A philosophical and practical guide to financial independence –
Jacob Lund Fisker

After reading several finance related books one is obviously attracted towards financial independence and retire early (popularly known as FIRE Movement). The title itself describes the content of the book means it consists of extreme measures to achieve FIRE by being frugal and self-reliant.

The author Jacob can be truly termed as Renaissance Man if you go on reading his philosophy and whatever he has done.The author states that we as a society all live in a prison with invisible bars. He has termed all wage earners as slaves of the monetary system. He advocates that a person should have DIY approach in every aspect of one’s life such that, if time requires you should do the work of plumber or mechanic or even grow your own food like a farmer. Some people may consider it as very extreme and austere way to live life. Though I do not agree with all the things discussed in the book I think there are few lessons I learnt from this book.

  • a) Deal with Problems
  • To paraphrase Einstein, you can’t solve your problems with the same mindset that created them.
  • Feynman once remarked that the best way to find new insights into a problem was to step out of the box, ignore previous publications, and come to your own conclusions.
  • As previously remarked, “It is impossible to solve a problem with the same kind of thinking that created it.” Yet this is exactly what we’re trying to do again and again. You don’t make a poorly designed engine run better by making it bigger (or smaller for that matter). The reason we do so anyway is that we don’t know how to redesign it or that there are too many vested interests who benefit from not having it redesigned.
  • b) Thoughts on Current Education System
  • Students now think that if they don’t learn anything, it’s a failure of the teaching process, or the teachers, rather than their own failure to study. After all, they paid for it. It’s not what you can do, it’s what you can buy, which matters.
  • As students have come to view education as a product, and parents are still only a phone call away, professors are “encouraged” to make education “edutaining.”
  • The most important part of education is forming your character, whether as a worker, capitalist, leader, or follower, or whether you deal with people–that is, the social and the political–or reality.
  • A degree is something you get at college which can be used as an entry ticket to the white-collar job market. Similarly, a certification is something that can be used as an entry ticket to the blue-collar job market. However, a character transformation can be attained pretty much anywhere, whether in a classroom, laboratory, job, the Peace Corps, the military, or the swim team.
  • In fact, education is very different from training. Training is what you know whereas education is who you are as a person. As a result, people receiving the same training can end up with very different educations. 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.
  • c) Consumption as way of Life
  • We’re all different and it’s up to each of us to develop, grow, and walk our unique path. This is what it means to be human. One thing is certain, though: conspicuous consumption is not a natural state for all of us.
  • No matter how much someone earns, expenses tend to match income. This is called lifestyle inflation.
  • The real problem is not how much we earn; it’s how much we waste, perhaps to demonstrate our supposed wealth, when we spend it.
  • When buying products, you’re paying for time, materials, and knowledge.
  • The public perception of a link between cost of living and quality of life is strong.
  • d) Path of FIRE
  • The design presented in the book rests on three pillars.
  • First, reduce waste and 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. If widely adopted, the air will be cleaner, products will be built for easy maintenance, and things will last for decades.
  • Second, having significantly reduced expenses, invest the difference in businesses.
    • If widely adopted, businesses producing obsolete things which are no longer in demand will shut down, but new ones will appear, and it’s a lot easier to change investments than it is to change careers.
  • Third, find something meaningful to do instead of work.
    • If your work is really meaningful to you, you can keep working, knowing that you are living a less wasteful existence and that you have the financial security to leave your job at any time. The latter in particular seems to make quite a difference in terms of what employees are willing to put up with or which customers business owners are willing to keep around. Initially, working at reducing waste will occupy some time, but once the methods are learned, this won’t take longer than the usual method of buying a gadget or hiring a professional. Instead, it’s necessary to find something else to occupy your time with.
  • e) Intuition
  • Intuition is a result of complex neural connections in the brain suddenly firing in a way that connects with a real problem. This requires two ingredients.
  • The first ingredient is the network itself, which can be established by studying many other similar problems.
  • The second ingredient is thinking about the problem at hand. Combining the experience of similar solutions with the current problem results in new and creative solutions, often accompanied by statements such as, “I was contemplating [something] when I suddenly was inspired by [something unrelated].”
  • f) Become Renaissance man
  • Renaissance man is a person who is competent in a wide range of fields, covering intellectual areas as well as the arts, physical fitness, and social accomplishments. This contrasts with the more modern, specialized approach, where a person is encouraged to build skills in a single vocation and use the income from that to pay for everything else.
  • According to experts on expertise (yes, there is such as thing!), 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
  • Automatically grasping what is important only comes with experience.
  • It’s important to understand that doing the right thing (good strategy) is much more important than doing things right (good tactics). This is why this book is short on tactics and long on strategies. Strategy is about defining the end-goals. Tactics is about the means to those ends.
  • g) Compound Interest
  • Compound interest in itself never made anyone rich. Invest $1 at 8% and wait 30 years to get $10. This is hardly a worthwhile sum for 30 years of waiting. But invest $100,000 at 8% for 30 years and you get $1,000,000. That is real money. To get anywhere, it’s thus very important to quickly build a substantial foundation.
  • h) Taxation and Withdrawal Rate
  • If you decide to make money work for you, over time you’ll become very familiar with the tax law, how to get money out of retirement accounts while paying as little penalty as possible, and how to take care of the principal and keep the yield sustainable, to the point of being at least competent.
  • 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 primary difference is that asset-based income is proportional to assets and skill, whereas work-based income is proportional to time spent and skill.

Gist of the book

The author, the Renaissance Man has this philosophy “I alone am responsible for and capable of making my decisions and solving my problems.” Money might not buy happiness, but the lack of it could destroy all freedom of choice.

Changemongers 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.

This book is for the ChangeMongers. So if you identify yourself as ChangeMonger then read this. This book is also valuable to those people who are on the path of Financial Independence and Retire Early.