This is a guest post by Tim Lindsay, the guy that manages my affiliate advertising accounts at Linkoffers and Cardsynergy. He’s on his own path to financial independence and wanted to share his own take on the role that wealth plays in our personal lives.
The Ultimate Gift?
Most people would say the pinnacle of life is when you score a top level job in your field, when your kids are born, when you land a full ride to college or sign a multi-million dollar contract with your favorite sports team. Achieving financial independence (FI) in life is typically an afterthought. That is why we see hundreds of celebrities and lottery winners squandering their money and years later filing for bankruptcy. Just look at MC Hammer, Kim Basinger and Michael Jackson.
Personal finance bloggers are different and it really does not take all that long to see that their goal is simple: to achieve their family’s FI as early as possible. I am currently working towards that myself! Becoming FI involves living a frugal lifestyle followed by saving a great deal of money over a period of years and paying low taxes. How you actually save that money is all up to you as long as it involves saving and not spending. For some it is buying and investing in gold, silver, index funds, or rental properties and for others it involves buying and investing in profitable, well run companies that will pay back dividends year after year.
For most, the Ultimate Gift may be a luxury cruise, a brand new car, boat, plane or just about any item you are longing for. But consider an even bigger “Ultimate Gift”. After reaching financial independence you continue to work full time or part time while giving away all of your income from that job. No, I am not talking about volunteering on a Friday afternoon from noon till three P.M. I am talking about working an actual job and giving away everything you make. That statement right there would floor most people in the world, even the personal finance bloggers and savers.
In America we are taught to consume, consume some more and if you really want something then put it on credit. So the thought of working after you reached FI is CRAZY, especially to give all your money to a friend, family member or complete stranger. I can see most people saying, “They are not my responsibility. After all don’t they realize everyone should have 6 months of living expenses in cash so when emergencies arise you can still pay your bills?” Would it be different for the family that had an emergency fund with 6 months of living expenses in the bank? What happens if they blew through all of that money paying medical expenses and paying their daily bills? What if they were great with their money; however, due to unforeseen circumstances they are flat broke and just need a little help?
Ultimately the question for each of us is would we go back to work to help a friend, family or stranger in need? Please comment and let me know what you would actually do. Would you only go back to help a family member or would you actually go back to help a friend or stranger in need? I know most are thinking their family will help. My question to you is what happens if they have no family? For those that would go back to work would you put a time limit on your generosity? After all if you are financially independent you may want to travel the world or spend time with kids or grand kids.
I really hope that everyone enjoyed this article. The purpose of this article is to get everyone thinking and to see how far you really would go to help someone in need, even if it meant going back to work.
Tim’s response:
Personally going back to work to help someone in need would be a decision I would not take lightly. It would be a decision my wife and I would have to think and pray about in detail if we were financially independent and capable of still working. Like most, I would think I would want an open book into their finances. At the end of the day I would go back; however, I would want to set a time limit of six to eight months. I would say that an experience like that would make me grateful for what I have and make me a stronger person along with setting a great example for my kids. You can think of going back to work to help someone as Dave Ramsey on steroids, after all this final step is to give money away.
Root of Good’s response:
Tim poses a really great question, and one I’m not sure I can honestly give an answer to without actually facing the decision in real life. I have reached financial independence, so now I just need a family member or close friend to require tens of thousands of dollars. I don’t think I would go back to full time work to help a complete stranger, but I might donate a relatively small sum of money that wouldn’t set me back financially (and maybe make a cut in spending elsewhere to offset that gift).
Like Tim, I think I would want to know about their finances. I would probably make a judgment about how smart they have been with their money and if, through no fault of their own, they really need a large sum of money to survive, I might go back to work full time to help out. Tim’s six to eight month time limit seems reasonable, as it would be hard to sacrifice years and years of my life to help someone else out.
I’d have to look at the other demands placed on my time from my own wife and kids, and if going back to work didn’t severely burden them and make life too difficult, I might head back to work. It would be a tough choice and one not made lightly for sure! We have a small amount of funds in our budget to help out in small ways already, so there may be a way to help financially without the need to return to work full time.
In the meantime, I would try to help out however I can by offering a short term loan, babysitting their kids, giving a ride to medical appointments, and pointing them in the direction of the right charitable or governmental organization to get them the help they need. Sometimes people just need a little perspective on their situation from a fresh pair of eyes, and that’s all the help they need.
What would you do? After reaching FI, would you go back to full time work to help a family member? A friend? A complete stranger?
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This is a great thought experiment!
As a rule, I stay far, far away from giving loans to friends and family. Something about the transactional nature of that seems to sour many good relationships. But I do make gifts. If the person wants to pay me back some day, then great! But there’s no term, no interest, and no expectation.
I think I’d fall in the RoG position of giving money from my stash and cutting back in other spending. I really like the idea of babysitting. For so many working families, daycare is a crushing cost. If you were able to lift that burden from a loved one or friend… that would be a huge gift in itself!
More broadly though, it would make me uncomfortable to require an “open book” finances inspection of the person I was helping out. If they wanted to, and were open to help, then that’s one thing. But to include it as a requirement of the help… feels like it could negatively change the tenor of a relationship. I’m sure it could be done tactfully, I’m just not sure if _I_ could do it tactfully 🙂
Then again, if they took my gift and bought a new TV and some cigarettes… I’d have a hard time not being judgey. So who knows.
If I were to make a big loan to a family member, I’d mentally treat it like a gift and just hope for the best in terms of getting repaid eventually.
Good to know more about you, Tim! Interesting question you’ve posed… It would have to be on my own terms. And helping out others with money is always difficult. Like Mr. Frugalwoods said, I would have a hard time not judging the purchases made by the person I’ve helped. Ultimately, yes, I would do it.
I don’t think I could avoid being judgmental as much as I try.
This is one of the questions I struggle with in deciding to retire in a few months or work longer so I have extra money to help out family members. Of my family members (parents and siblings) my income is much greater and my work hours much more flexible. My parents and older siblings have sacrificed their time, energy and money to raise me and give me the opportunity to be where I am now. It’s only fair and right for me to give in return. Now the question is how much longer do I work, how much money should I save for their emergencies?
I worry about this too, in particular with our parents. My husband’s father worked for an auto-maker supplier. He lived in the era when you put 30 years in, and you had a guaranteed pension for the rest of your life. Except shortly after he retired, the company went belly-up. And the pension was gone. Luckily the government bailed out the pension fund, but he gets a fraction of what he thought he would get. For now my in-laws are doing fine. They filed for early social security (my FIL is 63), live pretty frugally and have a paid-off home. I still worry about their future. I wonder what costs will come up down the road that they won’t be able to cover. And then they talk about getting a new RV/trailer and the loan they’d need to qualify for… and then I really get heart palpitations. (So far, so good. No RV loans).
As for my parents: My father died unexpectedly at 50 and my mother became a widow at 49. This was about 10 years ago. My mom has supported herself (and my college age brother, at the time of my father’s death) until now. But now she is tired and wants to retire. She’s uncertain if she can afford it. IMO she owns way too much expensive real estate, and only 1 true rental property and (I’m assuming, b/c she’s never shared real numbers) too little investments. She has an expensive, paid-for home, and another vacation home she rents out a few weeks a year (just to pay for taxes and utilities). She has another rental home that she rents out all year. Again, she is doing ok now, but the line seems so fine I’m worried that a small problem could wreak havoc on her plans.
We struggle with this, too. And yet you don’t want to tell your parents or in-laws how to spend their money and how much to save!
It sounds like your mom will be fine financially if she sells some of that real estate. Hopefully she’ll come to that realization sooner rather than later since the non-rental real estate can eat you alive with taxes and maintenance.
I’ll be perfectly honest, I did talk to my mom about investments and how much she was spending. It took 10 years before she started listening, and does not always do what I want but she was done a lot to make me feel secure that she won’t outlast her money. However, it does mean I run her investments.
At least you got her on the right track. Mostly. 🙂
Interesting perspective–I think I would be more inclined to give my time than $. I also struggle with this as we enter the final stretch toward retirement (36 yrs old, married + 2 kids). We’ve been so focused on funneling every last extra dollar toward paying off the mortgage and building net worth so I can leave work–working an extra 6-8 months just to give the money away would probably feel self-defeating. I’ve come to the realization that no matter what the profession, entrepreneur, corporate, doctor etc…..there will always be aspects of the commitments that come along with any work that I don’t like and I can’t seem to reconcile any of that when our goal is to completely eliminate mandatory work, so we are free to choose exactly what we want to do, when we want to do it.
I definitely believe in lending a helping hand, which is why I’m a volunteer at the local St. Vincent de Paul, which helps disadvantaged families settle in the area and helps them with energy bills, which are important during the Wisconsin winter.
I’m unlikely to give financial loans. I know how badly that turns out. I would help with childcare in a heartbeat. I’m not FI, just self-employed, but watching a kid for a while would be a good way of helping. Also note you can only deduct 50% of your income if you’ve donated it to a proper charity. If you’d donated 100%, you’d be in the hole due to taxes.
Good point about giving away the whole paycheck. You’d have to give away the take home pay and hope the taxes withheld in the paycheck were sufficient to cover your year-end tax liability.
If you are in the business of *loaning* money to family or friends, then of course… you want to protect your investment (the loan). Asking to see their financial books and judging how they might spend the loan is normal. Every bank does this.
However, if we’re talking about *giving* money away… then asking (requiring) to see their financial books before you give the gift is akin to giving a gift with strings attached. (ie: This gift of $10k is yours, but only if you do this and don’t do that.)
If you can’t give away your money without doing so with a joyful heart and no expectations of a return (of any kind), then don’t give your money. Give your time instead. It’ll make you a better person, and eventually you’ll probably be able to give your money in the same way.
I think giving time is a lot easier to do than giving money, although money=time to a certain extent. I’m not sure why I would feel more comfortable giving time than money though!
I can see continuing to work to help out parents or my little brother, but anyone else, maybe I’m just a tad selfish. I have seen my parents loan out money to family members, and they never get paid back or if they do, it’s after much grumbling. It’s hard to loan out money to family, because I saw my parents forego and sacrifice on certain items to be able to do so, and then see their family members or friends have lavish parties (quinceneras) and super nice cars, or go on vacations. People end up resentful! I rather help out people by making suggestions, helping them find work, or if they need a helping hand with babysitting, etc. Money to family members or friends is hard.
That’s what I would want to avoid. Resentment after giving all the money away and then the recipient “living it up” while not paying me back.
One to to help them out financially, but in a way that doesn’t allow them to live it up, is to make the actual payment yourself, from your account to their creditor’s account. This way they cannot use the money for something else. I’m not an accountant, but I think they may be a limit on the amount you can gift to someone. So if you give them a large amount, they may end up needing to pay taxes on it. Consult a tax expert if you are seriously considering this option.
That’s a good idea to direct the funds to the creditor or whoever the money will ultimately go to.
If I had to give a quick reply, I would absolutely go back to work if it meant helping my only child, our daughter. If it were others, whether family or friends or strangers, I would have to think longer and harder about it, since it would mean taking time away from what my wife and I have left together. That is asking quite a lot of anyone. Like others, I would have to have a very good understanding of the circumstances I am being asked to assist in. If just another taker in society looking for a free ride on the backs of the productive, no way. If not, it could be a real possibility. Like yourself, I believe you would need to face it directly to understand your true feelings. Great question, btw.
Good point about helping out kids. I’d probably go back to work if necessary for one of my kids (like to provide life-saving medical treatment).
I’d probably go back to work for my daughter, but for a limited time, then she’ll need to stand (or fall) on her own. I doubt I’d go back to work for anyone else except myself or my husband (we’re one “unit” when it comes to finances). I’m not really a charitable person, and there’s too much chance of me being resentful for it to work out well.
That seems perfectly reasonable to me!
Good article and a very thoughtful plan for after FI. I would be ok doing it part time and give to charities or immediate family members, parents, kids, siblings only. It would be on respectable terms, it is hard to dictate where funds go when your giving it away. Maybe set up a fund, and all dividends from that fund will go towards helping family.
That’s a great idea – set up the fund exclusively for charitable giving or helping family. Use the dividends and limit your gifts to that (or perhaps capital appreciation above a certain point).
Achieving FI does not always involve paying low taxes. That was made as a statement, but it is not necessarily true.
Valid criticism for sure. You could still reach FI AND pay a ton of taxes. In fact, if you make enough to be in the upper tax brackets it’s pretty hard to slash your tax bill, but you’ll have tons of money to potentially save and invest toward FI.
A great example of that is the household I just profiled in my last post that didn’t really have strong plans to minimize taxes yet still managed to do extremely well by their mid-30’s mostly due to a high income, but also an emphasis on keeping spending low.
However, I personally attribute a portion of my own success at reaching FI at a relatively young age to deftly avoiding taxes as I outlined in my post on paying $150 in tax on a $150,000 household income. I could have reached FI eventually, but not at 33, if I didn’t focus on keeping taxes very low.
Excellent topic! I think about this quite a bit, especially after having read The Life You Can Save. I’m 7-10 years from FI, but find the ‘earning to give’ imperative overwhelming. Whether from a secular humanist or religious standpoint, it seems (nearly?) immoral not to take advantage of the earning/giving arbitrage available to us. For high earners, an astounding amount of good can be done with little effort.
Mark me down for the secular humanist standpoint. 🙂 But yes, when you have a lot, it’s easier to give some.
This is a difficult question because on the one hand I really want to help others, but I am also a big believer of personal responsibility. However, I think that if I am honest with myself I would go back to work to help out a close family member. The thing is if I were to do that I am not sure my parents or my wife’s parents would take the help. I would offer, but I think they would rather consider every alternative before accepting help from us.
Personal responsibility is important to me, too. So that’s why I would have to get a little judgmental about why this sudden need for financial assistance arose in the first place.
This is a very controversial question.
I have had the conversation and I’m not even retired. In the end it really is about each situation individually. The people who I know that would ask me for money are not good with money so I would be hard pressed to help them.
I am also a strong believer that you only learn something if you have to. If someone is always bailing you out then you wont ever learn.
Plus I know from experience that once you start to give it is harder to stop.
So I could totally see giving someone 10 grand and saying this is all i’ll give you ever. (more tactfully of course) and it going ok.
But if you actually go back to work for someone. Now its a different animal completely because now you’ve created a reoccurring situation. 2 grand a month for 5 months. The person will have a completely different response. because 2 grand seems reasonable not amazing and it’s much easier to say but it’s only 2 grand as oppose to saying 10 grand.
Going back to work for someone else means you are giving money consistently and they are getting use to it.
If you aren’t asking for details on finances then you have no clue if they are using it to help to get their suits dry cleaned and ready for interview or if they are using it to buy themselves new basketball shoes.
Sorry but saying you will stop in 6-8 months is one thing, doing it is a completely different thing you will need to have strong conviction. Of course this is the worst case scenario which i am familiar with.
They could always surprise you and end up getting their stuff straightened out in 4 months and letting you off the hook.
Those are all great points on why it would be challenging to actually commit to giving money over a longer period of time. You’re probably right, I might end up at 6 or 8 months in being asked to continue giving more and more.
This has occurred to me as well, and I have wondered if it has occurred to others in/on the path to early retirement. A lot of us are engineers or other type of professional making decent money, the kind of money so many less fortunate only dream of making. And yet we would walk away at our peak earning years?
I have a brother that’s a very good candidate for a gift like this. He’s an adjunct professor. It’s frustrating to see because he’s very intelligent and talented, yet the community college world and university world these days is not what it was in terms of providing compensation for their teachers. My brother is guilty of some mistakes during his college age years. He spun his wheels for a while and failed to complete his degree on time, was not aggressive enough in pushing it. But he ultimately came to his senses, admitted his mistakes, and got after it aggressively. He’s getting by on maybe $20K/yr. Now married with three little girls. He teaches when they offer him a class here and there, otherwise does landscaping work. Doesn’t complain, and really stretches his dollars. To the point where he’s actually charitable with others. Pretty amazing to see, we had another relative in need and he somehow came up with a few hundred. Avoids debt like the plague. Naturally since this is the US he was without health care for a long time, though his kids qualified under Medicaid. Now under Obama Care fortunately he is covered as is his wife.
One area he’s been lucky is housing. A charitable person at church allows him to stay in a house he owns for the cost of taxes and insurance only. Pretty incredible.
He has no retirement savings whatsoever and little prospect of creating any. So when the time comes for me I’ll have to consider these matters. I guess I’d like to think if the situation is still the same I’d stay and work and gift it to him, but when the time actually comes will I still feel that charitable? Can’t say I’m 100% sure, though I feel like a jerk saying that.
Hopefully your brother will at least get Social Security in retirement! He sounds like he has as good of an attitude as you can have given the circumstances.
Walking away from a high paying job at the peak of earnings could be challenging for the reason you’ve mentioned. Your brother would look at you like you’re crazy for quitting a job that pays multiples of what he’s earning, even though he might not know that you don’t really have to work any more.
Hello all,
You are all such an inspiration. I have been working on my path to FI ever since discovering all of you. thank you for that. Im normally just a pageveiw for all of your blogs but every so often i feel the need to comment. This topic is controversial but i can give a personal affect to it. I am 27 years old. i have a 4 year old princess and a wonderful wife works full time just like myself. she isnt completely on board with all my investment ideas as of yet but soon she will see the light. Well i can say that i looked into what i would do with a $1,000,000 winning and one of the things i discovered was you can give any one $15,000 cash and uncle sam cant do anything about it. That made me think of the $19,450 of student loans that i have. I figured if some mystery angel came and gave me $15,000 id pay it directly to this debt. It comes with a $186 monthly payment which has greatly affected my ability to pump up my savings. If i had a family member who was in FI i would love to work out an agreement where they could lend my the full amount or even just the 15 grand. I am currently stuck with %5-6 so if i could have the money lended to me i would not only show my financials i would also provide a payment plan back with a 3% interest. Giving to someone in my situation would greatly improve my life and i would work hard to show that person my gratitude by not only thanking them but also paying them back. I would much rather give my family or stranger the interest than let sallie mae take $1 more dollar from me.
I took the loans because i worked my way through college and with no guidance i figure i could work less hours if i used the money to pay for rent. That is my worst finical decision and regret it to this day. I accepted full responsibility for taking them out and thats why i have never missed a payment in 4 years but it pisses me off that i have paid them $9000 and my principal amount has gone down by $3000. My daughter was born the last semester before graduation so by my first payment i already had child expenses coming along. So i havent been able to aggressively attack the loan amount. with all this talk of giving i thought id just jump in and maybe inspire some of you to actually look at your own families and see if there is someone who deserves it and GIVE GIVE GIVE. having my student loans gone would literally change my life over night. Thanks for all your work.
New Young FI enthusiast.
Always good to hear from the folks that read but rarely comment. Thanks for speaking out!
In your situation, it’s worth a shot to see if someone in your family would want to pay off your debt and have you pay them directly. There might be someone who can’t get more than 1-2% at the bank and would rather take 3-4% from you and save you money while you’re at it.