I kinda let the secret out at the Chicago meetup last Sunday and everybody there understood and accepted it gracefully. (At the time I hadn’t gone for the interview yet, so I wouldn’t give away more details than the fact that I was in town for a job interview.)

Some have told me that they couldn’t imagine a retirement without traveling. I get that. I also get that not everybody likes to travel, particularly not me. The point of retirement is not that everybody does a particular thing. It’s that YOU do what YOU want and I do what I want.

So let’s generalize this and say that retirement without doing what excites you is not a good retirement. What we actually need to understand here is the different perceptions of retirement: To some retirement means sitting in Florida and staring at a wall, to others it’s hang gliding in Tahiti, and to some it simply means not having to work. I’ve discussed how different generations perceive the “retirement”-concept in my podcast interviews.

Hence, what the site is really about is not “retirement” but financial independence. Thanks for understanding that. People at the Chicago meetup got it right away and I’m sure long term readers see it too.

Financial independence allows you to do what you want whether that’s travel, raising children, saving the world, or playing golf. That’s what’s important.

What I like to do is solving impossible problems. Or just “hard problems”—problems that people don’t want to wrestle with. I did this in physics and learned a lot. I realized that I wouldn’t learn very much from solving a similar problem in physics and that’s why I quit physics. The challenge would not have been the same. Fortunately, I realized this quickly and I had the money to quit or “retire from my career“.

ERE is another one such “hard” problem solved (it’s only hard, because it’s somewhat out-of-the-box and thus more a question of shifting your perspective than it being any kind of technical challenge). I’ve written enough material here on the blog and in the book to show you how it’s done. I have the same problem with ERE. The challenge is gone for me. Many others are currently on the road towards financial independence and this is exciting for them but for me it’s just vicarious living. Becoming financially independent, the subject of this blog, is a period of transition and obviously one can only transition once. This is why fresh blood is needed.

I’ve been in a blog funk for quite a while, but I’ve held on because for the longest time I felt I was the only one (sorry if I offend anyone) with a persistent voice and enough presence for people who had similar aspirations towards financial freedom as I had. I was paying forward to others what I found lacking in my early 20s—someone that gave an alternative to the standard path of student loans, college degree, career, and waiting 40 years to have fun. Still, I had run out of material and put the blog on autopilot, mostly reposting old posts. To my surprise, readership didn’t drop off. Apparently the blog was still relevant. So I stayed on even though I didn’t enjoy running ERE as much as I used to. Curses.

However, if I may be so bold. I think we’ve found a successor: Mr. Money Mustache, who for many is “more like my situation and not as extreme as Jacob”. So if there is a “torch” of extreme early retirement, it’s yours MMM. My personal endorsement. However, this does not mean that there are no other good blogs for extreme early retirement, see e.g. Brave New Life, my blog roll in the side bar and several others. What I’m saying is that if you like ERE and you don’t already know MMM, that’s where I recommend going. The only potential problem [for some] is that MMM had a rather high income (dual income programmers) and thus were able to save more in the same timespan without spending as little as is discussed on ERE. If you earn less you may have to modify your approach to lean more towards ERE tactics than MMM and vice versa. The principles, however, remain the same in that it’s ALL about the savings rate. A higher income simply lets to spend more with the same savings rate => same number of working years.

Here’s the deal. Going forwards, I don’t intend to support ERE nearly as much as I’ve done so far. I need to move on! While administrating ERE doesn’t take much time, it does take a lot of mental energy. It’s a constant energy suck which always sits in the back of my head taking up space. What’s worse is that while I like solving hard problems, thanks to the Peter Principle ERE problems have turned into tech-support and public relations management. To put it bluntly, I hate being a public figure and having words put in my mouth and people making up presumptions on various news sites (like a mild form of libel). This happens about once a week by now—it’s not easy to ignore. Walk a mile in someones shoes. (Based on my limited but finite experience I’m now of the opinion that “celebrity news” ranks very high on the list of evil things in the world.)

Maybe about a year ago, ERE was still known only to a few [thousand] “insiders” who knew it well and it was great. Lately it has become widely known (I suppose partially this has been my own fault for wanting to get the message out) and thus I have become sort of a public figure [at least on the internets ].

Well, I’ve found that I really don’t like being a public figure. I want my ideas to be famous and get attention but I don’t like my person to get attention. Unfortunately, the way modern media is, it’s all about the person because this “TL;DR“-world doesn’t allow for any complex ideas (Read Four arguments for the elimination of TV by Jerry Mander (totally worth reading, especially the last chapters that show how the form of the media determines the form of the message) — I’d similarly make four arguments for the elimination of certain internet sites.). The tech-support issue has to do with my getting so many personal requests to comment on this problem or that problem that I simply don’t have the energy to give people the attention they deserve.

Anyway, I don’t want to turn this into a whine-fest, because this transition is more about what I’m heading into than what I’m leaving. All I’m saying is that my reasons for putting ERE behind me are complex, it’s a discontent that’s been building for a while, and it’s better to get out sooner than later. So no talking me out of it. I just realized that I personally need to make a hard cut instead of just fading lest I still spend time thinking about ERE.

Not to worry, the site and the forum will still exist, comments and forum memberships will still be approved, I just won’t be responding to emails (unless someone is on fire) and other stuff very much if at all. I need to focus my attention elsewhere.

This does not mean you can’t get your questions answered. It just means you have to ask on the forums.

One additional issue, which is kinda how my brain works, is that I do need such a point of attention as well and for some time it’s been lacking. I had a similar problem while I worked in my previous career. I prefer to swing from vine to vine instead of having to get off and climb another tree to get going again. I’ve been looking for a tough problem to solve for about a year (since the book came out) and I hadn’t really found one. For a time we thought about translating ERE into physical reality by building an entire city. I’m not sure I’m enough of a people-person to run this although I’d love to live there. Another thing I’ve thought about is creating a self-sufficient homestead, Borsodi-style. However, I also acknowledge that I’m far more interested in building such a place and learning the skills needed to do so than actually living there. Once I had demonstrated the “proof of concept” I know enough about myself (at the ripe age of 36) to realize that it would instantly become far less interesting to me.

So what am I going to do now? Well, yesterday I got a job offer as a quant trader/researcher. I took it! I think this fulfills all my criteria. It’s a hard problem, it requires no marketing, no politics, no self-promotion, and no management. As far as I can tell, I’m safe from the Peter principle and can focus on research and development without worrying about suddenly finding myself having to sell or manage my stuff. I know that quant trading has a bad reputation in some circles. I’ll say two things: 1) If you believe this, I don’t want to hear about it, please. 2) The rabbit hole in the financial world goes far deeper than the simplified stories the media present. The media tends to paint all things black and white on the personal level. Hmm.. that reminds me of something else.

I’ve defined “retirement” as the ability to do whatever you want whenever you want within reason. Obviously accepting employment means that I’m now restricted partially on “whenever”(*), but I got reasonable assurances that “whatever” is fine as long as it makes money. I’m willing to accept these terms. (I have checked into investing my own portfolio in a more quantitative sense as less in a big picture sense, so if you want some pointers on how to do that and have the practically required hard science or finance background, let me know and I’ll tell you.) I’ve decided to join a group though.

(*) Under my own definition I’m no longer retired.

I guess it’s like the difference between getting a job offer to work on a Volvo Ocean Race crew (which is technically a job) and buying your own boat and racing it in the local beer cans. While the former is technically a job with some limitations, it’s 10x more exciting.

So sure, maybe all I need is a job I “love with a passion”. However, this does not render ERE invalid. It especially DOES NOT mean that everybody just find a “job they love”. Those jobs are RARE. I’ve been looking for this one on and off for five years. Now I like to solve big problems. Sometimes big problems pay well. Sometimes they don’t, e.g. the ERE book makes money (about $1500/month), but the blog makes practically nothing compared to how much work went into it. However, if you like to travel, you certainly do not have to find a job you love with a passion. This is why we pursue financial independence.

One size doesn’t fit all. This blog but especially the framework described in the book is general enough to fit everybody because the goal for everybody is “to do what you want whenever you want within reason” but more importantly to pick any kind of restrictions voluntarily and deliberately and not because you have to or because you don’t know any better. That is still true.

Now what to spend that $34000 on. First things first.

Housing. In the midwest I can rent a new 3 bedroom house for about a grand a month. Now, I don’t really want to spend time taking care of such a big house. I mean, if wandering around from room to room was entertaining to me, I might, but still. The house would just feel big and empty. Moving to the coast instead, the rent would go up to $1200/month for a nice two bedroom apartment. That’s just perfect although I admit a 1 bedroom house would be neater and easier to maintain again given that housekeeping is not a hobby of mine.

Alright, so $1200 times 12 is 14400, and that’s half the money gone.

I now have $19600 left to spend.

Food comes down to about $100 per month. I prefer home cooked healthy food which is generally not expensive. That’s $1200/year leaving $18400.

If I’m retired I probably won’t be spending too much time driving around. If I wanted to drive somewhere, I’d probably rent a car or go by air. Nevertheless I do like fancy road bikes, so that would be an easy $400 to deprecate and maintain a speedy $2000 carbon bike. This leaves $18000.

I would like to keep playing hockey when I’m retired. Hockey is an expensive sport. There are rink fees plus wear and tear on equipment. This could easily cost me a good $500 a year in fees and equipment. On the other hand, it’s the most fun that can be had while wearing full body padding, so I would really like to keep playing. Down to $17500.

I like CDs and books. I typically get them used anyway and don’t really see any reason to get new ones. Sadly there’s an upper limit to how much I can read, so maybe $500 a year, tops. That leaves $17000.

Almost forgot health insurance. Let’s say $100 a month for a high deductible plan to be on the conservative side. I now have $15800 left.

Let’s splurge and say $800 per year on clothes and misc. I’m not sure I could spend that much, but I could try. That leaves $15000.

Hmmmm ….

What should I spend the excess money on?

Maybe full subscription cable, a basic human need! That ought to be worth $5000 a year if we include subscription costs, TiVo, and a 50″ plasma screen that needs to be upgraded every other year.

I don’t like phones and I don’t like cell phones in particular, but I guess I could get an iPhone with the mandatory AT&T enrollment. This phone would allow me to make phone calls by tapping a screen rather than a keypad and allow me to listen to the maybe 2 daily voice mails I get in ANY order I want. I think that’s another $2000 in phone and subscription fees.

The good news now is that I still have $8000 left to spend. The bad news is that I still have $8000 left to spend.

I guess I could buy a Jaguar on credit to demonstrate how I appreciate “emotional engineering” and “daring visions”. This will allow me to drive around in a car that is “far greater than the sum of its extraordinary parts”. I think I deserve one. Getting an easy loan would probably set me back $7500 leaving $500.

It only seems natural that if you have a fancy sports car that can go from 0 to 100 in 4 seconds that you should drive it two blocks down to 7-11 to pick up caffeine at least once a day. This will easily cost me $500 a year leaving me $0.

Problem solved!

I think the perceived need to retire with large amounts of money comes from the desire to spend retirement as a part of the rich consumer class a.k.a. the upper middle class. However, with more modest consumption goals, I don’t think a million dollars is a requirement for retirement.

Originally posted 2008-01-07 06:53:20.

Most people are told
what to do and get rewarded accordingly
Most people follow
procedures and tradition.
Most people, therefore, are not creative.

Most people hope
that their dreams will come true
Most people believe in
positive thinking
Most people, therefore, believe in magic, but wishing or praying does not make things true.

Most people look to
others for clues.
Most people prefer
to hide in the crowd.
Most people, therefore, are not independent.

Most people do not
ask questions.
Most people adopt
the opinion of pundits and the advice of experts.
Most people, therefore, do not think for themselves, but rely on others to do it for them.

Originally posted 2008-09-10 00:33:36.

Prior to traveling to myCountry(*), I had noticed a what I believed to be a cavity on one of my molars. Not desiring to through the “procedure” at my California dentist which usually takes half a day and leaves me $500+ poorer, I decided to take my chances with my old dentist in Denmark, which I hadn’t seen in 10 years.

So I had my parents schedule an appointment—no double booking—and here is how it went.

First there was some issues with my not living in the country and thus whether the social health insurance would cover it. After the clinic assistant checked with some other guy, it turned out they don’t but I could get treated anyway if I paid full price. Fair enough!

I then proceeded to NOT fill out a questionnaire about teeth whitening. I also did NOT fill out a detailed medical history (it’s just the dentist for crying out loud). In particular I did NOT need to sign 4-6 pages of legal waivers about not suing them should they accidentally poke out my eye with a pair of tweezers, like that ever happens, but I guess it could.

I just filled out my address, took 2 minutes.

(*) Denmark for anyone not paying attention

As I was not a regular “customer”, I was expecting a full x-ray, but the dentist told me that Nordic guidelines was not to do an X-ray unless the teeth were covered with plack or otherwise looked bad. I, however, have nice teeth. Also, my papers are in order.

They then took my “tooth inventory” with the dentist going over the teeth tooth-by-tooth calling out letters and numbers which the assistant took down. He noted that my fillings were very nicely done (score one for the US dental system). I also got the standard lecture about flossing and he removed some tartar from my front teeth. Finally, he noted that my supposed cavity was just a discoloration. Too much coffee.

Total time: 15 minutes.

Total cost: $45 (and this is with a cheap dollar).

The general attitude towards dental care is conservative. If the teeth look fine and there is no pain, it is presumed that there are no problems and so no x-rays are taken(*). The technology is adequate for the job in the sense that they can do anything, cavities, crowns, etc. that can be done in the US. However, the dentist does all the work (except suction and taking notes). This means that the assistant is NOT using high tech microscopes to make a movie for the dentist, etc. In other words, it is less capital intensive to run a clinic. There is less focus on technology. There was no TV in the chair.

(*) My first visit to a US dentist resulted in 6 cavities that my Danish dentist had declared dormant/non-developing for more than a decade. In the US, everything is aggressively fixed. Don’t get me started on the straight teeth fetish (also appearing on the continent now — it used to be that nobody got braces unless they had trouble chewing).

Overall, I prefer the Danish dental care system.

Originally posted 2009-10-22 22:37:26.

• Would you be interested in attending a workshop?
• Could you actually make it to a workshop? (San Francisco area). If not, could you arrange it somewhere else and gather enough people to pay my ticket?
• Would you be willing to pay anything for it? If so, give a non-binding figure of dollars/day, just so I can get an idea. [Figure that the amount of preparatory work I am going to put into it has some correlation with the payout. Obviously I can wing it for free ]
• Would you go for the SWAG (stuff we all get) e.g. an exclusive ebook or something like that?
• How about simple meet ups, e.g. no talk but simply Q&A or “networking”?

Let me know in the comments.

eBooks (or other books) would follow later. Right now I have my [creative] hands too full with the book and the blog.

Originally posted 2010-02-09 14:34:25.

This difference is important because it reflects on the way that humans think about the world. The world is a highly complex place. Therefore people either consciously or subconsciously build a simplified model or story of the world and then try to understand the model or story instead. A model or story is true insofar that it provides useful predictions about the real world.

There are two things to consider now. These two things are the most important things to consider when thinking about models. The two things are verification and validation.

Verification tests whether the model is consistent and internally correct. Many models can be verified. This usually involves mathematical proof or logical reasoning. It does not even need to be stringent. When people argue philosophically they are often trying to figure out if a model is internally correct.

Many times, particularly when it comes to economics, verified models are cast in mathematics which also makes them very precise. However, just because a model is precise it does not mean it provides an accurate understanding of reality.
Validation tests whether the model is the right one! In other words, validation tests whether the model provides a good description of reality. Many many people (especially those with a college education) skip this step. The reason is that nobody has time to learn and question all assumptions. Therefore one must rely on so-called experts practically all the time. In essence many formal educations at least to the masters level teach people not to question the models but to use the models. Even experts are usually only experts within a very narrow field. Being a polymath is no longer encouraged in this overly specialized world. Thus we generally live in a world that is run by a likely inaccurate model (system) which is the aggregate of many smaller a very precise models. Such models may even have been cast mathematically which leads to a false sense of confidence; especially of the math involved is very complicated. Many financial disasters have resulted from such an accuracy failure. LTCM (which included Nobel Prize winners Merton and Scholes on the board) required a bailout by the feds. Lily over at The Honest Dollar described the progenitor of the subprime mess which was another case of systemic failure due to inaccurate (albeit very precise) understanding of the risk. This failure also required a bailout from the feds(*). This article shows that the motivation behind the government stimulus package also constitutes the use of an inaccurate (albeit precise) model. Like any inaccurate model or idea, this will eventually fail because it is not in accordance with reality. In my opinion other inaccurate models include the idea of using corn based ethanol as a fuel substitute and using passive index investments to build retirement savings through a demographic hump. However, since precise and accurate models are usually not available it is not possible to say when and even to some degree how an idea will fail. The only thing to do is to position oneself accordingly and wait for it.

(*) Fun fact: The Federal Reserve is neither federal, nor do they have reserves. Does that mean that the name is inaccurate or imprecise?

What is your story of the world i.e. how do you explain something? How have you verified it? How have you validated it? Is your perception of the world precise or accurate?

Originally posted 2008-02-13 07:22:15.

I was originally going to use “Winter heating” for the title of this post, but then I realized that, perhaps like many other things, this misses the main point. At its essence, the problem is cold. The solution is to stay warm. How do we accomplish this.

There are two variables. The first one is how cold you feel. Naturally people with higher, what I would call metabolism although it is not technically correct tend to stay warmer. First, they have more muscles, second they move more. One reason you can wear jeans but need a thick jacket when it’s
freezing is that the legs are more muscular and they are moving too. In fact, if you run, you need very little clothes even in sub-zero. The cardinal rule here is that if you feel cold, move faster. Another source of personal warmth is the anabolic/catabolic cycle: the break down and rebuilding of tissue. If you train anaerobically, the resting caloric burn is somewhat higher for up to 24 hours following the exercise. Intensive weightlifting is a very good way of keeping warm (and also losing weight).

Hence, naturally, if you are an active person, you will have an edge in keeping warm (as well as an edge in doing physical labor, getting around without relying on a car and it’s expenses and keeping yourself out of the doctor’s office. I highly recommend it.)

Obviously you can be physical all the time. The second variable is thus applying external heat.

The easiest method is simply to become a snowbird and migrate. This is something many RVers do for instance. These days most people are geographically attached by national borders or mortgages and other obligations, so the rest of the discussion will assume that moving south (or north as it may be) is not an option.

The standard prescription is to heat the entire house. This is insanely wasteful given that you only need to warm yourself. Presumably you don’t need to keep your furniture, books, and pots and pans warm as well, but that is what people normally do. The heating costs can be extremely large, especially given the size of the houses people live in: 3 bathrooms and 5 bedrooms for three persons. Come on! The tragic part is that some people in fact do not know any other way of keeping warm than the standard method and tragically stupid things like keeping the burners in the kitchen on for hours.

The first thing to do is to turn the thermostat down and consider alternative forms of heating. It is getting harder, but it is still possible to get free firewood on craigslist. We did this last year and it wasn’t too bad. What I would recommend is to “invest” in some good wool clothes. I prefer Filson, because I can afford to be decadent when I’m not throwing money away on eating out or buying new CDs or movies. However, it is possible to get good woolen jackets and pants for $20-30 bucks. How? Army Surplus! It may not look stylish (unless you’re into that sort of thing) but it will keep you toasty and you will easily make the money back in heating savings.

Of course you can do what we did and just move into a much smaller place. Turning the central heating down in a large house is penny-wise but pound-foolish. Turn it on in a smaller house is pound-wise but penny-foolish, and which would you rather be?

Originally posted 2008-12-04 15:56:42.

(*) As far as I am concerned the last and greatest achievement was the Saturn V rocket.The second closest was the computer.

Either we must be spending money on stuff that the previous generation did not or we are not as productive as we think anymore, that is, money is worth less and people are not as productive as they think. It is interesting to note that energy use/world capita peaked in the late 1970s. In other words, population growth outran total energy consumption about a generation ago.

I would also like to think that technological advances should have made a difference in terms of standards of living, but it seems to have translated into maximum quantity rather than maximum quality. In other words, rather than surrounding themselves with better things, people chose to surround themselves with more things. There are more rooms in the homes, but the homes are uglier than ever and poorly constructed. Clothes get worn once and then thrown in the back of the closet. New cars break down after 10 years, whereas old motorcycles and bicycles seemingly run forever. This is sad and not sustainable. If the focus was on quality, a person would inherit one Rolex from his father and hand it down to his son rather than buying his way through 25 $25 watches over a life time. He would inherit one Dutch grandfather cycle, take care of it, and hand it down, etc. However, popular culture is all about the new and the novel because that is what is profitable for industrialization.

I’m trying to resist this. I’m slowly learning and trying to replace every day use items with very nice things that are built to last forever (my latest acquisition is an Underwood typewriter). Relative to consumer goods (bads?), such things cost a fortune (I got the type writer on freecycle . Forsooth, normally we are used to things being quite cheap. Of course this is an illusion because if companies made good things they would soon run out of customers. Therefore most companies have a business model that either involves subscription (phone, cable, utilities, subscriptions) or shoddy products that need replacement — effectively the same as a subscription (would you rather buy a new computer and replace it every 4th year or simply rent it like a cable box. I’m actually tempted towards the latter!). The few companies that make good products charge exorbitant amounts, obviously also because making good products requires more effort. For instance, in my quest to build a small machine shop, I was momentarily taken aback learning that a caliper could easily cost several hundred dollars or as much as a new laptop.

However, that is what it is, and durable quality items are what I would call real wealth. They enhance your life whereas poor products simply take your life away as they need to be replaced when they break down. Not only do they take your life, they also take resources out of the ground and pollute it, when they are put back in. I don’t like it.

Originally posted 2009-04-04 07:47:07.

First you get a 20lbs bag of pinto beans for free at freecycle.org
Second, you take a large bowl and soak the some beans in water all day.

Third, you cook them in a pressure cooker. An ordinary pot works as well, but it takes 3 times as long and requires 6 times as much electricity, gas, etc.

Fourth, you mince an onion and crush a few garlic. By a few I mean a lot

Fifth, you saute the onion and garlic in a deep pan until golden brown. Cast iron works great(*). I use one of these. Use more oil than you think.You probably want to cover 1/4 of the bottom. I used olive oil.

(*) Way better than teflon!

Sixth, get the beans out of the pressure cooker. Drain the water and dump them in the pan. Mash some of them. Stir and try to get all of them fried. Make sure they don’t burn. This should take ten minutes or so. Add oil if they look like they are going to burn. Also, turn down the heat.

Experts can use homemade lard or bacon grease instead of olive oil.

Serve with tortilla shells, rice, tomatoes, salad, cheese, salsa, olives, … or whatever you prefer.

Originally posted 2008-03-31 07:27:43.

1. Be accountable! The original idea with peer to peer lending was that a group of people (like a knitting club) would get together and hold each other accountable. Needless to say, lenders have realized that this haven’t worked at all. (If you know any groups that indeed functions like that I’d love to hear about them). Offer some accountability. Start a blog detailing how you intend to use the money. Have a friend or a colleague (not your mom) put down a large sum (not $100 but $500 or more) as a sign of good faith and that somebody trusts you. Try to find a group leader that will verify your W-2. Realize that lenders have little collateral other than your social capital. Give them that and you will be ahead of the other borrowers.
2. Check grammar and spelling. This should really be a no brainer. If you can’t spell, get someone to do it for you. When I see a loan request from someone who can’t be bothered to check “there” spelling I wonder whether they can’t be bothered to check the math in their budget either.
3. Be careful who you ally yourself with. For instance, not all “good and honest” Christians, firemen, or soldiers actually pay back their loans. Being a lender can create lots of (unintentional) prejudices based on single experiences with borrowers breaking their promises. Of course this can work the other way as well. The lesson to be learned is that if you do associate yourself with a group do not presume that everybody thinks as highly of that group as you do.
4. Ask for less than you need. If you are $10,000 in debt, don’t ask for $10,000. I realize that it would be nice to consolidate all the debt and I also realize that borrowers might put themselves in a bind since it is only possible to carry one loan at a time. However, don’t ask for anything you’re not sure you can’t pay back. In other words, don’t be an optimist. The reason is that the lender certainly isn’t. Also it is a lot easier to get a small loan funded. Lenders are primarily interested in what you can do for them (not default, not be delinquent, pay a high rate in that order). Not what they can do for you. Keep that in mind!
5. Show a business plan. A budget is not a business plan! Clearly you are asking for money because present/other methods have somehow failed to obtain the cash. Therefore I would like to know what has been done already? Have you taken on an extra job? Cut cable? Moved to somewhere cheaper? Show me that you have thought about this and that the loan request is not just an easy way to increase your cash flow.

Originally posted 2008-02-07 06:39:46.

Before we moved we used to live in a middle class neighborhood. Okay, so everything is considered middle class these days, so to be more accurate, this was considered a blue collar neighborhood in one of the highest income mid-sized towns in the US. Home prices ranges from upper 400s when we moved in to mid-lower 300s when we moved out.

On a first glance we often wondered where all these people got their money from. The cars where literally lined with trucks, SUVs and cars. When we walked the puppy in the evening, we could see the massive glow from the big tubes people where worshipping in their living rooms. Some people had boats, mostly small speed boats or trolling boats parked in the drive way. Walking past their mostly open garages, we noted that they were packed with stuff which explained the need to park the car on the street.

Now it was easy to get the impression that our neighbors where making way more than us. After all, we only have one car, no boat, our TV did not light up the room, and our garage was lined with clotheslines.

Statistically though, I realized we were all making the same. The obvious conclusion, thus, was that our neighbors where mostly living it up. So while the surface showed nice cars and big toys, the underlying reality must have been a case of depleted or nonexistent savings and a life time spent working. We often talked about that.

When the real estate tide started going out, the big toys had sales signs plastered on them and the houses started having “bank-owned” signposts going up in front of them. What we had seen now became readily apparent for everybody to look at. So it may be “embarrassing” to drive a compact car(*), but I imagine that is nothing to the embarrassment of having a foreclosure sign going up in your front yard and having a lock put on your front door.

(*) Unless of course gas prices are up in which case the underlying accusation is that it is unfair that SUV owners pay $100+ to fill up the tank.

So, when you are looking at a 22 year old driving a $35000 sports car, what do you see? If you’re looking at an early-30 couple who just bought a $400k home, what do you see? Financing makes it almost impossible to tell, but statistically, you’re seeing someone with a significant debt/asset ratio.

Looking at someone it is impossible to see their cash flow or their financial leverage directly, yet indirectly, it is not hard to get a good idea of their financial situation, how often they worry about having sufficient money, their degree of “struggling” if you want, how close they are to long-term bankruptcy (the point where they begin to carry a balance on their credit cards).
Once you start seeing through the appearances that people are keeping up by using finance, it is hard to remain impressed.

Originally posted 2008-11-17 07:32:27.

Peel about 2-3 times the number of potatoes you would usually eat as a side dish if they were cooked and shred them using a grater. Unfortunately we don’t have a grater so this was one of those rare instances where the food processor came in handy. Also shred an onion to taste and dump it in with the potatoes.
Dump the shredded material on a towel and wring out as much water as possible. It is this step that will make or break the meal (and you).

Put the shreds back in a bowl (or in my case the pressure cooker since it is sufficiently bowl like) and add flour. I prefer to add just a little flour and then just keep adding eggs until the concoction is somewhat slimy, but there is lots of room for experiment.

Now use a skillet (I prefer cast iron because it lasts forever and one can use metal utensils on it with no harm done) with lots of oil (several table spoons per pancake). Make the pancake palm sized and finger thick. My first pancake wasn’t too good (the first pancake never is for some reason) but I quickly got the hang of it.

DW suggested eating the pancakes with apple sauce which we did. I think mustard is also a good option.

Originally posted 2008-02-06 06:49:40.

1. RVs are much smaller than regular houses, the layout is very cleverly thought out, and storage space is much more efficient with things being stored inside the furniture, and much of the furniture converting into other furniture. For instance, our “kitchen/living rooms” contains a dinette and a couch which both convert into beds which can sleep 4 persons.
2. RVs tend to have separate 12V systems so if you plan to go solar it is very easy as you already have two different runs of wires. The main problem is installing the panels on the roof.
3. RVs have whole-house fans which given their small volume can easily cool the entire RV with outside air. AC and heaters are also fairly small and very fast due to the small volume. 12V swamp coolers are also available.
4. RVs already come with separate grey water systems, so if you want to use the grey water for your garden, that is a possibility. The plumbing usually meshes with the black water but that is easily fixed by which I mean that even I could reroute it.
5. RVs have a manually controlled hot water heater which you can switch on and off depending on when you need water unlike a house where the heater is on constantly. As a result very little gas is used.
6. RVs have suspension. This is always nice to have in case of an Earth quake. Also, if the hills are on fire, you have the option of driving away.
7. RVs have their own internal water tank, propane tanks, and limited electricity.  If the utilities go down, you are not out.
8. RVs have large windows which can be used for passive solar gain in the winter (just think of how warm a car gets in the sun if you don’t put up reflective mirrors). If you want your front windows to gain more solar energy in the winter, simple rotate your vehicle. Try that with a house .
9. Used RVs are fairly cheap compared to houses. (New RVs are not).

On the downside, insulation is fairly poor and difficult to improve. Also major renovations are required to install, say, a composting toilet although I believe that would be a distinct possibility that could be accommodated by simply changing the form of the black tank so it could be evacuated with a shovel.

Originally posted 2009-04-19 02:33:13.

This leaves long time bloggers, who resort to repeating themselves. I used to think that that was a bad thing, but perhaps it is justified due to the systemic problem that new readers are reluctant to go back and read old posts. This is a presumption – in fact I get quite a few mails from people that say they just discovered Early Retirement Extreme and that they are now going through the archives from day 1.

If, however, this presumption is true it may make sense to start retelling old stories in new ways. After all, the blog would then fulfill a kind of service as a cultural carrier rather than a library similar to how bridal magazines are published semiannually for new brides to be despite there not being anything in those magazines that aren’t found in books or older magazines. The main difference is only that they are readily available, like blogs.

Related posts:

• Are pro-bloggers like professors?

Originally posted 2008-07-09 06:53:12.

Running a marathon is comparatively simple in that it only requires a high level of fitness, some legwork, and following some simple rules about hydration and nutrition. For those who are already competitively fit, a marathon is not a big deal and there a certainly more grueling challenges for those who want to test their limits (ask me sometime). However, or sedentary people it is a big deal just like getting out of debt and building up a large stash of money is a big deal. So what does marathon running and personal finance have in common.

In both cases, it is not the completion of the event that matters. Rather, it is the preparation needed to get to the event. Like a disciplined savings program, preparing for a marathon requires a tremendous amount of self-discipline. Would-be marathoners need to stick to their training plan for several months and learn to deal with sustained discomfort for extended periods of time while building up a sufficient level of cardiovascular fitness.

The preparation requires an ongoing effort. Training for a week and a half and then taking a week off and then starting again or putting the training off will not obtain the expected results in time for the event. Whether we like it or not, delaying the training or the savings plan does not extend the time until the competition or the day of retirement and one risks showing up unprepared.

Sometimes a small effort is not enough. Nobody can complete a marathon by never pushing oneself beyond jogging. At some point the actual transition to running has to be done. Similarly, saving 5% for retirement is better than nothing, but it is not enough to actually retire in time. The larger the effort, the better the results.

It’s a primarily mental game. The learning curve of running is relatively shallow just like saving money does not require any special talents. All it requires is to follow a few simple rules and then go out and do it. Daily. Week after week. In short, what is needed is legwork to build up the tolerance of the legs and joints to be pounded on for hours at a time despite the mild discomfort. Similarly financial security is built by going without present comforts and saving money over an extended period of time. There is no fast way to get there. Going too fast risks injury just like get rich quick schemes rarely work and often have high risks of setting progress back by several month.

Marathon running can change your life. I must say that running half a marathon did not change my life and I doubt doubling the distance would have made much of a difference, but that was because I did not need to prepare for more than a couple of weeks. However, preparing to a competitive level in clubbell sports, which took 18 months, did change me. It made me physically confident in the sense that I am ready to accept any physical challenge that life may throw at me. Similarly getting in financial shape will thoroughly change a person’s self-confidence and attitude towards money.

It is perhaps not surprising that personal finance and personal fitness have many things in common and why some personal finance bloggers also have an interest in fitness. Finance and fitness are both about self-discipline, self-control and hard work. People with those life skills will tend to do well in any endeavor and running a marathon (or saving a lot of money) can help uncover or build them.

Originally posted 2007-12-29 20:17:39.

I submit that your expected life span greatly influences your actions and that those actions in the aggregate greatly influences the behavior of civilization. In nature, there are different kinds of sea animals, fish, whales, turtles, that all live more than 200 years. Mollusks have estimated life spans of more than 400 years. On land california redwoods live for more than 2000 years. Some bristlecone pines have recorded ages spanning over 4000 years. A healthy human generally lives for 70-80 years and thus about 3 generations of humans are concurrently alive at all times.

My hypothesis is that societies with 3 concurrent generations are different from societies with 2 concurrent generations which again are different from societies with close to 1 concurrent generation. A one-generation society constantly starts over in terms of social understanding and civilized behavior on all aspects. A two-generation society will have some two-generation long cycles because one generation is present to advise the next generation. A three generation society will have three frequencies.

Another way of looking at this is that in a one-generation society, the wisest advisors are 25 years old. In a two-generation society, they are 50 years old, and in a three-generation society, they are 75 years old.

We do not have the benefit of 100, 125, …. or 500 year old advisors. Consider, for instance, that a 250 year old advisor would be fully able to tell us whether industrialization was a good idea. He would be able to tell us whether increasing the human population on the planet by ten fold was a good idea. Even a 150 years, such a person would have the experience of several major wars and have much more experience rather than facing each new conflict as something that has never been “felt” before.

In a room with 100 people, more than 95 of them see civilization as a endless progression of growth. Very few holds a longer perspective. The 95 are like a person born in January and upon noticing that the temperature goes up as the months progress to May concludes that the temperature grows, always. Suppose that the lifespan of our fictitious group is 4-5 months and the source of this thinking becomes clear.

But what are the longer cycles of civilization. Is it even possible, beyond academic research, to bring an understanding of cycles out to the general civilization so that people start living according to such a mental framework rather than the and extrapolation of the current situation (growth) to the eternal situation (endless growth).

Readers may practice changing their framework by thinking about the current stock market.

I think religions provide a framework for most people mainly because the corresponding intellectual understanding requires a vast effort to cover the same bases (no wonder science came last) . Now, consider the difference between a religion where people believe that they are going back to Earth in some form after they die and a religion where people believe that they are going somewhere else after they die. How do these different philosophies align with the idea of not fouling your own nest (in particular the nest of your children’s children). Which one aligns best with the idea that humans are an integral component of the environment? How do religions transfer good behavior where intergenerational communications, as per above, fails?

Originally posted 2008-10-28 07:36:19.

It seems that certain people take issue when certain other people decide to opt out of the “popular choice”, here, a lifetime spent working for the sake of accumulating stuff, in other words, a typical career. One of the most common complaints can be traced to the first half of the Marxist refrain: “From each according to his ability … “. Wow! Just wow! I really thought we had moved past collectivism. Yet, indeed, certain people would have you believe that if you are talented or have an education, then you are obliged to use it and keep on doing whatever you were trained to do [like a good dog]. Of course a lot of what passes for so-called training is merely a “selection-process” designed to pick out those who are willing to focus their lives totally on work to the exclusion of acknowledging when enough is enough. I bet for a lot of people student loans and mortgages help to stay “focused”.

Now, I’m not sure that what is commonly deemed good for society actually is good. What I am seeing in society is stagnation and lack of strategic innovation as people keep pushing the pedal to the metal seemingly not realizing that pushing harder does not make them go faster and merely results in an abundance of bureaucratic red tape of committees, feasibility studies, and other menial busywork as institutions and government getter bigger and bigger and less and less efficient (and effective). Have you noticed how much more work is done increasing confidence than is done increasing accuracy? Confidence or precision without accuracy is useless(*). I mean, who are we trying to fool? Is that kind of work really worth it?

(*) I wonder whether the quest for precision instead of accuracy comes from our obsession with quantity instead of quality? Lemme splain. Presume that you want an estimate of some quantity. To get that you proceed to measure it not once but many times. Accuracy, then, is a measure for how close your estimate of the mean is to the actual value of the underlying process, that is, the quality of your model or measuring apparatus. Precision is simply a measure of your standard deviation. Precision can always be increased by taking more samples. Hence, precision is not inherently dependent on your quality of your model. One example. Suppose the true value is 4. Then a precise but not very accurate estimate is 3.734555 whereas an accurate but not very precise estimate is 4.1.

I would argue that I expect that people provide for themselves if they can. Doing otherwise suggests that they think that my time and effort is worth less than theirs. There is a difference here though in that I think that once people have provided for themselves, they are not under any further obligation. What I am saying is that people are not born indebted to society. Nobody should be automatically enslaved to anybody not even culturally or morally. Obligations should always be freely entered.

Originally posted 2008-11-15 06:14:08.

Here is what I have collected over the past month or so since I started the list. I hope most of it is as interesting to read to you as it is to me.

http://socyberty.com/work/early-retirement-extreme-the-solution-for-all-your-troubles/

http://www.plantingdollars.com/2009/12/18/how-to-retire-in-5-years/

http://www.fatwallet.com/forums/finance/978071/?start=120

http://escrevalolaescreva.blogspot.com/2009/12/um-louco-ensina-se-aposentar-cedo.html

http://chezceridwen.blogspot.com/2009/12/tools-early-retirement-extreme-by-jacob.html

http://lisasonorabeam.com/2009/11/04/minimalist-lifestyles-artistic-flotsam-how-to-deal/

http://www.doomers.us/forum2/index.php/topic,50286.0.html

http://boards.fool.com/Message.asp?mid=28077094&sort=whole

http://boards.fool.com/Message.asp?mid=27446845&sort=threaded

http://boards.fool.com/Message.asp?mid=28077484&sort=postdate

http://flightplanforretirement.squarespace.com/journal/2008/6/9/early-retirement.html

http://www.city-data.com/forum/frugal-living/835498-living-comfortably.html

http://cpastories.com/2009/10/09/cpa-money-friday-early-retirement-extreme/

http://baglady.dreamhosters.com/2009/12/01/revisiting-the-goal-of-financial-independence/

http://www.wellheeledblog.com/2008/02/26/xtreme/

http://happytexasfarm.wordpress.com/2009/12/02/a-post-from-another-blog/

http://www.retire2india.com/2008/09/10-alternatives-to-retiring-abroad.html

http://www.bogleheads.org/forum/viewtopic.php?p=483630

http://www.bogleheads.org/forum/viewtopic.php?t=36897&highlight=

http://www.reddit.com/r/Frugal/comments/addfr/askfrugal_hey_guys_anyone_with_knowledge_or/

http://www.thestudentroom.co.uk/showthread.php?t=1124172&page=2

http://www.early-retirement.org/forums/f38/retirement-personality-type-44723.html

http://www.canadianmoneyforum.com/showthread.php?t=214

Enjoy the reading!

Originally posted 2009-12-24 11:32:12.

“His goal attracts him, because he doesn’t let anything enter his soul which might oppose the goal. This is what Siddhartha has learned among the Samanas. This is what fools call magic and of which they think it would be effected by means of the daemons. Nothing is effected by daemons, there are no daemons. Everyone can perform magic, everyone can reach his goals, if he is able to think, if he is able to wait, if he is able to fast.” — Siddhartha, Hermann Hesse

You can read the entire thing here.

The short list of required ingredients for reaching your financial goals:

• Being able to think.
• Being able to wait.
• Being able to fast.
• Not doing anything that opposes the goal.

Let’s deal with them in turn.

Being able to think means knowing and understanding personal finances. Reading the small print. If those people who got the biggest possible adjustable rate mortgages had stopped to think, they would have realized that adjustable rate means that the rate adjusts(!) If those who live paycheck to paycheck and spend everything they earn would stop to think, they would realize that an unforeseen expense or accident could send the whole house of cards tumbling down. If those who do trend following daytrading on options would stop to think they would realize that it is a zero (actually negative) sum game with many losers for each winner.

Being able to wait means having the patience to stick with the plan. People don’t get wealthy over night. It takes years of sustained effort. Even as little as $100 saved every month adds up even though initially it seems like trickles. Those who can’t wait and raid their savings from time to time will fail. It also means sticking with the chosen investments rather than switching them around every time the market turns negative.

Being able to fast does not mean starving. It means saying no to instant gratification. It means saying no to easy credit that has to be paid back some day with high interest. It means separating present wants from future needs. It also means controlling desires and being more immune to advertising. It means waiting an hour to get tap water for free rather than buying a $2 water bottle.

Not opposing the goal means that counterproductive actions should be curbed. It makes little sense to save on pennies if dollars are used on splurges. It means having a spouse with the same values. Frugal efforts are quickly ruined by a spendthrift spouse. Not opposing the goal is making every effort count towards saving more money rather than spending more money.

Originally posted 2007-12-22 15:53:00.

Consequently some knowledge of game theory can be very helpful.

The simplest way to describe a game is by using a payoff matrix. Suppose player 1 has strategies A and B and player two has strategies C and D. Then there are 4 outcomes: AC, AD, BC, and BD each with a certain pay out.

The most famous game theoretic problem is the prisoners’ dilemma, where two criminals are interrogated by the police. In the prisoners’ dilemma, a prisoner has the choice of ratting on his partner or keeping quiet. Here is the payoff matrix.  Hence quiet-quiet = 3 years for both, quiet-rat = 10 years and 0 years. rat-quiet = 0 years and 10 years and rat-rat = both 5 years.

What is the optimal strategy? It turns out that the optimal strategy for the individual is to rat on your partner. Ratting on your partner is a so-called Nash equilibrium after John Nash who was portrayed in the movie A Beautiful Mind. A Nash equilibrium is the optimal strategy for an individual given full knowledge of the other player’s strategy. In other words it is the choice of strategy where the payout of the individual can not be improved by changing strategy. In the case of the prisoner, since 0 years is better than 3 years and 5 years is better than 10 years, a prisoner can not improve his position by keeping quiet

This is an interesting case where the global optimum will not be chosen. This is what makes it a dilemma. People with too much sparetime can now make a game theoretic model of whether for two hostile nations it is in the best interest to for a non-nuclear nation to pursue a nuclear program given the idea of a Nash equilibrium (answer: it is).

Now, bripblap asked if the same holds in terms of wealth.

Let’s look at that. I’d like to rephrase the question in terms of whether trade has a global optimum (it does). When trading people are often confused by vague definitions of price and value, so let’s define those first. Price is the objective measure of at which a trade took place. If I traded 10 hogs for 10 cows, the price of 10 hogs is 10 cows and vice a versa. Value is wholly subjective. I am trading my 10 hogs for 10 cows because  I believe 10 cows are of greater value than 10 hogs. The person I am trading with believes the opposite.

Drawing a payoff diagram in terms of value shows that the optimal strategy in a free market is to only accept a trade when I believe that I am receiving more value (wealth) than I am delivering. The trade does not take place unless both counter-parties think the same. Hence, value is always created. That is the beauty of a free market system.

Conversely, if the trade was coerced (taxation), at least one party would think he is getting less value than he is receiving. This can lead to zero-sum or even negative-sum games. So why do we do this? The reason is that payoff is not strictly linear. Most humans, for empathetic reasons believe that a situation where a majority of people are slightly discomforted is optimal if it means that one person avoids severe pain (disutility). In other words, when it comes to extreme hardship, the needs of the one outweighs the needs of the many.

Another thing that can lead to negative payoff is buyer’s remorse. Although a rational person would base decisions on all available information at the time of the trade, few people are rational. Hence people will often choose suboptimal strategies. This, as well, can lead to zero or negative sum games. This does, however, not necessarily mean that the other person gets more value, but it is often so.

Originally posted 2008-11-07 07:36:27.