“Money is a solved problem”

[IlliniDave]

The gun is an apt analogy for the idea of the OP (I think). I wish my financial life's journey had been a nice ballistic trajectory. I had a few calculation errors, mechanical breakdowns, and along the way decided I wanted to aim for something else. Luckily I had enough rounds.

[black_son_of_gray]

Upon reading "solved" in the OP, I immediately interpreted it as solved like the game of Checkers.

[wolf]

Thank you all for the discussion. It does have aspects and reasons, levels and dimensions. By reading it oneself has to think about the "Money is a solved problem" topic carefully. At least that is my experience. Although I see various and different reasons to it, I understand the many facets of the discussion. I haven't yet made a "final decision" how I think and feel about that matter. Money is definately real, fascinating, etc., but at the same time partly "only" a construct of our mind, because we trust in the whole system. Maybe trust and awareness of one own skills and competencies to earn, save and invest money "makes it a sovled problem". IMO money is only then a solved problem for me, when I achieve my relative and absolute money goals. That doesn't mean that I want to be dependent on money in the process and journey towards achieving goals. Maybe it is useful to repeat what Ralph Waldo Emerson once said ‘life is a journey, not a destination.’ Perhaps the same is true for money, e.g. "money is a journey, not a destination". Then it is maybe possible to identify with the "money is a solved problem" because either way everybody is on a journey in life. Mabye we meet along the way. Some started earlier and some later. That idea is maybe compatible with Jacob's thoughts about "starting line" and "finishing line".

[7Wannabe5]

If one believes in the Kalman approach to tracking, money can be considered a solved problem insofar the physics-model of the filter is considered to be correct.

What if you started in 1993 with the YMOYL long term treasury bonds trajectory set on auto-pilot?

I think you once wrote something along the lines of people don't always know when/whether they are saving, investing, trading or speculating. It seems to me that this is somehow relevant to the topic at hand. I believe there is an inherent difference between active enterprise and passive investment that can't be calculated away. The difference being that you literally do not have control or possession of passive investment. IOW, in any given moment that you are taking control and/or possession of passive investment, it becomes in that moment an active enterprise. For instance, when my multi-millionaire investor friend is watching CNBC any (every!) given morning, he is actively engaged as a "trader" even if he doesn't make a trade based on information received. No different than the time I spent researching upcoming book sales as a dealer/trader. His mind is occupied with financial matters, just like a pregnant woman who sees babies everywhere. So, there is no end to the level of life-energy one could choose to devote to financial matters, but there is also no set-and-forget solution, just a constantly evolving transformation of sweat-equity, decision-making, and profits; like any other business.

@jp: I think your diet analogy is somewhat apt, but "money invested in productive assets" would be more like muscle mass gain than fat loss. Fat loss would be more like reduced lifestyle spending. The funny thing is that humans are so "embodied", the stereotypes are actually often visualized in accordance. For instance, it's easy to picture a man who makes a lot of money, but also spends a lot of money, as being sort of beefy shouldered, but with a paunch (maybe a cigar too!) OTOH, if you picture an assistant librarian who saves the majority of her income, she would be very thin, but not very muscular.

Whether your situation is terrible because you have a boring desk job which you need to pay your bills, or your situation is great because you are FI, you still have to devote some time/energy to maintaining your muscles/productive assets, stimulating your brain cells/nervous endocrine systems, and keeping your budget/pudge within limits. I will suggest that the further we externalize any of these processes, the more anxious we feel, so the more we have to over-compensate. I think this is why the development of skills is the ultimate best investment. We feel confident if we can approach tasks and problems that arise and solve them using our own stash of internal resources. So, for instance, the person who is stranded at a Bavarian train station with $200 has more options than the individual who is stranded with $1.50, but the person who knows how to busk also has more options, and the person who is strong and healthy enough to walk to next preferred destination also has more options.



The absolute minimum amount of cash currency of the realm anybody needs would be enough to appease various government entities. So, one method (bottom-up?) for solving the money problem would be to either study tax and legal code and determine the structures that would straight-forwardly result in zero obligation OR develop methods by which to evade such obligations. For instance, if your plan for "shelter" was "sleeping bag on grass in public park" and the standard government code was something like 1 warning and then $20 ticket for vagrancy, you could either choose to switch parks after 1 warning, or municipalities after receipt of ticket. At something more approximating middle-class lifestyle, you could determine income at which tax credit would equal (SEV house) * (relevant property tax rate). Obviously, tax and legal codes are so complex (or complicated?) and varied, there could likely be thousands of solutions by this method, and this is why we often hear tell of multi-millionaire politicians who PAID NO TAX!

I think pretty much every other need for money could be solved with some combination of skills, social-connections, or stoic philosophy. For instance, avoid end of life medical expenses by growing your own stash of opiates and building your own Kevorkian machine. The ultimate freedom is saying FU to death.

[7Wannabe5]

I forgot the most important thing I meant to write which is that if you construct a simple model using simulation software, adding just a very small steady part-time income flow to retirement plan greatly stabilizes outcome, because it serves to reduce denominator. I think the greatest stability would be achieved if frequency of part-time "paycheck" approximated frequency of needed cash outflows.

[IlliniDave]

More on the inflow side always helps! In mine (I don't use simulation software, just the Open Office Excell knockoff) it (part time income) helps some, but in my case is sort of swamped by SS and my little retirement annuity. My plan pretty much requires at least one of those outside income sources to meet my goals (stay housed, fed, and warm; and have something to pass on) if I happen to live into my 80s.

[Fish]

@jennypenny - I made a poor word choice, especially given the analytical audience here. However, "solved" accurately describes the state of mind I am trying to cultivate. For those who were confused, Jacob's gun metaphor is a good way to understand it from my perspective. I just know that there will be some who will never be able to get over it, and will always imagine a prominent "mission accomplished" (or "solved") banner beside my avatar as I continue to journal from my current position 1/3 of the way on the road to FI...

I think the "insight" here is whether FI is considered the starting line or the finishing line or some other line. If you think of FI as the starting line for "real life" rather than the finishing line, then I surmise that one's attitude of scramble-level at <FI is more along the lines of someone who showed up late for a race AFTER the starting gun sounded.

You've mentioned before that reaching FI/RE is a starting point for real living and alternatively, the point at which one is qualified to learn what living is actually about. And although I only have perspective from one side of the "line," I expect you're correct about this (as usual!?).

The similarities I see between S_ and myself are: 1) spouses with little interest in extreme personal finance, 2) multiple children, 3) relatively high expenses for this forum (S_: 1.9 jacobs/capita, me: 2.4). We're loaded up with liabilities that prevent us from implementing a five-year FI/RE plan even with good incomes. We're also resolved to make this journey together with our life companions even though it would be faster to go it alone.

And in spite of this situation I continue to read these forums and think about PF at a frequency that is not commensurate with my willingness to actually implement the reforms needed to make a real difference. I could be FI today if I were willing to live like Jacob, or even MMM. I know it's possible, and I would be willing to do it even if early retirement were not involved. But DW and I have very different utility curves, and our spending is a compromise.

Sometimes I wish I could go back to Wheaton level 1 and forget that this even existed. Fully appreciate what I already have, instead of waiting with eager anticipation for what is yet to be. Work on the many non-financial things I know to be possible with my self-imposed constraints. But the weird thing is, I can't let it go; I don't want to forget. This is important to me too. So my "solution" is to stop thinking of FI as the destination. Those who are more hardcore in their motivation and implementation of ERE (or have the same liabilities but are closer to the finish line) don't need mental tricks to stay sane during the journey.

[suomalainen]

+1 to everything @fish said. FI can’t be the starting line for me any more. I had to let go of it (just like my dream of having a goomar on the side). But

the weird thing is, I can't let it go; I don't want to forget. This is important to me too. So my "solution" is to stop thinking of FI as the destination. Those who are more hardcore in their motivation and implementation of ERE (or have the same liabilities but are closer to the finish line) don't need mental tricks to stay sane during the journey.

+infinity

The mind trick is that I can fake “let go” of FI as the starting line by moving the starting line. So, yes, in a way, it’s just a cheat, a trick. The new “starting line” is that the firing solution has been programmed and the round fired, so fake-FI is reached at that point, which for me is about 50% of my FI number. Compounding, even assuming terribly low rates, will eventually get me there, so I can breathe a sigh of relief. “Pop the champagne gov’nah! I HAVE ARRIVED, MOTHERFUCKER!”

Note: To address those too caught up in the diction, you’re right, but think of it this way: the “problem” that is solved is not that the pile of desired money exists; it’s the cognitive dissonance of wanting something that can never be (on the same timeline). Comparing myself to you guys - be it young or old, but largely single or with companions of a similar bent...it just is really aggravating.

I choose sanity.

PS. @fish, if you’re ever in the northeast US, pm me and I’ll buy you a decidedly non-frugal beer.

[jacob]

I believe there is an inherent difference between active enterprise and passive investment that can't be calculated away.

This is another thing I've been saying but which usually falls on deaf ears: Namely that in practical terms, FIRE doesn't mean not working anymore but simply changing one's vocation to principal money-manager insofar income is not derived from a pension or an annuity. I guess one can convince oneself that one's investment strategy is a "solved problem" in the ballistics sense, but as you point out, there's a risk that the gun was pointed in the wrong direction, like how it was for the rolling LT bond portfolio.---People should check in at least every decade or so to see if their aim is still reasonable.

On a historical note, I remember the index herd eventually fretting significantly during the 2008/2009 period. It wasn't just a 20-30% drop---something that the current crop of young FIRE people have never experienced---but down 60%+ for a while (it looks like a blip now, but being immersed in it, it felt like an eternity). There were emerging signs of doubt whether indexing was still a sustainable strategy and the usual arrogant racket of talking points about "how nobody can beat the market" and "just buy and hold because it always goes up in the long run" almost vanished... then came back with a vengeance after FINRA (or FASB, I forget, reminder: look it up eventually) allowed mark-to-model/magic in Mar/2009 causing an instant rebound. But yeah, half a year's worth of weekly pain was about what it took to rattle people's hands.

[7Wannabe5]

More on the inflow side always helps! In mine (I don't use simulation software, just the Open Office Excell knockoff) it (part time income) helps some, but in my case is sort of swamped by SS and my little retirement annuity. My plan pretty much requires at least one of those outside income sources to meet my goals (stay housed, fed, and warm; and have something to pass on) if I happen to live into my 80s.

Well, I have little clue whether the assumptions I made in my model are reasonable, but doesn't much matter because at my spending level I am being backstopped by the unlikelihood that minimal SS payments will be vanquished in an environment in which the U.S. equity market is still strong functioning. Otherwise, this will be me in 40 years.



Of course, some of my wants are being provided at the above $2M passive level of luxury, due to the fact that my marginal bride-price (original problem money was invented to solve) currently exceeds my personal spending level. However, this is a stupid boring easy solution, so I am more interested in the challenge of a systems theory level solution that involves some combination of potatoes as unit currency, crowd-funding, solar-robots, and dumpsters.

This is another thing I've been saying but which usually falls on deaf ears: Namely that in practical terms, FIRE doesn't mean not working anymore but simply changing one's vocation to principal money-manager insofar income is not derived from a pension or an annuity.

Right. I heard you say that. I saw where you wrote about publicly traded corporation buying back their own stock too. And, I read something about zero interest rate bonds being/representing a much bigger bubble than bitcoin.

[Fish]

FI can’t be the starting line for me any more. I had to let go of it (just like my dream of having a goomar on the side).

Well put Finn! I recently had a thought along a similar line, that for me FIRE is plan B. It's rather obvious given what else has been written. But this thought is firming up in my mind. Another way to think of this is FIRE is a solution in search of a problem. And if the "problem" is my mild annoyance at being tightly coupled to a full-time job that I actually enjoy (for now anyways), then it's an inappropriate solution at that.

There has been a perspective shift, that I am not accumulating for FI or early retirement, but rather padding our savings simply because there's no decent way to spend it(*). Because I expect to be working next year, and the year after that, ad infinitum (well hopefully not that long! ), this savings can be invested for the long run. Previously, under a personal constraint of "I need the option to FIRE whenever I feel like it," a greater emphasis was placed on capital preservation because the loss aversion was simply too great. The limits of our frugal-skill competence is right around 4% of current assets, and furthermore DW would consider it sacrifice to live at that level of consumption. So from the FIRE perspective, we didn't have enough assets but at the same time couldn't afford a loss to keep the option alive. It's good to be free of this.

(*) So we also spend it on others in the form of gifts to family and our community. But even that gets maxed out quickly. We've tried charity, and while the act of making the donation feels good, subsequently when the letters roll in asking for more, it just feels like we paid good money to get added to a junk mail list.

[BRUTE]

brute also likes to think about this on a spectrum. all humans will retire eventually.

plan Z is to retire by death.
plan Y is to retire at 65 or whenever SS kicks in.
...
plan A is to retire next year with a 95% savings rate.

it feels good to know that if everything works out, brute will have saved a bunch of money and enjoyed his work. and that if not everything works out, and brute has to quit working or just can't take it any more, he will have options.

if humans hate their job so much that not FIRE'ing isn't an option, that also seems painful. luckily, brute is currently enjoying his work, and probably will continue doing so for a few more years at least. humans in brute's industry (typing on computers) often retire relatively early (50-55 is pretty normal), and apparently there's also pretty severe ageism.

so it's definitely great to build options, even if they may not be exercised much earlier than a regular retiree.

[unemployable]

I do believe money, or at least ER, is a solved problem in this respect:

5% withdrawal rate is feasible if you can reduce expenses in a downturn and have a pool of non-crashed assets that can be lived off while waiting for stock markets to recover
4% withdrawal rate is fine, with emergency action unlikely, but good to have a plan for
3% is bulletproof
At or below 3%, you'll die with a lot of money, so either buy nicer things or decide what should happen with your stash once dead.

If you experience failure under these rules, it will probably be due to some sort of socio-econo-political upheaval that will make you glad you ER'd when you had the chance.