An excellent resource, containing essentially everything to know for pursuing ERE/FIRE. This should be a core book for the domain.
A few thoughts on mindset: Your success in ERE/FIRE hinges on whether or not you can cultivate a few specific mental traits. You will need creativity, you'll need patience, you will need the ability to solve problems differently, and you'll need to have a sturdy enough psychological core to resist comments and pressure from those around you who are fully stuck within the standard work-spend-consumerism mentality.
But the foundational mindset you'll need is a belief that FIRE is something possible for you in the first place. Many, many people react to the ERE domain initially with a confident declaration that it can't be done. Obviously this is self-fulfilling: if you don't believe it's possible for you to become FI, if you don't consider this path plausible or doable, you'll be right.
I think it's worth pursuing briefly why people have this reaction. We humans are built to be congnitively miserly, so with a broad brush insta-conclusion of "not possible" or "I can't" you get to kill off this entire domain. Think of the time you save! Now you don't have to read a book, you don't have to develop any of those stupid mental traits I wrote about above, you don't have to learn a whole bunch of ways to solve problems differently, etc. You get to live your life just the way you always have.
So, if you're an FI evangelist trying to help others escape the system, all you can really do here is smile and nod and move on: this person isn't ready to follow the bread crumbs that you--or this book--are dropping. As the authors say, FI is not easy, it's actually hard, it's a journey requiring focus, discipline, patience and a willingness to do things very differently. So it is to be expected that some people are not ready yet, and some people will never be ready.
Finally, here's a short ERE/FIRE reading list of three foundational books (links here are Amazon affiliate links, you'll pay the same price for the book but I'll receive a small commission):
1) Your Money or Your Life by Joe Dominguez and Vicki Robin (also I highly recommend my companion guide to YMOYL that I wrote to help readers over on my food blog)
2) Early Retirement Extreme by Jacob Lund Fisker
3) The Investor's Manifesto by William Bernstein
[As usual, a friendly warning about the notes to follow: if you are "not ready yet" for FI, just skim the bold parts. If you're not ready ever, read no further (think of all the time you'll save!). If you're ready now, read the whole thing, plus the book itself.]
Notes:
Part 1: Getting Started
Introduction:
1) On intentionality, choosing something different from the majority, rather than living the way we are "supposed" to live (get good grades, a good job, buy a dream house, etc).
2) One of the authors stumbles onto Jacob Lund Fisker's blog, then onto the broader FIRE world. He gets a case of the sads for all his prior dumb investing decisions. He overfocuses on money.
3) He goes through the journey we all do, first discovering the idea of ERE/FIRE, deciding it's something possible and plausible to do[*], then to slavish obedience to it, then to picking and choosing what about the ERE/FIRE process is congruent with your values. [* Note here that many people instantly murder the domain by assuming it's NOT possible or plausible to do. There's a very long history of these kinds of snap responses: you can go way, WAY back to my old food blog to see a commenter who blasted the entire idea of aggressive savings rates as "ridiculous" and "pretty stupid advice."]
Chapter 1: The Stages of FI
4) Nuances and [enormous] benefits of having FU money, even if you don't quit your job.
5) Stages:
* $0 net worth (out of debt)
* Fully funded emergency fund
* Six figures (this is a major milestone for everybody)
* Half FI
* Getting close (5% safe withdrawal rate)
* FI (4% SWD)
* FI with cushion (3% SWD)
Chapter 2: Start With Your "Why?"
6) On having a mission statement, a destination; also on the idea of "awakening" to the nature of the modern economic system we're in; on understanding the drivers behind your "number"; identifying the things you really want to do ...and discovering they don't actually cost all that much [the insight here is that because we're stuck in the work/spend machine and thus need to work on the labor market "plantation" we don't have the time or flexibility to do these things.]
Chapter 3: Develop a Growth Mindset
7) On the "growth mindset" idea from Carol Dweck's book Mindset; on being a lifelong learner; on "failing forward"; on aggregating marginal gains/small wins; on building a "talent stack" plus serendipity.
Part 2: Spend Less
Chapter 4: Become a Valuist
8) On Mr. Money Mustache and his formula Savings Rate = Savings/Earnings and the nuances it uncovers. Your savings rate directly shows how long it takes to reach FI; On using the three levers: spend less, save more, and improve at investing.
9) Hedonic treadmill problems; marginal utility of wealth; lean FIRE vs fat FIRE; on being a "Valuist": "someone who spends their time and money consistently with their values."
Chapter 5: Live Better While Spending Less
10) Using the 80/20 rule to drive savings, a force multiplier; rejecting the "cult of homeownership"; house hacking as a major FI tool; different examples given here, ranging from owning a fourplex to being a travelling doctor.
11) Analyzing car ownership; analyzing food costs; other recurring expenses (cable TV, insurance, cellphones)
12) Noteworthy blurb here on Healthcare Sharing Ministries (HCSMs) in place of traditional medical insurance, this is kind of like the original life and property insurance co-ops from a century or more ago, risk-sharing pools with more flexibility, less overhead, etc. Wonder to what extent this is a reasonable solution?
13) Cable TV: [for us cable is a metaphor for creeping inflation, wasting time, passivity, unmindfulness, etc. And, as the book says, cable TV represents a lot of lost capital once you think about the compounded future value of avoiding that spending in the first place]
14) "The sports lover in me was unwilling to change." [This is another metaphor worth thinking about: isn't "sportsball" just another cognitive resource burn? Another form of bread and circuses?]
15) The authors mention Google's Latte Factor Calculator, where you see the loss of future capital from a spend today. "...prepare to pick your jaw up off the floor when you see the opportunity cost of recurring spending when compounded over time."
Chapter 6: Pay Fewer Taxes
16) On learning enough about how taxes work to respond to the incentives in the tax code.
17) [I thought this was fascinating: one of the authors and his wife are CPAs, yet they were (self-admittedly) oblivious to many of the tax-saving steps recommended in the book, even to some of the basic ones. It makes you realize that deep domain expertise isn't enough, sometimes it traps you in the very water you're in: somehow you have to be able to apply an extra level of creativity, or an outsiders' perspective, or something (I'm not sure what) in order to properly apply your domain towards achieving FIRE.]
18) Basics on tax brackets; how FI techniques produce lower taxable income, reducing your need to pay taxes in the first place; on biasing your income to more tax-efficient income sources like dividends or capital gains, etc.
19) "People assume that if you work 25 percent or 50 percent less your income goes down proportionately. This is not necessarily the case." [Taxes are just one aspect of this, sometimes there are non-linear tradeoffs with time-for-money labor]
20) Other basic tactics like tax loss harvesting, Roth IRA conversion ladders [I have a generalized objection to Roth IRA conversions (and backdoor Roths too for that matter) because it involves paying taxes earlier than necessary, and is predicated on a lot of things going right in the years to follow: like your investments in that Roth account need to perform well (when they may not), that tax brackets don't change radically and go much higher in the future, etc].
21) See also tax gain harvesting and its idiosyncrasies: you can take advantage of these when you know you'll fit under the 0% capital gains cap.
Chapter 7: See the World
22) Gamifying travel and rewards programs; geoarbitrage and also domestic geoarbitrage; the blog Go Curry Cracker; also Millennial Revolution.
Part 3: Earn More
Chapter 8: Hack College (Or Just Skip It)
23) One of the authors was a pharmacist who buried himself in student loan debt and didn't get to "zero" ($0 net worth) until he was 32. His regrets literally ooze off the page here. On the college "decision tree"'; on the idea of doing two years in community college first, then transferring, etc.
24) Note that having a high savings rate is impossible if you're saddled with large amounts of debt, whether student loan debt or any other form.
25) Various thoughts on loan forgiveness programs, including taking work with an NGO; helpful discussion on some of the irreversible decisions people make with their student loan debt, like terming it out; decisions that allow only one path and exclude others.
26) Hacking college with jobs; discussion on scholarships; getting on a career path while you're in college (good example here of the wife of one of the authors who worked her way up from teller to assistant manager at a bank while in college); on choosing whether it's worth it to go to college at all.
27) Good quote here: "...if you only have a hammer, everything starts to look like a nail. If you accept easy credit as a solution to your problems, it's easy to accumulate debt. However, if you remove that tool from your toolbox, you'll quickly discover other tools can get the job done." [Extending this analogy: you don't have to use the "hammer" the system gives you at all; or you can use it in unusual and creative ways that actually help you meet your goals.]
28) Lots of food for thought here from an intriguing and telling anecdote about Chad Carson: instead of going to medical school and locking himself into a specific field for his entire career, he decided "to become an entrepreneur and real estate investor." He achieved FI in his mid-thirties. [What's so fascinating here is, yes, he didn't go to med school at the standard age, but imagine being financially independent and then entering med school at what is still a relatively young age! It's further worth considering that while he could have done this, he didn't, and perhaps this indicates that maybe med school wasn't the right thing for him in the first place--or that his reasons for considering med school weren't particularly good reasons.]
Chapter 9: Invest in Your Career
29) Fixing the income side of this equation; you can only take your expenses to zero but you have theoretically uncapped upside on your income. On limiting beliefs like it's not possible for you to earn more.
30) "Your career is a multi-million dollar asset."
31) "Many people sleepwalk through life assuming they can just work hard and be treated fairly." On being proactive and finding ways to add value to increase your income. "Unlike most investments, there is no risk and no downside associated with the concept of growing your income."
Chapter 10: Build a Network
32) This chapter is basically about seeking out win-win arrangements with other people, not networking with a "spammy or insincere" mindset, but with a mindset of ABG: "always be giving."
Part 4: Invest Better
Chapter 11: Lay a Foundation Under Your Investments
33) One of the authors shares a prior belief that investing was too complex and too hard for him to do it himself, and then after his parents introduced him to their financial advisor he trusted this advisor "blindly." Later they learned that they paid far more in fees (and in poor tax planning blunders) than it was ever worth. It also took them a decade to leave this guy. The author calls it "easily a million-dollar mistake."
34) On the investment industry's "tremendous incentive... to promote feelings of inadequacy, fear, and confusion in investors."
35) On the lack of control that we have over investment performance, on the paradox that you are relying on markets to do a lot of the heavy lifting moving you towards FI while at the same time you cannot control what those markets do.
36) On how some people, when they hear the idea of saving 30% or 50% or even 80% savings rates, they "tune out quickly." [Again, your beliefs about the FI domain will be self-fulfilling!] See also: "Many people on the standard path through life are skeptical of the whole idea of FI. At best, FI is an interesting concept for the privileged. At worst, it's viewed as impossible." [For the millionth time: if it seems impossible to you, it is.]
37) A combined strategy: passive index investing, running your own business, and work/W-2 income from which you save aggressively. [This is basically the Wall Street Playboys strategy, do all three, done ideally when you're young and have a f*ckload of energy.]
Chapter 12: Invest in Index Funds and Understand the 4% Rule
38) Interesting [and unfortunately, all too typical] anecdote here about an investing blogger who attempted to talk to his daughter about investing when she was home on break from college. "She interrupted the lecture and made the following statement: 'I know this is important. I appreciate money. I know I need it. I just don't want to have to think about it and manage it.'" [I've known several people over the course of my life who have voiced similar opinions. I hate to be harsh here, but in all of the cases where people said they "don't want to think about money" not one of them managed to get their money issues under control. It's a very circular irony--the reason they don't have any money to think about now is because back years ago they "didn't want to think about money."]
39) On avoiding serious mistakes: getting shaken out in stock market corrections; buying too aggressively when there's FOMO and stock markets are going up; paying too much in fees; not taking enough risk and getting chewed up by inflation over time; overestimating your ability to control your behavior during periods of volatility; and then losing your nerve when it really matters. [One thought worth considering: we all like to think we'll make good (or even great!) decisions in the future when the pressure's on. Perhaps it's better to assume the opposite: that under pressure our decisions will be not that great. And then act accordingly, now, to prepare.]
40) The 4% rule: a starting point to address the question of "how do you know when you have enough?" On sequence of returns risk, using an analogy of getting to the airport on time: it's going to depend on traffic conditions, time of day, etc., so you obviously will leave yourself plenty of margin of error. On "the 4% rule of thumb" rather than a rigid 4% "rule"; examples here would be using a 3.0% or 3.5% drawdown, or having an expense line that is adjustable downward if necessary, say if your capital is impaired. Note also that looking at asset management fees in the context of a 4% rule, it becomes painfully obvious that they steal away a lot of your resources.
41) More context on the 4% rule: Recurring monthly expenses require a capital base of 300x the monthly expense (12x25=300) under a 4% draw. Thus eliminating a $200 a month cable bill is worth $60,000 worth of capital. Sportsball doesn't seem quite so worth it anymore, does it?
Chapter 13: Build a Business
42) The central idea of this chapter is you can run a business at a wide range of levels, it doesn't have to be some sort of stereotypical billion dollar business started by an entrepreneur that sacrificed everything, it can be done at a wide range of levels.
43) Any idea of a fully funded lifestyle change, "FFLC": an example from one of the authors here: he quit his pharmacy job to be a full-time podcaster, and even though the podcast business generated a lot less money than his job, he had already adjusted his expenses and lifestyle such that he could afford to make this change with low risk: "control your expenses so your life just structurally doesn't cost that much... [and] limit the downside by always having options."
44) On bootstrapping a business rather than following the much riskier path (that people often stereotypically seem to think is necessary) of borrowing money, finding investors, making some major capital outlay, and then starting a business.
45) Side hustles to test out the viability of a business idea and our next money; an "encore career" to earn extra money after you've left your traditional job.
Chapter 14: Invest in Real Estate
46) Vanilla discussion here of leverage and how it can juice your returns in real estate but also how it can kill you. And then interesting side-by-side examples of a house hacking housing situation versus a single family home housing situation, both levered, where the house hacking situation was much better structured in order to ride out a major real estate down cycle. The combination of rents, even if they go down a little during a downturn, made the shared "hacked" property a lot more feasible and carry-able.
47) [One other major insight is that having a house hack or a rental property enables you to take on (some) debt (to the extent you consider reasonable) and it also gives you two major tools against inflation! The property and any rental income should appreciate roughly with inflation, and the debt, assuming the carrying costs are offset along the way by income from that property, devalues along with that inflation. And then furthermore, you get the depreciation expense (in today's dollars) that can offset some of your tax liability for rental income, a third tool. It's really a few inflation tools for the price of one.]
Part 5: What's Next
Chapter 15: Enjoy the Journey
48) This is quite a useful chapter because it reminds the reader that FI is hard, it requires quite a bit of grind, and it reminds the reader to focus on the journey and don't be so grim and humorless about it. [Basically this is sort of like avoiding the "When I'm thin" fallacy, or the "When I'm married" fallacy: basically "When I reach FI then I'll finally be happy..."]
49) The other sources of unhappiness in this realsm tend to be the same things that happen to people in the consumerist world: comparisonitis with people who did FI better (or faster), regret for mistakes made in the past, etc.
50) Once again talking about the idea of dealing from a position of strength in the traditional work world: the more you save and the more cushion you have the less your employer has you over a barrel.
Conclusion: Rediscover Possibility
51) This chapter is a call to action, to get started, to become a "valuist" to start a meetup group in your town, etc.
To Read:
J.L. Collins: The Simple Path to Wealth
Podcasts:
Chad Carson: Retire Early with Real Estate
Scott Trench: Set For Life