Ockham's Razor

[Ockham]

I found /r/financialIndependence on Reddit while looking for a subreddit about setting yourself up financially as a young person. The idea of retiring early has been simultaneously appealing and uninteresting to me. Appealing because, hey, who doesn't like the idea of being financially set as a young person? Uninteresting because somehow a life where I'm not working just seems boring.

Hello, I'm a 22 year old college student majoring in computer science. I haven't had a proper job since last summer, and over the past few months money has become pretty tight for me. At this age in my life the fact I still can't really provide for myself kind of sucks. I intend to get a part-time job of some sort this coming semester of college, wherever the opportunity might find me. You might say that this recent financial slump for me has been the catalyst for me to more deeply consider ERE.

If that's the catalyst, the motivation is my family's financial history. I've been lower middle class for as long as I can remember. Pinching pennies is not new to me. In a household with a single stream of income, the budget's naturally going to be tight. And I'm sick and frustrated with it all. There's a feeling of constraint that comes with it. Can't do this or that because there's not enough money. Indeed there really are some constraints. In this house and this hometown, there just aren't the resources there with which I can really attain my goals.

What drives it home for me, though, is my father. He's our sole source of income most of the time. He works 50+ hours a week. Yet money's still tight. He leaves for work before the sun's up and doesn't get home until the afternoon. Between the time he gets home and the time he heads to bed, it's spent with a little time eating and a lot of time sleeping in his chair. That strikes me as a futile and meaningless life. I don't want that. At all. I've spent too many years being told I have the potential for a good life. And I've spent too many years believing that to do otherwise.

Coming from a one-income household has instilled in me a sense of pragmatism and minimalism when it comes to possessions. Just about everything I have serves a purpose. I don't deal much with stuff that's more artistic than functional. It just doesn't make sense to do so, to me.

My surface-level knowledge of ERE indicates there might be a period of time where I'm counting the cost of everything to an excruciating detail. Ironically the very thing I'm trying to get away from. But if the payoff for that is financial freedom, then I want to be willing to deal with that. After all, I'm at a young enough age that I can more easily recover from things physical, economic, mental, etc., than I could in later years. Now is as good a time as any to try this.

Right now this more in the experimental stage for me. I may go through with it, I may not. Time will tell.

Edit: MBTI seems to be all the rage here or something. I'm an ISTJ.

[m741]

Sounds like you're on the right track. At the same time, I sense some ambivalence about the journey that could hold you back. There's a lot of ways to look at financial independence, and a lot of ways to frame it mentally. Some are positive, and some are negative.

Sure, counting expenses can be boring, or upsetting. Another way to picture it is as a game - how low can you go? As long as you don't let it affect your relationship with other people (becoming 'cheap' rather than 'frugal'), it can be a fun hobby. Because expenses are a number, it's easy to 'score' each month.

Being financially independent doesn't require you to retire, so you shouldn't be so ambivalent about the goal! Many of us who have reached that point still work - Jacob is a great example. Just having the flexibility to do what you want is powerful. Want to try a startup? Go for it. Want to work part-time and raise a family? Go for it. Want to sell your stuff and backpack for a year? Go for it. Want to switch careers to a low-paying profession? Why not?

Good luck with your journey.

[Chad]

One is that you seem to want to spend like a normal person, but feel you have to save. To truly ERE you cannot ever spend like normal person again. There is no spending "on" switch at some point. This is because you can't save enough in a normal job, even at super high savings rates, to reach the normal definition of wealthy. $500k won't last long if you are spending $80-100k a year.

What you need to decide is what you really want. Do you want to ERE? Or, do you only want ER (early retirement)? In order to determine that you need to decide what is important to you. This will tell you how much you need to save.

[oldbeyond]

The same strategies that enable people to retire extremely early can also enable you to become rather wealthy. You simply have to keep at it long enough. mikeBOS on the forums has a written a well-written blog post on this topic: http://lackingambition.com/?p=1414

Other resources include Mr Money Mustache(a fair bit less extreme than the ERE blog/book, but I guess quite a few people on the forums spends around what he does, me included) and Financial Samurai(I don't really like his style to be honest, but he's more into building wealth than ERE or MMM, and for that I think his blog is a fine resource). Really it's all about wether your value your time or something else. The more you "need", the less robust the strategy becomes(aim high enough and you could save 90% of your income for the rest of your life and never come close). Still, it's perfectly possible to apply ERE for say 20 years instead of five and have a much large net worth/passive income stream.

As for pinching pennies, I think if you focus on the three big expenses(housing, food and transportation), and think strategically about them, you'll have done most of the heavy lifting already. There's always ways to waste your disposable income, but even giving yourself a decent allowance to spend on "wants", you should still be able to save quite a bit.

[Ockham]

I might very well still choose to work in some capacity, even if I find myself in a good financial situation. I do have a couple hobbies that could be considered a sort of "unpaid career." But I suppose I'm just inclined to behave like what Jacob called the "salary man" in his book.

Incidentally, I'm on page 60 of the book. That's something like 1/4 of the book already. He's still talking about background theory. While that may be useful, it's also a bit frustrating. I do hope he starts talking about more practical stuff soon. (We ISTJs love the practical.)

Once I go through ERE I'll likely check out MMM and Financial Samurai, since you mention it.

I don't want to be wealthy as much as I want to be comfortable. If I somehow become a millionaire - awesome! If not, as long as I'm not forever constrained by a paycheck that's just a tad too small, I'll be happy financially.

Edit: The book mentions something about having multiple streams of income. I want to get a job this semester at college. At the same time, I'm also doing a little bit of freelancing where I can find it. So I suppose in that way, I'm a step in the right direction.

[jacob]

@Ockham -

Most people are forever constrained by a paycheck that's just a tad too small regardless of how much they make. This is regardless of whether they make $15000/year or $150000/year. As long as they seek fullfilment [of their psychological comfort zone] through buying pleasures the lack of money will the limitor and the feeling of not having enough of it will be frustrating. This is also called the hedonic treadmill.

Once [the spending of] money loses its status as the primary focus of life---because it's replaced with another focus---the connection between money and comfort is severed. Most of the ERE book is about how to do that.

If you simply go by practical tips without losing this connection, you'll end up regarding frugality as pennypinching labor washing ziplock bags and clipping coupons to buy canned dinners.

There are plenty of books on how to do that.

The ERE book is more of a cook book describing cooking methods and ingredients. There are no recipes (e.g. how to solve the problem in 10 easy steps) in the book. Just a few examples of how to use the methods and ingredients to build recipes.

[Ockham]

Once [the spending of] money loses its status as the primary focus of life---because it's replaced with another focus---the connection between money and comfort is severed. Most of the ERE book is about how to do that.

If you simply go by practical tips without losing this connection, you'll end up regarding frugality as pennypinching labor washing ziplock bags and clipping coupons to buy canned dinners.

I see what you mean. At least for this point in my life I've not succumbed to the idea of happiness through buying stuff. Hopefully I never do.

-----------------------------------------------

First update post of the journal:

Got started on a gig on Fiverr. Due to the amount Fiverr charges, as well as Paypal's fees, when completed, I'll earn $3.92 for the gig. It's not a lot but hey, it's something. On oDesk I'm waiting to hear from someone for a gig that will pay out a great deal more. Right now I'm sorta in the money making mode. I head back to college in three days.

[Ockham]

It seems the idea behind ERE involves reducing spending and increasing income. Spending is decreased by looking for free/reduced price alternatives, doing it yourself (in terms of repair or whatever), getting supplies to make things yourself, and just plain toughing out things if you can. Income is increased by not relying on one source of money, but multiple sources. Multiple sources allow for several different ways to make money in case one method fails. It suggests having hobbies which can be used profitably, in terms of tangibles or intangibles. I have a few of those. This is all very interesting and sensible to me.

At this moment my main source of income is online freelancing. I have applied to a couple different campus jobs, which could act as another source. I have no money on hand to spend, so that part's just fine.

It seems like a lot of people on here use investing to increase their money supply. Every time I read about it, it seems to be complex and several methods require money up front. Which is something I can't exactly do presently. Will have to look into this later on.

[Ockham]

I'm more than halfway through the book now. The stuff became more practical/applicable a little while after my last post about it. I'm fond of the idea of living life modularly. Indeed I already kind of do that.

I finished one freelance assignment a few days ago and am currently working on another. This contractor said if my work was good, s/he would come only to me for future stuff. So that's good. I also was interviewed for a web dev job on campus. I'm not confident about getting hired, but there were other played I applied to as well.

This semester is going to be a financial challenge for me. Perhaps it was unwise for me to go to college this semester, with myself being so short on cash. My parents agreed to spot me $120 for laundry and food. I'm waiting for more responses to the job applications I sent out. Responses take too freaking long. Food and beverage are my biggest expense, for sure. I'm taking some efforts to reduce how much I spend on them. I've been largely successful in eliminating my night snack. The savings from that will build up quickly.

My college lets you grab food from the dining hall to go. That's leg 2 of my strategy to reduce food costs. Instead of grabbing a bottle or can of pop like I typically do, I can instead fill a disposable cup from the dining hall with something and sip on that from classes. It doesn't last as much of the day as I'd like, but it's something. This also lets me fill up the to go tray with a bunch of food and I don't have to eat it all ASAP. So I can have the meal right away then voila, snack for later.

[DutchGirl]

Also, refill a bottle with water? I assume they have free potable water there?

I think, Ockham, it's never bad for you to experiment with frugality, and to learn about personal finance and investing. Even when you don't go the FI / ERE path later. I also think m741 is right: being FI does NOT mean you have to stop working and can never do something challenging or productive ever again. It means freedom to make your own choices.

Becoming aware of how much things cost, why you buy them or why you shouldn't buy them, etc, is a worthwhile lesson. You may make mistakes, you may decide that you will not follow certain tactics because you don't like them, but at least you know now that you have some choices.

PS. I would read a lot more books and websites about personal finance, about debts, investing, budgeting, etc. Having several sources means that you get more useful information; and can make better choices for yourself.

[BattlaP]

You've got a great opportunity ahead of you learning these goals so young. How I wish someone had smacked me over the head with ERE when I was your age.

You might not be able to save much at the moment, still being in college, but you're setting yourself up for long periods of compounding. Dollars saved between 20-25 will be the most valuable dollars you ever save.

Take every advantage of free stuff wherever you can get it. I earn plenty of money but I'd be filling garbage bags with food instead of trays if I could just walk through and grab whatever! Never say no to a free lunch.

[Ockham]

One health concern that I think will get in the way of saving money much quicker is my dry mouth. Every day I get this really bad dry mouth. The only thing that makes it go away is soda. No amount of water will fix it. Trust me, I've tried. What's more it'll stick around for hours and hours if there's nothing to handle it.

I think it's due to lack of sugar, or electrolytes, or salt, or something. I'm not sure what else besides soda can get rid of the dryness. Goodness knows, if there was a cheaper alternative, I'd use that instead.

[Ockham]

A couple cool updates to report.

1 - It turns out my college does this thing where, along with your meal plan, you also get $100-$200 in a special account that can be used at stores on campus. Didn't know of this until earlier. This is helpful because it covers my food costs. My parents need money as much as I do so I told them they could keep the $60 they hadn't yet sent me.

2 - Despite my lack of confidence in my interview skills, the people at the college newspaper emailed me, wanting to interview with me again. I really don't want to get my hopes up. They might still choose someone else over me. But sometimes it's hard for me not to get excited.

[saving-10-years]

Nice news about the special account and getting a second interview is something to get excited about. Good luck.

[Nomini]

Well done on the interview. You shouldn't stop yourself getting excited - enthusiasm is surely a selling point in an interview. I have the opposite problem, that I find it hard to express interest even when it's quite strong inside my head.

[Ockham]

Well done on the interview. You shouldn't stop yourself getting excited - enthusiasm is surely a selling point in an interview. I have the opposite problem, that I find it hard to express interest even when it's quite strong inside my head.

Oh believe me, I'm quite interested. And during interviews it's clear I'm enthusiastic about the job. But outside of that, I try to restrain myself. I have a natural inclination for skepticism and pessimism about new things. A second interview for a web dev job? That's a new thing. There's no guarantee. There won't be a guarantee until I get an e-mail saying "You're hired." In a way, it's a self-protective measure.

[Ockham]

Finished reading the book today. Gonna digest the thoughts for a bit, then possibly have a concrete plan in place.

[Ockham]

I got the job.

[5to9]

I got the job.

Congrats!

[saving-10-years]

How astute they were to choose you. Well done.