Your Most Important Financial Decision to Make

Economically speaking, 2012 looks to be a crazy year…multiple potential “black swans” loom on the horizon that could threaten your financial future.

Between rising unemployment, the European financial crisis, ongoing corruption of the system (think MF Global), staggering levels of worldwide government debt, and more, at times it seems like maybe the Mayans had it right after all!

However, one potential “black swan” dwarfs all of the above…


You have a very, very important decision to make.

In fact, I argue that it is the most important financial decision you will make in 2012.

And this decision poses both your single greatest threat and your single greatest opportunity. You can choose to be your greatest enemy… or your greatest warrior. And only you have this power to choose, act, and decide for yourself.

So what important decision are you making, exactly? Well, it’s simple…

You must choose between financial independence or financial dependence.

What Is Financial Independence?

Before you can make a decision one way or another, it’s important to understand what I mean by “financial independence”.

We typically hear that financial independence is “the state of having sufficient personal wealth to live indefinitely without having to actively work for basic necessities”, or “the state of having your assets generate income greater than your expenses”.

These are both decent definitions, but I argue that true financial independence is the exact opposite of financial dependence:

It is the state of being completely self-reliant for your personal finances.

This means that you are not financially dependent on your government, your employer, your family, your financial advisor, or anyone else you can think of other than your-own-sweet-self to provide for you financially.

A Little Bit of History

To be fair, we didn’t use to need to be truly financially independent. It was perfectly acceptable and in fact, common practice, to rely on someone “else” to take care of us in our retirement. For example, many Seniors today depend on Social Security, Medicare, and sometimes a company pension to take care of them once they stop working.

This model was known as the “three-legged stool” of retirement, comprised of Social Security, Employer Pension, and Personal Savings. And for many years, it appeared to work fine, at least on the surface.

Wobbly old three-legged stool…
This is what you want to build your retirement on?

But there are serious problems today with all three legs.

Leg 1: Social Security

I won’t mince words–Social Security is bankrupt. Completely, absolutely bankrupt. And it was never intended to be the sole benefactor for elderly Americans’ retirements in the first place.

Here is the original, famous one-sentence summary from President Franklin Roosevelt of the intent of Social Security:

“We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which gives some measure of protection to the average citizen and his family against the loss of a job and against poverty-ridden old age.”

It was intended simply to “give some measure of protection…against poverty-ridden old age”.

Leg 2: Employer Defined-Benefit Pensions

As for the second leg of the stool, employer defined-benefit pensions are all but non-existent today. In fact, I don’t know of any current employee who has such a plan anymore. Since Congress passed the Employee Retirement Income Security Act of 1974 (ERISA), corporations looking to save money have gleefully transitioned all of their former defined-benefit plans over to so-called “defined contribution” plans…commonly known as the 401k.

Which brings me to our final leg…

Leg 3: Personal Savings

Most people’s idea of personal savings is their 401k (and maybe their personal residence if they still have one after the housing collapse).

But unfortunately, the 401k has some serious problems, too. I’ve written extensively about them on Kung Fu Finance, and consider this excerpt from TIME Magazine:

The Society of Professional Asset-Managers and Record Keepers says nearly 73 million Americans, or just under 50% of our working population, now have a 401(k). And collectively we pour more than $200 billion into these accounts each year. But retire rich? Don’t bet on it. The average 401(k) has a balance of $45,519. That’s not retirement. That’s two years of college.

Even worse, 46% of all 401(k) accounts have less than $10,000. Today, just 21% of all U.S. workers are covered by traditional pensions, and the number shrinks every year.

The Wobbly Old “Three-Legged Stool” is DEAD

That old, wobbly “three-legged stool” of retirement has been reduced down to nothing but rubble. There is only one leg left to stand on:

Sad, One-Legged Retirement Stool

The Social Security leg is broken, the company pension leg is broken, and that leaves us with none other than… you guessed it, Personal Savings. And the “person” in that “Personal Savings” leg is none other than…YOU.

Which brings me back to the important choice you have to make…the most important decision you will make for your financial future in 2012.

Which Will You Choose?

Like Neo in one of the more modern kung fu movies, The Matrix, you can either choose to take the blue pill (financial dependence) or the red pill (financial independence).

The “blue pill”…Blissful Ignorance, Complacency, and Financial Dependence

You can continue to dutifully throw your money into your 401k and “hope” that you have enough to retire on one day, or that the government will “do something” to finally start to address the problems with real and effective solutions, or that your employer will suddenly reinstate your cushy defined benefit pension plan and you will never need to worry about your future again…


(The “red pill”…Truth, Freedom, and Financial Independence)

You can financially educate yourself and achieve true financial independence and freedom.

Which will you choose?

If you choose the blue pill, I completely understand and wish you only the best. I took that pill myself for many years, and though I was thousands of dollars in debt and financially naive, I did have a GREAT time (ignorance truly is bliss!) and I completely understand the lure of this choice!

However, I hope you choose the red pill. While it certainly isn’t the “easy” path, I guarantee you it is the most rewarding (financially and otherwise) and also a lot of fun (after all, making money and achieving financial independence is fun!).

“One will never get any more than he thinks he can get. You have what it takes!” – Bruce Lee, Wisdom for the Way

[Ed. Note: Susan Fujii is an accredited investor and the author of, a website dedicated to empowering people to make better financial decisions to and to help her readers make sense of the current financial environment.]