I’ve heard many of these objections and they all boil down to statements like this (which I lifted off the comment thread of a single article about extreme early retirement)

• “…shouldn’t wait for tomorrow, but have fun now”
  
• “…can’t afford little luxuries”
  
• “…don’t want to live in austerity”
  
• “…doesn’t enjoy good food”
  
• “…going to be missing out on concerts, games, toys…”
  
• “…can’t buy nice gifts”
  
• “…should live for the moment and don’t count on an uncertain future”
  
• “…can’t buy a collection of nice shoes and purses”
  
• “…never leaves the house”
  
• “…has no life”
  

This pattern of objections is repeatable. It happens every single time. In general, if you ask the average consumer what enjoying life is all about, it distills to the following trifecta: buying tickets, going to restaurants, and shopping.

That’s it. Those three things are all there is to enjoying life. The uninformed opinion is that if you don’t have these these three things in your life, your life sucks. I know, because that’s what I used to think. And it’s also what consumers keep bringing up.

Ever wonder why that might be?

It’s true too! But only insofar that you’re unaware of any alternatives to buying tickets, going to restaurants, and shopping.

When I first started saving massive amounts of money by reducing my spending, I had no replacements. Now, if you have no other known way to enjoy life than pulling out your credit card to buy something, then having cut up your credit card is going to suck. By not spending, you just lost the only way you know how to have fun.

What to do?

Well, once “your eyes are opened”—after some investigative effort on your part which is as easy as clicking on a link these days, you’ll find that there are tons of things to do. Especially once your time is fully liberated. All you have to do is learn about them.

Here’s a list of things I did after retiring from my career at 33.

Work:
Quit a career that I didn’t enjoy.
Started a new career that I do enjoy.

Sports:
Placed 1st and 2nd in 2010 in two bay regatta series on a J/105 (35′ yacht) [was out on the water racing almost every week]
On the winning team of the city’s roller hockey league four seasons in a row (center forward)
Various bike rides (3 centuries) around the east bay. Also a grind up Mt Diablo.
3 years of Japanese swordsmanship (three times per week).
Clean&Press 2×70 kettlebells.

Skills/hobbies:
Bike repair
Furniture making
Gardening
Ham radio
Book publishing
Investing

Profitable projects/business/second income:
Freelance editing
Book selling
Nonprofit startup founding

Writings:
The ERE book + another one.
The ERE blog/wiki
Various magazine articles

Readings:
Lots

Adventures:
Lived in an RV (I consider that an adventure. Not an austerity measure.)
Ocean racing
Dinghy sailing on the local lakes and estuaries
Mountain biking in the hills of the east bay
Road biking around the east bay
Long distance running (only 13 miles, but self supported in 90F)
A trip to Yellowstone and Nevada desert
A road/tent camping trip to Portland, OR and back again
A road trip across the country.

It might surprise you just how little money I spent on all this. But it was not a lot. It was less than what the average household spends on furniture per year.

This is just my list. My idea of fun is mainly mastering various skills (intellectual, technical, and sports) and creating big projects. Other people have other ideas of what fun is. The point is, you can almost always find a low/no-cost way to have fun no matter what your interests are. Do you want to travel? You could move to South America for a few months and live there ERE style for $300/month. Here are some other examples from other people pursuing ERE.

So let’s compare that list to the rather expensive entertainment budget of the average consumer

• Buying tickets to see a 4 hour long game.
  
• Eating a steak at a restaurant
  
• Shopping
  

However!

It does take some time to figure out what to do without spending money and how to do it. This typically takes 6-12 months. I, therefore, also want to warn any neophyte that this period probably IS going to frustrating and suck and feel like you’re not living. It’s also going to take some effort. If you’re not spending money in order for other people to make your life fun by serving you steak and playing baseball in front of you, you have to make it fun yourself. However, I’m quite confident that everybody is capable of figuring that out if they put their mind to it.

Which one will you be? Something to meditate on.

Originally posted 2009-10-09 11:12:23.

Frequently when we are very set in a paradigm it is hard to see the alternatives. The idea of accumulating enough money to get the money to work for me instead of having a job, a previously alien concept, coupled with a reevaluation of whether all my expenses were really worth it changed my financial frame of mind completely. These concepts go way beyond working and saving for a comfortable retirement. Rather for me it was a question of replacing my job with an asset based income sufficient to fulfill my needs. To do that some extreme measures had to be taken lest it be many many years before my investment income would even compare to my regular expenses. So I credit Rich Dad Poor Dad and Your Money OR Your Life for that.

I have noticed that people tend to rate books and posts based on whether the writings agree with the reviewer’s line of thinking or way of thinking and not on whether the writing was good or instructional (This is why I think “Editor’s Picks” on blog carnivals is a bad idea). I might be susceptible to this as well however. Being a fairly intuitive and abstract person (INTJ), I prefer to learn the concepts rather than the specifics. Some people prefer to understand why or how things are what they are. However, a majority prefers 5 step programs and methods that can be summarized in mnemonics. For the latter these two books might not be the best picks.

Originally posted 2008-02-12 07:32:56.

I disagree. I think money also serves to delineate the wealthy from the broke.

To reiterate the definitions: wealthy means having having enough money to buy everything you want (I’m wealthy), broke means not having enough money to buy everything you need (that’s where you never want to go). Conversely, rich means earning a lot of money (I am not rich compared to my neighbors, but obviously compared to 95% of the rest of the world) and poor means earning little money (I am poor).

Most people think only along the rich–poor dimension, where money exists as a purchasing tool rather than a tool of social control. For instance, have you noticed how the tax laws seem to be written by the wealthy? Capital gains taxes are far less than income taxes for any given level of income.

Despite this, very few people make an attempt at wealth. Many who achieve wealth seem to get into it accidentally by first becoming rich and then not finding ways to spend all their money. The wealthy types are the millionaire next door types: They do not accumulate money to spend it. Now, you can be wealthy without having a million. It just requires spending less than $40,000 a year on things like food, transportation, and shelter. That’s easy enough!

The dominant attitude (which I do not share), that is, money should be spent, is the main reason why I could get out of the rat race so quickly. If money wasn’t being spent so freely, interest rates and financial returns on investments would be much lower and require far more work for those who wish to retire early. Even those who have no debt acts to shift the baseline of expectations of those who are in debt and thus make a larger fraction go into debt. This is similar to how luxury item manufacturers make a few exorbitantly priced items; they do not expect those to sell, rather the point is to change customers’ expectations and allow them to sell they second most expensive item more easily.

Ethically speaking, this is a funny situation. One could say I was taking advantage of people, you know “oppressing the working poor”. One could, however, also say that I am helping the system function. For instance, if I wasn’t lending out my money and investing it, there would be less for other people to spend and it would be harder for companies to, say, build a windmill. It would, however, also be harder for them to build guns. It is really a sword that cuts both ways and ultimately I have little control over what my money gets spent on other than boosting the “energy” of the economic world. Some people think the economic world is bad, so they literally burn the money they earn. I am still confident that that world could change for the better, so I don’t burn my money.

It is a strange situation, so I try not to spend too much time pondering the morality. It basically comes down to whether one believes that other people should be _free_ to engage in behavior that one fundamentally believes is _stupid_. I think everybody agrees that they themselves are pretty smart and should be free to do whatever they want(*). This obviously is a question of politics.

In general left-wingers as a group are pretty smart when it comes to dealing with other people and making their own choices and pretty dumb when it comes to dealing with resource distribution, and hence they believe that they should have their personal freedoms but that the economy should be regulated. Right-wingers as a group are the exact opposite: Good with work and resource distribution but pretty dumb when it comes to understanding other people’s behavior, and hence they believe the latter should be regulated but that the market should be free. The political left–right axis is therefore not so much an indication of people’s orientation as it is about their fundamental skills and experiences. That’s typical politics for you in a nutshell, but I digress.

From my perspective, money still has power which only exists when it is not being spent. I fully, completely, and utterly realize and understand that money is only powerful as long as the social convention that if you give someone your money, they will give your their stuff or provide their services. That is a the liability of money and it is a BIG liability. However, that does not mean it should be spent per se. It means it should be protected.

Originally posted 2009-04-30 11:32:45.

Why pay that much when you can make a better coffee yourself?

What about food expenses? These can range from less than $50/month per person to more than $500/month per person.

Required savings for $50/month:

$50/month = $600/year food expenses. This needs $600/0.04 = $15000 in savings. Whereas $500/month = $6000/year needs $150000 in savings. That’s a lot!

Aiming for the lower figure of $15000 is doable in a foreseeable number of years. After saving $15000 one NEVER needs to worry about food again. One is financially independent of the food expenses.

My suggestion is to tackle recurrent expenses in this way one by one. How much does it take to become financially independent of food, housing, clothing, transport, health costs, internet, movies, cable, …

This results in a set of smaller goals to work towards. It will also create a certain discipline. More importantly, it will make one reevaluate whether the expense is really worth it. For instance, is a daily cup of $4 coffee really something one would want to save $36000 to support or is a 25c homemade cup of coffee good enough?

A 25c/day coffee addiction costs a mere $900 for a lifetime “subscription”.

Originally posted 2007-12-05 00:47:00.

Now, once you got “enough” money: $150-250k, if you are frugal, or $1,000,000, if you are not, then question becomes where to put it.

Here are a few things I have considered.

1. Treasuries (or CDs). Invest the whole amount in treasury bonds. This was the way of Joe Dominguez of Your Money or Your Life. However, these days I think one would have to be a pretty big patriot to lend money to the government. While return of principal is guaranteed, it’s not guaranteed that said principal will have any buying power in 30 years. Treasury notes avoids locking in a low rate. On the other hand one becomes subject to the monetary meddling of the Feds. Alternatively, one could buy CDs from a more conservative central bank like the ECB. (everbank.com offers such CDs).
2. A modern approach is just to buy a low cost index fund. According to large numbers of people, such index funds are the source of all things good and splendid. They are simple, easy, effective and they have even been rumored to cure cancer. Indices currently only provide 1-2% in dividends. These dividends could be set to invest automatically. At the same time, one could take automatic monthly withdrawals of 3-4% (Don’t forget to add the fund fee in the percentage). Historical calculations of the viability of this approach can be done using FIRECALC.
3. Those who are reading this probably have the personal drive, talents, and miserly qualities to set up a no-cost option. No more than 20 individual stock positions will be sufficiently diversified to emulate funds with hundreds of stocks in them. Use a broker that offers a few free trades a year and sell some of the winners. And rather than reinvesting dividends take it as an opportunity to sell of a little less. The Dow Jones is price-weighted, so simply buy the 20 most expensive (in price stocks). The S&P is market cap weighted. Here you buy the 20 biggest companies for a very close approximation to the entire index
4. Another strategy is to buy shares in solid dividend payers and then just live off of the dividends. Bear in mind that companies that appear solid now are not necessarily going to be solid forever, nor are they likely to grow much as they retain less earnings to do so (their money is being paid out). Dogs of the DOW is such a strategy. The dogs need not be from the Dow though.
5. A more interesting strategy are high yield income assets such as junk bonds, REITs, buy-write closed end funds, convertibles, etc. These currently yield around 10%. In my opinion they are best acquired as ETFs. They are quite a bit less volatile that a pure equity strategy (betas below 0.5) and the yield is much higher than 4%. However, they may suffer from inflation whence the surplus (the 6% you’re not spending) should be invested back as an inflation hedge. Note the danger if your effective inflation exceeds 6%. On the other hand they provide a strong cash flow without the need to sell anything and incur capital gains. This cash flow could be kept sufficiently low to keep taxes a 0%.
6. A potentially better strategy is to keep the fixed income portion at a level that only supplies cost of living. This means that if cost of living is $6000, then about $60,000 will be in high yield funds and the rest will be invested for growth/gain/inflation protection.

Personally, I’m leaning towards the last strategy. The idea of have a steady flow of cash with some potential for appreciation fits my temperament better than putting it all in the hands of extrapolating traditional market returns. (I’m scared of a Japan-like slump).

Originally posted 2008-05-22 20:11:32.

[I wrote this book to]…demonstrate that that becoming rich has given me the most precious thing in life. And just what is the most precious thing in life that riches can supply? Easy: For me, it’s Time. Time. Time to read and write poetry if I want to. Or to write a book if it takes my fancy. Time to travel on the slightest whim, to walk in the woods, to think, to commission art, to read, to drink, to hang out with friends and loved ones … to do just about anything really, as long as it does not involve day after grinding day making money in an office or a factory for someone else. That’s what money can do.

Wow! This is from a guy who “outriches” me by more than a factor 1000 and what he seeks and has is essentially the same as what I seek and have. Actually, if me outsourcing my bookcover can be considered commissioning art, and if blogging is poetry (ahem!) we enjoy exactly the same things. This is somewhat unexpected given the factor 1000 difference. Usually I expect differences in kind when differences exceed a factor 10.

So good news everybody! You really don’t need $500,000,000+ to have that time and live well.

He does mention some of the cars he can buy, which I can’t, but on the other hand he can’t drive them, so I guess that makes us even

I have on the rare occasion considered working more to pick up more money so I can buy stuff, but frankly, giving up Time to buy stuff is a lot to ask, so I’ll satisfy myself with cheaper indulgences.

Thus I conclude that I am already beyond what extra money can do for me. More accurately, the marginal utility of more money is low. It’s been like that for a while. Even while I was working, money quickly developed into simply a way of keeping score. It’s a natural consequence of spending far less than the pay.

Lately, I have realized that I am getting old. I’m in my mid thirties. Double that and I’ll be in my seventies. To me 70 is somewhat old. So I have as much time going back to 0 as I do going up to 70 and I don’t feel like I have lived a particularly long time. The marginal utility of more time is high!

Spending very precious time to make more money than needed is thus uneconomical. Sure, making money incidentally is nice, but actively spending time to pursue more when I already seem to have reached the limit of what is possible with money (aside from the ownership of large luxury items which I think I can live without) is simply nuts when it appear that there is no additional satisfaction to be had.

Sure, everybody probably thinks, as mentioned in the book, that they’re the one exception that money does indeed buy happiness, but I’m not willing to bet 15 years of my life on that.

Originally posted 2010-05-31 23:22:55.

Eventually I found myself disenchanted with the game. I was playing a combination of black and blue and I always seemed to be losing to people who had better and rarer cards than I had. I didn’t really see myself as improving my relative position unless I began to spend a lot of money either buying booster packs and hoping for the best or buying them outright at $5 or $10 a piece from the local card pusher.

Back then nobody I played with really seemed to have any kind of deck design strategy other than picking a few colors and including the biggest and most powerful cards they had.

Most games would be very long. Not much would happen during the first 4 rounds as people were putting down lands in order to summon their first mega monster. After that it was a half hour accumulation of a giant army.

Does this sound familiar? Keeping up with the Joneses? Bigger and better?

One evening after I was just about to give up on the game, I decided to divide my blue-black deck. It happened to be about 110 cards total, so I had to add some land to make it 60 cards.

And then I started winning! The game was fun again.

Having more land allowed me to summon forces faster. I was no longer stuck waiting for resources much like a middle-class consumer is stuck waiting for money because everything he owns is too large or too costly. Since I was using almost all my black cards, I also had to include lighter footprint creatures which turned out to be a blessing. I was dealing out 5-10 points of damage (20 points and you win the game) before my friends even got a creature in play.

This was a light bulb moment and I began to pay a lot more attention to the deck design strategy: what worked together with what? what was the ideal land/spell/creature mix? could I put something together that had more than one theme in case my main theme failed. I spent hours dry-running designs (that’s the MTG equivalent of studying chess openings).

At one point the deck got so good that my regular playing partners didn’t think I was fun to play with anymore. The deck which was worth about $50 if you had to buy the cards from a pusher was even offering fighting resistance to tournament decks. I then started making decks out of common cards. These are typically less powerful and abundantly available. I was still doing okay with that.

There’s a lesson to be learned here.

Strategy beats “technology” every time. Having ready resources like land (money) is much better than having large creatures (house, car) which are unwieldy. Having a huge deck (lots of stuff) is very detrimental because it reduces control. Having too much stuff takes away attention from the enemy (living your life) because the entire focus is on maintaining and trying to summon your forces (paying the bills). Using a systems thinking approach to ensure resilience is a successful strategy—if one thing doesn’t work, another will.

Originally posted 2011-09-30 18:52:49.

They exhibit herd behavior. Group think.

You can verify this for yourself by getting a subscription to the four magazines above (actually, the last three will do, WSJ is too expensive). Then you’ll develop the uncanny ability to correctly guess whatever particular company some newsletter writer describes as “Destined for 400% growth over the next 10 years due to the new discovery of Rare Resource X”. Indeed, newsletter writers read those four publications as well.

Being salaried professionals, they are gauged on their performance relative to their piers.

This is useless to an investor. Here’s how the performance reward for a professional money manager looks in terms of market outcomes

• The money manager is wrong about the market, but so is his peers. Result: Keep job, no bonus.
• The money manager is wrong about the market, unlike his peers. Result: Job lost.
• The money manager is right about the market, but so is his peers. Result: Keep job, no bonus.
• The money manager is right about the market, unlike his peers. Result: Keep job, get bonus.

For someone who depends on his salary much more than the performance of his investment—and believe you me, if you look at your wealth in terms of investments to expenses, you are wealthier than most professionals—this creates a principal agent problem.

A professional manager is MUCH more interested in doing what his peers are doing than growing your money faster than the market. His risk-reward structure is skewed against the motivation to act on inefficiencies which may not materialize before AFTER next quarter.

In contrast, here’s your game theoretic matrix

• You’re wrong about the market. You lose money.
• You’re right about the market. You gain money.

It is somewhat different, eh?

Furthermore, professionals are often limited in what they can do by the prospectus and other regulations. Worse, they usually control such huge positions that they can’t just buy or sell them without changing the market price. This is a completely different problem than what usually faces the retail investor—unless you trade large positions compared to the rate-of-volume.

The herd behavior + principal agent problem + the regulations + the size means that the market is far from efficient.

As an informed retail investor, you can beat the professionals. I’ve done so for the past 5 years to the tune of 5% per year(*). Most of the money is not made in selecting the better companies but in not panicking along with the herd and being able to liquidate complete positions at the snap of a finger. In other words, having _money_ and NOT worrying about losing one’s job by failing to meet market performance in any given year is a HUGE advantage!

(*) No I am NOT going to tell you what to invest in. I’m pretty sure what will happen: “I don’t agree with everything you say, so I’m just going to pick whatever seems good to me.” The failing to get my results, I get the blame—see outcome schematics above

However, one does need to pay relatively constant attention to the market. I do not mean that one needs to analyze individual stocks all the time. In this sense, I think you probably really do have no advantage over a professional who’s on a first name basis with investor relations. (Maybe I’m just biased here due to personal inability—I’ve never called IR nor visited a company) However, in terms of calling macro trends it’s not too hard to spot a slow train wreck in advance and watch how the professionals are unable to jump off because they’re too tied to their positions by either their dependence on their salary, their regulations, or their sheer size.

What do I conclude from this?

1. If you have the ability to think and the nerve to support your thinking, you can outperform the market. (Sometimes, I’m not sure that I’ll be able to maintain the nerve for the next 60 years. It does take some intestinal fortitude to disagree with the majority.)
2. Unless you have detailed knowledge of a fund manager, you’re unlikely to pick a good one. Endowments are actively managed funds and they actually do OUTPERFORM THE MARKET IN THE LONG RUN. However, such endowments are able to get to know and check on their managers a lot better than you will be able to do so just be reading a shiny brochure. To pick a good fund, you need to look at the manager. Also you need to realize that if the manager leaves and gets replaced by some other guy, that fund may suddenly change fundamentally! The key here is to look at manager tenure. You should also look at the tenure of the board of directors. Very long (>15-20 years per person is good!).
3. If you’re just going to pick a fund a random, you’re probably better off picking a market index fund. It won’t protect you from the herd behavior but it will protect you from having to pay the salary of a manager that ads no value. Also, like professional managers have figured out, it also protects you completely from any kind of doubt that you’re doing the right thing. Sometimes I do find this approach appealing for that very reason despite all the bad things I say about [market] index funds.

What is important to realize is that the market efficiency that sellers of professional managers is apt to point out, whether that be for individual funds or index funds which is the sum-average of all funds IS NOT always due to the professionals. There is in fact a contribution from non-professionals which becomes apparent whenever the herd of professionals panic or become illiquid or otherwise run up against the restrictions of their investment plans.

You should also stop thinking about market efficiency as a freebie. If something is undervalued (inefficient) because panic drove it down and people are out of cash; then guys like me, a private individual with some sense and willingness to act on it, can buy it. Then I got the share and since each share only can have one owner and I’m it, you can’t buy the same share through an index fund or whatever fund(*). Efficiency is partially restored and the index is up but the share wasn’t picked up by a fund manager. It was sold by a fund manager and I bought it. The index may have dropped briefly due to the data point created by that transaction, but no one in the index actually bought or sold the stock because the index is just a mathematical construction. (I may however have been bought of sold by someone using an index fund, but that index fund would then be dealing with tracking error for the reasons above.) Thus efficiency doesn’t come for free. You can’t just piggyback on it. It has a cost and that cost is paid by lowering the performance of the market average. See?

(*) Remember that the “market price” is just the price of the last recorded transaction of which there was a seller and a buyer. It does not mean that this price is universally obtainable for everybody. The price is less like buying bread in the supermarket and more like an auction with only one winner.

So there we go …

Originally posted 2011-07-30 21:28:02.

Stoicism and Zen Buddhism are very similar. They both try to deal with the problems of the ego. Conversely, consumerism is all about gratifying the ego.

I don’t think I’m qualified to comment in detail–however…

Zen Buddhism and Bud? eliminate the ego through “practice.” This practice can take the form of meditation or detailed repetition of, say, martial arts techniques or brush strokes. The goal is to reach the state of no-mind, also called enlightenment.

I find it interesting that one can replace “upgrading” and “acquisition” as the meaning of life with the act of “practice.” Of course, in some sense one can think of going to work as practice. What’s important, however, is the intention behind the practice. Just going to work or even practicing by going through the motions is not going to do anything. In practicing, one must strive for that one perfect move—I think “filing a form perfectly” does count in some sense.

Applying this concept, which in business is called Kaizen, is probably also why the Japanese car industry creamed the competition. It is also a good way to live–or at least it gives you an excuse to indulge your inner perfectionist.

Stoicism eliminates the ego through active rationality. It is not as time-consuming. I don’t think this can lead to the no-mind state, but I do think it can more easily render ego gratification less relevant. Stoicism seems to be quite appealing to the INTJ mindset. This may be because emotional appeal and external accumulation or status-by-title/status-by-stuff hold little natural value to the INTJ, so they are easy to replace with another framework. In fact, it only requires a hint–such as this blog–to do so.

The key difference between Zen Buddhism and Stoicism seems to be whether rationalization or the intellect is embraced or rejected. A student of Zen will study koans with the objective of eventually realizing that trying to rationalize an intellectual answer is futile. Conversely, a student of Stoicism will study logic to fine-tune his intellect.

I think that usually when two different “schools” of opinion or thought seem to achieve the same results or success but differ on a key issue, then that issue is actually not very “key” at all.

I’ve been pondering this for some weeks now. I wish I could expound on it in more detail, but this is what I have for now.

If you want to “study along,” A Man in Full by Tom Wolfe is a story in which two characters become stoic. You need to get to page 300 before anything relevant to this happens, then a long break, and finally some more development around page 650. I read that book after reading A Guide to The Good Life as referred to in the forums. Next I’m going to read The Stoics.

I don’t have any good references for Zen Buddhism. I have focused more on Bud?, not having the patience/time for extended meditationbeing more of an active person. My favorite Bud? book is Budo Mind and Body. It is a very quick read and I try to read it every so often to reinforce my training and stay serious. This book also contains a very good bibliography of related titles complete with detailed descriptions.

Originally posted 2010-08-31 20:45:24.

Everything we do involves some conversion from the input to the output.

Working is a process that converts time and skill into money.

Typically this money is converted into products through the process of consuming and the products supposedly provide shelter, food, and satisfaction. This is the “buy–earn” consumer cycle. By investing in stocks and corporate debt a person can feed of this process in a symbiotic form by providing the capital to drive it.

Since many spend all their time and skill, something which is actually their two most valuable assets, on their jobs, their only abundant resource is money. Thus they tend to spend a lot of money. The only thing money is really good for is products and investing. Products won’t make you smarter, stronger, wiser, nor a better person, so it really only makes sense to spend it on investments.

Yet it is also possible to spend time and skill to acquire shelter, food, and satisfaction.

This fact is almost entirely ignored. Consumer culture is blind to it.

Sure people know it is true intellectually but they are not conscious of the fact that they constantly ignore it when they go “shopping” for all their needs and wants rather than taking the time or learning a skill.

As always, I suggest throwing out the TV. It’s an easy way to gain a several hours a week for most people. Spend some of those hours learning a new skill and some of them avoiding having to buy the next solution.

The difference between people like me and consumers is that I think of spending money as personal incompetence. It means I failed to have the skill or that I was too distracted to come up with a solution. Conversely, for a consumer, not having money is an automatic fail because most consumer have few skills outside their job. (Many can barely fry an egg.) Overall we end up with the same result, but the means are different.

The difference is that money not spent on satisfaction can be invested. Conversely, time spent not being satisfied is simply wasted.

Originally posted 2010-04-27 10:22:52.

Great timing. I was just doing this …
It is self-evident that for a post with some relevance to real life activities, the probability of a person engaged or about to be engaged in such an activity multiplied by the probability of the person commenting (these probabilities are not necessarily independent, but I doubt the cancel each other out, if anything they increase as someone with some reason to comment are more likely to comment) multiplied with the number of people reading the post exceeds 1. Hence, the more readers a blog has, the more “great timing” comments there will be. Trent over at TSD probably has some of the most “great timing” comments in the world because he frequently write about every day activities and he has a lot of commenters.

In fact, it is very interesting just how much can be explained by random fluctuations. Particularly rare events. As a ground rule, if events have no “memory” but you otherwise have no idea about their distribution, a good rule is that your uncertainty is 1/SQRT(N), where N is the number of observations. If N=3, I would not make any conclusions whatsoever. But then again, I like to play it safe

Great post, I agree.
This is simply confirmation bias. It has been amply demonstrated that humans mainly look for positive tests, that is, proving their hypothesis, rather than negative tests, that is, disproving their hypothesis. The scientific ideal would be the latter because there are many ways a theory can be wrong but only on way it can be right, so if you’re seeking truth, that is the way to go. On the other hand if using a positive test, there are many ways to affirm the test and in this case the test will stop with the first positive affirmation. This also means that humans will seek out people who agree with them and read artiles that confirm their beliefs or their biases, rather than articles that challenge them. If people believe that their own beliefs are “great”, then we have the “great post, I agree” comment.

I disagree, this post sucked.
This comment is likely not made by a regular reader but rather by a visiting reader who stumbled onto the post by accident. However, the psychological reasons are the same as above. It failed to confirm the bias and since the bias is great, the post must suck.

Originally posted 2010-03-08 00:46:44.

I’ll tell you what “we” need to do. The middle class needs to start by taking a very serious look at itself, because all the problems that the middle class is undergoing could have been prevented by making different choices.

The middle class can be divided into consumers and savers/producers. In recent times, consumers have far outweighed savers and producers (unlike say during more thrifty times) and so the middle class is often confused with consumers.

Those of us who belong to the saver/producer side are positively thriving in this economy—the only thing we have to deal with is consumers who keep telling us to buy more stuff, because apparently stuff makes you happy. I guess my former neighbors who had so much stuff stored in their garage that they had to park their car in the street must have been supremely happy. Irony aside.

As a country, America is very productive. There are enough resources to live very well if those resources are spent wisely. We are twice as productive as we were 50 years ago. By all rational means it should be possible to work only two weeks a month and live perfectly happy lives. Alternatively, it should be possible to work for less than a decade and then retire early.

I did just that. You can do just that.

Unfortunately, many people did not. They spent their riches without a second thought.

Here’s the exact problem with middle-class consumers. As a group it’s net-negative productive. It takes more than it gives. Despite how hard it works, it consumes more than in produces. It spends more than it earns. It lives above its means. This is possible because banks and credit cards have enabled this behavior through cheap credit.

Whether this is the fault of the banking system or the middle class, that is, the creditor or the debtor is an age-old question. It’s like asking who’s responsible for murders: The person pulling the trigger or the person giving him the gun. It comes back to personal responsibility. I’m not touching that one with a ten foot pole in this post—I suspect you know where I stand on this issue.

The worst part of it is living in culture knowing that this didn’t have to happen if people would just wake up. I’m middle-class. As an academic scientist, I made less than newly graduated college grads in my field for most of my career (with a two year exception at the end). However, instead of spending my money and going into debt buying the biggest house I could get my hands on; buying a new car and a new TV with the only concern being whether I could make payments and generally maxing out my lifestyle to the best of my ability and to the extent my salary would allow, I saved money.

In fact, I saved a lot of money. I lived far below my means. Now, many people don’t want to do this. They don’t want to “give something up”. They don’t want to “sacrifice”. That’s how they see it. The way I see it, I’m not giving up anything I like. I spend very deliberately. Some people call that pinching pennies. I call it prioritizing and not wasting money.
In particular, I don’t waste a lot of money on interest and fees(*) because I want to buy something now rather than wait until I actually earned the money; and even then I only buy things which I’m sure I’m going to use and enjoy.

(*) This alone means I’m getting things 20% cheaper than someone who’s carrying a year’s worth of spending on their cards.

It’s curious to me how people don’t want to “sacrifice” yet are perfectly happy to “struggle”. My goal is tranquility. Not instant gratification.

As a result, while people were partying it up with home equity loans during the past decade period I was saving. As people are now struggling to make ends meet, I have retired, financially independent. We’re both middle-class. We both made the same income. We just made different choices of whether to spend or whether to save the money.

Maybe I understood how to handle my money better than most. Yet whose fault is that? It wasn’t for lack of trying to explain the concept of savings, yet it’s hard to convince someone who’s having fun that maybe they should save a little for a rainy day, just in case. It’s even harder to convince them to put aside 30% of their income; and if you think that’s hard, try convincing someone to save 60% or more than that. Why should they, when their house has been appreciating by 30% a year for the past three years? It’s like having your own personal ATM machine, right? < sigh >

When you have two people in similar circumstances with the same options but making different choices and consequently ending up in different places, we should not blame external circumstances. Yet what it seems like now is like the day after the big party. People are hung over and they blame the bartender (the banks). It’s like they completely miss the connection to all the booze (credit) they were drinking the day before. Like the example in this post, people just don’t seem to get it.

Maybe it’s because for some it was their first real drinking binge; like someone just passing legal drinking age with no experience of alcohol and consequently going overboard rather than learning slowly and being wiser about it. Maybe they should have listened more to their parents or grandparents just like we could learn a few lessons about money from ours. Sure, we can now stick together and commiserate on our collective headache, but that doesn’t solve the booze problem. The bartender or cheap credit is really not a problem if people are not abusing it. It becomes a nonissue.

Maybe people need more financial education? It’s pretty clear to me that anyone who care to self-educate about credit and savings (and it’s not rocket science, you know) would do just fine as a middle-class person. If anything, if the middle class is disappearing as the Huffington Post says it is, it’s not because it’s being killed off. It’s because a group living on credit above its means is simply not viable as a “species”. Not in nature, not in sociology, not in economics.

That really shouldn’t be surprising to anyone.

But apparently it is.

We have a long way to go, but until we actually go, this problem will keep repeating itself over and over getting increasingly worse as long as people are blaming everyone but themselves.

See a longer discussion about the middle class on early-retirement.org.

Originally posted 2010-10-10 01:03:20.

The book took 22 months to write and 5 months to edit. It is not a blog-to-book book in the sense of stringing together a bunch of blog posts and passing it off as a book. Aside from one section in the book, I have written everything from scratch.

The aim of the book was to present the ERE theories and principles in a coherent and cohesive fashion(*). It took a lot of thinking/work/research to do that since my blogging has been less than organized and also incomplete in terms of covering the material. The results is that the book reads more or less like a text book. I think it contains everything you want to know about extreme early retirement. It will give you the philosophy, the generalized principles, and examples and techniques of how to apply them.

It does not contain any step-by-step plan (although I will write such a book if the demand for it proves sufficiently high). Instead it gives you the tools to formulate your own plan.

The reason for this choice is the realization that everybody’s situation is different. In my experience very few people who read my blog are willing to follow prescriptions to the letter. There are always special exceptions. Consequently, the book has been written in a way to allow readers to formulate their own plans while retaining the extreme financial efficiencies that characterize ERE.

(*) I probably have to confess something here. Once I started writing the book (June 2008), I saved my best ideas for the book—if you wonder where all the diagrams I used in make for my early posts went; well, now you know.

In summary, I have put a lot of work into the book. I suspect that if you like the blog, you’ll love the book. At least that has been my intention.

• DINKS Finance
  
• Early Retirement Extreme @ hubpages
  
• You can retire sooner than you think @ squidoo
  
• Early Retirement Extreme @ IdInvests.com (in French)
  
• Early-Retirement.org forums
  
• Shout Out To Jacob @ Jeremy M. Day’s blog
  
• Books on early retirement @ Canadian Business Online
  
• Early Retirement Extreme – The Book @ In the trenches (also see the guest post from Carol)
  
• Early Retirement Extreme @ crasch’s posterus
  
• Some comments from the copy-editor (one of the 4 people who has read the book thus far)
  

Originally posted 2010-09-30 22:58:56.

If you ask whether you can retire with $10 million, the answer is still no.

The problem is essentially scale-less. Asking the question implies that one has accumulated X dollars without any thought towards expenses and jobless income. I posit that if those things are considered, the answer would be obvious and the question would not have to be asked.

However, until one figures out one’s expenses and jobless income, the question can’t be answered.

So I can only give a very general answer (provided you don’t ask the question ).

Yes, it is possible to retire with $2 million. It is possible to retire with $1 million. It is also possible to retire with half a million or a quarter million. $50,000 is also solution. And so on. The more you know, the less you need.

Originally posted 2008-06-27 07:24:48.

(*) If you don’t believe that fuel costs are going to be a future problem or a current problem, these is no need to take the latter step into account.

Next, I had to find a recipe. I googled and found this one and this one. Now, these contain a lot of ingredients that I don’t have, and a few ingredients that could be substituted. It was evident from the recipes though that the working ingredients were the peaches (duh!), vinegar, brown sugar, and some kind of onion.

I hacked up the $2.25 worth of peaches and put them into the deep cast iron skillet, which is rapidly becoming my favorite pot (after the pressure cooker). I then reached into the cupboard for some raisins. Unfortunately I was out, having just ate the last ones two hours ago. No harm, raisins are not crucial.

Unfortunately we did not have any apple cider vinegar. I was hoping that we had some red wine vinegar to substitute, but no. However, there was some rice vinegar. Having no idea of its strength or the purpose of having this rice vinegar in the first place, I just dumped enough in to allow the peaches to simmer. I figured I could crush some garlics in, but I was too lazy to cut up an onion. I didn’t have any ginger except in powder form. That worked well. Then I remember the brown sugar and dug into the cupboard. Fortunately, we did have brown sugar (there’s an affinity for baking in this house). I found two bags, one almost empty, so I dumped the remainder into the peaches creating some more cupboard space in the process. Finally I added some chili flakes from the freezer; we got a (too) big box at Sam’s Club three years ago.

Served with (pressure cooked) rice and some leftover dhal from a couple of days ago. There’s enough leftovers for tomorrow.

Much thanks to PS for the donation!

Originally posted 2008-07-04 07:24:28.

1. The problem of empty 2L soda bottles that need to be stored and eventually taken to the recycling center.
   
2. The problem of having too many t-shirts thanks to participating in events, promotional t-shirts from ordering stuff, etc. which in turn have to be taken to a donation container (very hard to find in California).
   

I followed these instructions for making the pot. I used gasoline to get the sticker off the soda bottle. I had to spend $5 on a can of green rustenol spray paint (should be good for many more containers). I cut the bottles with a pair of plate snippers and ruffed them with a random piece of sandpaper.

In other news, I cut up a pair of pizza boxes to cover the soil of some larger pots to prevent evaporation. A fraction of our trash (like newspaper printed ads, the other ads, I dump straight into the recycling bin unread on my way from the mailbox, talk about waste!) and vegan food already go to the worm farm, which turn it into supreme fertilizer.

This is upcycling: Turning apparent waste into better products, like turning empty beer cans into a heating panel or a camping stove.

Leave your own good ideas for upcycling in the comments.

Originally posted 2009-08-03 23:44:57.

Consider the problem of terrorism. Terrorism is a symptom when a ruler holds the military advantage while oppressing the people. In this case a fraction of the people will fight back and do so with the only means possible: hitting soft targets (since they don’t have the military advantage) to make the political/economical/military cost of oppression too high. One would consider the power structure of the country the disease and the terror the symptom.

Or consider a middle aged man, who is stressed, overweight and do not exercise. His first heart attack is a symptom of the underlying diseases which is his lifestyle.

In both cases one can imagine several responses.

For instance, in the case of terrorism one may increase military spending. This does not eliminate the disease rather it treats the symptoms. It is akin to the man in the second case getting a triple bypass and popping lipitor but otherwise not doing anything. Such solutions are frequently costly (invest in medical companies and arms dealers) and accomplish nothing aside from postponing the problem. While treating the disease is wiser, it is not smart to ignore the symptoms. In the former case, the support that holds up the government structure (typically foreign interests) should be eliminated. In the latter case, the man should change his lifestyle. Such changes are much harder because they require some maturity.
Even then, the problems will persist because they have lags. Terrorists will still exist for some time even though when the disease that spawned them has been cured. The man will still have symptoms of a previously poor lifestyle. Therefore treatment should focus both on curing the disease and treating the symptoms.

I try to cultivate the habit of asking myself whether I am healthy (not “diseased”). For instance, if I look at the part of my entertainment budget that goes to CDs and soda, I can see that it correlates inversely with my happiness. Whenver I am unsatisfied I spend more.
Conversely, when I’m fulfilled, I spend nothing. My entertainment spending is thus a symptom of something else, a fundamental underlying disease of priorities/actualization. Similar patterns can be observed in the way I eat. If I eat less fruits and vegetables, my need for stimulants go up. I crave more white sugar. Of course, drinking soda in that case, that is, treating the symptom, without getting some veggies inboard propagates the problem. Or consider exercise … the lacking mobility of being unable to bike 10 miles at will can be considered a lifestyle disease. Needing to get somewhere is (another) symptom. Hopping into the car is treating the symptom.

It is highly interesting to think deeply about how much — in a sense the percentage — of one’s life that is in that sense diseased and to which degree we spend real energy, physical, mental, and economical treating the symptoms. For instance, do we fly off on vacation to exotic locations because our real life is boring? Do we buy things because we are otherwise unfulfilled? Do we spend money on hobbies because our work is too one-dimensional?

The cost of such “diseases” can be extreme. Conversely, eliminating these “diseases” means that one’s expenses (not just monetary) becomes very low, ideally zero.

Another way of thinking of it is in terms of friction. How many things do you do that merely develops friction. A good example of friction is digging a hole and filling it up again. All that does is to produce waste. How many aspects of your job merely creates friction? How many aspects of your life? How often do you have to spend energy because something is resisting your happiness? And why is that something resisting? Who or what is resisting? Is it you?

See what I mean?

The good life is achieved by eliminating friction and by being healthy (in the sense above). In such cases, your job will not be resisting your wishes leading you to compensate in other ways e.g. by spending money in things and trying to convince yourself that this is why you work when you would rather not.

What is healthy?

Consider the way a child feels in his body. He wants to jump around. Almost can’t help himself. Do you see many adults doing that? Many indeed do not. They act as if moving was painful. Given the choice they would rather not get off the couch even much less jump around.

Or consider the way some … a few … people are intellectually curios while most are not. The former can not help themselves from trying to learn. They are mentally healthy. Learning is easy. Conversely, many would very much not like to think, especially if they have to change their mind about something to be able to think about it.

A diseased person or a diseased society is locked in certain ways and dependent on certain things like sugar, pills, status, awards, stuff, … to treat the symptoms.

A healthy person is free.

Originally posted 2009-02-06 17:00:07.

(*) Career from old French “carriere” meaning “racecourse” (rat race?).

When I was first asked by Jacob to write a guest post, I was excited yet also a bit overwhelmed as to how to approach the task. After some thought, I’ve decided to focus more on what led me to where I am now rather than vent on and on about what is wrong with our broken American health care system. Anyhow, one blog entry would simply not be enough to do that topic any justice. I figured if anyone was interested in hearing about the crap I put up with on a daily basis they could always read more over on my blog, medicinesux.

With that said, to deny that any of these outside forces did not play a role in my growing disenchantment would be naive. Yet at the same time, a growing realization that built up from within me collided head on with what was happening to me on the outside. It is these internal feelings and how I came to learn of them that I would like to write more about here.

It is hard to say whether I would’ve found out about the concept of voluntary simplicity if it weren’t for the fact that my career in medicine came to tax my soul to no end. I’ve always compared my journey in medicine up until now to that of a marriage gone terribly wrong. So bad in fact, that I am about to file for a divorce. I thought I had found a diamond, but instead I picked up a rock. I had the best of intentions going in and in the beginning everything was going quite well, but with the passage of time things started to slowly come apart. For as long as I can remember, I always vowed to myself that I would choose a career where I could help people and make a difference in the lives of others. I also had a knack for science and did all the prerequisite health care volunteer work from working in a nursing home to joining the university EMS squad. So, I was quite excited to apply to med school. The first two years of med school where one learns the meat and potatoes of medicine in the classroom were interesting (the honeymoon phase). I always loved learning new things especially when it involved the human body. However, upon entering the clinical rotations in third year, I began to get a taste of the ugly side of medicine. And in residency I was getting fed it with a shovel. And as an attending, it is the same BS but now you bear all the responsibility when the shit hits the fan. (Here is where I would start going on an explosive tirade but I will refrain.) I began to realize that 30 more years in medicine was simply not going to happen. I needed an out, but how to go about it???

For starters, I started my blog about halfway through my residency. It was a way for me to get out my frustrations and stay sane. After working 12 or gasp…24-30 hr shifts at the hospital, I would also come home and spend my evenings online diligently seeking out more information to plan my escape from medicine. It is around this time that I learned the concept of “Early retirement” for the first time. It was like a lightening bolt went off in my head. I remember thinking to myself that this was it! This was my answer to finding my freedom. Hearing of stories of how others were able to do this on early retirement forums and blogs such as Jacob’s opened my eyes like never before. Only if I had known about this pathway a decade earlier, I could’ve spared myself so much grief! Yet I don’t think I would’ve ever found it if it wasn’t for the fork that I took in the woods when I decided to go to med school.

I had always been a frugal person but like everyone else I had my splurges. I knew in order to make this early retirement thing work out, I had to put the plan in ultra drive. I immediately called up the building management the following week to tell them that I would not be renewing my lease which was soon to be up. Two months later, I moved two blocks over to a tiny walk up studio which effectively cut my rent in half for the remaining two years of my residency. I hired some guy with a van on craigslist to move my belongings for 150 bucks. Well worth it since I had no car living in the city (I walked to the hospital) and didn’t have much time either since I was a busy resident. After moving in, I felt so much “lighter” living in a smaller place which completely fit my needs. After seeing how quickly I could save money, even given my meager resident salary, I became hooked. Every dollar saved meant I was that much closer to getting out for good. I went as far as sitting in my underwear when it was 90F degrees out so I didn’t have to turn on the A/C! Yes, I wanted out that bad. LOL

So here I am, about nine months out from finishing residency. The days are as painful as ever and I am exceedingly close to pulling the plug for good. The fancy car, McMansion, and latest toys and gadgets no longer mean anything to me like they once did. Money is like a drug. If you let it consume you, it can really take over your life. Sacrificing my time and freedom to become enslaved to a career that has sucked me dry is simply not worth it. I have found an inner peace that I would never have achieved if I were somehow able to remain in medicine. I believe that knowing when you have enough and appreciating what you have without killing yourself for it is the key to finding this serenity.

Some people outside of medicine may think I am insane for walking away at this point. My response is F them. Until one walks a day in my shoes they cannot really judge. Interestingly, many fellow physicians would leave in a heartbeat but have bogged themselves down with mortgages and other debts and are trapped. The golden handcuffs of being a doctor can be a terrible thing. I’d rather have my hand amputated than have those things put on me. I wish I had the tolerance to stay longer but I simply don’t have it in me much longer. I am long past my expiration date as it is. During this whole process, I learned that I need to live for myself first. I really don’t give a damn anymore what society esteems, from how much money we make to what jobs we hold. I just want to be free.

Originally posted 2010-05-02 09:49:12.

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.