Life Traps Analysis from WSP

[BRUTE]

everything eventually becomes boring

[nomadscientist]

Just found this site via this thread.

I think it is excellent. Not for the promoted lifestyle or spending level but for emphasising the importance of side income for robustness and psychological comfort. This is a key element of robustness in retirement in my opinion. It's not less true at lower spending levels.

For example, $7k from financial wealth at 6% WR and $7k from online side business funding $10k of spending is far more robust than $7k from financial wealth at 3% SWR funding $7k of spending in my opinion; I think it must be obviously so for almost everyone.

Any financial wealth strategy is subject to failure, especially psychological failure, which can't be mitigated by just adding more money. This can be in the form of catastrophic irrecoverable investment errors which are unpredictable, such as selling at the bottom of a big crash or a few years into a low stagnation/decline. It can also be in the form of psychological unwillingness to let the portfolio drop in value even in situations where it will not ultimately fail, forcing the early retiree to return to work in an unplanned way. Two income streams are unlikely to fail at the same time and if one fails it can be made up with the other.

Most successful early retirees seems to have side income as well as financial wealth. This includes our glorious leader who had typesetting (not that different to copywriting), and now has book sales. I think this is a key aspect, not because you can't FI unless you're a multimillionaire FIRE blogger superstar, but because the dual income streams give psychological confidence in the robustness of the retirement, because they really do increase the robustness of the retirement beyond the sum of their parts. It doesn't have to be a large income stream.

We are analytical types here. We like financial wealth because you can calculate an exact number for how much you need and how long it will take you to get it given your income and spending. WSP seems less analytical, or at least less mathematical. They're happy to say "go out and try to make side income," without being able to say how long that will take.

But I would love to see data for the Mean Time to $7k Online Income.

It might be much shorter than the mean time to save up $7k/0.03=$233k from a salary job. Or $8.5k/0.022=$374k or whatever it is now.

For many people a "side income only" strategy might be a more efficient income component to ERE than a "financial wealth from salary only" strategy.

[jacob]

I think it is excellent. Not for the promoted lifestyle or spending level but for emphasising the importance of side income for robustness and psychological comfort. This is a key element of robustness in retirement in my opinion. It's not less true at lower spending levels.

Somewhat handled/described by the "ERE indicator described here
viewtopic.php?p=128954#p128954

The less one spends, the easier it gets to max out the components.

[7Wannabe5]

It’s generally more time to success efficient to generate side hustle income of $X than 3% rule of thumb investment income because the requirements of reasonably diversified, very passive, and quite sustainable are already baked into the cake with the latter.

Also, frugality itself is roughly equivalent to being self-employed at a variety of activities up to the point of reducing expense to zero or even stocking up real goods for future you; easy example being canned garden produce. Then barter and/or accumulation of social capital can further reduce cash expenditures without yet garnering income; easy example being trading canned garden goods for bike repair. (IMO, this is why accounting is likely to get squishy around 1.5 Jacobs.)

Anyways, if you drop the requirement of “very passive”, then if you have already reduced your expenses to 1Jacob while working full-time (not through cash-frugal (as opposed to smart/creative frugal) and/or social barter activities that already demand a good deal of your time/energy) and your core motivation is simply being self-employed rather than employed by other, then all you have to do is figure out how to self-employ yourself at activities that yield approximately $3.50/hr over approximately 160 hours/month. At this hourly rate of self-pay, the factors of “sustainable” and “diversified” could also be assumed.

[nomadscientist]

Frugality substitutes income in that your expenses are lower but at the cost of reducing robustness. 3% SWR funding $7k of spending at which you are comfortable is less robust than 3% SWR funding $14k of spending at which you are comfortable. It's easier for $14k guy to make himself comfortable at $7k than for $7k guy to make himself comfortable at $3.5k - even though it's a twice as large spending cut in absolute terms.

Earned income is less passive than financial wealth, but adds robustness in that it reflects your possession of in-demand skills. The virtue of side gig income is not that it's passive but that it's more robust. Financial wealth is non-robust at any quantity against certain rare (but not so rare on world/historical scale as USA 20th century scale) events. Possessing marketable skills is pretty robust even in the worst of times.

The side gig could be a conventional job. I believe jin+guice does this. Self-employment tends to beat conventional jobs financially for a variety of microeconomic reasons, such as that you are performing your own management and other services (and internalizing the profit), and not purchasing cash flow insurance from the employer; usually but not always ERE guy is in a position to do this. You also, at least in theory, have more control over your hours and type of work. On the other hand, it's harder (at least psychologically) to walk away from self-employment than an at-will job. Taking a job designed by others also adds some new external information, and may be more social. But the form of the side gig is the less important factor.

Frankly most people who are willing to reduce their spending to $7k/year and want to live outside of work should be looking at part time minimum wage employment rather than building financial wealth. The emphasis on building financial wealth seems to exist mainly because it's people who are already salarymen discovering ERE with high income already in place. Why not use it before you lose it? Starting from scratch, it's hard to justify spending four years in college with negative income and opportunity cost, losing almost 10% of the healthy adult lifespan, let alone the actual work period itself. One could make a similar argument for high school. The power of ERE is in low spending, not accumulating financial wealth (though financial wealth has its points, many less obvious).

I think all of this was part of jacob's original scheme. It just didn't quite work out in practice, because he happened to be interested in something high complexity and high paid (finance) and after that had so much financial wealth plus passive business income that he had less interest in monetizing his skills (but could do so if required). I'm sure he'll correct me if this is not right. For the regular guy, who perhaps does not have a 0.8% SWR and doesn't want to wait for one, just finding an agreeable side gig may be a better option.

I like @jacob's indicator very much. I think this is a much safer measure than WR, and more in line with the broader philosophy of ERE as opposed to FIRE.


----

That post is not very readable.

To summarize, ERE was made by a salaryman with a good income and is interesting mostly to other salarymen with good incomes. This changes the calculations.

Starting from scratch with the goal to minimize involuntary work throughout the lifetime, most would choose part time jobs with 50% savings rate for a two decades, probably starting at age 18, rather than some super stressful and mindwarping college->professional job->quit 60hr/week sprint followed by a sudden massive change of lifestyle in something called "retirement."

[7Wannabe5]

Frankly most people who are willing to reduce their spending to $7k/year and want to live outside of work should be looking at part time minimum wage employment rather than building financial wealth

I disagree. Reason being that this plan is not inclusive of the less frequently discussed concept of “dom” within the concept of “freedom.” Annual spending metric such as 1 Jacob simply measures the flow of money outside of the boundary of your “dom.” It does not reflect the size of complexity of your “dom” except to some extent in the flow of boundary maintenance expenses such as property tax. So, for example, Human A lives on 2 acres with 20 apple trees and the knowledge of 4 languages stored in her brain and 4 very good friends Human B lives on .2 acres with 1 apple tree and knowledge of only 1 language stored in her brain and only 1 good friend. Even if annual maintenance costs ( which also must apply to equity investments although they generally “come out in the wash” of growth/competition- 8%-5%=3% ) are as much as 5% of initial acquisition and these maintenance costs are equivalent to 50% of Human A’s yearly spend = $3600 and thus perhaps only 5% of Human B’s yearly churn = $360, given all other things equal, I would argue that the superior level of optionality and authority of larger and/or more complex “dom” would tend towards Human A possessing more interesting, comfortable lifestyle than Human B. Since property ownership mostly consists of collection of rights to use, “dom” could also be imagined as collection of various rights applied to land, tools, skills, knowledge, and other resources that are within the boundary of your lifestyle. So, for example, you may possess the right to obtain a library card within the domain where you legally reside. Thus, creative use of public or discarded resources can also expand “dom” and my argument requires “all other things equal.”

[Qazwer]

There is a lifecycle and personal health risk component if these trade offs as well. You get to 1 Jacob of spending by whatever methodology internally. You then break a leg or get older and can no longer maintain things as easily. Financial input may be more stable than salary input from a minimum wage job. The risk of financial collapse needs to be balanced against personal risk if changing circumstances.
Compare the odds of investment no longer yielding the outside needed cash flow to the odds of not being able to generate such cash flow from personal circumstances.

From lifecycle - a dollar is more valuable when consumption is low then one consumption is high and some need to shift income generation from when feasible to when not

[Bankai]

Someone working mimimum wage job for only long enough to earn $7k pa will obviously never retire earlier than the state pension age. Assuming $7 per hour, 100 hours a year is required to earn the $7k needed for baseline spending. Between ages 18-68 that's 50,000+ hours spent working potentially unfulfilling, boring and repetitive work (most min wage jobs are like that), plus all the usual disadvantages of being tied in to a place etc. Getting a full-time job that pays 3x the minumum should be possible for most people, and gets one to FI @3.5% in under 6 years ($21*2000=$42k pa, $7k spent, $35k saved, taxes ignored) while working potentially more interesting and fulfilling job. After 6 years one gets all the benefits of not being tied to a place and ~38,000 extra hours to spend as one pleases.

[nomadscientist]

Managing financial wealth is a job of sorts. Perhaps not a very demanding one in terms of time but then most people capable of accumulating >$300k of financial wealth in a reasonable period and live on $7k/year should be able to find part time work that isn't very demanding in terms of time.

Financial wealth is much more psychological work than a job, especially a disposable non-career job. Another reason that ERE and FIRE appeal to salarymen is they are the ones who want out of their ultra locked-in* jobs. Not a lot of ski instructors or ESL teachers around here, though they're better primed for the lifestyle and arguably would benefit more. There are many sectors in which losing a job casually and finding a new one casually is normal.

I'm not advocating people deliberately not build financial wealth, i.e. tailor 0% savings rate. A certain amount of financial wealth, say 6 months, enormously increases your options and robustness. How much more do you need to add to that to get similar magnitude of benefit? 3 years? Then 10? Then 30 = infinite portfolio life = no more benefit? It's certainly not linear. Lots of people change career without first being able to live on stock returns for the rest of their lives.

IOW why rush for financial wealth, if the rush 1. won't increase your spending level 2. will involve greater psychological work and real risk of living a greater fraction of life purely on financial wealth 3. has a higher cost in terms of life satisfaction during accumulation phase?

Obtaining the full 30 years may or may not seem like a priority down the line. It's certainly not a bad outcome, or one to be avoided, but maybe it loses its centrality**. This requires reaching Systems Theory outlook before accumulating significant wealth or income, which is uncommon given the typical audience for ERE, but ERE as a framework can be applied for anyone***.

I'm not doubting the accumulation logic for someone who is already a salaryman, for whatever reason (I am a salaryman).


*locked-in in so so many ways than just the choice of profession or particular employer: location, social circle, social expectations, on-call - working class people generally don't deal with this stuff, not to the same dgeree anyway

**when I write this even I feel like I'm criticizing ERE - but I'm not! Side gig income was important to jacob's retirement, as was "going back to work" (i.e. to work on something that was interesting and granted multiple skills, at a time of own choosing), as is small business income. It's really more the choice of the audience than the source material to focus on ERE as a lifestyle built around saving money in Vanguard funds and then "retiring."

***e.g. imagine you live ERE lifestyle having come to it at age 25 and want to know what to advise your kids