What is your FIRE number? Your expected FIRE expenses?

[BRUTE]

@jacob: how would one decide between making more money at higher pay at the job vs. learning skills/making less money in another profession? i.e. if jacob had a $200k/yr finance job, and could learn to make furniture for $0 or repair it for maybe $40k/yr, how would jacob decide which one to do?

[Seppia]

I think a lot of people in the accumulation mindset will outright dismiss this idea, e.g. "Why should I bother spending all this time making $100/week knitting gasmasks when I make $1000/week in my day job. Waste of time!". They're still in an accumulation and salaryman mindset and don't recognize the value of diversification when it comes to income yet. A workman mindset would never complain in such a way.

I am lucky I always valued being financially independent, so I started working part time during weekends at age 14 in a restaurant cuisine.
Cooking skill acquired!
I also did a lot of other stuff that required very little skill (cleaning services, factory, etc) during summer times. These taught me a very valuable skill though: the understanding of the real value of money (and how not to waste it).

But.

As I started my regular career after my masters degree I have stopped adding other skills.
I have gained a bit of fat, etc.

Other than cooking, where I would be able to handle a main chef job in a mid size, mid range Italian restaurant almost anywhere in western countries (I speak no Asian languages), I have no other marketable skills.

I'm forcing myself to add some (namely: I'm one certification away to be able to be a professional dive master), but the thing that's been slowing me down so far is that my actual career brings in too many apples to give up yet.

So I perceive as suboptimal, at the moment, to devote too much time to add other skills (it would impact either my life or my main job).
When I reach what I consider a good stock of apples, it will be time to start learning to recognize oranges and berries as well.

i am not sure if the reason I believe the above is that I'm still behind in personal development (I probably am) or because I'm correct.

Edit: I see I have the same doubt BRUTE is talking about

[jacob]

@brute - Better pursue such things homeotelically (more or less means that the side-effects are aligned with the main goal, see book for details) until you have the time or energy to go in an entirely different direction. E.g. during my career, I spent practically all my free energy/time on physics. However, there were skills in the academic pursuit of physics (writing and publishing papers) that could be spun off into editing. It was probably not entirely random that this was my first gig. Conversely, my trip into finance was strongly based on the numerical/programming skills I had from physics. It's really just a deliberate (homeotelic again) expansion of the web of goals.

For example, I suggest someone who's strong in programming and knows a modicum of investment planning would do well in tax prepping. It's something that's useful for oneself if taken to the $0 level and which from that point can easily be expanded into seasonal work which pays enough so that someone, even a raw first year beginner, spending <$10k/year can live off of it (by working through the tax season).

PS: Whereas bikes and wood were almost entirely virgin areas for me where I had almost 0 compatible/aligned hours of experience to draw on. Metaphorically speaking, the suggestion is that if you understand how to invest in funds, you use that knowledge to diversify into more/different funds; you don't initially take a flyer and figure out how to diversify into convertible preferreds or timberland or something similarly arcane.

[7Wannabe5]

jacob said: I think a lot of people in the accumulation mindset will outright dismiss this idea, e.g. "Why should I bother spending all this time making $100/week knitting fake beards when I make $1000/week in my day job. Waste of time!". They're still in an accumulation and salaryman mindset and don't recognize the value of diversification when it comes to income yet. A workman mindset would never complain in such a way.

The funny thing is that you can get locked into any mindset. Once I was successfully supporting myself through self-employment, my mind-set became "This is great. I will never work for the man again." , but I was still locked into thinking "I am a rare book dealer." When I found myself having difficulty supporting myself and two kids in college, I took a step back in perspective and starting engaging in retail arbitrage as well as dealing in books. Then stepping back and realizing what I really didn't like about having a salaryman job was the commute and the 40 hour/week commitment as opposed to "working for the man" allowed me to expand my options to part-time/flexible/temporary employment by others within walking/biking distance.

One can imagine a metaphor. Having just one money-making skill, it's like walking into a forest only recognizing the apples and figuring one better needs to pick as many as possible. Having many skills, it's like recognizing many sources of food in the forest, roots, leaves, berries, ... it's hard to feel that food is scarce then. However, it's still good to have a stash of food stored even if you can go out and find food whenever, because you might fracture your hip, eh?

Great metaphor. Also true that "If all you have is a hammer, then everything looks like a nail." What can eventually happen is that you will find your limiting factor in achieving your purpose may become your ability to not accept other people's offers to pay or partner with you in order to make money with your time/life-energy. Like how I have too many teachers trying to get me to substitute for them and I had too many men who wanted to buy me dinner, but I need time to read, garden and wander about drinking coffee in my robe. However, I still think spending hours of life-energy following Iskra Lawrence's diet and workout practice would be a better way to ameliorate hip fracture risk than spending an equivalent amount of time sitting in an office getting paid to perform actuarial calculations related to hip fractures. I know, I know, why not do both if possible (sigh.) If I had enough investment income to support myself that would offer another degree of freedom. That is why I am here, and I intend to do exactly that, with only my permaculture project as higher priority, and subject to minor distractions and side-tours, such as my interest in applying systems theory to the realm of sexuality.

[steveo73]

I think the better way to say it the more money you *can* spend, the more buffered you are. It's basically the ratio of assets to the no-kidding minimum survival expenses you have that qualifies degrees of conventional financial independence. Say a person has a hard floor of $12K/yr in expenses but assets that will support $30K/yr, and with all going well he decides to spend the $30K each year. Since in a pinch he can cut his lifestyle to $12K, that means he's got up $18K/yr he can throw at whatever vagaries the universe dumps on his plate without overtaxing his assets. If the same guy sized his assets for $12K/yr only, any upward perturbation puts him in the position of potentially drawing more heavily on his assets than they can sustain.

In general there is a cost to gaining the asset margin, and I don't think you can say that gaining the margin is objectively better or worse than a leaner approach since it all gets weighed/measured in a context where emotion/temperament, very individual considerations, are significant.

Exactly. The idea that the less you spend the safer you are without returning to work is I think false. It's more fragile. You are safe in that there are more jobs that could cover your spending but that means work.

There was one other idea which was that because ERE types tend to live differently to the median person there is the opportunity to earn more money from those skills. I don't think that this is applicable in my case despite utilising those techniques to lower my spending.

[steveo73]

Okay, here's another simple reason why Person A is better off than Person B. If you consider investment risk rather than could be expected spending event and surmise a possible scenario where the market falls by 50% and both A and B wish to recover their SWR, if both Person A and Person B are capable of going back to work and earning $20/hr on the employment market in order to recover same level SWR, then Person A will only have to go back to work for an additional 3125 hours, but Person B will have to go back to work for an additional 15,000 hours in order to feel equally secure and happy.

This is also correct but it requires going back to work.

[steveo73]

A bigger buffer is not always better.

ETA: I should mention that we have a buffer that continues to grow. We are doing both. But each year I live the ultra-low-cost lifestyle I appreciate the skills over the buffer more and more.

I think a bigger buffer is always better but is it worth the extra time at work. I don't think so.

I also live a low cost lifestyle but I have some limitations. I have 3 kids. I can't be too cheap with my children.

[BRUTE]

The idea that the less you spend the safer you are without returning to work is I think false. It's more fragile.

brute thinks it's a bit like with inflation vs. stock market crash. if brute puts all his money into the stock market, and the market crashes, the money could be gone. but if brute keeps all his money in cash, he's certain to lose purchasing power over the long run because of inflation.

it's not that "cash is more risky" or "stocks are more risky". there are various, different types of risks, and lacking a crystal ball, one has to make a plan on how to diversify among them.

brute thinks "working longer" is like inflation, keeping it all in cash. each year is not terribly bad, but if one keeps doing it without reacting, one loses out in the long run. early retirement in general protects against this risk. being a handyman/diversifying into different skills/professions is like investing in different asset classes.

so it's not useful to say "the less you spend the safer you are, always", or "a bigger buffer is always better (if it comes with more working years)". each individual must find their risk tolerance for the individual risks.

[steveo73]

The idea that the less you spend the safer you are without returning to work is I think false. It's more fragile.

brute thinks it's a bit like with inflation vs. stock market crash. if brute puts all his money into the stock market, and the market crashes, the money could be gone. but if brute keeps all his money in cash, he's certain to lose purchasing power over the long run because of inflation.

it's not that "cash is more risky" or "stocks are more risky". there are various, different types of risks, and lacking a crystal ball, one has to make a plan on how to diversify among them.

brute thinks "working longer" is like inflation, keeping it all in cash. each year is not terribly bad, but if one keeps doing it without reacting, one loses out in the long run. early retirement in general protects against this risk. being a handyman/diversifying into different skills/professions is like investing in different asset classes.

so it's not useful to say "the less you spend the safer you are, always", or "a bigger buffer is always better (if it comes with more working years)". each individual must find their risk tolerance for the individual risks.

Some good points here. At the same time I think my point is pretty accurate but probably only meaningful if you have artificially decreased your spending or maybe better put estimated your retirement spending at too low a level.

[BRUTE]

sure, the fixed-sum, unpreventable/unforeseeable catastrophe is the "stock market crash" in this analogy. if a human lived on $7,000/yr, FIREd on $175,000 (4%) with zero buffer, a $30,000 one-time medical hit will significantly reduce their capital stock, and they can now only live on $5,800 or have to go back to work.

[steveo73]

sure, the fixed-sum, unpreventable/unforeseeable catastrophe is the "stock market crash" in this analogy. if a human lived on $7,000/yr, FIREd on $175,000 (4%) with zero buffer, a $30,000 one-time medical hit will significantly reduce their capital stock, and they can now only live on $5,800 or have to go back to work.

Exactly. The person who gets to 500k with a spending of 20k per year still gets hit but their spending goes down to 18.8k.

The point being that it's just as likely for either person to get hit with that 30k medical hit. It hits the person with the lower asset portfolio a lot more than it does the person who saved more and that is avoiding the important point that the person with the lower spending may already have maxed out their ability to cut spending. The person with the higher spending may for instance just not be able to upgrade their mobile phone.

[Ego]

Exactly. The person who gets to 500k with a spending of 20k per year still gets hit but their spending goes down to 18.8k.

The point being that it's just as likely for either person to get hit with that 30k medical hit.

I don't believe it is equally likely that the two will get hit with a $30k medical bill. In short, I don't believe that all medical problems just happen to people. There is a large behavioral component.

1. Morale Hazard. Safety nets make people act differently than they would if the net wasn't there. The bigger the net, the more they are willing to act risky. Tightrope walkers are much more careful when they know there is no net to catch them. Flood insurance encourages people to build their homes in flood plains. Drivers are more willing to park their cars in bad neighborhoods when they are fully insured. People are more willing to make risky lifestyle choices (diet, exercise, habits...) if they know they've got a big stash backing them up in case of emergency.

2. Cumulative damage. People earning high wages are often forced to choose between work and health. They prioritize work to keep their jobs. Each additional year of emphasizing work over health causes damage that builds on itself. A negative spiral. One problem leads to the next and they collectively become more rooted.

[Dave]

2. Cumulative damage. People earning high wages are often forced to choose between work and health. They prioritize work to keep their jobs. Each additional year of emphasizing work over health causes damage that builds on itself. A negative spiral. One problem leads to the next and they collectively become more rooted.

While hard to quantify the damage, I have to agree. Being in the asset accumulation phase myself, I often feel I am not capable of doing a sufficient job at all of the following: sleeping enough, exercising enough, socializing (outside work) enough, eating healthy, building new skills, and doing a good job at work. Something has to give.

In my case, I prioritize sleeping #1, eating #2, exercising #3, and work #4. The problem is that even if I am meeting my big three goals, this puts me in a situation where I am not working quite as "hard" or "much" as I feel I should be, so there are chronic levels of stress associated with it. I do consider this a real cost I am paying.

[IlliniDave]

This is also correct but it requires going back to work.

I think this is a consideration that divides a lot of people on this topic. Some are much more comfortable with the idea of just going back to work*, or always working to some degree, than others. For me personally I intend to minimize the chances of letting it become a requirement post-retirement. In early ER it might not be so bad, but as time marches on it will grow increasingly difficult to pull off. At the same time it's an option I hold open because there are a few things I'd like to try that the best way to learn might be through employment. But doing it in the spirit of leisure/personal growth is a different thing than doing it out of financial crisis/need. At least in this simple salaryman's mind.

My oft-repeated disclaimer: I'm not saying there is one right way or any one-size-fits-all better way. This is one where you have to look at your circumstances and be introspective then hope you can find a good balance for yourself.

*some form of making other people happy enough they give their money to you in exchange for your time

[7Wannabe5]

I am confused by this example of 30k hip replacement. Obviously, health and liability insurance exists in order to ameliorate exactly this sort of problem. If we assume that both Person A and Person B are rational, fairly conservative actors who have obtained adequate insurance coverage leaving X% of their net worth subject to deductible/co-pay risk and are including the cost of insurance otherwise in their budget, the argument becomes moot, except for the obvious notation that insurance payments would be a much higher proportion of the overall budget of Person A. For instance, prior to Obamacare, I purchased health insurance with a $5000 deductible for around $115/month (now I pay something between $0 and $30 a month with much lower deductible. I rarely spend more than $100/yr on health services, so it's kind of moot.) So, Person A would be putting 4% of net worth at risk, and would be devoting almost 28% of his $5000 budget to health insurance premiums. Person B could try to find somebody to underwrite a policy with a $25,000 deductible, which would maybe only cost him $89/month, or less than 5% of his $24,000 budget. Liability insurance is more complicated, because the risk of liability would generally tend towards increasing with net worth, and could often be accounted for as business rather than personal expense. I had a friend who was almost wiped out by being divorced by wife and sued for improper black mold abatement by tenant in the same year.

I think there is a level on which what is being assumed in this argument is that if Person A actually was paying enough to cover his risk in proportion to Person B then he would not be left with enough other funds in his budget to possibly survive and be as happy as Person B. Unless what is being assumed is that there are risks that can adequately and only be addressed with set sum of money that even insurance companies are not yet aware of enough to manufacture a product they could profitably sell.

[BRUTE]

there are things that not everyone is insured against. a friend of brutes woke up in the hospital one day, from a 3 week coma. no memory of anything past having breakfast. hit by a drunk lady in a truck who was uninsured. brute doesn't remember the exact figure, but it was something like $50-70k after the friend's insurance.

[ThisDinosaur]

So, what is a systems theory, web-of-goals set of principles for preparing for unexpected $70k medical expenses? Assuming you have established a healthy lifestyle, robust insurance, and a mass of liquid assets, of course. I keep hearing about all these roots and berries, but all I see are the damn apples.

[jacob]

@ThisDinosaur - You got all the pieces already, but you didn't put them together.

Example: You live on 7k on the 3% rule, so you have 233k liquid invested. You get hit by a bus for 70k. You now have 163k invested. Your income deficit is $2100/year. Solution. You step up one or two of several of the activities you already engage in and make $175 per month. Roots and berries.

The objection that some people have is that making $175 per month is superhard. The solution for them is to instead live on 20k on the 3% rule, say ... in that case, they can find the $175/month by cutting out some waste like magazine subscriptions or the saltwater acquarium whereas someone living on 7k has less to cut.

So instead of a lean webbed strategy, they prefer to spend three times as much time working their real job to build up the savings to cover a buffer of spending slack.

Pick one or the other:
1) 100% chance of working 3x longer but the certainty of never having to work again given a bus incident.
2) Putting in 1x the time but with the risk that a bus incident results in having to engage in part time work somewhere down the line.

It really comes down to one's attitude to work and productivity. If you're convinced (and you may be right) that finding other sources of income than your day job is really hard, you stay with the one job you have until you're absolutely sure you'll never need another one. On the other hand, the greater your confidence that you're personally able to find other sources of income of a similar magnitude to your spending, the less of a surplus you need.

I think that confidence comes with experience.

It is also clear that it's much easier to find $2000/year worth of income than it is to find $20000 or $50000. So it also depends on how lean your spending is.

[ThisDinosaur]

Yeah, I guess my issue is I'd like to rule out "working for the man" as an answer. I've found non-monetary, non-employment solutions acceptable for most of my other needs, so I figure there must be some currency-independent way to deal with healthcare costs, too. At some point I or a family member will be sick or injured in the next sixty years. I'd like to know I can cover it without having to go work for somebody else.

[RealPerson]

@Jacob - I totally get the concept. But as a high income earner, it is very difficult to step away from all or part of that to add skills that pay maybe 10% or less of my main job. It makes me less flexible and less able to respond to black swan events. Less of a Renaissance man, if you will. That is all true. But imagine having a conversation with your family that goes something like this: in order to be more flexible and less dependent on the 4% (or 3% or 2% or 1% or 0.5%) rule, I plan to work less for X dollars. But with the extra time available, I plan to learn skills that would pay X/10. What do you think of that? It would be a difficult conversation.

In addition, high paying careers are often difficult to pursue less than full time. Maybe I am simply describing the trap of the high income career, but I think it is a very real scenario for many high income earners. Additionally, the skills needed for high paying jobs often require a level of mastery that would diminish rapidly when the skills are no longer maintained at an optimal level.

In a way, you had such a dilemma when walking away from a career in astrophysics. Didn't you feel like you were throwing away an investment of many years? I assume that if you had regretted your decision and would have wanted to return to your field, that would have been very difficult or nearly impossible. So it was really a point of no return. Walking away from something lucrative or "a sure thing" is especially daunting when there is no way back if you made a mistake. The personal and financial risk is real and not small.

I seem to remember that Ego walked away from a career as a city lawyer. He is now coming up with all these cool ways to sell various finds for a nice profit. I enjoy reading his posts on that. Still, small potatoes compared to a law job I imagine. How do you escape the trap? I continue to struggle with this dilemma. An intellectual understanding is not the same as taking an irreversible life changing step. I believe it is a true challenge, because the 4% rule looks tenuous at best. The 21st century will be nothing like the previous one. Capitalism and the stock market have never before been confronted by diminishing supplies of easy and cheap energy, ecological challenges, and dwindling supplies of raw materials as is already happening. There may not be a FIRE number at all. It really is not an academic discussion.