Book Review: Early Retirement Extreme

Early Retirement Extreme: A philosophical and practical guide to financial independence by Jacob Lund Fisker.

If you live cheaply enough, you can chose to do whatever work you want (rather than whatever pays the most). That's been my message here on Wise Bread right from the start. Jacob's message is much the same. He's just more extreme about it.

I like to point out that there's value in having some income-earning capital even when the income is fairly small. Investment earnings that come to just one-tenth of income from employment open up a world of possibilities: They could be spent to raise your standard of living or reinvested to compound your way toward retirement; they definitely provide a great cushion if your earnings fall.

Jacob prefers to point out that if you can live on a tenth of the income from your job, then as soon as your investment earnings add up to that much money, you can go ahead and retire.

Faced with the suggestion that they could live on a small fraction of their income, most people simply throw up their hands and call it impossible. Jacob points out that it's not impossible at all. It's simply extreme.

It's a bit hard to summarize Jacob's model, but very briefly, there are several pieces that interlock:

Don't specialize.

Instead, develop the skills to do many ordinary things yourself. It doesn't take nearly as much effort to develop and maintain a basic level of competence as it does to become good enough at something that you can do it professionally. This cuts costs and provides additional sources of income.

Develop a new understanding of needs.

Many people own homes with numerous rooms that are vacant almost 24 hours a day — rooms that are unused except to store stuff that the owners hardly ever use. Getting rid of stuff you don't use enables the option of moving to a smaller, cheaper space.

Lose the car.

As long as you're moving anyway, move someplace close enough to where you work and shop that you don't need a car. You will quickly and easily save a small fortune while becoming thinner, healthier, happier, and wealthier.

Invest the savings from these cost-saving moves.

In as little as five years, you can be generating enough investment income to cover your living expenses.

Yes, it's extreme — but really, only in the sense of being very different from what most people do. It's not difficult or mysterious. It requires little more than a willingness to be unconventional.

There are a lot of things to like about Jacob's book. I like the way he proposes achieving the cooperation of a spouse who is uninterested in being different: "Unless you possess superior persuasive skills, it's no use arguing. Most people (and especially children) will follow your example rather than your suggestions, if they follow at all." He then goes on to suggest that once your emergency fund has grown large enough to support you over a five-year job hiatus, your spouse may start thinking his or her regular ol' six-month emergency fund looks kind of meager.

I like the way he points out that there is a vast range of choices for every decision, running the gamut from vastly excessive to utterly minimalist — a much wider range than most people recognize — and how he proposes that frequency of use is the right criterion by which to select from the list.

For example, he proposes that a stand mixer is perfectly appropriate for a professional baker who uses it multiple times a day. If you use it just once a day, a hand mixer is entirely good enough. If you use it less than daily, you can probably get by with a whisk. And if you use it once a month or less, even a whisk is overkill — he suggests that two forks rubberbanded together is the right tool for the job.

He offers a similarly graded range of suggestions for housing — roughly in the middle of the list, with three steps between them, he includes "living in a shack or cabin" and "living in an RV."

I like his whole "renaissance man" conceptualization of someone who chooses not to specialize, and his "businessman, working man, salary man" conceptualization of the alternative choices.

I particularly like the way he explains that having a flexible household cost structure is much more important than having low costs.

It's a point I've tried to make — I've called it the best way to avoid the worst financial problems. But I've usually couched it in terms of avoiding recurring monthly expenses. Jacob puts it in terms of the size of your emergency fund: If most of your money goes for wants rather than needs, then even a low savings rate can keep your emergency fund topped off — because during an emergency, you only need to pay for your needs. (Plus, your standard of living is higher, because so much of your income is available to pay for wants.)

I love the fact that he derives the equation for determining how long your capital will last at a given withdrawal rate.

Probably the best thing about the book is its moral center. It's a book about making the personal choices that lead to freedom, health, being able to support your family in changing circumstances, and being able to help others.

One thing a book like this always has to deal with is the argument, "What if everyone lived like you? Wouldn't the economy collapse?" Jacob points out that there's essentially zero chance of everyone making that choice. Even if they did, after a period of adjustment the economy would be just fine — and the people (who, after all, matter a lot more than an abstraction like "the economy") would be better than fine. Households that follow his plan are more stable; they're much less likely to need help from the government (or anyone else).

One thread that runs through the whole book, but mostly lingers just below the surface, is that living this way is lighter on the planet. Consuming less means that the earth's resources don't need to be depleted on your behalf. Further, consuming less leads directly to producing less waste, further reducing your impact on the planet.

Another book that describes a similar path — the classic Your Money or Your Life — is careful not to advocate any particular level of spending. Instead, it just advocates that you start being thoughtful about your choices — about just how much time and energy it takes to earn enough money to buy yet another thing that you'll use a few times and then store in an otherwise empty room. Although the author's own choices were just about as extreme as Jacob's, the book made a pretense of being neutral about how extreme your choices ought to be. Jacob, on the other hand, makes no such pretense. He's a strong advocate for being extreme.

If there's a downside to Jacob's book, it's that it's probably only going to useful to people if it falls into their hands at just the right moment. Give it to people three years before they're ready, and they'll dismiss it as preposterous. Even one year before they're ready, they'll dismiss it as interesting but impractical — too extreme. Give it to people eighteen months later, and they'll say, "Gee, this would have been useful a year ago."

But if you give it to someone when they're ready for it, I have no doubt that Early Retirement Extreme will change that person's life.

Note: I received a free review copy of the book, and links to the book title are affiliate links.

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Guest's picture

Excellent review. I don't practice Jacob's level of frugality, but he teaches me a lot. He definitely walks the walk. And I find his thoughts full of fresh ideas and wisdom.

I would like to download his book to my iPad, but it's not available. Yes, iPads and frugality seems incongruent, but sometimes I wonder if wealthier people aren't the most frugal.

Guest's picture

Phillip, I really like Jacob's blog and have read the book as well. I think you made a really good point towards the end of your review about hitting the timing correctly since when I first stumbled on early retirement extreme it was a time when I was open to anything and thought it was a doable idea. However, after mentioning it to several friends I found that most thought I was crazy for even considering it. Definitely a niche lifestyle, but one that offers a ton of freedom.

Guest's picture

Can't wait to get my hands on this book.

Don't think I'm ready yet... but I still want to flip through it. It's like you are already taking a Personal Finance introductory class but get the opportunity to flip through a textbook with Masters course material.