Tim O'Reilly - Just don't run out of gas

To me, the following analogy by Tim O'Reilly seems to be referring to 'money during retirement'. When thinking about how much is enough, the metaphor of 'gas for the road trip' seems very apt.

Tim O'Reilly: It was at this time that I formulated an image that I've used many times since: profit in a business is like gas in a car. You don't want to run out of gas, but neither do you want to think that your road trip is a tour of gas stations.

Replace "profit in a business" with "money during retirement." I have referred to the quote before, but I read it today in Tim's Google+ post, where he muses about the legacy that Steve Jobs left behind, and the wisdom of Tim's analogy hit me afresh.

Early Retirement: The Only Criterion that Matters

Question: Can I retire early?

Response phrased as another question: Do you have kids (or plan to)?
If yes, no you can't.
If no, yes you can.

Frugal options

I came across this list, which is quite good, except that it romanticizes frugality. At first, I thought that this was a good list for early-retirement aspirants. However, if you are not already doing a good majority of the things listed here, then maybe you should rethink this whole early-retirement idea. Unless of course you are pretty sure that you have definitely saved up enough.

That's Enough

One of the most difficult decisions to make in the context of retirements or scaling down is to know if what one has is enough. I know first-hand that these doubts never go away. There are always scenarios in which the savings seem inadequate.

In light of that, I really liked this poem by a favorite writer of mine – Kurt Vonnegut. (I found the poem in Bob Sutton's blog, Work Matters)

It's a small poem that appeared in the New Yorker back in '05. I am posting it in full.

Joe Heller

True story, Word of Honor:
Joseph Heller, an important and funny writer
now dead,
and I were at a party given by a billionaire
on Shelter Island.
I said, "Joe, how does it make you feel
to know that our host only yesterday
may have made more money
than your novel 'Catch-22'
has earned in its entire history?"
And Joe said, "I've got something he can never have."
And I said, "What on earth could that be, Joe?"
And Joe said, "The knowledge that I've got enough."
Not bad! Rest in peace!"

--Kurt Vonnegut

How An Economy Grows, and Why it Crashes

My friend Kalyan liked the book "How an Economy Grows, and Why It Crashes" so much that he bought 4 copies, and gifted one to us. That's how I came to know about and read the book.

If someone had told me that any author could explain the differences between "Keynesian ideas" and the "Austrian school" to any lay person, I'd have been highly doubtful. But the Schiff brothers do it, in the first 3 chapters of this highly readable book.

Peter D Schiff is an investor with a great understanding of economics. Let's assume that 1 in 50 people work as teachers. But only 1 among these 50 teachers is a master teacher. Only they have grasped the subject to such an extent that they can explain it to others with lucidity and simplicity. Peter Schiff is one such teacher.

This book has much going for it. It is a book presented as one ongoing allegory. If you have read "The Richest Man in Babylon" or "The Wealthy Barber" you know the kind. This book follows that storytelling tradition.

The story starts with 3 guys (Able, Baker and Charlie) stranded in an island where they have to catch fish by hand daily to survive. Each and every concept of trade and economics is built as these three become sophisticated in their economic dealings.

The authors build seamlessly from microeconomics concepts to grander topics in macroeconomics. Using examples of two larges countries (US and China, very thinly disguised) the authors play out several dire scenarios. In its criticisms, the book is hard-hitting and opinionated, and doesn't hold back.

The authors come down very strongly against holding on to US dollars. In a way, this book serves a personal wake-up call to me, because I don't own any tangible assets at all, and all savings are in paper US dollars, which Schiff feels has to fall prey to eventual inflation.

In each chapter, boxed "Reality Checks" are sprinkled on the side margins for extra clarity. "Takeaways" are given at the end of each chapter to reinforce the economics concepts introduced.

The book is a very easy read, and can be finished in one to two sittings. Everyone who is 15 or older should read this book. I can't think of any exceptions

Tim O'Reilly on why Money is like Gasoline for a road trip

By choice, I don't write often about money and retirement, though the topic can't really be avoided and is always peripherally present. Plus, there are already so many books and blogs that pretty much equate a 'retirement lifestyle' with 'financing a life of retirement.'

This post is an exception because I really liked how Tim O'Reilly sums it up in this profile, as only he can.

"Money is like gasoline during a road trip," he says. "You don't want to run out of gas on your trip, but you're not doing a tour of gas stations. You have to pay attention to money, but it shouldn't be about the money."

The whole interview in Inc. makes for great reading, including sound bites like "Learning has always been something of a drug for me." Don't miss it.

Essential for Early Retirement – A Networth File

Yes, there are no short-cuts, no easy one-size-fits-all solutions. But for anyone even remotely considering early retirement, I don’t know how it would be possible without a Networth File.

Your networth is simply the sum total of all your assets minus any liabilities (debts) you have. When I am discussing with people, I find that most are well aware of the concept of Networth. But when I pointedly ask them if they have a networth.xls file and whether they track it regularly, the answer is almost always No.

I don’t understand this reluctance given how essential and easy it is to track.

It could be tracked in a notebook, I suppose. Though tracking it in a spreadsheet (Excel) would be a lot easier. If tracked once a month it definitely won’t take more than 15 minutes to update. (There are automated web tools available, but I am old school enough to think that typing each number by hand helps you think about them.)

If your total networth is not growing steadily at the rate you want it to, that will force the right set of actions – increased savings, rebalancing to the right asset allocation mix for your age/circumstance, and perhaps even a job change.

If early retirement is a real goal, I cannot think of a more worthwhile activity than tracking networth regularly.

Giving up income for personal freedom -- Tyler Cowen

There is a wonderful jolt of recognition in reading something that echoes and validates our own thinking, and does so far more eloquently than we ever could.

How is it that someone like me, coming from a strictly middle-class background, with no inheritance, after working in middle management for just a dozen years can even consider myself as possibly financially independent? I have often wondered this in the last year.

Several clues to the answer come from Tyler Cowen, whose thinking and pointers I respect enormously. He's recently written a book called "Create Your Own Economy" (great reviews) and says the following in Newsweek Q&A about his book:

The wealthier we get, the more we are seeing people give up income for personal freedom or for a more interesting job.
...
Human welfare is becoming less attached to wealth than it used to be. It’s quite plausible, for instance, that an upper-middle-class person can be happier than Bill Gates or some other billionaire. You wouldn’t have said the same back in the days of Carnegie and Rockefeller.
...
The widespread presence of free fun on the Internet has made it very easy for a lot of consumers to limit or postpone their spending. Just stay at home and cruise the Web.

Apply before you leave your job

Rupal wanted me to pass this along to anyone considering early retirement or a hiatus from employment:
Make a list of the places where you will be applying for anything financial (Credit cards, loans, leases and the like) and apply before you leave your job.

We learned this the hard way. It didn’t occur to either of us until we had already left our jobs. Here are a couple of real examples.

After years of not having time to spend on my portfolio, I decided that I would look into selling covered calls. I own a few ETF’s (SPY, QQQQ). I understand the theory and the risks and rewards of selling covered calls well. But I found out that my brokerage account wasn’t approved for Options trading. So I logged on to my brokerage and applied for it online. But in the application, I had to state that I was unemployed and had no income to speak of. Sure enough, I got rejected. (No complaints, I would have done the same thing if I had been the one reviewing my application.)

Second example: My wife and I are now applying for a new credit card because it has no foreign fees for transactions abroad. (That would save us 2-3% on each transaction in India.) But I won’t be too surprised if we get rejected.

Maybe I should try claiming that I am self-employed. I know if I had applied when I had my corporate job, I’d have gotten the approvals fairly easily.

Lesson: Before leaving your job, take the time to think about (and make a list of) the various places that you would be applying for anything financial. If you are planning to move to a different town after quitting your job, you should seriously consider getting your leases, loans etc. done while you are still employed.

Blog Spotlight - Early Retirement Extreme

I have wanted to "spotlight" a few early retirement blogs that I follow. One of the earliest ones I found was Jacob's ERE -- Early Retirement Extreme Blog. His own subtitle reads: Financial independence, frugality, self-sufficiency, ecology, capitalism, and voluntary simplicity.

One thing is clear - the word "extreme" is very apt. Jacob's mission seems to be to shake people up a little, sometimes by throwing out numbers and statements which at first glance seem preposterous ("You can get by on $6000 per year per person in the Bay Area" is a favorite claim of his.) But he then backs up his statements and claims by describing how he does it.

I was intrigued and impressed enough to interview him and below are his responses to my questions.

Ram: Tell us a little about your own retirement story. (Why does Early Retirement interest you? How do you plan to get to it?

Jacob: When I started my blog, one of the first things I did was to write a series of posts on how I went about it, starting with this one. It is really quite simple: Spend very little and save the rest. The trick then becomes how to live as well as possible while spending very little. In the beginning I was not that good at it as could be expected having been your typical middle class consumer. Today, it would be hard to tell from appearances that I only spend about $6000 a year (in the Bay area).

Lots of people seem to be unable to wrap their minds around a number like that. However, there are many people in the country that lives on that amount and even less; however, their problem is that they lack the skills, desire, or opportunities to earn much more than that. In general, however, everybody seems to spend all they earn and that is what prevents them from a life of leisure, and so the problem is that we have been conditioned to spend all that earn. I mean, most personal finance blogs out there tell you to save 15% of your income. Most people here would consider that pretty good, but 15% is so negligible that it would take a good three decades of work to become financially independent. Some think that 30% or 50% is a lot. It is, but only relative to the paltry 15%. In China, the average is 50%. If you want to retire in your 30s, you need save even more than that, closer to 75%. This means that if you can live on $6000 and you can earn a little more than $24,000, you can make it. Conversely, if one lacks the competence to live on anything less than, say, $30,000, one would need a six figure income and not that many earn that right out of school.

2. What are some of the things you plan to do while retired?

Jacob: Even while working I have several balls in their air. What do I do for relaxation? Well I work or rather I do things. I'm not sure I should call it working because "work" usually implies something you do because you have to. In fact, aside from a few jobs, I have never really felt like I was working insofar that I would still be doing what I did/do even if I didn't get paid. I think that's a great situation to be in. I think I have been lucky not having to have considered work "work" for most of my career.

Anyway, since I was 25 or so I used my spare time doing various forms of non-profit work setting up web pages and writing articles and books about the world's problems. In fact, the blog is one such project. I would like to dedicate more time to this. Currently, my main focus is on global warming, resource depletion, and overpopulation. This is essentially about humanity learning that it lives in a finite world and that it/we/our economy can not keep growing forever, lest we self-destruct.

Solving this problem will be to our generation what avoiding global nuclear war was to our parents and grandparents. Somehow they agreed that saving the planet from destruction was worth it. Now our generation has to do the same, so this is what I want to work on doing.

3. Do have any Early Retirement fears? That is, things that might disrupt your plan for enjoying early retirement?

Jacob: Other than running out of money one way or the other (hyperinflation, say), my biggest fear is the "What if"-monster, e.g. how my life could have turned out otherwise. For any human, there are probably only a handful a really important decisions to be made during a lifetime, which can be said to have a single cause. I'm not talking about eating unhealthy or healthy or working hard or being lazy. Those behaviors merely contribute to a trend. What I'm thinking about are decisions that are almost singular in time such as who to marry, whether to have children or move to another country. Those are defining moments and retirement is certainly a defining moment. Two things should be considered: What will happen if I retire and what will happen if I do not retire. Both are uncertain. In particular I wonder whether solving the three problems mentioned above can be more effectively done within the confines of regular employment.

4. What advice/suggestions do you have to those who want to retire (early)?

Jacob: My advise is to learn how to spend less and still live well. It is far easier to learn to spend 5 times less than it is to learn to earn 5 times more. Most consumers seem to think there's a direct correlation between how much one spends and how well one lives. It's an idea that is continuously reinforced by society, so it is hard to let go off. However, letting go of that and "daring to be different" is practically all that is required. Some "get" that right away, while others seem to be very stuck in their ways.

5. What is your blog about?

Jacob: Well, it could be described as the "The way of Jacob" :-D It is idiosyncratic, iconoclastic, and often contrarian as well. It's like Fight Club without the fight or The Matrix without the matrix or Idiocracy without the idiots. The funny thing is that for those who "get it", the posts actually make sense. The rest probably think I'm crazy :-)


Please be sure to check out Jacob's blog.

For Richer or Poorer

I am surprised by the number of times people ask if I am independently wealthy. That’s what people ask when people hear from me that I have “retired.” Or if my parents are very well off, or if I have somehow ‘made it big’.

I simply laugh with the people who ask when I hear any of these. I worked in a technical department of a corporation for 12 years and had no other income. So I am not even remotely rich.

My main gripe about most of the retirement books is that they concentrate so much on finance and leave out all the other aspects of retirement. My wife and I did have some lofty “net-worth” goals when we started thinking of retirement. We started watching it month after month.

I started to get worried when my age was going up faster than our net-worth. Based on our expenses and my calculations, I started believing that these retirement books use ridiculously high numbers as the amount of dollars one needs in their ‘nest-egg’ to retire.

After a lot of discussions and internal debates, we quit knowing that we could probably get jobs again and earn what we needed. Time was what we really lacked.

This week, wandering around in Kauai, I was struck by Rule #8 in a fairly popular Red Dirt T-shirt that has 10 Hawaiian Rules. There are two ways to get rich. You can make more or you can require less.

Not having the aptitude or the desire for the former, I choose the latter.