ERE in the university

[sky]

I am a part time instructor at a local college, teaching a course on urban planning and sustainability.

I worked in a lesson on ERE as part of sustainability and lifestyles of people who are trying to conserve, reduce, reuse, recycle, etc. It was also presented as career advice to the students.

I first asked what was the minimum amount that a student could live on. There were a number of answers between $300 and $1,000.

I introduced the concept of safe withdrawal rate of 4% as a rule of thumb that has worked for many years with investments in the stock market, not always but a reasonable rule of thumb. Then I showed how a 4% swr is equivalent to an investment amount 25 times annual expenses, and likewise 300 times monthly expenses.

I then drew a table on the board with various monthly expense levels in one column, 500, 1000, 1500, 2000, 2500 and 3000. In the second column, I put the investment amount that would produce this amount: 150k, 300k, 450k, 600k, 750k, 900k. Some of the students were laughing with skepticism as to how anyone could get that much money.

I then explained that we were going to use an example salary of a little over 50,000 per year, that resulted in net income after taxes of 36,000, or 3,000 per month. This is a typical salary that urban planners might expect after a few years.

I then wrote another table with a column showing the monthly expense amounts, and a column with the difference between 3,000 in income and the monthly expense, calling that column the savings amount. We talked a little bit about 500 a month being difficult, although with no car, a shared housing arrangement and cooking at home, it is possible. 1,000 a month is easier, 1,500 is easy and anything above that is luxury. I also noted the surprisingly high amount of savings if your expenses are low.

I drew the final table on the board, with one column showing the monthly expense, a column with the investment amount needed to swr, a column showing the monthly savings amount, and then the shocker (the class got really quiet and a few students were trying to write it all down when we got to this point): a column showing the number of months it would take to achieve financial independence (investment amount divided by savings per month). I don't have all the numbers with me, but the 500 expense level was 60 months to FI. When I got to the 3,000 monthly expense level, I put a nice fat infinity symbol in the grid. There were some laughs (little do they know how many humans are at the infinity to FI level).

I made some comments about the uncertainties of working in a political environment, and how each new generation seems to try to push out the older generation, and strongly recommended that they try to prepare for early retirement.

One of the comments was, "so I need to make sure I don't die at my desk". Exactly.

I think some of the students got the message.

[saving-10-years]

Sounds like a great lesson, something that will stick in these students' minds. Good work.

[leeholsen]

sure wish someone gave me that lesson at 20, then 21, 22, 23, etc.

i give it to myself every month now. practice makes perfect.

[sky]

sure wish someone gave me that lesson at 20, then 21, 22, 23, etc.

Me too, I should have learned this a long time ago.

[dot_com_vet]

Brilliant!

[jacob]

This is one of those great moments of being a teacher. You're teaching something that students initially think of as a theoretical exercise. But then a lightbulb goes on and the students frantically scrambling to copy down the black board because this stuff has direct practical implications in their personal life. Not only did they understand it, but I bet they understood it well enough to explain it to others as well.

That exact moment to me is the peak experience of teaching.

[theprincereturns]

Great job educating the next generation! Getting this into students before the have a inflated "anchored" monthly expense point is critical. It appears to be much more difficult to get this message across to established professionals with 3000+ monthly expenses.

[JohnnyH]

Great lesson, especially for students who haven't gotten used to blowing a few thousand a month on new cars/mortgages/5g data plans.

Here's how I imagine the chart looked a 4% and 1% (yikes!)... $5k/month (seems to be a popular expense number on here) takes 10 years at $5,000 month!.. Simple analysis not including and compounding gains, so it would obviously be significantly faster.

[Dragline]

Nice work, sky!

[sky]

Here is the last table. Assuming $3,000 income per month after taxes.

Monthly Expense; Investment needed to FI at 4% SWR; Monthly Savings; Months to FI; Years to FI

Expense; Investment; Savings; Months to FI; Years to FI
$500/mo; $150,000; $2,500/mo; 60 months; 5 years
$1,000/mo; $300,000; $2,000/mo; 150 months; 12.5 years
$1,500/mo; $450,000; $1,500/mo; 300 months; 25 years
$2,000/mo; $600,000; $1,000/mo; 600 months; 50 years
$2,500/mo; $750,000; $500/mo; 1,500 months; 125 years
$3,000/mo; $900,000; $0/mo; infinity; infinity

[Chad]

Agreed...excellent job. Even if you only managed to convince most of them to save enough to retire at 60 you made a positive impact.

I would have loved to hear the discussions they had at home with those who weren't in your class.

[JeffD]

You sir, just planted a seed that many of us might not even accomplish. Friends and families might not even get what we are trying to preach, but you started something big here. Amazing job.

[JamesR]

A+++++++!

Fantastic job. Way to sneak it in and lead them to the realization of what is possible.

[rube]

Great job!

I explained the mathematical principle behind (e)re (or FI) a few months back to an Intern at our office. She responded: 'why are we not being teached this at school or home?'

[jacob]

I just forwarded the OP's post to someone offsite again, because it's that good!

[vexed87]

Having read this, I now recall first learning about compounding interest during maths class in high school. The maths teacher explained that FI was theoretically possible because when we were given an exercise of working out how much interest you could earn by saving a £1,000,000 lottery winnings in the bank. I guess he missed a trick with the impressionable young kids at the time. It never clicked for me at the time (at 11 years of age) because I didn't have to manage anything more than 50p daily pocket money. Obviously the maths teacher himself hadn't realised you could live on significantly less, ERE style, and therefore the amount needed to be FI became unattainable. He drove a flash sports car IIRC, go figure .

As other's mentioned, it's crazy that responsible financial management is not taught in schools/colleges/university. The fact that you are teaching this in university is fantastic, you are getting your students at the right age where their fundamentals belief systems are most likely to be challenged and re-formed. Still, if people don't want to hear it, they will reject it with one of the usual objections! I know, had I been reintroduced to the concept as a 20 something, I would have made very different choices in the last decade, maybe I would even be FI now.

[cmonkey]

Even though this is over a year old, this is great! I think more folks than we realize really yearn for something like FI but they are just not taught by someone that truly understands how it works. There are many mental barriers to over come and just having someone say to your face "This is possible for you to accomplish" makes a huge difference. Well done!

[Stahlmann]

As it was mentioned in this topic it is better to refresh knowledge once per year (or everytime you receive paycheck after hard month ).

Shared on my FB. I just want to observe reactions.

[Ayo]

Thanks for upping the topic. This is a gem.

In a house we rent out, a group is starting up an alternative school. As part of the deal we might cooperate.
This theme should be weaved in the daily activities of the children. Even in how the owners run their school.
The basics can be explained in a two hour session.

Hope to report soon on how I translated this to 3-15 year old minds...

[Stahlmann]

On ,,reduce your lattes-minimalism" people tend to hold a paper in purse about how do they earn. I mean as follows ,,1h netto of my work - 10$". At least I heard about this method. Quite vivid (to check everytime before you pay).

Now I am thinking how I can link such OP history to ,,every paycheck".

I thought about creating ,,real" habit/using built in online banks feature to send 50% of each incoming money to special saving account (just to avoid: weee, I need to indulge my self now! after each month). And then manage it with ,,clear" head during weekends.

I derailed topic, so
If it comes to building good habits, I would recommend
http://www.behaviorwizard.org/wp/