80/20 Specialization/Generalization

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Lucky C
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80/20 Specialization/Generalization

Post by Lucky C »

TL;DR: If society is slow to adapt and will still favor specialists for the foreseeable future, and if I don't mind working all that much, I'm thinking I should keep working to provide the best options for my future (80% of my time/effort) while still maintaining ERE skills as side hobbies (20%) in the event that they are needed.

In thinking about the hedged nature of ERE, I can't help but think that in the (currently most likely?) #2 decline scenario, there is a pretty good chance that our society will still favor specialization for a generation or two (doesn't it take something like 50-100+ years for a world power to collapse?) as people try to carry on without changing much while the ship is sinking. Especially in large first world countries with a lot of slack in the system but without the ability or will to make fast changes. Meaning that if you are in a highly specialized field (say > $100-200k salary or more), you still may be able to solve your problems the quickest by continuing to work and paying others even as resources become more expensive.

For example, we could currently get by on about $1000 of heating oil per year. Even if heating oil were to suddenly rise 10x or cost us $10k for the year, I think I would rather use < 10% of my annual salary to just pay it rather than to ERE some solution (hop in an RV and drive down to Florida?) that results in not needing oil in order to avoid it becoming half our budget. The salary allows us to avoid adapting to such a big change while knowing we could have done that if needed.

Same for food. I'm never going to want to grow all my food, even if food prices keep increasing significantly. Still less effort to continue earning high income and paying for pricier groceries (especially if income keeps up with inflation) than to spend all my time gardening. You get the idea...

Obviously the generalization of skills obtained by following an ERE lifestyle is a great hedge but it usually doesn't make sense to allocate all your resources to a hedge. I believe a lot of the basic ERE skills for simple living and solving your own problems can be obtained while working or during occasional sabbaticals, and therefore if you want to maximize your problem-solving options in the future, you might apply the 80-20 rule to specialization vs. broadening your skills. If broad skills are always treated as hobbies in the background on nights and weekends (i.e. if you simply don't waste 4 hours/day watching TV) it seems that you still have plenty of skills that after several years you could survive just fine knowing how to cook, repair, barter, stay fit, etc. You could actually do a more balanced allocation than 80-20, since 80% would be your 2000 hours/yr career and 20% or 500 hours/yr would only be between 1 - 1.5 hours per day.

It may be that the majority of people who achieve FIRE would never want to work at their job again, but I'm speaking for people who wouldn't really mind continuing their career compared to dedicating much of their free time to doing ERE-compatible activities. My point is that once you know you COULD live the ERE life in case we have a sudden collapse or you lose your job & it's never coming back, putting most of your energy into obtaining a salary would still make sense for several years beyond a 3% (or whatever) SWR. After all, saving 100% of just one year of a specialist's high salary while young could be worth several times more when old and could be used for some serious risk mitigation such as buying real estate or a small business so you aren't too concentrated in stocks and bonds. You could still retire relatively early anyway since if investments go well, it would only make sense to work another decade or so (unless you really enjoy it) before you're heading on a trajectory toward ultra-high net worth and another year's salary wouldn't budge that eventual outcome by much. Then you're still set for life if we hit unprecedented inflation levels, a depression, etc. If not, you could have tens of millions of dollars to change the world as you wish or simply to hedge for a greater divide between the ultrarich and everyone else.

Hmm, maybe I should think of it as ERE as the baseline strategy but specialization as the hedge?
Last edited by Lucky C on Sun Feb 16, 2020 6:55 am, edited 1 time in total.

horsewoman
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Re: 80/20 Specialization/Generalization

Post by horsewoman »

You seem to think in absolutes - black and white so to say. Dare I say in a "specialist manner"?

There is a lot of wriggle room between "paying 10% of my high salary for heating oil" and "moving in an RV to Florida". Or between "buying pricey food and "growing all my food". No matter how you look at it, a FT job in a highly specialized field gives you exactly one kind of slack - money. There is a lot that can go wrong to greatly reduce this slack, and it does not have to be any kind of apocalyptic doomsday scenario. You might have saved enough of your high salary to insure against sickness, accident, job loss, economic downturn, divorce... I hope you did! I still consider it not overly resilient to rely on money alone. But of course, it depends a lot on your personality and on your values. There will surely be plenty of people here to agree with you, and for them, it might make perfect sense. Never having enjoyed the benefits of a high salary I can not really imagine what it is like to have lots and lots of money to spare, so of course, I'm biased in the other direction.

However, what career-type people (which invariably comes with lots of hours at work) can simply not imagine is the shift in mindset that plenty of free time will work on you. Time to do what you want, and even more important when you want to do it. We recently hashed out most of this stuff in the journals of classical_liberal and Jin+Guice, so I will not repeat that all here.
Having enough time to breathe and to think makes you see that you don't have to be a money-eschewing Birkenstock wearing hippie who DIYs everything to make your system more resilient. But a highly specialized career often doesn't leave much room to think about other stuff, at least it looks like that to me!

Lucky C
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Re: 80/20 Specialization/Generalization

Post by Lucky C »

I haven't been working for the past year and I have come to this conclusion that working a few more years is probably best for me, though there are other reasons besides just wanting to buy my way out of a problem.

I don't mean to portray working a career as an absolute win over FIRE. It makes sense to prioritize generalization if you'd be absolutely helpless without your main career and it makes sense to prioritize specialization if you can't get past a low income and into the wealth accumulation phase. I guess one point I'm trying to make is that as income increases, it might make more sense to work beyond a 3% SWR since quitting early would have an opportunity cost of potentially several million dollars - which could possibly do a lot more for you in 30 or 40 years compared to 30 or 40 years of FIRE, while still allowing you the opportunity to quit and go full-time living an ERE type lifestyle at any point you wish.

It's been my experience that ERE-compatible skills can be obtained over a decade or so while working a full time career (preferably before having kids). A sabbatical or two can give a nice ERE skill boost with just a minor interruption in work income. At this point, I don't think I need to further build skills such as cooking or repairing a variety of items. One thing I need to work on more is gardening, but I plan to do this at a small scale, taking a small amount of time building skills that can be scaled up if desired in the future. I don't have much interest in getting into a dozen different hobbies so I honestly don't feel the need for maximizing the time that I have free at this stage in my life.

In my career path I can get a lot of vacation time such that I am only going to work about 60% of days and have 40% of days free. So perhaps 60-40 is a better ratio than the 80-20 rule. I have already proven to myself that we can live a Mustachian-level lifestyle on the savings already accumulated. Actually we have been living on less than 1% withdrawal rate on only my wife's much lower part-time income.

I have recently had about 60% of days "free" when my wife isn't working (mostly doing home improvement projects or enjoying social time with the family), with about 40% of days on child care duty. I like my kid better than I like any engineering job, but I like doing engineer work a bit better than child care - sometimes better, sometimes worse, but with engineering I get the occasional satisfaction of defeating a very tough specialized problem which doesn't really happen with the routine work of taking care of a kid. I also miss simply being able to spend time with and talk to people similar to myself i.e. other engineers. So if I go back to work full time and my wife quits her job, it's more like going from 60% free days to 40% free days, with various pros/cons associated with the other "working" days.

I'm on board with the ERE attitude that wanting to travel all the time is silly, and I don't waste countless hours watching TV or playing video games. Besides gardening and maybe art I'm not sure what other skills I want to build in the future. So as it is, having 40% of days free seems like more than enough to satisfy my interests! Anyway after another five or ten years of work it will start to become pointless because why continue working another year to change a potential $20 million net worth to $21 million? At that point I will still have half my life to do whatever I want to do next, with more resources to try out new ventures without much fear of failure.

Although I'm FI now, I want to avoid the fear of losses / low returns that come with being recently FI during the longest stock market bull run in history. I have my own trading system defined that I want to start using but I'm not comfortable doing that if it would have a significant impact on my only source of income, so I want to work in order to be able to invest aggressively. I also want the ability to comfortably buy real assets, help loved ones financially if needed, perhaps start a business, or impact the world in a meaningful way using accumulated wealth in old age.

7Wannabe5
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Re: 80/20 Specialization/Generalization

Post by 7Wannabe5 »

It's okay to want to work. It's okay to want to be wealthy. That said, if/when oil is 10X more expensive than it is now, with no reasonable alternative available, all predictions of future earnings will be moot.

Lucky C
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Re: 80/20 Specialization/Generalization

Post by Lucky C »

Disregard all predictions

Lucky C
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Re: 80/20 Specialization/Generalization

Post by Lucky C »

To expand on that, if we disregard the personal motivation to be free from work, ERE is motivated by predictions about future challenges the world will face ("a stealth peak oil blog"). I believe Jacob is right and ERE is the way to go, however acting on that violates the above: disregard all predictions.

I agree with the high probability of future scenarios where I will have wanted to have a variety of skills useful for surviving on very little money, so I will continue working on these generalist skills.

I also know there is the potential for future scenarios where I might regret not earning more in my prime earning years, or even where my specialty is in demand even more than it is now.

By keeping a balance of specialization and generalization I can make sure I am not designing my lifestyle based on anyone's predictions, including my own. Only what I think is best currently, taking into consideration current active & passive cash flows as well as what I feel like doing. I should refrain from making any further predictions.

I'll take things as they come, whether they be resource constraints, poor investment returns, job changes, natural disasters, or personal tragedies. Currently getting back to a high salary job while still chipping away at other skills in my free time seems best.

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Stahlmann
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Re: 80/20 Specialization/Generalization

Post by Stahlmann »

learn to live in cheaper country :-DDDD

sid3
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Re: 80/20 Specialization/Generalization

Post by sid3 »

Why would you want to keep investing your time and retrieving money from a sinking ship, if you recognize that it is sinking wouldn’t you want to get on a life boat? Of course the ship has not struck the iceberg yet.

For now I will go by specialize at work, generalize at home.

George the original one
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Re: 80/20 Specialization/Generalization

Post by George the original one »

Boils down to:
Be prepared.

Lucky C
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Re: 80/20 Specialization/Generalization

Post by Lucky C »

sid3 wrote:
Sun Feb 16, 2020 11:23 am
Why would you want to keep investing your time and retrieving money from a sinking ship
I'm able to hop aboard a ship that is currently getting stronger but if it was sinking in the future I would be in a better position than others.

Anyway I know that I'm the odd one out here but typing stuff like this out helps me to figure these sorts of things out so thanks for reading. Now I should make a document to more formally lay out my own rules not just for investments but for work income and other career-related rules to follow.

classical_Liberal
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Re: 80/20 Specialization/Generalization

Post by classical_Liberal »

@Lucky C
I tend to believe that the world 20 years from now will not be horribly different for someone living in a 1st world country. At least from a day-to-day life standpoint. I could be wrong, and I'm not a climate change denier or the like. I just think the changes will be very small, until they finally are not. If one is truly prepared for that day, I do not think it's wrong to try and enjoy oneself doing things that may not be possible in 30, 40 or 50 years. As long as it's done responsibility, without becoming a major contributor to the problem. That last caveat really has a ton loaded into it, because part of the point of ERE is to minimizes harm in this realm. Living a high resource use consumer life, all the while practicing for some day in which you may not be able to do so, isn't really the most "moral" approach to the problem. This, of course, comes from a certain school of philosophical thought you may not agree with.

Another important point is that practicing is different than doing. Knowing how to grow vegetables is wholly different than doing it yourself. Having the tools and knowledge to live a mobile lifestyle is different than actually living like that. If you proceed down this path, just be sure you aren't fooling yourself about the level of preparedness you actually have. Using money to solve problems is a huge crutch that is hard to give up. Having that crutch yanked out from under you at crucial moments may not be the best strategy.

Lastly, there is the the time and life energy commitment in trying to "do both". If you are the type of person that can work fulltime and maximize progress in ERE, good for you! I, personally, am not. I have maybe 30-50 hours of really quality time each week to devote to serious endeavors. The rest of the time I am not as focused or energetic. This is the advantage of semi-ERE, where some part time specialty work can be combined with ERE-esque work in an attempt to "do both".

I think there is an alternate approach to "do both". In the sense that you actually live an ERE lifestyle in realms that are appealing to you. You may not want to live in an RV, or grow food, but are there other self reliance skills you can incorporate into your life now that you would enjoy? You can use money as a crutch where needed to maximize your happiness, while still actually living some forms of self reliance.

Lucky C
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Re: 80/20 Specialization/Generalization

Post by Lucky C »

@classical_Liberal thank you for the thoughtful response.

I see working several more years as possibly being better for the planet than not, depending on how I spend my money. If I focus only on ERE then maybe I can eventually change our household's damage to the planet from currently maybe half of the US average to a quarter of the US average. If I work full time and my wife stops working part time then sure our emissions will go up a bit, but I'm hoping to get to the point where I could do stuff like buy swaths of forests for preservation. Roughly 40 acres of forest would sequester the amount of carbon our household emits in a lifetime, per year! I know it's more complicated than that, that if I preserve land here then developers will just clear cut somewhere else, but hopefully you get the point despite the imperfect example. I like the idea of taking a high salary that would have gone to someone who'd spend it wastefully and instead hold onto it, maybe for decades, until there comes a good opportunity to use it productively.

Otherwise I don't anticipate much of an expansion of our budget or wastefulness just because we continue to have a high income and growing net worth. We won't start spending our weekends running leaf blowers and driving around on ATVs like our neighbors, and we certainly won't be buying a speedboat and a beach house. Maybe we will buy more organic produce and more costly food from local farms. Maybe we will go out to eat more regularly, say once or twice a week, supporting our excellent local restaurants. We might start taking more road trips but we would do so in an efficient sedan and could easily offset emissions several times over with a small portion of pay. I know that we can't spend our way to a sustainable future but on an individual level this seems like a good thing to do in the short term, definitely better than nothing!

I also like the idea of starting a "New Game +" with a new job (same career path), starting there already FI. The career game is more fun when the outcome really doesn't matter to you very much. Maybe this time I'll play along with trying to move up the org chart, for no better reason than to give myself a new challenge and to see what I can do with additional power. Or maybe I'll just stick to what's worked for me in the past and cruise through the workweek in a relatively carefree way.

jacob
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Re: 80/20 Specialization/Generalization

Post by jacob »

Gibson had it right when he said that the future is already here, it's just not evenly distributed. This means you can see aspects of the future in the present if you look elsewhere. This creates a rather large number of scenarios to think through. Hedging would be to have plans that are homeotelic for these scenarios.

The coronavirus thread is a good example of why more money is not as helpful as more knowledge. A simple observation is that N95s are now sold out unless you know where to find them or you're willing to spend A LOT of money. Having book or access to information is not the same as knowledge which takes time to acquire. Observe the difference between the medical guys in that thread and the muggles.

Growing enough food to feed one or more persons over an entire year is hard! This is not done by buying a sealed bucket of seeds from a preppersite and tossing them on the ground. It's an education in and of itself. However, growing food is also not very valuable. A lot of the south american climate refugees leave because land is no longer productive where they live (first they go to the cities => unemployment => crime/drugs => civil breakdown => refugees, see e.g. Syria). Better have enough money or non-farming skills to leave. Being stuck or rooted is dangerous for that kind of trouble. Same model applies to lesser extent for the US rust belt when manufacturing jobs left for robotland.

If and when you (hopefully) think renaissance skills, consider not how many different things you can do but how many ways you can accomplish the same thing. Right now spending money can accomplish very many things and for many people, spending is practically the only way they can get anything done short of walking, talking, chewing and wiping their own ... One might know other things. Skills we call it. But skills are not useful without supplies. Try changing brake pads w/o the ability to buy new ones at autozone. How would you do that? One way is of course to already have a spare pair. Another way would be in scrounging some up. A third would be to barter.

Incidentally, spending is a very good proxy for "generalist incompetence" and thus "risk of being visited by parts of the future already happening now". For example, when the great recession happened, it barely registered in ERE land. Resilience is measured in proportion to whether one has to "leave the house" (buy something) in order to solve problems. In particular, if one has to leave the house every day to earn spending-money, it's a situation that could collapse real fast. Of course many people experience that when they get fired. It then becomes [real] clear exactly what other ways they have of solving problems. Normally they only have to rely on those for a while until they find a new job. Now, for the gedankenexperiment ... what if they never find a new one ... and what if their savings were wiped out. That's where the rubber (if you have it) meets the road.

Since spending is a good first proxy for this, this explains why this graph looks the way it does. Ultimately, lowering spending to zero eventually loses its meaning. Other than head tax, my only remaining risk-factor is food which is very evident from our budget. In practice this means we can only feed ourselves for no more than 1 month per year and thus rely on Aldi et al for the other 11+ months. It's possible fan out (CSAs, fishing, hunting, storing, ...) and so we've done some of that too. My point is, the budget will likely show the weak spots. Keep in mind that most people can do without most "stuff" even if it sucks---this is what poverty looks like. The art is in finding many alternatives. It should also be noted that the goal is not to go to $0-spending. There's diminishing returns in going all out (e.g. being entirely moneyfree). The goal is to make spending money roughly equal in importance to any other skill. For most people, (earning and saving and) spending is their primary skill. I don't think that's resilient.

To summarize, I'd flip the title around to 20/80 specialization/generalization.

AnalyticalEngine
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Re: 80/20 Specialization/Generalization

Post by AnalyticalEngine »

I find reviewing extreme cases of the same thing helps illuminate the picture better. In this case, let's talk poverty in America. I recently watched this documentary on the subject: https://m.youtube.com/watch?v=JHDkALRz5Rk

While I don't mean to minimize the struggles people in poverty face, because they do genuinely suffer, understanding how people fall into poverty gives us a good case study in avoiding catastrophic system collapse ourselves.

For example, that documentary I posted features one guy who used to work as an engineer making $7k/month but now lives in his car. And while poverty is certainly an extremely complex social problem, it does underscore the difference between knowledge and money. People living in poverty face adverse consequences because numerous systems breakdown in their lives (social, material, health, etc). It is notably possible to live on very little money but not live in "poverty" because the systems in your life haven't broken down.

I personally find "full time job vs ERE" to be a bit of a false dilemma since it's possible to do both. Notably though the full time job should primarily be bringing you other, non-monetary benefits and you shouldn't be relying on the income to solve problems for you. Otherwise, when something adverse DOES happen, you don't end up like the Americans who are one paycheck/divorce/layoff away from the streets.

Lucky C
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Re: 80/20 Specialization/Generalization

Post by Lucky C »

I've been framing this as basically finding the "correct" balance between maximizing wealth (continuing career + frugality) vs. being the most prepared regardless of wealth (ERE). As if there is a logical solution that would dictate how much one should prioritize work depending on potential income, savings, and current skill level (ERE Wheaton level). Truthfully, whether or not I work another year or ten is going to be primarily based on my desires, not the most logically correct choice. These desires have changed over time due to various aspects:

- Personality type: I match with INTP on personality tests but it's never strong in any of the aspects and could drift over time. For example, if you're 60% I / 40% E then you might enjoy working on various skills on your own in your free time but still desire time working with a team of peers. You may be able to find a post-career group or two that provides you with your social needs, but it is certainly tougher without the career's social aspect and gathering of like-minded people. Someone who leans slightly INTP may be plenty motivated to reach FIRE at a young age, but simply may not enjoy decades of retirement very much.

- Achieving FI: No doubt being FI is better than working toward FI, but to me getting to this point and quitting with a very low withdrawal rate is like beating a game or completing a satisfying project, with a very short-lived excitement followed by "what's next?" I liked the excitement of net worth going up significantly month after month, and it's now less satisfying when it is growing much slower than it could be. I know logically it doesn't matter because I should never run out of money except for extreme circumstances, but I think scorekeeping and getting to still more significant financial milestones would still be exciting to me.

- Job satisfaction: Actually I think this is a skill that can be improved significantly. I have gotten myself to enjoy my career more as time passes over the long term, though not always in a straight line. Being free from work is still preferable in many ways, but being satisfied with work makes it harder to be motivated to fully adopt ERE living.

- Having a high income: Compare saving $26k per year = $100/day assuming 260 business days per year, to $130k = $500 per day. Five times the opportunity cost / pain of missing out on that income. Now I have been doing a lot of worthwhile DIY projects around the house recently, but I have already tackled the most important / highest ROI projects and figure I have time to tackle the rest of the lower priority projects even while working full time. It's getting harder to psychologically justify having time off to work on something that isn't very urgent when I could make $500 spending a day doing other forms of work that I can get some enjoyment from. If I could only make 1/5th that, it might not be worth it to me to trade my free day for that amount.

- Risk aversion: Some people want to be fully prepared for every possible risk. Some people enjoy reading news sites that tell them what to be worried about. When it comes to investing, people either seem to be too conservative, or too risky due to ignorance. Right now I know I'm being too risk-averse with my finances and would like to have a good steady income to increase how comfortable I am with financial choices that are more appropriate when it comes to risk. For this I am willing to take the risk that in the next few years there may be a situation where I should have been preparing in some other way that does not involve earning money. So I acknowledge flaws in how I deal with risk, but humans are almost always illogical when it comes to risk so it's best to understand it and deal with it if you don't trust yourself to behave like a logical machine all the time.

- Kids: Having a kid will interrupt and take away a significant amount of quiet home time which you might have used to build a variety of skills in the past. There are a variety of new skills to learn associated with child-raising, but these are forced upon you and the interesting challenges they pose may fade after they become routine after the high growth phase from infant to toddler. A quiet home is better for uninterrupted skill building than an office job with too many meetings, but that office job is better at uninterrupted skill building than a house with noisy kiddos.

So for these reasons it makes sense for me to pursue some more work for now... because I think I want to, even if some reasons are not compatible with the logic of ERE. Although it's unwise to make what should be logical choices based on feelings, I do think it's best to factor feelings into logical choices.

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