Early Retirement Extreme: A Philosophical and Practical Guide to Financial Independence

In real life, the prisoners of Plato's Cave are those who are prisoners or slaves to their wages and their culture. A wage slave is a wage earner who is entirely dependent on their wages. While the wage slave is free to leave the current job, he isn't free to leave the job market altogether and he can likely not imagine the possibility of doing so. He is still entirely focused on the wall.

Looking busy is important because in this culture business is a virtue, just as being in debt is a virtue, and the most virtuous are those with the highest credit scores. They're better at being in debt compared to other people. This endless working and paying is called

spending the most productive years of your life chained to the job market to collect a lot of rarely used stuff that gathers dust in the closet or takes up space in junkyards a wise choice? Were you really born just to die, leaving a large pile of discarded consumer goods? Probably not. I realize that not wanting a house full of things makes me look weird and recently even

It's possible to reduce the amount of work all the way down to zero: financial independence. Indeed, playing the shadow game for five years provides a permanent way out of the cave. Alternatively, it's also possible to return to the cave for a few months every year to earn money for the next adventure out of the cave. This is living on the economy, so to speak, rather than living in the economy.The resulting freedom can be spent on personal projects such as reading books, visiting places, entertaining, exploring, cooking, learning, and experiencing. It can also be used to start businesses, engage in a second career, care for family members, etc. without worrying about having to support oneself.

Mental blocks are similar. It's much easier to say that something can't work than it is to find a way to make it work. There are always excuses.

Are you completely happy with your life?This question is important for anyone contemplating change. Anyone who thinks their life perfect is unlikely to want to change anything. However, perhaps you're not completely satisfied with your life, or maybe the way the world works doesn't quite make sense to you. For instance, why do we still work eight hours a day, 50 weeks a year, when we're twice as productive as we were 50 years ago? Why do we have children, then send them away for most of the day shortly after they're born? Is there more to life than more work and more stuff? Can happiness be bought?

The volume of the pyramid represents the will to change from an unsatisfying situation to something else and depends on vision, how practical the change is, and the level of dissatisfaction with the situation.

Changemongers thus have the following four variables to play with:Increase your dissatisfaction with present situation.Strengthen your vision of future situation.Build a plan to get from the present to the future.Lower the perceived cost of the plan.

We have come to a point where spending money is one of the few recognizable signs of success. For instance, spending half an hour in a traffic jam getting from A to B in an expensive car is considered more successful than spending half an hour in a traffic jam getting from A to B in a cheap car. I'm not sure why that is.

Similarly, it's considered more successful to sit on a couch in your home, if there is an additional unused couch in an additional unused room, compared to a house with no unused couches or no unused rooms. In the real estate market, a house with a greater potential for unused rooms generally commands a higher price than a house with fewer but constantly used rooms. Perhaps there is personal fulfillment to be had in cleaning and maintaining a larger home?

For recreation, many believe that saving for a year to drop a large sum on a hectic one-week vacation in an exotic locale is more recreational than staying closer to home and taking a month off to relax. A hectic tourist experience is considered very successful.

A prerequisite for this kind of consumer success is spending money. This money must either be inherited or earned. If that isn't possible, it will be borrowed. Most are not lucky enough to win the birth lottery and inherit their money, and so they have to earn their money. Since acquiring the things that demonstrate success only requires the short time needed to purchase some item, and practically no time actually using or enjoying said item - that is, unless a five-bedroom/three-bathroom home can be enjoyed remotely from one's cubicle while at work - people can dedicate most of their time to earning money rather than using and enjoying the things the money buys.This results in having little time to develop skills other than spending money, which can be witnessed by the confused helplessness modern people demonstrate towards solving problems without spending money or arguing on the phone with a service representative. Consumers are used to buying or arguing their way out of problems. For $150 you can buy a propane grill at the supermarket or you can spend $300 to have a plumber fix a drain, but a person doing these things has learned nothing

In many ways, modern society seems to be using a slightly more complicated version of a Keynesian economic stimulus scheme where the economy is stimulated by having some people dig a hole, then having others fill it back in the next day. We create problems, spend the next day solving them, and then claim we have made progress

For years, I've been wondering whether there is a small group of cynical people who are pulling our strings and intentionally creating problems so that others may solve them, or whether we're all pulling each other's strings because we're too busy paying attention to day-to-day problems like paying bills, going to work, and keeping up with all the shows on TV.Seen from the outside, the above-mentioned behavior makes no sense. However, when seen from the inside, everything makes perfect sense, because personal values and personal behavior eventually become aligned with the interest of the status quo. Having a job so that the bills get paid and one can go back home every night and pass out in front of the TV is what the good life is all about, right? Most people would agree, because most people can't imagine any alternatives. They are, in other words, prisoners chained to the floor in Plato's Cave.To break away mentally, one needs to be conscious of the fact that one is chained to the floor in Plato's Cave. The best way to understand this is to see the cave - that is, your current perspective - from a different perspective - namely, looking into the cave from the outside. Here is what I see.

However, as people have increased their expenses, households now require two incomes, and thus, as it so often goes in our time, parents have outsourced their children's upbringing and, possibly taking a lesson from their own situation as wage slaves, they now act as managers of their children's lives and careers rather than as role models, signing them up for extracurricular activities that are so very important for their résumé to get into their dream college. What happened to spending all day kicking a rock around or catching frogs in the creek? For that matter, what happened to the frogs?7

Fortunately, most of the skills necessary for success as a consumer and wage slave are taught in the institutions of the public school system. It's not the subjects that are taught so much as it's the way they're taught. During children's typical 12-year stint in the public school system, the most

doesn't require much deep understanding of the fundamentals. It doesn't instill knowledge and it certainly doesn't instill wisdom - in that sense, I guess it's much like the news media. What it mostly does is to test the students' intelligence and short-term memorization skills, and their willingness to use these talents to maximize their test scores and grades. It's fortunate that most office jobs don't require much prior knowledge from the job applicant. The procedures for most jobs can be learned by a sufficiently intelligent person with a sufficiently good memory and the conditioning to concentrate on the same task for long hours. Many employers, however, don't hire people without the required proof of achievement and conformity - that is, a degree.

On the other hand, people in our

While the service sector has slowly grown, and as employers have come to prefer college-educated job applicants, demand for college degrees has gone up. Colleges and universities have responded by lowering academic standards and raising their prices, much like other producers of consumer goods and services respond to rising demand. This has resulted in an overabundance of college-educated people with useless degrees. This creates structural unemployment, which is generally bad for society, bad for the unemployed, but good for employers. Hence, the continued calls for more education, even though it's sometimes hard to see the reason. For instance, it's not unusual to see job advertisements along the lines of,

CareerMost career people's lives are dominated by schedules and procedures. They get up at the same time every day. They take the same route to work and sit at the same desk and do the same things day-in and day-out for many years. At the end of the day, they go back along the same route. They have various chores and activities scheduled until they go to bed at the same time. Maybe they occasionally go to a restaurant, the movies, or a sports event. Weekends are like evenings - structured around chores that didn't get done during the week, like laundry, cleaning, and sleeping. Vacations are arranged in the same manner - if not taken between job transitions, vacations are spent a few days here and there as people spend one day traveling and then frantically go around and try to see everything they want to see before they head back, exhausted. The reward for running on this treadmill occurs not through the satisfaction of doing a good job, but from the semimonthly paycheck.Similarly, much effort goes into spending money. Money is spent as a reward for the drudgery, but also because people perceive that there's nothing better to do with it. Often, money is spent in the most inefficient way possible, by using credit cards, then making minimum payments, thus paying for the item twice over in interest alone. Enjoyment is often limited to buying things because there's no time to use them, since the buyer has to get back to work and earn more money. Measured in terms of gross domestic product (GDP) growth, this cycle is highly productive, but it could be argued that the net effect is not very productive at all. Thanks to advertising, nobody knows when enough is enough, even though running out of space in the garage should serve as an indication. Material wants are universally believed to be infinite in scope.On top of that, everyone seems to want a cut of your earnings. The harder you work, the greater the cut. The tax authorities want their cut, and the more you work, the more they want. People want money to manage the money you don't spend, and money to take care of the things that you don't have time to take care of yourself. This requires more work and, hence, even more costs in terms of day care, business clothes wear and tear, expensive haircuts, power lunches, and snack bars

Living to work and spend, it's not surprising that people derive their main identity through their job title and their purchases:

The Darwinian

A consumer life is one of intense specialization. Most do a single job without much concern for the greater whole. This is why such great importance is placed on fitting in and being a team player. Conversely, it also means that few participants in society really have or attempt any understanding of larger issues like climate change, geopolitics, and population issues, or why, despite our advances in technology, we still work as hard as our grandparents did. Such problems are typically left to

Many profit-driven corporate strategies are based on fashion, planned obsolescence, unneeded upgrades, and masterful emotional manipulation - marketing - causing people to continuously replace goods which are still in good working order.

In a world where automation has eliminated pride in workmanship from the products and nobody has time for much else than work, status is based on acquisition and accumulation. The purchase and consumption of products has become a surrogate for creating and doing. Self-worth and status, then, are not about intrinsic values such as who you are, what you can do, or what you know; they're about extrinsic values like what you can buy, the car you drive, the number of bedrooms and bathrooms in your home, and the price tags on your clothes. Witness the popular shows about highly stylized homes with a TV in every room - TV being a way of consuming your time rather than your money - expensive furniture, and art prints on the walls. Now go and look again, but pay attention to the number of books on the bookshelves, the tools for the hobby projects, the work in progress spread out on the desk. There are none. What empty lives these people must live.

Using financing, a business can leverage its operations by borrowing money to spend on investments to increase future revenues. Future payments of debt and interest are then made using the higher revenue. This shifts the cost of money from a less productive present to a more productive future and allows the business to earn profit faster and earn more profit compared to a business that operates without debt.15Mortgage, car-loans, and consumer debtUnlike businesses, consumers rarely use debt to invest and generate an income. Instead, they use debt to purchase consumables like vehicles, houses, furniture, and electronics, which don't generate income. In this case, interest is no longer the cost of doing business. It's now the cost of living beyond one's means.

Buy and hold is an investment strategy with no exit strategy. What this typically means is that stocks are usually liquidated when money is needed, rather than taking into account when a given stock is overvalued. The aggregate effect of workers investing in this manner is to turn the stock market into an elaborate demographical Ponzi scheme, where the value of investments depends on how many people are retiring and how many people are entering the labor market. In particular, it depends on the level of confidence that the most recent entrant has in the system, and hence this becomes a policy matter. Diversification doesn't prevent the effects of something as systemic as this. Instead, it reinforces the problem, as everybody behaves the same. If stocks are supplied and demanded according to how many are entering and leaving the workforce, then market price becomes dependent on demographics.

The consequence of retirement accounts and the reliance on automatic savings in equity markets is a large class of people who have very little equity ownership compared to their level of consumption. Nobody thinks of using improvements in technology and productivity to allow people to work less and require fewer assets to achieve the same standard of living. Instead, while everybody is richer, at least in terms of stuff, no one is any wealthier. Their wealth is

What happened after industrialization took hold was that a few people became wealthy, ruthlessly eliminating waste by focusing on efficiency. Many more people started prodigally wasting the abundance of resources and goods that were suddenly at their disposal. This has now turned into a collaborative/exploitative arrangement, where a few get wealthy selling waste to the many, while the many are employed in arrangements in which they have little control over what they produce. Often, their only idea is to work harder and be more productive, or somehow join the few by finding a clever way to cash in on selling wasteful, low-value products and services.

increase efficiency. It's possible to live with the same benefits as the rest of society for one quarter of what the average consumer spends. Many of these expenses are eliminated by only owning what is actually used, and maintaining what is bought

Wage slaves are free to change their job, but they're not free to quit their job. Wage slaves are free to choose other products as long as they can afford it, but they're not capable of creating alternatives to buying products, because they're too busy working.

The public perception of a link between cost of living and quality of life is strong.

in The Renaissance man

means that attitudes combined with actions lead to habits which, over time, tend to deliver certain deserved outcomes. The mathematical term for this property or statistical connection is ergodicity

AgencyHumans with an internal locus of control - the belief that they're in control and that they're the masters of their own destiny - possess agency. Agency resists and reduces stress. Anyone who has been out in the world for a while and experienced a lot of different situations has a good idea of what is normal, and thus can describe a bad situation as what it is: simply a bad situation. Conversely, people with less agency and a belief that they are not in control of their destiny are more likely to be stressed and to suffer the associated health effects. Combined with self-confidence, agency is the attitude that any problem can be fixed, given enough resources in the form of time, effort, and determination. This attitude rests either on a thorough knowledge of or training in what is to be done, or on the surety that such knowledge or training can be attained. This attitude is often transferable from one field to another, completely unrelated field. Doing something that is considered very difficult at least once in your life is highly recommended.

We are aware of large-scale problems, but most of us believe that we can't do anything about them. Instead, we believe in a mythical They who will find a solution, just like They have provided all this wonderful technology we surround ourselves with.We may be more technologically advanced as a group, and correctly but myopically hold up technology as our one indicator of

it takes 1,000 hours of focused effort to be considered competent in a subject, 3,000 hours to master it, and 10,000 hours to become an expert

Considering that the average person spends four hours a day or almost 1,500 hours a year watching TV or playing computer games, it is not an insurmountable task over a period of years to become an expert in a field while simultaneously becoming competent in several other fields, perhaps even mastering one of them

in Human capital and necessary personal assets

For our modern purposes, the fields can perhaps be grouped into seven generic fields - physiological, economical, intellectual, emotional, social, technical, and ecological.

There are few combinations more dangerous than an intelligent person without knowledge, experience, and wisdom.

People remember most of what they do, some of what they say, but little of what they see or hear.34 It's therefore important to do things. You must experiment systematically to understand the underlying fundamental principle.

CopyingComparingCompilingComputingCoordinatingCreating

in A modular design

In a world of scarcity, instant gratification is the optimal strategy. In a world of abundance, delayed gratification is the optimal strategy.

A good strategy solves multiple problems at the same time!Yet enormous amounts of resources in our society are aimed towards solving problems heterotelically. Sometimes the solution is the cause of a new problem, but thanks to short-term thinking, the focus is often on responding to problems rather than preventing them. Our culture seems to have an ongoing fascination with action, and

in Tactical principles

instead of choosing a career in a cubicle, a five-bedroom/three-bathroom home on a 30-year mortgage, and a new TV on credit, one may choose financial independence and early retirement.

The world is like a box of Legos. A box of Legos comes with blocks and instructions to build a particular model or product out of the blocks, specificallyblocks + instructions = model.However, the world is normally not perceived as a box of Legos. Mostly, the accompanying instructions are followed slavishly and the fact that the blocks can be combined creatively into new models is forgotten. This turns the box into a kit model. Mentally, this reduces the concept of a building block from something that can be creatively combined in many different ways to being merely

purchasing is even used to substitute, usually unsuccessfully, for other needs like recognition, meaning in one's life, self-worth, and even using and doing things (recreational shopping). Using the market to satisfy every need is expensive because the market solution is generally not the optimal solution.

Giving up wants can be as tough or easy as going on a diet, giving up smoking, or changing other habits dependent on strength of character. However, doing without is often thought of as a sacrifice, especially when strongly attached to material comforts. It's quickly realized (after about a month) that happiness does not stem from being surrounded by possessions, but that being surrounded by them is the result of an addictive habit. Thus, it can be tremendously liberating not to

The most important thing to remember is that the price of anything is not determined by how much effort went into the production. If it was, I should be paid as much for writing this book as an actor gets for a movie. Nor does it depend on the level of specialized knowledge required for the job. If it was, I should have earned more than $40,000 per year after spending 10 years to acquire what corresponds to a master's degree in nuclear physics and a PhD in astrophysics, given that you can also earn this salary as a toll booth operator. Nor is it determined by any kind of inherent value. If it was, school teachers would be paid more than professional athletes and bankers. It's strictly determined by how much the seller can get. This took the economics profession hundreds of years to figure out.

Materialism has a fascination with overbuilding, oversizing, and overcompensating. This is bad economics. Consider that for each thing that gets overbuilt, there's something that doesn't get built. For each thing that gets underbuilt, there's something that must be replaced when it breaks. Both problems mean that resources are wasted.

improvisation.Skill serves to shift the line in the figure down and to the left because skill makes the use of time and capital more efficient. Except at a very high level, maintaining skill has no cost, so if something is learned once, no further effort is required. In this case it's sensible to develop a skill to just before the point that it begins to require maintenance, continued practice - beyond this point, replacing skill and time with capital assets makes more sense

Freedom is attained by creating a large gap between production (revenue) and consumption (expenses). This can be done in two ways - earning more or spending less. Nothing new there.Which of the two you prefer depends on individual circumstances. If you're easily capable of producing more, you'll frame freedom as the opportunity to produce more. If producing more requires significant effort, you'll frame freedom as not having to produce more

Which things should I own?Given these problems, things should:have the appropriate quality and a low lifetime cost.be durable.be easy to dispose of either by selling, giving away, or trashing in a responsible manner.be small and preferably lightweight.be easy to make.be serviceable locally and easy to maintain and repair, preferably by yourself.

in Which things should I own?

Annual cost = (Your cost - Used price)/(Years in service).

I think that a good guideline per person for living arrangements is $200-350/month/person or about 10-15% of your net salary. If anyone tries to convince you to spend more, they're trying to sell you into a lifetime of wage work (see this figure). In some places this buys more than in other places. As far as I'm concerned, the percentage is absolute. If I want to live in a

NAV = (annual rental income ×(1-upkeep))/(risk-free rate + risk premium).Here the upkeep ratio is typically 30-40% of the rental income. The risk free rate is the going rate of 30-year bonds. The risk premium is typically 1-2%. Calculate the capitalization rate (cap rate) given bycap rate = (annual rental income ×(1-upkeep))/(price).The cap rate should be a few percent over the risk-free rate to adjust for the possibility of the house burning down. As you can see, it's essentially the same calculation. You should understand these calculations and be able to modify them to your situation.

In terms of rent, landlords attempt to pass on mortgage, maintenance, and insurance costs to the renter. However, they can't charge more than what the rental market will bear. If you're renting and equivalent housing is selling at its NAV, the landlord is successfully passing all maintenance, insurance, and mortgage costs on to you. In this case, you'll probably be better off owning since you should be able to maintain your home for less than what you're paying your landlord to pay for caretakers. If it's selling above NAV, you'll be better off renting. If it's selling below NAV, you'll be better off buying - unless you know you're going to move within the next few years.

How to find shelterThe three most important things that matter for shelter areLocation relative to your work.Location relative to your grocery outlet.Cost.If you work from home, it's the location relative to your customers that matters. If you don't need to go to your customers physically, this doesn't matter at all

in Clothes

average piece of clothing lasts about 100 wash cycles. Better clothes may last 200 cycles

interesting concoction of sodium carbonate, borax, and inactive ingredients (color agents), all of which are very inexpensive, plus advertising campaigns, management salaries, distribution systems, etc., which comprise most of the cost. To make your own, you only need sodium carbonate, which is sold as either washing soda (check out the art supply section) or pH booster (next to the pool supplies), borax (laundry detergent section), and grated bar soap (grate your own). Mix these in a 1:1:1 ratio. A load requires about a tablespoon of this mixture

Consider the curiosity of a child, always asking questions about this and that to learn about the world. Children express themselves creatively when given the chance. Here too, only a few adults are creative, imaginative, lifelong learners. Those who are can't help themselves: They are mentally healthy and never bored. Learning comes easy to them. Conversely, many have little imagination left and would prefer not to think, especially if they have to change their mind or break a few conventions to be able to think about something

being and an ability to appreciate life

Health is the presence of something positive, rather than the absence of something negative.78

Low-intensity exercise (see the list of intensity levels in this table) doesn't burn many calories - a pound of fat, that is 4,200kcal, will supply enough energy for a 50mile run - and it doesn't burn any energy after the run. In fact, it may even be detrimental. Conversely, adding a pound of muscle mass increases the daily metabolic rate by 75-100kcal just to keep the muscle alive. It's thus clear that decreasing muscle mass is self-defeating as a strategy to fat loss.

However, much of this work is directed towards the illusion of real strength,84 and not as much real world strength as the look suggests.85 This is similar to how driving a luxury car these days mostly means being able to put one's mark on a lease or a car loan, whereas it used to indicate a measure of wealth since only the really wealthy would be able to pay cash for a luxury vehicle.

The clean and push press works practically all the muscles in your body and it's a great power movement. If your desire is to be strong (but with less endurance), the ultimate exercise is the deadlift.

The optimal interval for strength and endurance is the Tabata interval, which means 20 seconds of all-out exercise followed by 10 seconds of rest and repeating this sequence throughout the entire workout; that is, working roughly 2/3 of the time. Increasing the weight and rest-to-work ratio prioritizes strength. Decreasing the weight and rest-to-work ratio prioritizes endurance

To increase work capacity, a good progression is first to increase strength, then to increase volume, and then finally to increase power by shortening the rest intervals. It works like this:Increase strength sufficiently to do a few reps. This is efficiently done by using this entire program at a lower strength requirement at first.Build up the volume. Suppose the entire volume is 100 repetitions. In this case do 100 reps with enough rest in between to finish. You may take all day if you like - for example, doing 5 reps every hour all day until you reach 100. Once you can do this every other day without overtraining, move to the next step.Unless you picked a completely unrealistic strength level, most people will start at this point. Now, 100 reps can be divided into 100 reps×1 set, 50×2, 33×3, 25×4, 20×5, 18×6, 14×7, 13×8, 11×9, 10×10, etc. Doing 1 set should take exactly 1 minute, rest included (use a watch!). Hence, 33×3 will take 33 minutes to complete. The program adjusts with power capacity - for example, once 18×6 can be completed in good form, move on to 14×7. Once you reach 7×14, say, rest periods will be very short and you will be close to being able to do the exercise continuously, for example, as a power-endurance exercise. At this point move to a higher strength level and start over

You can hold a continuous tone.You can tell your life story.You can speak in paragraphs.You can carry on a conversation.You can talk in sentences.You can speak a few words at a time.You can pronounce a syllable or two at a time.You can't possibly breathe any faster than this.You think you will die.You wish you were dead.

The best exercise intensity, in terms of calories burned and increase of cardiovascular capacity, is right around the lactic acid threshold - that is, where the body starts running out of oxygen, somewhere between level 7 and 8. Conversely, most aerobic workouts happen at level 4 because it burns the most fat87 relative to blood sugar, and especially because this lower level doesn't scare off the beginners, who are very important to the fitness industry.

For people engaged in light manual labor, this diet is a problem, particularly if highly glycemic foods are eaten at lunch resulting in an insulin spike that drops blood sugar levels precipitously. Not only can this make a person hungry,91 but the high level of insulin also makes one very tired. A quick way to fix this is to quickly engage in intensive workout - for example, spend 20 minutes doing all-out HIIT (see High intensity interval training). Another option is to store the excess energy around the midsection and grab a cup of coffee or one of the heavily marketed energy drinks.

in Detergents, cleaners, and other household stuff

Car ownership has some or all of the following costs:Depreciation, leasing, or debt servicing costs. Leasing or debt servicing costs are relevant if you don't own your car outright. If you own your car outright and you intend to replace it, depreciation costs become relevant. For instance, $12,000 for a car that lasts 10 years costs $100 a month. That requires $40,100 in extra savings (see this equation in Investing and reasonable return rates).Gasoline and insurance. These are unavoidable if you want to drive your car anywhere, except perhaps downhill on backroads.Opportunity and health costs from sitting behind the wheel when you could be exercising.

In a service economy, people pay other people to raise and teach their children, grow and cook their food, build and maintain their homes, make their clothes (you still get to pick your own unless you hire a personal stylist), etc., mostly things that we could do ourselves.99 In return, we get to spend our time working at a job, doing the same thing most of the day. This arrangement follows from the economic law of comparative advantage, which is supposed to make everybody better off economically. There are, however, parts of life that are difficult to measure economically because there's no market for them. There is, for instance, no market that can price in the cost of happiness, yours and theirs, in not raising your own children.

have nothing good to say about TV. While I can't prove its universal disutility, I think not having a TV, or at least not watching it, is a big factor when it comes to choosing unconventional paths. Naturally, there's this popular idea that TV feeds the masses with certain values, but I believe this is exaggerated.101 Most programming offers fairly reticent opinions and is quite free of actual content. The great beauty of TV is therefore not so much that it acts as a form of active propaganda filling people with new ideas, but that it keeps people from having new ideas in the first place

During the day, professionals attend to their jobs. During the evenings, they vegetate in front of their TVs, thereby prevented from learning anything, and this effectively keeps them in their jobs.

Credit cards are mostly a nonissue in the Renaissance lifestyle. The rich may use credit, but the wealthy don't. Leave rewards, cash back, and frequent flyer miles to consumers and high spenders.

Credit scores are irrelevant because obtaining a loan is irrelevant. It's perfectly possible to save up enough money to buy a small home and buy it in cash, 100% down. To determine whether it is worthwhile, just compare your portfolio's return on investment to the cap rate of the real estate you're buying.

willing to take the bet in return for the proceeds from investing the float, it means that you should not take the bet unless your financial loss would be catastrophic - or you know better than the actuaries. Furthermore, you also have the opportunity to proactively reduce the risks. If you think about the potential consequences of everything you do - that is, careful - you can substantially reduce your risk. On the other hand, if you know your behavior is risky, paying for insurance might be worthwhile, unless the insurance company also knows this, in which case they will simply charge you more.

Many insurance plans are better thought of as financing than insurance. This holds for insurance plans that pay for regular maintenance such as health and dental. Here the cost of the maintenance gets added to the premium along with a profit for the insurance company, similar to how a credit company collects interest. They would not offer these fully loaded plans unless it was unprofitable for you.

Preventing catastrophic, that is, irrecoverable losses is the only reason to carry insurance.

If your home comprises a substantial part of your assets (not a good idea), you would want to carry some form of insurance, as a loss would be catastrophic insofar as you would not be able or willing to save up the money to buy a new one in a few years.

Voluntarily stepping out of the consumer cycle and saving enough to replace one's job with investment income instead of working isn't

The popular consumer culture represents the dominant type. Being surrounded by this culture around the clock makes adopting its values almost unavoidable. Indeed, you may have to deal with your

Material wealth has made it easy to avoid having to develop any social skills or flexibility.

However, if your spouse's emergency fund is only the standard six months, but she is beginning to think that her current life path sucks, she'll most likely start saving more so that she'll have the same options. If your accounts are joint, say you would prefer to save the money whenever she proposes an additional expense. Suggest that you split some money into his and hers, and if he wants to buy something, fine, but you reserve the same amount of money for savings. After a while, you can start talking about the interest you're earning. One thing that tends to get people going is when I talk about how the money my savings generates on average corresponds to a full-time minimum wage job, and how that essentially means that the person is working for me. That seems to get people thinking - yes?

Most importantly, it should be realized that children don't spend a lot of money; rather, their parents do!

Beyond this, all they need is love, learning, activity, and responsibilities. You can either pay for someone else to provide this or you can provide it yourself. Most arguments will originate in the belief that it is normal, needed, or even desirable to pay someone else to provide these services.I believe that having a stay-at-home parent is a very good idea, and I don't think I'd want it otherwise. I had a stay-at-home parent myself.

I don't think I would pay an allowance, but I would hire them to do work not associated with the household. Whenever they got a money gift (birthday, Xmas) or any income whatsoever, I would make them put 50% into savings and let them spend the other 50% as they wished. I would let them spend the interest of their savings account, hoping that they got the point. Once they understood the point of this exercise, the decision would be up to them. In the end, I would not be able to make the decision of whether they should be salary men, working men, businessmen, or Renaissance men. That would be up to them

Naturally I'd also educate them on life skills that they don't get from school. They would know how to read a balance sheet, double dig a garden, put up a shelf, and fix a flat before turning 18. Again, the decision whether to spend money on this later on would be theirs.

An ecosystem has four components, which form a cycle: Abiotic (resources), producers, consumers, and decomposers. Modern economics only considers two of these relevant: producers and consumers. It ignores the finite103 abiotic resources and presumes that their only limit is the producers' ability to turn them into commodities. Similarly, consumers and producers ignore decomposition. Once our waste and detritus is dumped into landfills, lakes, rivers, and the atmosphere, and is out of sight, it is, for all intents and purposes, out of mind. Meanwhile, the finite planet is running out of its finite resources (duh!) and pollution keeps increasing and is starting to bite back. Typically, the economists solve this problem by waving their hands and mumbling something about substitution and human ingenuity. However, it's obvious that our cultural paradigm is incomplete and that resources and decomposition capacity can no longer be considered infinite.

Naturally, the economy can't keep growing without killing itself if the cycle isn't completed. If the cycle is not completed, we're either going to run out of resources or drown in pollution.

present, in which case your future will be uncertain. A person living in the present would very much like to cut down that forest as soon as possible and turn it into paper. A future-oriented person would carefully try to preserve his principal asset, the forest, and only cut when necessary, living off the trimmings. He would think of his wealth as the amount of wood he can get by trimming, not the amount of wood he could get if he cut the forest down. Unfortunately, so many people see it differently. That is why they keep working to both cut down existing trees, as well as planting seeds and cutting down the saplings as soon as they get the chance. They don't see the freedom that the mature forest offers. The entire focus is on maximum wood production in the present rather than minimum effort in the future.This frame of mind is pervasive. Retirement is seen as spending hoarded savings, and survivalists tend to focus on stocking up on tools and supplies. Rather than forming an environment which can sustain them, they accumulate assets to survive in an environment that isn't conducive to their living

I spend about as much on my total living expenses as an upper-middle-class family spends on their mortgage interest alone. Effectively speaking, I've lent them my money so they can have a house with five bedrooms, three bathrooms, a vaulted foyer, and a two-car garage. In return, they pay all my expenses. Hopefully, we both consider this a good deal; I know I do.

In a free country, roles are chosen, not assigned. Most people choose to become debtors and borrow money so they can increase their spending, possibly due to a lack of knowledge or maybe simply due to the barrage of advertising that says spending money will result in happiness. However, it's possible to choose the creditor side and save money, eventually buying financial independence. Such financial independence comes from investing in income-generating assets until the cash flow from the assets completely cover all spending on stuff.

The best way to think of work is as a package which includes several different goals (see Contingency goal-setting), such as cash flow (see Financial cash flow cycles), contributing to society, personal edification, socializing, having something to do all day, etc. (see the discussion of side effects in Contingency goal-setting). In many cases, cash flow isn't considered the primary reason to work. Many state meaning or passion as the main reason for working. However, even if that is the case, the cash flow to pay for stuff, which can't be otherwise acquired due to lack of skills or connections (see The lock-in and A Renaissance lifestyle), is a crucial part of work.When cash flow comes from work, it's called earned income. Earned income is made either by working for an employer or working at a business you own, and it always requires spending time and effort. Earning income is therefore a process of exchanging your time for money. For example, suppose the actuarial tables say you have 60 years left to live, and you work 1 year in exchange for $30,000 net. You now have 59 years left, but you also have $30,000 which you would not have gotten otherwise. Similarly, you can exchange more years for more money. Many exchange most of their time for money. If we subtract the time spent on work plus associated tasks and sleep in a 24 hour day, there's very little time left, perhaps less than 25%

However, money can be spent to avoid spending time directly - for example, earning $10 to buy a cast iron pan takes less time than building your own pan from scratch. Money can also be invested to get more money to spend, thus avoiding having to exchange time.

Piecework is often salaried because it's cheaper for an employee to train one full-time employee than it is to train two half-time employees. The systemic consequence is unemployment and thus competition for full-time jobs (see Job Competition), which drives salaries down.

Conversely, it also creates more job security with a given employer, since hourly paid workers are the first to be laid off during downturns. Even if a salaried job does not involve piecework, it's often expected for employees to be present regardless of whether they're being productive or not. This often leads to water cooler talk for hours, pretend work, and other nonproductive activities, which many people actually enjoy.

However, being paid on salary can lead to less satisfaction since the effort-reward connection is broken when the employee realizes that he gets paid the same amount regardless of how much or how little he works. Realizing that pay often has more to do with negotiation skills, politics, or tenure than productivity or even responsibility can be depressing. It divides the workforce into three kinds of people, popularly known as work horses, show horses, and horses' asses. In particular, some will realize that they can get further ahead through office politics and career management than conscientious work, some will realize that showing up and doing the minimum amount of work will pay equally well, and some will not realize either one. I'll let you guess which horse is which

It should now be easy to calculate the size of an emergency fund. All you need is to identify your needs relative your income, your savings relative to your income, and the expected duration of your emergency (how long it will take to find a new job - this depends on your profession and the economy). You also need to estimate the frequency of your emergencies (how often you expect to get laid off).

Let us consider the required savings rate to replace both needs and wants. If the savings rate is 10%, needs and wants total 90% and therefore it takes (90/10=) 9 years of working to save enough money to spend on needs and wants for 1 year of not working. If the savings rate is 20%, needs and wants total 80% and so it takes (80/20=) 4 years of working to replace 1 year of spending. If the savings rate is 50%, 1 year of working saves enough money to take 1 year off. This table shows the calculations for all cases using the formula (1-r)/r (for example, for 20%, r=0.20 so (1-0.2)/0.2=4) for the top half and r/(1-r) for the bottom half. Note that this calculation doesn't consider emergency and retirement savings. If you like, include retirement savings and emergency fund savings under general spending.

It's important to note that the time units in the table are irrelevant. Given a 50% savings rate, there's no rule that one has to work 1 year and take the next year off, although this solution is growing in popularity. It's equally valid to work 3 years and take the next 3 years off. A flexible work schedule would mean that instead of counting in years, you could be counting in months or even days or hours (a one hour work day, anyone?). In other words, with a 20% savings rate, you could take 1 month off each time you work 4 months, or 1 day off each time you work 4 days.

compounds interest at a rate i. Suppose the fund has a size P0 and each year p is withdrawn on the first day of the year, while the rest of the money is invested for a year at a rate i

if we have a P0=10 year fund which pays out p=1 annually at a 4% (i=0.04) interest, it lasts N=12.38 years rather than 10 years. In comparison, a 20 year fund with the same parameters lasts 37.39 years. This is highly interesting, because by doubling the savings before beginning the withdrawal, an additional 15 years was gained on top of the 2.38 years from the 10 year fund's interest.

This equation is the key formula for extreme early retirement, so pay extra attention to this paragraph! The formula relates the number of retirement years (your life expectancy upon retiring) to the rate of return on your portfolio and the size of your portfolio given in either withdrawal rates p/P0 or the equivalent

P0 = (1+i)p/i,which is the required fund size to withdraw p at the beginning of each period when interest is added at the end of the period.109 A perpetuity leaves an estate which is exactly equal to P0. If less than p (as given by this equation) is withdrawn, then what is not withdrawn can be used to grow principal. This means that P will increase even as money is withdrawn.

P0/p=(r)/(1-r)((1+i)M-1)/(i).In traditional personal finance planning the time invested M is the most important factor, with typical values around 30 or 40 years. Some people will be clever enough to achieve superior investment returns i. We are not counting on this. In the case of early retirement, M will be small, and we will presume that i is of the usual range, maybe around 6%. The main lever in this equation is thus r/(1-r). For a traditional savings rate r=0.1 the lever is r/(1-r)=0.11, whereas for an extreme savings rate r=0.75, the lever r/(1-r)=3, which is 27 times higher! Even with a lot of time to compound and a market outperformance of a few percent, it's hard to beat a factor of 27.110This figure shows the time it takes to grow the fund to 30 years as a function of savings rate. According to this figure, a 30-year fund will last 70 years even at a modest 3% return rate.

in Financial independence and investing

Monte Carlo simulations suggest that a withdrawal rate of 4% is good for 30 years of inflation-adjusted expenses and that a withdrawal rate of 3% is good for 60 years or more. A withdrawal rate of 2% will last forever - that is, if history repeats itself.

The true cost of thingsThis equation gives a quick way of estimating the assets required to be financially independent of a given recurring expense. Using a conservative rate of return of 3%, we find P0 = 1.03/0.03 p = 34.33 p. If the expense is given monthly, as many recurring expenses are, the annual cost is 12 times higher, henceP = (1+0.03/12)/(0.03/12) p = 401 p.This means that each $1/month not spent is equivalent to reducing the required fund size by $401. For example, the cost of a $20 monthly payment may seem inexpensive to someone earning $15/hour, but with an asset-based income, it actually represents $20×401 = $8020, which represents over 4 months of work at the given hourly rate. Thus, frequently it costs much less to pay more for a one-time expense than to get involved in a recurring expense.

asset-based and could easily be 1%, which has to come out of the withdrawal rate.112 For example, if the withdrawal rate is 4% and 1% goes to fees, it only leaves 3% for expenses; in other words, 25% of the cash flow is spent on management fees. With fees this high, it means that the fund has to be proportionally larger to support financial independence. Is it worth it to spend time and effort learning how to manage your money yourself rather than increasing M? That's up to you.

When I was younger, I used to deride the idea of jocks and how being a college athlete certainly didn't contribute to education; now I believe it does. The most important part of education is forming your character (see Ergodicity and destiny), whether as a worker, capitalist, leader, or follower, or whether you deal with people - that is, the social and the political - or reality.

I do believe there is a certain moral aspect to education. It forms one's character, good or bad. In that sense, education is a form of indoctrination aimed to produce a certain attitude. This means that education works well if it reinforces and polishes an existing natural attitude, but it can be a painful experience if one is naturally incompatible with the indoctrination. This is why I don't believe that one education fits all. Ever notice how many successful business leaders are college dropouts? It did not take them long to realize that college was not helping them to become leaders and entrepreneurs. This is because a college education creates followers, or people who are habituated to being handed a bunch of instructions and then delivering a product, from years of practice. It doesn't matter what the form of the product is - that is, whether it's an essay or a math problem. The important parts are the assignments, the deadlines, the grades and the annual reviews; a structure that is repeated at the employee level in corporations. I have found that I don't make a very happy salary man - I should probably have gotten a clue from the fact that I was taking courses based on personal interest rather than strategically choosing the easy courses to optimize my grade point average - but I have, however, found that I make for a very happy Renaissance man.