it is today.

But it doesn’t end there.  Most of us use ride-share services like Uber and Ola from time to time.  And I’m betting we’ll still use them well into the future. 

The difference is, there’ll be no driver.  Instead, they’ll be self-driving!

Source:  Medium – Uber Case Study

If you think this sounds crazy, it’s already being tested in a number of cities around the world.

Think about that.  The main cost of ride-share is for the driver’s time, and a lesser amount for fuel and vehicle upkeep.  Take away the fuel and the driver, and the cost of transport falls dramatically. 

Some estimates are for the cost to be 5-10 times cheaper than it is now.  Owning a vehicle will just be a hassle in comparison (if it wasn’t already).

Almost everything we buy has a huge transport cost built into it.  With self-driving electric cars, vans and trucks, there will be HUGE efficiencies on offer for companies who are willing to invest. 

And they’ll have to.  Because if they don’t do it, a competitor will!

In a competitive economy, these cost savings are likely to be mostly passed on in the form of lower prices to the end customer.

Result:  The cost of anything being transported from A to B is likely to get much cheaper (people, food, etc.)

 

Food

Over the last century, food has gotten much cheaper relative to incomes.  But thanks to some amazing innovations, this is set to continue.

The first important concept here is vertical farming.  This is where food is grown in a building under perfectly controlled conditions of light, nutrients, and water, rather than out in a field in the middle of nowhere.

Given transport costs are a large part of food prices, this is a big deal.  If the above ‘transport’ savings don’t make food cheaper, then vertical farming will.

Peter Diamandis explains in this article

Rather than allowing the vagaries of the weather and soil conditions to dictate crop quality and yield, we can now perfectly control the growing cycle.

LED lighting provides the crops with the maximum amount of light, at the perfect frequency, 24 hours a day, 7 days a week.

At the same time, sensors and robots provide the root system the exact pH and micronutrients required, while fine-tuning the temperature of the farm.

Such precision farming can generate yields that are 200% to 400% above normal.

In addition, the future of meat is also set for a shake up.  From an environmental and animal welfare point of view, it couldn’t come soon enough.  Here’s what’s happening…

Due to incredible advancements in technology, meat is able to be ‘grown’ in a lab using single animal cells.  And with gene editing, the nutritional profile of meat and other foods can also be enhanced.

We’re talking beef, chicken, etc., with the exact same protein and taste, without the actual animal being required.  

This is huge!  Raising animals for consumption accounts for a massive amount of global land use (about a third!), an alarming amount of emissions and a sad and shameful industry of unnecessary cruelty. 

Lab grown meat, while still in its infancy, has some huge investors, such as Richard Branson and Bill Gates.  There is a massive efficiency advantage here.

Far less water.  Far less land (see vertical farming above).  And since it’s a technology, this has large scale benefits, which will continue bringing costs down to become cheaper than the old fashioned raise-and-slaughter style farming.

These vertical farms will require plenty of electricity.  But that’ll benefit from the clean energy savings mentioned earlier.  It’s likely robots will be able to do the ‘harvesting’ in these farms, leading to very little labour costs.

Result:  The cost of food is going to get cheaper, more humane and possibly even more nutritious.

 

Housing

Aussies will be reading with crossed arms and a raised eyebrow at the thought of housing becoming cheaper over time.  And I’m with you – it’s extremely hard to imagine!

In reality, the cost of all housing is probably not going to fall anytime soon.  But the availability and choice of lower cost housing is going to become more realistic, let’s say.

The first reason is, thanks to autonomous cars.  If we no longer have to drive, commuters have a bunch of time up their sleeve for other things – catching up on emails, entertainment etc. 

This will mean at least a few folks won’t really care about their commute length, as it’ll typically just be extra free time.

Add to this, virtual reality and the option to work-from-home which is very suddenly becoming adopted right now!  Being ‘at the office’ might not require your physical body to be there.

Not convinced?  To be honest, I’m a bit luke-warm on these ideas too.  What’s more convincing for me, is the growing capabilities of robotics and 3D printing.

A number of companies have started 3D printing houses, and even some small apartment buildings! 

One Chinese company, WinSun, has already managed to construct ten 200 square metre homes in just 24 hours.  They’ve also built a 5-story apartment building.

The crazy thing about this is how fast the ‘printer’ is able to erect these structures.  Another nice aspect is that some of the ‘ink’ the printer uses comes from a combination of recycled construction materials.

This article has a great breakdown on the topic, and states the following…

According to WinSun, as much as 80 percent in labour costs are saved using the system, thereby making the houses much more cost-effective than using traditional building methods.  WinSun states that printing the houses is 10 times more efficient than building them using traditional construction methods and can save from 50 to 70 percent in production time and therefore in energy.  The printing process also is cleaner and more efficient than traditional building and yet the quality stays the same.

Now, mass 3D printing of homes in Australia is probably a fair way off.  But I do think it’s inevitable that with new technologies such as this, the cost of building will fall over time.

If we agree on that, we’re left with the cost of land, which is largely just a personal choice of which location we want to live in. 

So while the cost of all housing is unlikely to be cheaper in the future, there will definitely be ways to have lower-cost housing if you desire. 

Result:  Building costs look set to fall, while our proximity to the workplace becomes less relevant.  So if we choose some sensibly-priced land in our giant country, then our housing may very well be cheaper than it is today.

 

Other

In the article I mentioned earlier, Peter Diamandis also discusses healthcare, education and entertainment.  These areas have already seen changes and will continue to do so thanks to the internet, artificial intelligence (AI) and robotics.

Education:  While it’s still possible to spend many hundreds of thousands of dollars to educate a child, it’s also possible to receive a perfectly adequate education for very little. 

Combine that with the abundance of quality, free information on the internet these days (on any subject matter), and I struggle to see much value in prestigious schools for most kids.  High education costs are an investment, yes, but with no certain payoff in a rapidly changing world.

Healthcare:  We’re lucky in Australia to already have a great public health system.  But more progress is coming down the pipe, with AI already being able to diagnose some health conditions better than doctors. 

It looks likely that robots will perform surgeries more precisely than humans over time.  And since these robots are ‘learning’, their skills keep improving.  While the AI and robots are expensive, their cost is also likely to come down over time (like computers, TVs etc.)

Entertainment:  This area already costs close to zero anyway, with the likes of Netflix, podcasts and Youtube.  There aren’t much savings to be had in this area, but think how amazing it is already!

 

What about the jobs?

At this point, it seems like I’m saying robots are going to take over the world and there’ll be no workers left. 

So what about people’s jobs?  Well, that’s anyone’s guess.  Jobs may become an issue, or maybe not. 

Throughout history, each industrial revolution has ended up creating more jobs than those which disappeared.  Maybe this one will be different, who knows.

When we look around though, so many jobs we do today didn’t even exist 20-30 years ago.  So that’s a promising reminder.  In any case, I do think there’s one thing worth betting on… 

That society as a whole will be wealthier than we are today.  This is great news for young people who may feel like the best opportunities have passed them by.  Try not to fall into this ‘grass is greener’ mindset.

Consider how much the internet has opened up the world.  The possibilities are pretty extraordinary.

Yes, the online world (just like the real world) is full of idiots.  But the internet gives us some amazing things too. 

For example, anyone can start a blog or a YouTube channel at basically zero cost.  Or there’s the option of freelancing, by offering their services doing whatever they’re good at.

Everyone is good at something.  And you don’t even have to be the best at it.  You just have to be able to help other people.  My view is, we all have the ability to help others in our own way.

 

But seriously, what if there are no jobs?!

Well, one possible solution that has been floating around is something called:  Universal Basic Income (UBI). 

What is it?  Essentially, UBI is where everyone receive a guaranteed amount of income every month, to cover basic living costs, regardless of whether they look for work or not.  

There are pros and cons, well outlined in this article.  It’s not clear how exactly it would work, but it would be expensive.  How would governments afford it?

Well, fewer human jobs means very little labour costs.  That means huge efficiency and much higher profits for companies.  This means more tax is paid plus increased wealth for shareholders. 

Since that’s where the benefits are flowing, that’s probably where the government would find the money for such a program – company and wealth taxes.

If robots do take our jobs, governments will pretty much have to bring in some form of UBI.  Otherwise, we’ll end up with social unrest, bankruptcies, poverty and crime.  And nobody wants that.  So for this reason, I don’t think fear about the future is warranted.

 

The Future of FI

The crazy part is, if we end up with UBI, this means people will be able to live as though they’re financially independent already!

Because UBI might be enough to live on for those with simple lifestyles.  And for others, if they can manage to earn a modest amount of income, they’ll be perfectly comfortable too.

Having more of their costs covered by a guaranteed income means people can devote their time and energy into things they’re really interested in.  And that’s one of the best things about being FI!

So, in a weird way, there’s an outside chance that the FIRE movement becomes redundant in the future.  How bizarre would that be?!

 

Summary

Things might not turn out like we expect.  But as with Part One of this post, I think the overall trend is pretty clear.

The explosion of technological advancements that are unfolding, is likely to generate huge efficiency gains in the next decade or two.

This should make Financial Independence easier in the future, thanks to a combination of rising incomes and/or lower costs of our basic needs.  

While job losses and re-training look like big challenges, if we can’t generate replacement jobs, there is likely to be a safety net in place, like Universal Basic Income.

I can’t help but think the next 10-20 years looks very bright for those saving and investing today.  Because even with a less-than-stable job market, there’ll be more freedom, more flexibility and a greater chance for meaningful self-directed work in the future. 

And that’s a core reason for becoming FI in the first place.


What are your thoughts?  Let me know in the comments below.  Thanks for reading!

15 comments

  1. Given present events I think working from home will become a popular way of life even after the Covid19 crisis. I also think the country areas will become a more popular place to live and folk will be less inclined to want to pile up on top of each other in the city.
    Its going to become even more of a high tech world as automation(hello Appen shareholders) and high tech comms becomes the norm which will provide work for some of the jobs lost to more automation.
    Its interesting that family/friends we know who were not into shopping online etc are now being forced to have things delivered to the home after purchasing online and they are loving it.
    UBI…was it Finland years ago that tried paying a set amount of money to each household every month?
    I know one of the euro countries tried it rather than having different rebates, complicated assistance programs etc.
    Agree on Vertical farming, things have to change how we grow and manufacture food and there is a big push now anyway for plant based meat substitutes etc….Agree on the cruelty angle, the wife and I are off a lot of meat these days based on how animals are treated and there has to be a better way.
    Will be a new world for sure and I think education will need to change quickly to adapt and it might open up more opportunities for FI for those who see the light a bit quicker than others.
    Might be a few more Elon Musk’s in every country….
    Nice Blog Dave and keep em coming, I need some more stimulating brain matter for 6 months at least..😉

    1. Thanks Mark. Hope I’m easing your boredom in these times of isolation haha.

      Yeah it’ll be interesting to see if the work from home thing becomes more common, or people get sick of it and can’t wait to get back to work.

      UBI has been tried in various places before and I think there are some places doing it currently, not sure on the details.

      More Musks you reckon, well that would surely be good for innovation! Cheers for your thoughts mate 🙂

  2. Great read as always. Imagine the things people could create and do if their basic needs were covered and they didn’t have to spend 40+ hours a week working mundane jobs just to get by.

    I also agree that many things have gotten cheaper and will continue to do so which should make it even easier to live a modest lifestyle on less. I’m looking forward to this future.

    1. Yeah totally! It’s just a matter of people finding their way into work/projects/causes that are useful while also being enjoyable for the individual. There are obviously jobs that aren’t desirable yet someone’s gotta do it, but the % of satisfied workers in the future will hopefully be better!

  3. Already I am seeing questions being raised about the need for office space with all our 400 staff working from home. This is just one lesson/innovation that has been forced on us in the last few weeks. Offices are expensive.

    1. That’s interesting Phil – how quickly things can change! Companies might like the idea of downsizing office space to trim costs and it may become the normal expectation rather than optional.

  4. Very interesting stuff. I’m a big supporter of UBI and I can see lots of benefit to having it in place of the current safety net we’ve got. However I don’t think UBI will make more people financially independent, it’s meant to be a really small amount to cover the most essential living expenses. Uber frugal people might be able to pull it off but there won’t be anything left for discretionary items like holidays. Best case we’ll see less people on the streets but with UBI people will still be living hand to mouth unless they go out to work to top off their income.

    I do think things like energy prices and transportation prices will fall but I’m not so sure about housing. At the moment housing prices are higher the nearer you are to the city, but if jobs start getting more distributed and less dependent on being physically at work, then perhaps we’ll start to see a more downward trend in property prices.

    Jobs wise I think there’ll be a shift towards more manufacturing and servicing (to maintain the robots that will serve us) so there will still be jobs, it just won’t be focused in the same industries we see today. Having a UBI also allows people the freedom to explore and create things that we wouldn’t otherwise have without a safety net – so perhaps we might see an growth in traditionally non-high paying jobs like the arts. We would also see lots of growth in new and emerging technologies and entrepreneurship. Ultimately we will still need jobs, people will need to pay tax so that the UBI can be funded, otherwise it’ll all fall over.

    Also, if we assume that we will still be operating in a free market economy the way we understand it today, there will still be the same supply and demand issues facing the population of tomorrow, so I daresay FIRE won’t necessarily be easier to achieve. Whatever the market sets, we will have to pay, so some things might be cheaper and others more expensive – which eventually evens up in some sort of equilibrium. But that’s assuming it won’t change, who knows what the economic situation will be in the future.

    1. Appreciate your thoughts Ms FM. You raise some good points.

      I was more hinting to the fact that UBI (so less financial pressures) may mean people feel less need for large savings/reaching FI before venturing into work that they’re keen on regardless of the pay.

      It’ll be really interesting to see how it all plays out and what jobs/roles people shift towards in the future.

      For the same reason you mention – the market economy being the same – I see that as a reason why FIRE will continue to get easier, just as it has till now. If we believe wealth/income per person will grow in the future and living standards will increase, as it has, then this same trend should continue. Obviously far from locked in though! 🙂

  5. Another great read Dave! I definitely think 3D printing of houses will become more common place, even here in Australia. Think what that means for all the property-obsessed types out there!
    I can also see a version of UBI and a return to more home grown manufacturing in order to reduce our reliance on other countries. These covid-19 times remind us of the importance of high quality internet connections around the country and a decent healthcare system; 2 areas we’re going to see expansion in.

    1. Thanks Jeff! The return to more home-made products does seem a likely and sensible outcome of all this. Man, internet is more important than ever. Imagine if that went down!
      People would probably be more worried about that than healthcare since it immediately impacts them lol.

      I’d love to watch a 3D house getting built in real life! Even if it doesn’t become popular for some reason, I can see some large-scale landlords building low-cost 3D printed housing and able to offer cheap rents because of it. So it seems very likely to have some effect on future rents/prices in non-prime areas.

  6. Hi Dave,
    Tax may be a disruptor of disruption, as it has been so often in Australia as governments impose their idiologies. If transportation becomes cheaper to the point that catching a cab is usually the most economic decision, and this results in significantly more congestion, then tax may be used to shape behaviour. Time will tell…
    Cheers,
    Andrew

    1. Good point Andrew. Tax is another unknown and I guess road charges will change in the future if the masses no longer own cars. The cost would have to be built into the ride-share charge to maintain roads etc.

      Then again, a shitload of parking areas in cities would be freed up, which can be turned into housing, cafes etc. which the govt would earn plenty of revenues from. It’s all very interesting to think about.

  7. I think driverless cars if fully implemented will be a really big thing…

    1) imagine all the free land and prime estates being used for Car Parks… This will free up so much land in the CBD area, hence allowing the land to be used for something else
    2) older pple or pple with disabilities will be able to do things not possible previously
    3) People will enjoy more freedom and online Merchants will become more and more valuable

    this will change the whole society

    1. Good points Jack. Also think of how many lives it will save… with driverless cars expected to be ridiculously more safe than shitty human drivers looking at their phones, doing their makeup, eating cereal on the way to work lol.

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