Hi!
I read ERE blog for years but never registered.Partly because I live in Portugal, which is a world away and the culture shock is huge.
The economy has really gone south around here. we have been bailet out by the IMF, european central bank and european comission. Severe austerity measures are being imposed on us.
Portugal has always been a poor country. But now, lots of people live an extremely frugal lifestyle not because they want to but because they have to. The economy is being destroyed by the recession and we are sinking deeper and deeper.
The whole europe is now heading for recession and the future probably holds a decade of global recession for all of us.
If you're working towards FI in an affluent environment there are a lot of opportunities to get good deals. What is it like when everyone is doing it too,whatever their reasons? Taxes were raised, income is failing.
How does austerity afect FI/ERE prospects? Is it still possible?
Austerity vs FI
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secretwealth
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I do think this is a sort of inconvenient truth for ERE as it currently stands. No matter what your source of income--rentals, stocks, bonds--you are dependent on a growing economy for your income. We all need other people to be consumers to fund our low-consumption lifestyle.
Of course, this isn't a criticism of Jacob's book or of the goal of attaining financial independence early. But without major political power or influence, it's impossible to restructure society in a way that all people can follow the same low-consumption lifestyle in a sustainable way.
Of course, this isn't a criticism of Jacob's book or of the goal of attaining financial independence early. But without major political power or influence, it's impossible to restructure society in a way that all people can follow the same low-consumption lifestyle in a sustainable way.
That's a myth, consumers only direct what the economy produces. We "need" consumers because the majority of the economy is geared to produce consumerist garbage; without them a lot of companies would become superfluous and disappear, but the economy can still exist and run just fine without them. The debt-implosion in Europe and the US is basically unrelated.
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jacob
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I agree with Haplo in that a functional economy is not necessarily predicated on consumers. Also, it doesn't need to be predicated on an employer-employee relationship.
Thinking that ERE won't work without a background of hyperconsumption simply means not having taken the principles far enough.
Case in point: If you get your furniture cheap on craigslist or free in backalleys, yes, then you rely on consumers to waste money. We can call this indirect-consumption. Or trickle-down consumption.
If you make it yourself, you don't rely on consumers. We can call this self-production. To make a point, I don't chase good deals, or rather, this is an exception rather than a rule. I buy tools to keep forever + spare parts.
Here's my point, I think we can compare the budget of $15000 for three groups
1) Those who live in self-described poverty at that level. These are typically consumers who simply do not have enough to money to buy whatever they want regardless of price. Their problem is running out of money before satisfying all their wants.
2) Those who live well on that amount. These are the savvy shoppers. The ones who are happy where they are and make comments about how lowering their budget would be too extreme.
3) Full ERE which would be drowning in money at this level.
This means that the problem is not so much a lack of money as it is a lack or a wrong strategy/value-base that causes austerity. As mentioned, the suck starts when the transition is forced by needs (external constraints) rather than entered voluntary by wanting it (internal motivation).
Thinking that ERE won't work without a background of hyperconsumption simply means not having taken the principles far enough.
Case in point: If you get your furniture cheap on craigslist or free in backalleys, yes, then you rely on consumers to waste money. We can call this indirect-consumption. Or trickle-down consumption.
If you make it yourself, you don't rely on consumers. We can call this self-production. To make a point, I don't chase good deals, or rather, this is an exception rather than a rule. I buy tools to keep forever + spare parts.
Here's my point, I think we can compare the budget of $15000 for three groups
1) Those who live in self-described poverty at that level. These are typically consumers who simply do not have enough to money to buy whatever they want regardless of price. Their problem is running out of money before satisfying all their wants.
2) Those who live well on that amount. These are the savvy shoppers. The ones who are happy where they are and make comments about how lowering their budget would be too extreme.
3) Full ERE which would be drowning in money at this level.
This means that the problem is not so much a lack of money as it is a lack or a wrong strategy/value-base that causes austerity. As mentioned, the suck starts when the transition is forced by needs (external constraints) rather than entered voluntary by wanting it (internal motivation).
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secretwealth
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jacob
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No, for example, you could invest in LMT, RTN, BA, ... and rely on the military economy instead.
All that's needed for the passive investment income is someone who needs money for a project but who doesn't have it. That project does not need to have anything to do with the production of consumer goods. It could even be the government.
It's possible to have a world where ever citizens were largely self-sufficient with little trade in homemade crafts, etc. The government would borrow money for wars and in return exert taxes on real estate or whatever. All the citizens would need money for would be those taxes---practically nothing else. The money would be made by selling things to the government only. As long as it's not spent but relent back to the government, you'd eventually be free of having to produce for the government. Conversely, those who spend it on stuff immediately would have to keep working.
Interestingly enough, in countries undergoing a depression, you see exactly that: An increase in self-sufficiency and the beginning of such a bartering economy where people simply trade or give favors outside the (now) broken consumer model.
All that's needed for the passive investment income is someone who needs money for a project but who doesn't have it. That project does not need to have anything to do with the production of consumer goods. It could even be the government.
It's possible to have a world where ever citizens were largely self-sufficient with little trade in homemade crafts, etc. The government would borrow money for wars and in return exert taxes on real estate or whatever. All the citizens would need money for would be those taxes---practically nothing else. The money would be made by selling things to the government only. As long as it's not spent but relent back to the government, you'd eventually be free of having to produce for the government. Conversely, those who spend it on stuff immediately would have to keep working.
Interestingly enough, in countries undergoing a depression, you see exactly that: An increase in self-sufficiency and the beginning of such a bartering economy where people simply trade or give favors outside the (now) broken consumer model.
"How does austerity affect FI/ERE prospects? Is it still possible?"
It should make income harder to come by, but also drive down prices of things (like real estate). However, this is only in the aggregate (for all people), and almost nobody lives in the aggregate. This is why you are better off focusing on your individual situation and ignoring macro-economic factors that you basically cannot control and are likely to change in ways that you cannot predict very well anyway. Otherwise the externals just end up becoming an excuse and a crutch.
So, for example, if you can hold onto a job or even improve your income in an austere environment, your living costs may be declining and you could get to FI quicker. But if you lose your job/income and your living costs stay the same, your road will be significantly harder.
All that being said, I do feel sorry for people in small countries in Europe that are attached to the EU banking system. Too much of the pain in being inflicted to sustain moribund financial institutions that should be allowed to fail so that the bad debts can be cleared from the financial system. Sustaining them will only prolong the problem -- Japan's experience being an extreme example. On the opposite end, look at what Iceland has done and how it is already recovering.
This interview of Iceland's President is an eye-opener and presents the choice between democracy and financial institutions in stark terms: http://www.youtube.com/watch?v=7zlzC_XMQzI
It should make income harder to come by, but also drive down prices of things (like real estate). However, this is only in the aggregate (for all people), and almost nobody lives in the aggregate. This is why you are better off focusing on your individual situation and ignoring macro-economic factors that you basically cannot control and are likely to change in ways that you cannot predict very well anyway. Otherwise the externals just end up becoming an excuse and a crutch.
So, for example, if you can hold onto a job or even improve your income in an austere environment, your living costs may be declining and you could get to FI quicker. But if you lose your job/income and your living costs stay the same, your road will be significantly harder.
All that being said, I do feel sorry for people in small countries in Europe that are attached to the EU banking system. Too much of the pain in being inflicted to sustain moribund financial institutions that should be allowed to fail so that the bad debts can be cleared from the financial system. Sustaining them will only prolong the problem -- Japan's experience being an extreme example. On the opposite end, look at what Iceland has done and how it is already recovering.
This interview of Iceland's President is an eye-opener and presents the choice between democracy and financial institutions in stark terms: http://www.youtube.com/watch?v=7zlzC_XMQzI
Those who believe they can't do something are definitely correct.
Those who believe they can do something may be correct.
There are people in Liechtenstein - the country with the highest purchasing power per person ($141,000 pp)- who spend more than they save.
There are people in the Democratic Republic of the Congo - the country with the lowest purchasing power per person ($400 pp) - who are saving more than they are spending.
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It reminds me of an ongoing debate in the cycling community about whether it is safer to ride at night with a blinking light or a steady, non-blinking light. Those arguing for non-blinking lights say that the blinkers attract the attention of drivers. When a driver's attention is attracted in a particular direction, they inadvertently turn in that direction.
Attention dictates direction.
You are smart to come here and focus your attention on how to move toward ERE. While it may be more difficult for you than for someone in Holland or the U.S., it is certainly possible if you remain focused on the goal.
Those who believe they can do something may be correct.
There are people in Liechtenstein - the country with the highest purchasing power per person ($141,000 pp)- who spend more than they save.
There are people in the Democratic Republic of the Congo - the country with the lowest purchasing power per person ($400 pp) - who are saving more than they are spending.
----
It reminds me of an ongoing debate in the cycling community about whether it is safer to ride at night with a blinking light or a steady, non-blinking light. Those arguing for non-blinking lights say that the blinkers attract the attention of drivers. When a driver's attention is attracted in a particular direction, they inadvertently turn in that direction.
Attention dictates direction.
You are smart to come here and focus your attention on how to move toward ERE. While it may be more difficult for you than for someone in Holland or the U.S., it is certainly possible if you remain focused on the goal.
Wow, people agreeing with me. Must be sledding season in hell XD.
All that being said, I do feel sorry for people in small countries in Europe that are attached to the EU banking system. Too much of the pain in being inflicted to sustain moribund financial institutions that should be allowed to fail so that the bad debts can be cleared from the financial system.
I could say exactly the same thing about the US and China. Well, I don't know that China is imploding over corrupt financial institutions, but they're imploding for similar reasons anyway.
All that being said, I do feel sorry for people in small countries in Europe that are attached to the EU banking system. Too much of the pain in being inflicted to sustain moribund financial institutions that should be allowed to fail so that the bad debts can be cleared from the financial system.
I could say exactly the same thing about the US and China. Well, I don't know that China is imploding over corrupt financial institutions, but they're imploding for similar reasons anyway.
Here we go: 39 yo F, married, kids 8 & 15.
Currently, SAHM, husband lawyer.
I'm not ERE/FI, not sure if I will, just trying to use some of the concepts to fell safer. And I am safer than most around here.
In Portugal very few have a pension plan. They rely on social security (this is europe). I won't. So I save for retirement.
I could have a mercedes or a bigger apartment but I prefer to have savings.
It's been a journey and I am more and more frugal by the day, but the family isn't on board.
It's a small town, <250 000 people, almost everyone is white, catholic. Definitely not a melting pot.There is pressure to conform.
Anyway, I'll keep coming around. Thnks for sharing.
Currently, SAHM, husband lawyer.
I'm not ERE/FI, not sure if I will, just trying to use some of the concepts to fell safer. And I am safer than most around here.
In Portugal very few have a pension plan. They rely on social security (this is europe). I won't. So I save for retirement.
I could have a mercedes or a bigger apartment but I prefer to have savings.
It's been a journey and I am more and more frugal by the day, but the family isn't on board.
It's a small town, <250 000 people, almost everyone is white, catholic. Definitely not a melting pot.There is pressure to conform.
Anyway, I'll keep coming around. Thnks for sharing.
I think it really boils down to whether blueskies and her family can live on 20% of whatever the family income is if they want to achieve ERE the Jacob Way...where that 80% saved over five years can earn sufficient income to equal the 20% she lives on AND not exceed the SWR of 3%.
Once the theoretical amount is saved that is when we run up against the requirement of figuring out how to generate a rate of return sufficient to meet the objective.
If you CANNOT generate such a return due to whatever austerity measures are imposed either voluntarily (self-imposed) or externally (economy/governmental) then the base capital you have accumulated over the 5 years is insufficient.
Perhaps in a state of extreme austerity like Portugal is undergoing perhaps the ERE timeline must be extended...maybe it will take 8 years instead of 5 saving 80% of income.
Once the theoretical amount is saved that is when we run up against the requirement of figuring out how to generate a rate of return sufficient to meet the objective.
If you CANNOT generate such a return due to whatever austerity measures are imposed either voluntarily (self-imposed) or externally (economy/governmental) then the base capital you have accumulated over the 5 years is insufficient.
Perhaps in a state of extreme austerity like Portugal is undergoing perhaps the ERE timeline must be extended...maybe it will take 8 years instead of 5 saving 80% of income.
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frugaladventurer
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@frugalzen: simply put and helpful.
Our income depends on clients coming through the door, so austerity is a factor. But not having fixed income was the main reason I started thinking about saving years ago, even as everyone else was having a credit card party.
@frugaldventurer: Thanks. I thought noone in USA even knew where Portugal is.
I like reading about the "Jacob way", but I don't think I will ever go that extreme. I still have ample room to manouver. Like I said, for me it is a journey.
Our income depends on clients coming through the door, so austerity is a factor. But not having fixed income was the main reason I started thinking about saving years ago, even as everyone else was having a credit card party.
@frugaldventurer: Thanks. I thought noone in USA even knew where Portugal is.
I like reading about the "Jacob way", but I don't think I will ever go that extreme. I still have ample room to manouver. Like I said, for me it is a journey.
I know where Portugal is, although I've never been there 
. I pretty much agree with what everyone else has said, but I'd like to point out that when the euro becomes a worthless historical souvenir, it won't matter how much you've saved if your savings is denominated in EUR. Better to stock up on gold and silver. Given the artificially low prices, when reality catches back up there's a fortune to be made.
. I pretty much agree with what everyone else has said, but I'd like to point out that when the euro becomes a worthless historical souvenir, it won't matter how much you've saved if your savings is denominated in EUR. Better to stock up on gold and silver. Given the artificially low prices, when reality catches back up there's a fortune to be made.-
secretwealth
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If the EU didn't provide military and political support to the European tax havens harboring trillions of dollars in untaxed income, maybe Europe would have enough money to pay its bills. It's a shame peripheral countries like Portugal have to suffer so that the multimillionaire Russian mafioso can ride their yachts around Monaco.
@secretwealth: Huh?... EU didn't establish the economic policies of the new member states.
*EU total military spending is 1.6% of the budget (€194 billion).
*Of traditional European tax havens only Luxembourg is in EU, which receives net of +€1.17 billion... Russia is not in EU.
*Portugal (like most the new EU nations) receives a net of +€2 billion from the EU, 1.25% of its economy.
There's a reason all these satellite countries are joining the EU, and it's not to pay taxes!
*EU total military spending is 1.6% of the budget (€194 billion).
*Of traditional European tax havens only Luxembourg is in EU, which receives net of +€1.17 billion... Russia is not in EU.
*Portugal (like most the new EU nations) receives a net of +€2 billion from the EU, 1.25% of its economy.
There's a reason all these satellite countries are joining the EU, and it's not to pay taxes!