Life, One Year Later
It's been a year since I left full-time employment. Here's an update of my situation.
My net worth is a few percent higher than when I left my job, which wasn't exactly expected, but welcome.
I left my job with about 10 years of trailing expenses, but I knew I was entering a (temporary) living situation that would eliminate my biggest expense: housing. SO and I have been living with her elderly mother in a too-big house in the Bay Area of California while SO takes care of some investment/business-related projects. These projects will likely wrap up in 3-9 months, depending on many variables, and afterward we are batting around the idea of buying a house with a few acres of land—likely PNW, but we're keeping open minds. In the meantime, my expenses (basically, same as before except for rent and utilities) have been so low it isn't worth it to me to track them. I'm somewhere in the 30-40X range, which is arbitrarily good enough for me. [I’ve provided some value-add to the household with landscaping, maintenance, plumbing, and appliance-repair worth at least $X,000.]
Regarding investments, I exited the stock market (VTI) at its peak last autumn and am happy to sit on the sidelines for a while. So far I've collected more money on the proceeds sitting in an FDIC-insured money market account than I would with S&P 500 dividends with none of the excitement of the December-January roller coaster ride. I still have various treasuries, gold, and cash-equivalents in my portfolio which put me very defensively postured against recessions/market plunges. I can live with being wrong about that.
I don't expect my expenses will be this low forever. But read on…
Perspective on ERE/Finances
TL;DR: A kinda-sorta semi-ERE manifesto that unexpectedly turned into a cosmic hippie rant there at the end, but maybe that's just the Bay Area's influence.
Maybe it's inevitable that when you've thought about a topic long enough, you start to come full circle back to the beginning. A few things have clicked together in my brain with a peculiar result: I've come back to the same kind of beliefs that many people in the FIRE community revile as simple-minded ignorance. Namely, that FIRE is impossible. Not only that, it reflects a fundamentally flawed, magical, "wouldn't that be nice but the world doesn't work like that" way of thinking.
Maybe I'm just setting up a straw man (you tell me), but most FIRE discussions I see are rooted in near-term or long-term time frames.
- Near-term (~1 year): e.g. what's your yearly budget? Do you have a 6 month emergency fund? One time events like: I did X and saved Y dollars
- Long-term (20+ years): e.g. tax/social security/pension strategies when elderly, perpetual withdrawal rates (25x vs. 33x)
In ERE as Chess
terms, these are conversations about Openings and Endgames, which are typically either formulaic or foregone conclusions. Which is all well and good to keep studying and rehashing, but how you think about the impenetrable fog of the Middlegame matters way more. Near as I can tell, the medium-term (~5-10 years) is by far the most important time frame with respect to planning.
What do I mean that the medium-term matters more? And why do I call it an "impenetrable fog"?
The argument goes something like this: there is a steep drop-off in the "certainty" of most systems I care about beyond maybe 5-10 years—this is the fog—due to the interaction of two concepts which I'll steal (and butcher) from physics: the three-body problem and inertia.
The Three-body Problem
Everything is, after all, inescapably embedded in hierarchical systems of some sort. It doesn't matter how "advanced" humanity gets, it still can't escape interacting with Earth's nutrient/mineral/energy cycles, the food web, etc. Obviously, these systems are complex, and it's a fair bet that any time humans have made something look simple (read: convenient), they've just opened a local loop—at one level of system hierarchy, but not all of them!—by using a bunch of fossil fuels.
Complexity of a system means that in the long run it is completely unpredictable, even if you (think you) know all the rules that govern the system (this is the three-body problem
). There just is no formula or algorithm that can spit out "the answer". [Interesting related podcast with Ben Hunt—one of the guys behind Epsilon Theory—that is well worth your time: http://investorfieldguide.com/hunt/
He considers how you might construct an investment portfolio to deal with this "Profound Agnosticism" (spoiler alert: similar principles to Permanent Portfolio, but with more sophisticated risk-parity-ish implementation). The longer a system of even moderate complexity is let to run, the more unlikely you are to have any clue what will happen.
And yet, even though the destination is unknown, many systems move relatively slowly—they have some predictable near-term inertia to them. For example, we may not be able to say with much certainty where Pluto's moon Charon might be a few billion years after the sun exits its main sequence (I know, risky example on a forum with an astrophysicist webmaster), but the near-term orbits are much better predicted. Or we might consider sovereign bonds: a number of governments have now issued 100 year(!) bonds, and while it's far from certain that these countries or their currencies will even exist in 100 years (much less that they will have continually paid coupons over that time), they will almost certainly exist as political entities next week, next month, next year. The sheer inertia/momentum/institutionality—whatever you want to call it—of many big systems acts like a flywheel that keeps humming along for a while—nearly the same as before—after inputs are removed or even changed.
So within that context, my mind has been kicking back against the implicit assumptions embedded in FIRE. There is no "financial independence" because I can't remove myself from any system (finance, humanity, nature, etc.—however those terms are defined). Independence implies that you've "solved" the problem of money, but because money is completely embedded within societal and cultural and natural systems, there is no "answer". It's only a mirage. It's thinking something is there when it isn't. It's a fundamentally flawed way of thinking.
Thinking I have the "answer" would also lull me into a false sense of security. It would be easy for me to stop paying attention to changing circumstances. To think of this in evolutionary terms, for example, it's worth remembering that there is no optimal evolutionary destination. There is only survival, and what it takes to survive is always changing as the environment changes. The master process here, underlying natural selection, writing, the science method, "kaizen" etc., is something like "iterative refinement"—always fitting the curves, which themselves are always changing. This curve fitting takes work in one form or another. It takes interaction and reaction with the various systems you inhabit, and that is the very opposite of "independence" (Archdruid piece
on the hubris of humans trying to impose "the answer" on natural systems). This constant work is just the overhead of what it means to be alive, the inevitable work that remains at ERE Wheaton Level 8
, whether monetary or not. I can complain about having to do this "overhead" work, but I've started to see such complaints as being a failure of amor fati
: rejecting the mandatory overhead work that comes with being a human embedded in the various systems of the universe is, in a way, rejecting what it means to be alive as a human in the first place. Life is a package deal. To think that I can completely avoid all work is as ridiculous as thinking that I can stop being human (and somehow not die in the process).
But let's back away from the furious but abstract hand waving I've been doing and come back to consider concrete, important systems as examples of predictability across medium- to long-term time frames. The business/credit cycle fits approximately within ~5-10 years. I can make a pretty good guess about where I am in the current business cycle (medium-term), but it's essentially random odds to guess where in the cycle I'll be in 20-30 years (long-term). Useful political predictability drops off for time frames longer than 5-10 years (1-2 presidential elections). From where the US is now, the range of near-term outcomes is reasonably predictable. But more than 2 elections away is completely dark—was anyone predicting Trump when Obama was first sworn in (2008)? The near-term action on climate change in the next 5-10 years is quite predictable: 1) it'll keep getting worse (but not yet be a catastrophe), and 2) nothing will be done about it politically. But after 5-10 years, who knows how the world will react to the first blue ocean event, a weak and loopy jet stream causing a multi-breadbasket famine and massive social/migratory upheaval? And who knows, maybe a string of relatively calm, fortunate years will postpone these high-impact effects a while longer. The iPhone first came out in 2007, and within 10 years smart phones had become an overwhelming, mind-altering influence on society. Think about that—within 10 years it became weird not
to see someone starting at a tiny screen all the time. Within about a decade, ETFs have dramatically changed the investment space in a way that influences how just about everyone structures or executes their investment portfolio holdings. Where will general AI or self-driving cars or fusion (ok, this one has an answer: "it's only 20 years away!") or monetary policy/central banks/interest rates be in 5-10 years? And on and on...same thing.
And in a way I'm back where I started, trying to think about what is economical when considering everything from the point of view of systems—which have certain properties like complexity, long-term unpredictability, and inertia (and many other things I'm leaving out, which probably matter a great deal!). And the view through my systems lens is showing me a surprising landscape. What is the point in saving 30 years worth of money when 1) I'm going to have to keep participating (i.e. work, in some sense or other) in various inescapable systems anyway, and 2) there's a very good chance I will be dramatically influenced or impaired by any number of completely unforeseeable situations beyond the 5-10 years of reasonably predictable system inertia? But you may argue: "Well what's the harm in saving up 30 years of expenses anyway?" To which I think Seneca would answer, reasonably: "Nothing, as long as you are ok with potentially wasting an awful lot of your limited time on Earth working for something of unknowable value." [This argument is more compelling for people saving 4x+ expenses annually because the time commitment is so much less, which is to say, not most of us.]
So beyond maybe 5-10x expenses, which essentially provides a buffer for the relatively predictable inertia of the near-term, I'm not sure having more money is particularly useful (or rather, its utility drops off with predictability, which is to say rapidly after about 10 years). More useful, rather, seems to be getting involved—actually participating—in the systems that are important (e.g. gardening, developing a community, creating something of value that others might find value in as well), rather than repeating some mantra of "financial independence" as being an end goal, an "answer". That way, when things veer off in unpredictable ways, you'll see it in the system immediately—because you're part of it—and will be able to refit your curve and keep on going. But what do I know, anyway? The view from where I'm sitting is pretty foggy.