I read the Early Retirement Extreme book at the beginning of the year 2020 – I don’t know what took me so long to write the book review, but hey, it is better late than never.
Table of Contents
- Introduction to ERE and his 10-year FIRE update
- ERE data, tabulated
- Having a partner in the FIRE journey
- The power of cutting expenses
- Book Review: Early Retirement Extreme
- The Recipe for ERE
- Why I like the ERE way
- Should you FIRE the ERE way?
ERE, a short name for Early Retirement Extreme, is the title for both the book and the blog run by Jacob Lund Fisker. Jacob is most notable for being one of the early pioneers of the FIRE (Financial Independence, Retire Early) movement, and achieving it with an extremely lean number in 2009 – 25x his annual expenses of $7,000 ($175,000). In the 5 years he took to achieve FIRE, he:
- Never had a 6-figure income (6-fig income seems to be the norm among the FIRE community nowadays)
- Only started investing in the last 2 years of his 5-year journey.
See the ERE data, tabulated for more details.
In the meantime, he also ‘retired’ from blogging in 2011. Many wondered how he did, and well, he answered in Get Rich Slowly’s blog in 2019 – we got a glimpse of Jacob’s 10-year FIRE update.
In those 10 years, he went back to full-time work for 4 years (2011-2015) – solely because it interested him. In 2014, he bought a house, in cash. He did a lot of interesting things, like reading more than 100 books a year, taking apart and reassembling mechanical watches (completely functional!), building a lathe from scratch, etc. As of October 2019, his net worth stood at 121x his annual expenses – and maths tells me that it is $847,000, still under $1m! His net worth has definitely grown substantially in the 10 years (c. 17% CAGR) – I am guessing the 4 years of employment and his investment growth have contributed to that.
For the net worth, I used a smooth plot as I only had 3 data points to work on.
What amazed me further is that he was able to find someone to do it with him. It’d make sense because having a partner can shave off cost considerably, as you can see on my post on how single life is inefficient. Jacob and his wife’s finances are split, and they share the cost of the house. In the meantime, as of the 2019 update, the wife has 62x annual expenses in place. In other words, $434,000. Collectively, both of them have $1.3m in combined net worth.
Interestingly, in the 10-year update, it is mentioned that she took up an associate degree in accounting after Jacob asked her to do the taxes. This is definitely serendipity effect at play.
The formulaic FIRE 101: increase income, decrease expenses, and invest.
The absolute number doesn’t matter here, and here we have the power of mathematics at play. See below.
Jacob did a pretty neat calculation on his blog on why savings rate matters more than investment growth or a large enough income-figure in the 5 years, and well, I put it in a table here for your benefit.
Do note that I mention savings rate, which is 1-expenses/net income, in case it isn’t clear.
Using the 4% rule, see below how big a difference it’d make if you reduce your expenditure by 10%. In the following example, I will highlight 3 cases: saving 15% (conventional wisdom), saving 70%, and saving 80%.
|Formula||Save 15%||Save 70%||Save 80%|
|Nest Egg Size = Expense % / 4% withdrawal rate||2125%||750%||500%|
|Years to FIRE = Nest Egg Size / Savings Rate||141.7||10.7||6.3|
This illustration did not consider compound interest, which could significantly reduce the time to FIRE in the 15% case, from 142 years to 43 years, based on a 5% compounding scenario – well, 42 years sound about right for retiring at 60 years old.
Why does the investment growth not matter?
5 years isn’t long enough for compound interest to play out. It is a different story if you have a wild swing in your portfolio value – but it is always better to build a safety margin and reduce dependencies in your assumptions.
Why does the absolute income-figure not matter?
It matters to the extent that the income acts as a sufficient base for you to have a high savings rate. If your savings rate is 20% out of a $1m income, it would still take you a long time to FIRE (assuming compound interest/ crazy investment growth doesn’t kick in).
The book is structured in such a way that it reads like a textbook. It is not a book where one should read it in one sitting as it takes time to re-orientate one’s values in opposition to the ‘conventional wisdom’. It was not such a challenge for me as I was already mostly aligned with his ideas before even reading the book. (Well, there’s a reason I pick it up, heh)
I was drawn to the future he painted after achieving financial freedom, having my epiphany back in 2019. I was fortunate to be traveling in Europe at that time, a luxury funded by my employment. However, I felt that the trip was rushed, because I couldn’t command the most valuable asset of my life: my time. My ‘breaks’ are dictated by my employer, and I’d spend most of my living life not being able to dictate what I want to do if I stay on the ‘employment’ track.
Core Principle of the ERE way: Reducing Dependencies
Jacob used Systems Thinking in his lifestyle design approach. He drew up how we are locked in our current lifestyles – through the intricate web of dependencies. As human beings, we have some necessities – we need food, water, clothes, and shelter. We work in exchange for money to get these basic needs. It hasn’t always been this way. Back in the hunter-gatherer’s days, humans got whatever they needed from nature. And if they weren’t successful in doing so, they died. One is likely to argue we have seen better days since the hunter-gatherer’s age. Modern technology and systems make our lives more efficient. We are more likely to die of old age compared to our ancestors. But there comes a price – we are trading our time away for money and convenience, and Jacob argued that it should not be the way.
His solution is two-fold. One is by reducing the scope of wants/needs (anti-consumerism and minimalism); and another is by increasing skills, as highlighted by the Renaissance man ideal, and as mentioned above, maximizing serendipity.
The argument is simple, the less you depend on money, the faster you can achieve financial independence.
In addition to the principles, he also gave some pointers on the steps you can take to live the ERE lifestyle, such as avoid outsourcing, focus on building your skillsets in these fields: physiological, economical, intellectual, emotional, social, technical, and ecological, and some advice such as learning how to darn your socks, how to cook, and cut your own hair.
For more details, do check out the book. It is available on Amazon for $9.99.
Why ERE is my favorite FIRE plan – well because it has minimal dependencies on what you can’t control. For instance, here is a list of things you don’t need:
- 6-figure income
- huge upfront investment (i.e. a mortgage)
- multiple side hustles
- double-digit real investment return year-on-year
- tripling of net worth through few lucky bets in the market
- $1m net worth
- to slave away for a long time
- to pander on social media as an ‘influencer’ and make money on your ‘followers’
I didn’t spot any cracks, yet. The plan sounds feasible and realistic for a few reasons.
- He has executed it for 10 years;
- He has his downsides covered through health insurance and HSA; for people who have questions on elderly care which can get pretty expensive – the size of the nest egg he can tap into will be more than sufficient when he gets there through compound interest alone;
- Sufficient safety margins built-in through the skills he has developed.
He doesn’t need money.The truth is, he is even pushing the limit to live below $5,000 a year.
- It doesn’t have a high barrier to entry – see the section on the recipe for ERE
- I share his goal in life – avoid boredom. I like living a life of experimentation, but the scope available to me on a ‘career track’ is simply too limited.
- He presented his arguments in ‘whys’, instead of providing me with ‘hows’. I’ve always preferred a principles-based versus process-based approach.
- I love how analytical and scientific he is – well he is an astrophysicist by training, which highly appeals to my engineering background.
- This might sound cliché, but I share the same MBTI trait as Jacob – he did mention in his blog that the ERE lifestyle attracts the INTJ type.
Here is a very successful FIRE example, with a long enough track record to prove his philosophy worked, but as the title said it – Early Retirement EXTREME – it is not for everyone, for obvious reasons.
First of all, you would need to subscribe to the main philosophy: you value independence more than you value other things, e.g. your house, your car, your career, to name a few. You want life dictated on your terms, and not what conventional wisdom tells you; you detest consumerist culture; you’re not afraid to get your hands dirty and learn how to DIY; you are into the Renaissance man ideal, among other things. Getting past the mental barrier is the first step, and the second step is to execute. The quintessential ingredient here is discipline.
“To live as a free person, following lists of easy, repetitive things, possibly in return for some reward, is exactly what should be avoided. Instead, it’s necessary to understand how the world works and how people have been specialized to the point o general incompetence, like ants, which only know how to do one job, but do it very well; this is not human nature. To live well, one must go beyond lists and start thinking creatively about solving problems. One must accept a lot more personal responsibility than merely showing up on time, following orders, checking off boxes, and trying to fit in. One must learn the general systemic rules that allow one to improvise and live life the way it was intended – in your way, rather than following checklists devised by some random guy, like me. One must start thinking creatively about how to solve problems. “- Jacob Fisker, Early Retirement Extreme
I love this quote because it perfectly described what I feel about listicles. I’ve personally written these articles, but they suck.
I am also going to insert a cursory remark on to whom this book/blog isn’t for:
- You like a personable, emotion-filled book – there are only cold hard facts/opinions in the book
- You think calculus is a foreign language from another planet
- You want a step-by-step game plan
- Mr. Money Moustache pointed out that this book is not for people who like Dave Ramsey.
Though I concur that even if FIRE is not for you, we all can learn a thing or two from this book.
For people who are quick to point out the lifestyle isn’t for them – well, find something that suits you. No one says this is the only way to FIRE or the only way to live.