Mindmap around Early Retirement Extreme

Posted on wo 29 juli 2020 in mindmaps

Mindmap of ERE

why is it important to me?
- freedom to persue my interests
- takes money out of the decision making process
- gets me out of the rat race
resources
- Jacob Lund Fisker's blog
- ERE Forum
insights
- having no expenses means you don't need an income and you can immediately stop working for money
- spending all your income means you can never stop working for money
- having a buffer large enough to cover your expenses for the rest of your life also means you can stop working for money
mindset
- core concepts
  - spend less than you earn - but extreme
  - create a large buffer (> 10 years living expenses) fast
  - develop alternative income streams
  - become a producer ←→ consumer
  - create a resilient (permaculture) system to support yourself and your family
- common objections / blocks
  - I'm not good with money
  - It's too difficult / hard
  - I don't know where to start
- my own observations
  - (change of) mindset is essential
  - it's a skill
  - it takes time and practice
  - anyone can learn it
- how to begin
  - set intention: I take responsibility for my life
  - start with observing inflows and outflows
  - start simple
  - start small
expenses side
- plug all recurring leaks
- keep only the essential
  - that what makes you truely happy to pay for
  - what you cannot reasonably provide for yourself
- DIY: do things by yourself and learn something
- money to buy / hire specialist help is there as a backup
- "Using money to solve problems is a huge crutch"
income side
- create income streams
  - diversified
    - some streams may do poorly for a time
    - to try new stuff out
    - to keep it fun
  - (mostly) independent of effort
    - part-time work (barrista fire)
    - pension
    - royalties
    - subscriptions
    - commission on sales or referrals
    - revenue from advertisements
    - interest or dividend from investments
    - capital gains from selling investments
    - turning waste into income
    - renting out something
      - lodging: a room / an appartment / a house / a tent
      - equipment
      - experience
        
        teaching
        
        repairing
        
        designing
  - non-monetary income / capital: apply forms of capital
    - growing your own food
    - bartering for food
    - work in exchange for lodging
    - teach in exchange for equipment
    - pray in exchange for companionship
links with permaculture principles
- earth care / people care / fair share
- observe and interact
- produce no waste
- apply self regulation and accept feedback
- multiple elements x multiple functions
- obtain a yield
- work with nature
metrics (financial)
- burn rate
  - divide how much you have by how much you spend
  - time it takes to run out of buffer when / if
    - all income dries up and
    - all expenses stay the same
  - typical ranges
    - 3 months of expenses
      - emergency fund
      - apply not only to money, also to food
      - bare minimum
    - 10 years
      - need to keep working part time
      - good balance between security and agility
      - next 5 to 10 years are reasonably predictable due to inertia
      - after that: who knows?
    - 25 years
      - 4% rule / Trinity Study
      - when invested, historically provided sufficient return in most cases to cover living expenses over a 25 year period
    - 33 years
      - 3% rule
      - when invested, historically provided sufficient return in all cases to cover living expenses over a 25 year period
    - caveats
      - underlying assumptions for investing with buffers exceeding 25 years of living expenses are probably not correct in a world with declining energy availability
        
        See Our Finite World by Gail Tverberg
        
        See Surplus Energy Economics by Tim Morgan
- saving rate
  - divide how much you make by how much you spend
  - typical ranges
    - below 1
      - too many expenses, not enough income(s)
      - dangerous for too long, eats into buffer
    - 1
      - a year of income covers all expenses
      - all income is spent
      - unexpected expenses can easily push you below 1
    - 1.1
      - typical Western household
      - saves 10% per year
      - also spends most or all savings some time later
      - work ten years, take one year off
      - creating a 10 year buffer takes 100 years
  - exceptional ranges
    - 2
      - every year of income covers 2 years of expenses
      - work one year, take one year off
      - creating a 10 year buffer takes 10 years
    - 3
      - every year of income covers 3 years of expenses
      - work one year, take two years off
      - creating a 10 year buffer takes 5 years
    - 4
      - every year of income covers 4 years of expenses
      - work one year, take three years off
      - creating a 10 year buffer takes 3.3 years
    - 5
      - every year of income covers 5 years of expenses
      - work one year, take four years off
      - creating a 10 year buffer takes 2.5 years
my journey
- started in earnest in 2016
- reduced expenses from 40k in 2015 to 12k in 2018 by 20-25% per year
- started working less from 2017 onwards
- target safe withdrawal rate reached in 2018
- income (from 2020 on) about 40k with 14k or less in expenses holding steady
- saving rate:
  - 1.06: before 2015
  - 1.9: 2015
  - 3.2: 2016
  - 3.5: 2017
  - 5.0: 2018
  - 4.7: 2019
  - 2.5: 2020
  - 5.0: 2021
  - 3.1: 2022