Books with Impact: Early Retirement Extreme

The “Books with Impact” series takes a deeper look at specific books that have had a profound impact on my financial, professional, and personal growth by extracting specific points of advice from those books and looking at how I’ve applied them in my life with successful results. The previous entry in this series covered How to Win Friends and Influence People by Dale Carnegie.

Why Early Retirement Extreme?

The biggest drawback that most personal finance books seem to have is that they don’t really ever discuss making significant life changes. Sure, they discuss lots of small tactics like stopping at Starbucks less often and things along those lines, but they mostly focus on how to organize one’s debts and so on.

Most personal finance books seem to shy away from suggesting that the reader make major changes to their life. They usually don’t suggest living in a smaller house or selling a car or moving to a different location – or if they do, they include them in a one-off paragraph or a sideboard section that talks about “extreme methods.”

I don’t expect that I’m going to adopt every single life-altering method that I read about, but I do want to know about them. I want to dive deep into the ideas of voluntary simplicity and extreme saving, not because I want to fully commit to them, but because the ideas inform me and widen my own horizons. A book that digs into why we struggle with personal finance is much more likely to introduce life-altering ideas and conclusions.

The book that had the greatest impact on my personal finance growth, Your Money or Your Life, actually does this. It advocates some serious introspection and some serious life changes if you fully commit to all of the ideas there.

Early Retirement Extreme falls right in line here. The subtitle is pretty clear: a philosophical and practical guide to financial independence. That’s exactly what this book delivers. It walks through the reasons why a person might seek out financial independence and then offers a path for getting there that doesn’t pull any punches.

Fisker uses a very philosophical tone throughout the book, digging into the ideas behind financial independence and the reasons for shaping one’s life in a new direction. In many places in this discussion, I’m striving to summarize two or three pages of philosophical ideas into one or two sentences, which means that some nuance is left behind for the sake of brevity.

Let’s take a look.

A Different Frame of Mind

Fisker starts off with his definition of financial independence, which he describes as a state of no longer having to work for money. It’s clearly a difficult path that is a bit outside the mainstream today, so Fisker identifies a number of factors that have to exist in order for a person to choose to pursue financial independence.

You have to be dissatisfied with significant portions of your current life. This can exist in different flavors for different people. Perhaps you’re dissatisfied with consumerism. Maybe you’re unhappy with your career or with your struggle against debt. The reasoning here is that if you’re happy with your life, you’re probably not going to be interested in making major changes (this is why I think most personal finance books shy away from these topics).

In 2006, I was dissatisfied with several different dimensions of my life. I liked many aspects of my job, but I was really unhappy with the travel and the pretty regular weekend interruptions, as I felt like I was missing out on my son’s growth and development. I was frustrated with our debts and with my performance as a father in terms of building a future for my child. I was also starting to develop a pretty strong distaste for the consumerism of many of the people I spent time with. These dissatisfactions had primed me for making a real change.

You have a vision in your head of the life you’d like to have. You’re dissatisfied with big aspects of your life. What would your life be like if you were satisfied with those things? The richer your vision, the more likely it is that you’ll be able to follow a path of financial independence.

I have always dreamed of being a writer, particularly one that can write solely for my own pleasure rather than writing for an audience. I have a number of stories floating around in my head that I enjoy. I have no idea if anyone else would. Getting them down on paper in a coherent and logical and sequential narrative is a pretty serious task, particularly when I have no idea whether anyone else would like the stories or not. I’d love to devote some real time – a few years – to making this a reality, but that’s not going to be a reality while both parenthood and full-time work are on the docket. I’d also like to spend a lot of time working for a pair of local charities and launching another one. That’s my vision for the future… but that vision requires some youth, some health, and no job that eats my days.

You’re willing to develop a plan to get there. You know where you are and you’re unhappy with it. You have a vision of where you want to go. How do you get there? This requires the ability to make a plan and stick to it, even when it’s hard, even when it seems like the success you want is a long way off.

In 2006, Sarah and I sat down and worked out plans for getting from here to there. It involved some serious spending cuts, some lifestyle changes, a fresh commitment to some side businesses, and several other things. We are still more or less following that plan with no changes to the big ideas and only some tweaks to the smaller pieces.

You’re also willing to implement unusual or different or challenging things as a part of that plan. In other words, you have to be willing to not really care what other people think and you have to be willing to alter your own life in significant ways. Your life is a lot more flexible than you think it is.

Between 2005 and 2009, I quit my career and started a new one. I completely rebooted my social circle, moved to a new place, and completely altered my list of active hobbies. I sold off a large chunk of my possessions, too. I changed an awful lot of my life to get there.

Reading this section was almost like walking through the past several years of my life. All of the elements that Fisker points to as necessary elements for a life that points toward financial independence appeared in my own life. Based on my own experience, Fisker’s words ring true.

The Lock-In

“Lock-in” refers to the idea that people often follow some variation of the same well-worn financial and professional path throughout life and, once you’re on that path, it can be extremely hard to get off of it even if you want to. That “lock in” occurs in several stages.

Educational lock-in refers to the idea that people often go to college directly out of high school, spending four years pursuing a degree in a field that may or may not even be something they’re really passionate about as an adult. Upon graduation, they’ve got a piece of paper that gets their foot in the door on a certain career path, but they’ve also usually got a big pile of debt. They’re financially obligated to follow that career path.

Career lock-in refers to the build-up of references and certifications and job history that come with working in the same career for a while. You’re well-prepared to continue in that career path, but getting out of it can be extremely challenging. Beyond that, many people have put themselves in a financial state where they need that high level of income in order to keep paying the bills, so a career switch is simply unviable.

Stuff and Status lock-in means that you’ve become accustomed to a certain level of status in your community and in your social circle and the most powerful way you know of to preserve that level of status is through additional purchases. You’ve got to “keep up with the Joneses” and in order to do that, you have to keep buying new things – new cars, a new house, new gadgets, and so on.

Debt lock-in means that in order to finance all of the stuff mentioned above, you’ve incurred a lot of debt – student loan debt, a mortgage, credit card debt, car loans, and so on. Often, the minimum payments on that debt and the continuation of your current level of stuff and status leaves you little breathing room.

Retirement often is seen as a respite from this journey, but more and more Americans find themselves working into their seventies, leaving them only a short period near the end of their life to enjoy the full fruits of their labor.

This paints a very familiar picture for a lot of American families – our own included. We were well on our way down this path of “lock-ins” when we started our own financial turnaround and breaking out of these “lock-ins” was perhaps the most difficult part of the journey.

Economic Degrees of Freedom

It’s at this point – in the third section – that Fisker starts to dive into some interesting philosophical areas. Here, he divides people into four distinct groups based on two factors – how dependent they are on their single employer (which he calls “coupling”) and how directly their efforts translate into results (which he calls “linearity”).

A salary man is any person that works at a single steady job where they directly exchange their time for a certain wage. That income comes from a single source – their organization. That person is completely at the mercy of his or her employer in terms of work requirements and wages, with their only solution involving seeking another job that’s likely to be similar. This is essentially the “worst” category in Fisker’s eyes as it’s the one most susceptible to “lock-in.”

A working man is essentially a freelancer. That person is able to earn income from many different sources, but they still must deal with the needs of an employer who is paying them to produce according to that arrangement. This person is much like a salary man, but has traded some stability in exchange for having many sources of income.

A businessman doesn’t rely on employers for making money. Instead, they tend to effectively make money using other people’s money by building a business, usually from a business loan. While that person is essentially free from meeting the demands of an employer, that person is still coupled to the bank that provided that loan (and to any shareholders or partners).

A Renaissance man breaks free of all of this by having a wide range of skills that can be applied both to earn income and to take care of personal needs. Because of this, a Renaissance man is able to invest his or her time into non-linear things like writing a book – things that don’t directly translate an hour of work into a certain amount of income. A Renaissance man doesn’t have to rely on the bank, on employers, or on shareholders.

Fisker pretty clearly identifies the Renaissance man as the ideal here and spends much of the next section discussing how to become one. Although I agree with him that having a diversity of skills is a huge benefit in terms of career flexibility, Fisker takes the idea pretty far.

The Renaissance Ideal

Fisker’s core idea here is that in almost every aspect of life, there’s a certain threshold of skill above which you can use that skill to earn an income. For example, there’s a skill difference between someone making spaghetti in their home kitchen and someone being an effective line cook and it’s that skill difference that people pay for. The Renaissance ideal, in Fisker’s eyes, comes from raising your skills above that threshold in as many areas as possible.

How do you get there? Fisker suggests that the most certain route is through fundamentals. Rather than learning how to repeat a specific task, if you learn the basic skills and ideas behind that task and build the critical thinking needed to put those skills and ideas together, you’ve got that task (and many others) well in hand. The more basic ideas and basic skills you have and the stronger your critical thinking skills, the larger your set of marketable skills will be and the less coupled you’ll be to the economic state of the moment.

Fisker’s idea makes a lot of sense, but it requires a great deal of commitment to lifelong learning. I deeply enjoy learning new skills and figuring out how things work, but that’s not something everyone enjoys.

It also stands in direct opposition to how college functionally works today. Today, college mostly serves to train people in specific fields. Once you earn your degree, you’re trained for your specific field, but you may not have any transferable skills for other fields. Fisker’s view is that educational time should be spent solely on growing critical thinking skills and gaining the philosophical ideas and core skills needed for a wide variety of fields.

It’s an interesting perspective. I know that my own fields of study – life science and computer science – got my foot in the door with my first job after college, but it’s barely related to what I do now. The skills I use now were built in my spare time. I also know that I enjoy learning new things and, as time moves forward, I feel more and more prepared to handle lots of things that life can throw at me. I feel as though there are many career paths that I could dive right into should I choose to do so.

Strategy, Tactics, and Guiding Principles

Here, Fisker lays out some core ideas for adapting your life to that Renaissance ideal.

For example, Fisker argues that having a large number of goals is a good thing because, ideally, each thing you actually do should push you toward multiple goals. For example, if you spend a few hours helping a friend build a new deck in exchange for dinner, you’re achieving several goals at once – physical fitness goals, friendship goals, skill goals, and so on. If you have a network of goals like this, it’s not a big deal to decide that one goal doesn’t fit anymore because the effort you put into that goal helped you approach success with other goals.

I’ve noticed this in my own life, as I tend to find success with goals that have some overlap so that I can feel like I’m pushing toward multiple goals at once with a single action. For example, I feel a lot better about both exercising and self-education if I can listen to an insightful audiobook while I’m jogging. That kind of goal synergy makes time feel much more productive.

Another interesting insight was his assertion that there is no difference between needs and wants. He uses an example of shelter, listing a number of variations of shelter with slight differences between them such as location, cover, and so on. He argues that there is no clear line between a “need” and a “want” at any point on this list, though each item on the list has slightly more cost and slightly more creature comfort than the one before it. In other words, we define our own sense of “need” by whatever threshold we personally choose not to cross.

Again, his point is clear. There are many “lines in the sand” that people refuse to cross, defining those things as needs. I’ve had readers get incredibly angry with me when I stated that home internet access was a “want” and not a “need,” for example. I have my own “lines in the sand” when it comes to various things and it’s not hard to notice that your “lines in the sand” change if you have more income. Why? Do they need to change? It’s an interesting thing to contemplate.

A Renaissance Lifestyle

Obviously, the Renaissance lifestyle described in the previous chapters works really well if your financial needs are low and that’s largely what this chapter is all about. It focuses on how to live a bountiful life with minimum expenditure – and I mean minimum.

Fisker’s best argument concerns possessions. He strongly advocates minimizing one’s possessions because possessions cost money, take up space, and require maintenance. Outside of a few essentials, Fisker advocates borrowing things when you need to use them. This allows a person to live in a very small home with minimal maintenance required.

Much of the rest of the section focuses on what I call “strong” frugality tips – ones that encourage some degree of lifestyle change in order to save quite a bit of money. For example, Fisker advocates a frugal exercise routine that’s much like the Lifetime Fitness Ladder in that it’s equipment-free and relies on aerobics and body weight.

For me, this section felt like firm ground. At various points, I’ve tried most of the ideas presented in this chapter in my own life and considered almost all of them. The key, I think, is simply a willingness to try things and to cross those “lines in the sand” that exist only in our own mind.

Foundations of Economics and Finance

The final section of the book discusses some broader issues of economics and finance. Though this section is short, Fisker does take many of the ideas from the earlier chapters, such as drawing some fresh lines between wants and needs, and looks at how they alter some of the basic tenets of personal finance.

For example, if you push back your sense of “need” quite a bit, then you don’t need that large of an emergency fund. Most emergency funds are based on having a certain number of months of living expenses to cover “needs,” but if you shrink your sense of “needs,” you naturally shrink the size of your emergency fund.

This section provides a lot of dangling threads that encourage the reader to dig more into economics and finance.

Final Thoughts

Many of the ideas in this book are clearly starting points from which people can go off on their own educational journeys, learning more about the specific ideas in question. This book focuses a lot on philosophy and core ideas (excepting, perhaps, the section on frugality) and thus demands more from the reader than most personal finance books. In order to get full value from this book, you’re going to have to contribute some additional investigation and thought.

That’s why, to me, Early Retirement Extreme comes close to bridging the gap between personal finance and philosophy. It’s absolutely loaded with interesting ideas to consider but it never really provides easy answers or recipes to follow.

For some, that’s an interesting mix. I find myself returning to this book regularly to dig for new insights and give myself new food for thought, whereas books that just provide a recipe for success tend not to see that kind of constant referral.

If you want an easy solution to your personal finance situation, this isn’t the book for you. It basically never takes the easy road and is heavily balanced toward the philosophical as opposed to the practical. However, if you’re seeking out a mental shift in how you perceive finances and enjoy books that challenge your thinking, this one is well worth reading.

Trent Hamm
Trent Hamm
Founder of The Simple Dollar

Trent Hamm founded The Simple Dollar in 2006 after developing innovative financial strategies to get out of debt. Since then, he’s written three books (published by Simon & Schuster and Financial Times Press), contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

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