Recently I finished reading ERE by Jacob Lund Fisker. First off: wow. This book knocked my socks off. It is quite ambitious in scope, and written at a much more advanced level than your typical personal finance book. Frankly, I really appreciated that – it’s great to delve into a deeper level of understanding of personal finance.
It is written in textbook style, and teaches ways of thinking that are very valuable. The basic premise is that traditionally the way we live our lives is very inefficient. We constantly waste resources, financial and otherwise. We go to school to specialize in a specific set of tasks that we perform day in and day out for decades. We finance our cars and houses, promising to pay back the money with interest over long periods of time. We go on vacation two weeks a year (if at all), trying to cram in as many activities as possible. We shop, shop, and shop, and then shop some more, filling up our homes with mostly useless items that eventually get thrown out anyway. This book challenges all of these notions.
By increasing efficiency in our lives, we cut out a lot of the physical and metaphorical clutter that stunts our growth as human beings. Instead of using money to solve our problems, we can learn skills that help us solve them. Fisher essentially espouses insourcing/generalization over outsourcing/specialization. There are good reasons supporting his case, but I personally feel that there should be a healthy balance between the two concepts. Generalization provides breadth and economic flexibility, but specialization provides depth and focus.
Fisher’s viewpoint is really interesting, as he views our individual lives as a series of systems that can be optimized. For example, our wardrobe is a system comprised of various sets of clothes. Our geographical location is a system primarily made up of where we live, where we work, and where we obtain goods and services.
This is a powerful paradigm, because it expresses the reality that no single action has only one effect in one area of life. Each action or choice always has side effects, whether intentional or not. For example, living within a mile from your workplace has the obvious effect of decreased travel time to and from work. Looking deeper though, if you ditch the car and just walk to work, you have the additional consequences of saving money on gas, insurance, and maintenance; and getting exercise by using your legs instead of pressing down on a gas pedal.
Fisher proposes living a “Renaissance lifestyle” where a person learns and exercises a variety of skills in order to live a fulfilled and engaging life. It encourages a more true sense of autonomy than simply having a lot of money. If the stock market closed, banks failed, and food and other resources became scarce, how would you survive? Financial capital is simply not enough. A more efficient life requires a broad skill set. By continually learning and gaining knowledge indifferent areas of life, we make ourselves more capable as people.
After expanding upon his philosophical insights, Fisker spends the latter half of the book talking about practical considerations. How does one spend less money and become more efficient with it? On the spending side, there’s a lot of advice here. There are approaches for how to think about heating and cooling your body in different environments, choosing a wardrobe, biking/walking/driving, how to deal with getting and getting rid of stuff, etc. It’s clear that the author has done his homework here. The reader might be shocked by some of the suggestions – it’s hard for the typical person to read,
“Freeing oneself from the timing of even the evening meal is very liberating. All meals can now be eaten at home. Even missing one meal, that is, not eating for 48 hours, becomes possible,”
and simply accept that statement. Fisher provides some intriguing logic though, and does not simply make claims without describing them as well. For example, following the quoted excerpt above, he cites a study demonstrating that caloric restriction correlates with longer lifespans.
The last section of the book helps tie things together. Here, basic personal finance is discussed in a broad sense. If the cost cutting life optimization described in the previous chapters is applied, one will be able to save a lot more money than before, even reaching levels of 50%, 60%, and 75% of one’s income. With this tremendous ability to save, one can then plow that money that was once earmarked for consumption into production – namely investments.
Here is where the author intentionally does not go into detail, surely disappointing some readers. He stays away from telling the reader what to specifically invest in, as he accurately notes that the right investment depends on a person’s skills set, temperament, and knowledge. He explains that he invests via stocks, because it is an area where he has done a lot of research, but it’s clear he does not look down upon whatever method the reader finds suitable – this is not a book about investing.
Whatever the investments of choice are, they should provide some sort of income with which to live off of (profits, dividends, capital gains, rents, royalties, etc.).
I can’t complete this review without mentioning an awesome set of calculations in the back of the book. After going through some math, Fisker concludes that the time it takes to retire early has much less to do with the rate of return earned on investments then it has to do with savings rate. Once a person hits around a 65%-70% savings rate, the ROI becomes almost irrelevant because the necessary funds to retire are being built up so quickly.
Also, it is important to note that this implies living off less of one’s means – spending $10,000/year off of a $50,000/year income is a lot harder than spending $40,000/year off of that same income. From the author’s viewpoint, this is not seen as sacrifice but rather a higher level of efficiency. Although I’m inclined to agree, I have my reservations. I think one can live a high standard of living without being incredibly wasteful. For me, it’s all about value.
This is quite a radical book. It provides an entire framework for living that some people will be drawn to but many others will not. Even if, after reading it, you wouldn’t follow the philosophy in its entirety, it is certainly worth mulling over the concepts and applying some of them with a new state of mind.
In the end, it’s all about priorities right? If you want to retire in five years without necessarily increasing your income, you’re going to have to cut your spending drastically. This book will definitely help with that. However, that’s not my plan – what has worked well for us is gradually reducing expenses and gradually increasing income. Over time this has a great effect of increasing financial margin and allows us to pay off our debt faster.
Whatever your personal strategy or philosophy, this book is an awesome resource for a different way to think about life and how to live more efficiently with money. I encourage anyone who’s thinking about the concept or application of financial independence to have a look at it.