Jacob Lund Fisker is an unlikely star of the early retirement movement.
A trained astrophysicist from Denmark, as a 20-something Fisker was more concerned with “arcane details about neutron stars” than investing, of which he admittedly knew nothing.
But it was his physics training that eventually led him to some surprising conclusions about how to approach his personal finances and lifestyle. In his late twenties, Fisker’s analytical mindset compelled him to break down big questions about money to a fundamental level.
This inspired him to begin scrutinising the foundation of the modern consumer culture that you, us — everyone — has been born into.
Today, Fisker is credited with founding the first part of the “Financial Independence, Retire Early” movement, commonly known as FIRE. This success has placed Fisker firmly atop the pantheon of early retirement gurus, while drumming up a fair share of controversy along the way.
Fisker won the spotlight — and some infamy! — for proposing an extreme retirement lifestyle that requires moving large surplus savings (60% to 80% of monthly income) from savings accounts into investments.
This may not be everyone’s cup of tea. But, bear with us, you might be surprised how you can adapt it to your own lifestyle.
Enabling the power of passive income through investing was what eventually allowed him to retire at the ripe age of 33, while living on just $7,000 a year — a fact that caused shock and skepticism among many of his blog’s readers.
However, Fisker is confident in the benefits of his philosophy. WIth this in mind, Sarwa asked some pressing questions directly to Fisker about his Early Retirement Extreme philosophy, including how he was able to cut large expenditures such as food and housing and why investing is important for anyone seeking financial independence.
Importantly, we questioned Fisker on how he would apply his rules for people living in Dubai. His philosophy may seem unpractically extreme, but he insists there are ways to still enjoy a satisfying lifestyle that includes gift-giving while maximising our savings to build wealth at a rapid pace.
You may not agree with everything that Fisker offers, but his approach certainly merits reflection.
What Fisker says is important because retiring early implies freedom from the money-based economy, but not the end of work. Rather, within Fisker’s rules are important discoveries for how to liberate ourselves from the shackles of financial needs — essentially buying our own freedom in order to explore new professions, passions, and lifestyles.
1. Sarwa: How did your student years and study of astrophysics influence your perspectives on retirement planning?
Fisker: Before turning my research focus onto the more practical matters of navigating life in the 21st Century, I was a 20-something astrophysicist spending 80 to 100 hours per week in front of a computer analysing arcane details about neutron stars.
I had heard something about the importance of opening a retirement account before I turned 30, but in terms of detailed financial education, my generation was mostly left to our own devices. My simplistic view was that money was for spending and that money was made by working. I knew little about investing beyond thinking that it was a kind of gambling. I basically knew nothing.
Having no knowledge also meant being free of biased preconceptions about what one was supposed to do. Most people ask experts or copy what others do and follow the herd. However, physicists prefer to reduce questions to their fundamentals and deductively follow the mathematical consequences wherever they may lead. Thus, instead of using the standard retirement math to solve for maximum lifetime consumption, I saw that the same equations also yielded a solution for financial independence from an average job income in as little as five years—essentially maximum lifetime independence. This frankly sounded better than a lifetime of being stuck at work.
2. Sarwa: Your lifestyle is the foundation of the RE (Retire Early) part of the FIRE movement. Explain briefly the early days of what inspirations led you to adopt Early Retirement Extreme (ERE) as the right path for you.
Fisker: Another thing that made little sense to me as a scientist was the assumption of infinite economic growth on a finite planet. Using very simple ecological economics, I calculated that a sustainable budget implied a $6,750/year/person (updated to 2018 numbers) limit on spending.
This is much less than the average person spends. On the other hand, it was comparable to my stipend as an undergraduate [in Denmark], so I already knew it was possible to live on that amount. I wanted to figure out if it (also) was possible to live a good and sustainable life that didn’t require living like a student by spending and using resources much more efficiently. (Turns out it is!)
It became my personal research project to try as many different ways of seeing how this efficiency could be achieved. My experiences and findings were subsequently distilled into the ERE-philosophy, which applies systems theory to lifestyle design.
3. Sarwa: You famously retired at the age of 33 with $7,000 of annual expenditures, a fact that many readers of your blog are astounded by (and skeptical of!). Explain how you were able to drastically cut down on core monthly essentials, such as retail, groceries, transport, insurance, and restaurant expenditures.
Fisker: As consumers, we’re used to finding meaning and solving our problems by buying stuff. Within that mindset, spending less implies less meaning and sacrifice.
This didn’t sound appealing, so I had to find an alternative to consumerism. A way of living where restaurant expenses, car insurance, and paying retail weren’t “core essentials”. In doing so it helped to rediscover meaning elsewhere. There’s a rich world of experiences outside of consumerism. Not experiences you buy and watch, but experiences you create and participate in. Satisfaction in what you can do rather than what you can buy.
Over the years, I’ve rediscovered and taught myself many of the skills for self-reliance that have largely been forgotten by the generations after the second world war (boomers, generation-X, millennials) as people became focused on their jobs to the exclusion of everything else.
Things our grandparents knew, like how to bake bread or build a table exactly the way I want it rather than trying to find one that is good enough by shopping. This also includes modern skills like repairing a computer and fun stuff like crewing on racing yachts. This diverse skill-set (I call it the renaissance man, a kind of practical polymath) is what makes the systems design possible. It is not quick nor easy to obtain but I find the resulting way of living more interesting and rewarding than shopping for stuff.
Finding meaning and my solutions outside the consumer economy left most of my income unspent, and then ready to be saved and invested to generate a basic income to pay for things like taxes and mandatory insurance.
4. Sarwa: A sizable monthly expenditure goes to housing. You famously lived in an RV from 2008 to 2011. This is unlikely to work in Dubai. What are other ways that someone can cut expenditure on housing? Where do you stand on the renting vs. owning debate?
Fisker: I’ve lived in many different places, apartments, rooms, houses, and the RV, both renting and owning, but I’ve never overspent on personal housing. If the goal is financial independence, personal housing expenses should ideally be less than 10% to 15% of one’s income. Alternatively, less than 10% to 15% of one’s net worth. This leaves more money for saving and investing to ultimately buy one’s freedom.
Financially speaking renting vs owning comes down to the NAV equation (economics101), which varies a lot by the housing market. Insofar that isn’t decisive, owning generally means more maintenance responsibilities, less mobility, but also a better chance to become part of the local community. Renting means the opposite. From a systems perspective, this means that the owning vs renting decision is part of the greater strategy with respect to career and family goals. There’s no one size fits all.
5. Sarwa: Your philosophy is hinged on extreme savings in a contrarian reaction to the kind of consumerism culture often displayed in Dubai. What is your opinion of Black Friday and the December spending season — and how should a follower of ERE challenge their view of annual consumeristic events?
Fisker: I no longer pay a whole lot of attention to these shopping festivals. In fact, it’s been a few years since I was last at a mall and more than two decades since I last stood in line for a sale. Today there’s very little I can buy on sale that I cannot make better myself or find elsewhere for less. Therefore sales do not attract me.
Compared to major items like housing or food, gifts are a relatively small expense in the big picture. It’s possible to partake in gift-giving without significantly hurting the bottom line.
However, with enough skill, many appreciate a gift that one personally crafted over an item bought at random.
6. Sarwa: Your approach requires moving large surplus savings (60% to 80% of monthly income) from savings accounts to investments. How can people looking for financial freedom utilise ETFs to benefit from the stock market while applying your philosophy?
Fisker: The philosophy behind ERE is to transition from dependence on a single source of income (job or investments) to being widely skilled and generate value in many different ways. This implies eventually becoming as informed about investing as one is about one’s current job. After all, investing will likely become one’s primary source of income.
There’s an unfortunate tendency to skip this step thinking one can learn everything one needs to know in an afternoon by copying something off the internet and proceed to throw one’s lifetime savings at some investment hoping that it always goes up in the long run. Remember the part about infinite growth?
Those who want to become financially independent and make their living from investing money while at the same time expressing little desire to be informed about it are taking a serious long-term risk.
The optimal investment fits the temperament and knowledge of the investor. One should invest in what one knows and is comfortable with whether it be stocks, bonds, real estate, or something else. Those investments should fit one’s temperament. For those who don’t already have a preference, learning about ETFs is a good place to start one’s education.
7. Sarwa: As you began to grow your invested capital, you realized that “dealing with investments was now more profitable” than your job. Explain your book’s study of savings rates and investment ROI and its impact on a person’s ability to retire.
Fisker: Traditional financial and retirement planning focuses on maximizing lifetime consumption. This typically means taking on debt (mortgage, student, and consumer loans) while young and paying it off later when incomes are higher. Standard savings advice is also dialed in to let compound interest do most of the heavy lifting over 30 to 50 years in the workforce.
Early retirement math looks different. (The original derivation took up several pages in my book, but there are now apps that show the results). The higher the savings rate, the lower the spending, and the shorter the time scale before investment returns cover all expenses. The short time scale means that compound interest doesn’t matter. Indeed, for very high savings rates, the yield doesn’t matter that much either in terms of how fast one becomes financially independent.
The critical issue for remaining financially independent is whether the resulting portfolio yield dependably covers one’s expenses year after year for the rest of one’s life. It is at this point that effort spent gaining even 0.1% in yield or preventing a similar loss can easily exceed the hourly wage spent working.
8. Sarwa: You were once a novice investor. What would you tell your younger self on the importance of starting investing early?
I would tell my younger self that starting early and getting informed about investing is important even if I had no interest in it at the time. Like flossing, it’s one of those things one should not skip for lack of interest.