This article is an excerpt from the Shortform book guide to "Early Retirement Extreme" by Jacob Lund Fisker. Shortform has the world's best summaries and analyses of books you should be reading.
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What are you willing to give up in order to work less (or not at all)? Do you carry debt that isn’t really necessary?
In Early Retirement Extreme, Jacob Lund Fisker shows you how to do what he did: break free of consumerism and live a fulfilling, meaningful life—well before the typical retirement age. He provides straightforward strategies that you can adopt to make this significant lifestyle change.
Continue reading for an overview of this book that invites you to take control of your life and future.
Overview of Early Retirement Extreme by Jacob Lund Fisker
The modern world lures us into giving away our freedom. The vast majority of adults are caught in an unfulfilling cycle of consumerism: They sell decades of their lives to employers so they can buy consumable goods and status symbols that don’t make them happy. In doing so, they deprive themselves of time they could be spending on the pursuits and people they care about.
In Early Retirement Extreme, Jacob Lund Fisker (a retired astrophysicist) argues that it’s possible to break out of this system through a combination of frugal living, skill-building, and smart financial management. With these strategies, Fisker built a life for himself that allows him to survive on just $7,000 a year. After saving 75% of his income for just five years of salaried work, he permanently retired at age 33. In 2007, Fisker began sharing his frugal living advice on his blog, Early Retirement Extreme, eventually collecting, organizing, and adding to his blog material in the 2010 book of the same name.
We’ll detail Fisker’s view of modern consumer culture, outlining his argument that you should abandon this mainstream lifestyle. Next, we’ll explain how to follow in Fisker’s footsteps by retiring at an extremely early age: First, we’ll offer tips on how to minimize your living expenses; then, we’ll explain how to increase your financial security by diversifying your skills; and finally, we’ll discuss how to invest your savings and become financially self-sufficient for life.
The Problem: The Cycle of Consumerism
Fisker argues that the dominant cultural narrative of the modern age influences people to work far more than they need to survive. The average worker believes that the ideal life is to be as busy and productive as possible, earn as much money as they can, and then spend that money on consumer goods. For this reason, as their income increases, they increase their spending in lockstep rather than saving their money and buying back their time by retiring. They don’t question this narrative and end up living unfulfilling lives.
Is life as a habitual consumer really so unfulfilling? Fisker says it is, offering three reasons to break out of the cycle of consumerism.
- Reason #1: Your purchases don’t make you happy.
- Reason #2: Habitual spending keeps you dependent and vulnerable.
- Reason #3: Paying off debt wastes precious time.
Reason #1: Your Purchases Don’t Make You Happy
Many people falsely assume that you can find happiness by spending money, asserts Fisker. Because the dominant cultural narrative defines “successful” people as those who earn and spend the most money, people who want to feel successful spend excessively on status symbols with little intrinsic value.
Others seek fulfillment in the intrinsic pleasure of accumulating possessions. They enjoy building collections of items that are personally meaningful to them, like antique toys or designer handbags.
Fisker argues that both of these spending habits position spending money as your life’s source of meaning, and consequently, they lock you into a cycle where you feel you always need to spend more to be happy. Spending money becomes a compulsion, something you feel you must do rather than something you want to do.
Reason #2: Habitual Spending Keeps You Unskilled and Dependent
According to Fisker, people in consumer culture are unskilled because they’ve internalized the habit of solving their problems by spending money. They deprive themselves of the opportunity to grow through solving their own problems; consequently, they become dependent on the products they buy.
When you believe you need to buy a certain product or service to survive, Fisker argues that this limits your freedom by creating the illusion of a greater cost of living. You believe you need to work more to afford all your expenses, so you spend all your time working rather than pursuing more fulfilling activities.
Reason #3: Paying Off Debt Wastes Precious Time
Debt is one of the most limiting constraints possible on your time and freedom, says Fisker. Going into debt means selling your future time and labor to buy something now. Additionally, you’ve committed to selling more of your time to pay interest on that loan. The deeper in debt you are, the more time you must waste working to pay interest and the less time you’ll have to live your life the way you want to. Despite this, it’s common practice in modern culture to live perpetually in debt.
Fisker argues that it’s almost always entirely unnecessary—and against your best interests—to take on debt of any kind. This means only purchasing something when you can afford it instead of racking up credit card debt. It also means forgoing auto loans, expensive mortgages, and student loan debt.
The Goal: Buy an Early Retirement
Fisker explains that you’ve escaped the cycle of consumerism when you’re no longer buying things that won’t make you happy. Once you’ve done this, it’s possible to buy yourself an early retirement and work only as much as you want to.
People differ in how much they want to work. Many choose to pursue total financial freedom as quickly as possible, saving up enough money to never have to work again—a lifestyle that Fisker argues is more attainable than most people believe.
Alternatively, some people may not feel the need to immediately swear off work for the rest of their lives. In this case, Fisker notes that you can save enough so you can partially retire, only needing to work a few hours every week. Another option is to save enough to buy back your freedom in the short term—a mini-retirement, you might say.
To survive off of such a low income and retire early, Fisker argues you must learn to do three things: minimize your expenses, diversify your skills, and invest your savings.
Tips for Minimizing Expenses
According to Fisker, most people can do without many things they think they “need.” As you lower your annual expenses, the time it takes to save for retirement drops rapidly. Lowering your expenses not only leaves you with more income to save—it also means you’ll be free of that expense every year you’re retired, so you don’t have to save as much before retiring.
Here are Fisker’s three tips on how to minimize your cost of living.
- Tip #1: Avoid unnecessary debt.
- Tip #2: Don’t buy things you don’t need.
- Tip #3: Maximize the value of every purchase.
Tip #1: Avoid Unnecessary Debt
As mentioned earlier, minimizing your living expenses means refraining from taking on debt of any kind, including auto loans, mortgages, and student loans. Now, let’s discuss how to do this.
You Don’t Need Auto Loans
If you need to buy a car, Fisker recommends saving up and paying for it in cash to avoid taking on debt. That said, he says it’s better not to own a car at all, if possible, as it’s one of the biggest expenses the average person has. On top of the cost of the car itself, fuel, maintenance, and insurance costs can add up and significantly delay your retirement.
The best way to avoid owning a car is to plan ahead when choosing where to live. As long as you live close enough to walk, run, or cycle to your workplace and a grocery store, you can live without a car. Additionally, walking, running, or cycling every day is a great source of exercise, improving your overall health and helping avoid unnecessary health care costs.
You Don’t Need a Mortgage
Many adults believe that the most responsible housing decision they can make is to invest in real estate by taking out a mortgage and purchasing a “starter home.” Fisker disagrees, arguing that although you gain equity as you pay off your mortgage, this addition to your net worth is more or less counterbalanced by the interest you have to pay. For this reason, purchasing a home with a mortgage is no safer than investing the principal of any other loan. Although it’s possible to make money as your house appreciates in value, it’s always possible for the housing market to decline.
Because real estate is an uncertain investment, Fisker argues that renting a place to live can be more economical than buying a home. Sometimes, you can make more money by taking what you would spend on a mortgage and investing it elsewhere. Whether it’s more profitable to rent or buy depends on the strength of the real estate market relative to other investment markets. Instead of worrying about the value of your home as an investment, Fisker recommends viewing it as just another living expense.
If you do want to own a home, Fisker suggests saving up and paying for it in cash to avoid paying mortgage interest entirely. This is especially possible if you choose to buy a small home—Fisker argues that most people buy houses that are too large and expensive, which serve as mere status symbols and places to hold unneeded possessions. By living somewhere smaller, you can massively reduce your annual expenses, regardless of whether you rent or buy.
You Don’t Need Student Loans
Fisker acknowledges that college degrees have some value, but he claims that much of the time they’re not worth the investment. You need a college degree to gain access to a number of white-collar jobs; however, skill-based jobs like elevator mechanic or cable installer often pay just as well and allow you to start saving immediately rather than paying off debt.
In regard to the college education itself, Fisker argues that most college programs won’t add much value to your life. He claims that most students in higher education are looking for the credentials necessary for a white-collar job and nothing more. Colleges looking to attract students have changed to cater to these desires, offering increasingly easy, entertaining classes with little true educational value.
Tip #2: Don’t Buy Things You Don’t Need
To reduce your living expenses, buy less stuff, says Fisker. This, however, is easier said than done. How do you keep yourself from buying things you don’t need?
One tactic Fisker recommends is to cut out impulse buying entirely with a “wish list.” Whenever you feel the urge to buy something, add it to a list and move on with your day. Only allow yourself to buy something after it’s been on the list for 30 days. This way, you have time to adjust to life without that item, and you may discover that you don’t want or need it as much as you thought.
Another money-saving tactic Fisker suggests is to stretch your ability to deprive yourself. Choose one major expense in your life and cut back to an extent that feels extreme for a set period of time. Afterward, you’ll feel comfortable spending much less than you used to on that expense—and the new normal will feel indulgent in comparison to the extreme deprivation you put yourself through.
Tip #3: Maximize the Value of Every Purchase
Fisker recommends reducing your living expenses by maximizing the value of every purchase. Many products produced nowadays are built cheaply so consumers can use them up, throw them away, and buy new ones, as this is the financial model that’s most profitable for the companies selling them. To avoid falling into this trap, buy quality products that last. Even if they’re a bit more expensive, it’s cost-effective in the long run if you get many years of use.
Another way to escape the cycle of purchase and disposal is to look for opportunities to buy things used or pick them up for free—these opportunities are everywhere on online marketplaces. Likewise, Fisker recommends selling your possessions when you’re done with them.
Tips for Diversifying Your Skills
According to Fisker, diversifying your skills is a key component of the early retirement lifestyle. Most people strive to be highly valued in the labor market by specializing in a single area of expertise. However, if you cover your entire cost of living with the income from a single skill, you’ll be especially vulnerable if that income is disrupted.
Rather than creating a life for yourself that depends on you profiting from a single specialty, Fisker recommends building a diverse set of skills. This way, you’ll have the skills necessary to get a job in a wide variety of fields, if necessary, making you resilient to disruptions to any one industry.
In addition to diverse work skills, Fisker recommends mastering the daily living skills necessary to fix household problems rather than spending money to have others do so (or on products that do it for you). This helps you further minimize your expenses, making retirement a viable option sooner.
Here are Fisker’s tips on how to build a diverse, resilient skillset.
- Tip #1: Learn by doing.
- Tip #2: Leverage increasing returns, avoid diminishing returns.
Tip #1: Learn by Doing
Whenever a problem comes up in your life, try to solve it yourself rather than hire an expert. Fisker argues that hands-on experience is the most effective way to learn anything. If needed, he recommends using books and online resources to teach yourself before your first attempt at solving the problem. Often, people overestimate how difficult it is to do a task yourself—you’ll be able to gain basic competence in almost any skill in a remarkably short time.
Tip #2: Leverage Increasing Returns, Avoid Diminishing Returns
In every area of your life, invest enough resources to achieve increasing returns, then stop and invest elsewhere once you begin receiving decreasing returns. According to Fisker, following this guideline will show you how much effort you should invest in each of your diverse skills.
What are “increasing returns” in this context? Fisker asserts that as you invest effort into improving your life in a certain domain, the rate at which you receive benefits like money, health, and happiness increases—each additional hour of effort will gain you more benefits than the previous one. However, this is only true up to a point. If you invest too much time and money in an area of life, they begin yielding diminishing returns. At this point, it’s more efficient to do something else.
Tips for Investing Savings
To retire as quickly as you can, as Fisker did, all you have to do is save enough money that the fund and investment returns cover your annual expenses for the rest of your life. Given how unpredictable the economy is—in particular, the rate of inflation and performance of your investments—it’s impossible to know with 100% certainty how much money will be enough to last the rest of your life.
As a ballpark estimate that discounts these factors, Fisker assumes a 3% annual return on investment and asserts that if you accumulate a fund that’s 34.33 times your annual expenses, you can retire and live off the investment returns forever. This is because you need enough that a 3% return covers your annual expenses, plus a year’s worth of expenses to spend while your investments earn money (33.33 + 1 = 34.33).
You might worry that if all your savings are in investments, you risk losing everything in a major economic downturn. However, Fisker assuages this fear, arguing that if your investments have fallen enough to ruin your retirement, it’s likely that the entire economy has sunk into an unprecedented depression. If this were to happen, your remaining savings would still leave you more secure than traditional workers who depend on their wages as their only source of income, as businesses would collapse, unemployment would skyrocket, and jobs would become extremely scarce and competitive.
We’ve established that investing your savings is the safest path to total financial freedom. But how do you invest your savings well? Here are Fisker’s tips:
- Tip #1: Educate yourself on investing strategy.
- Tip #2: Pick investments based on the work you prefer.
Tip #1: Educate Yourself on Investing Strategy
Fisker recommends learning the foundational principles of investing rather than blindly trusting the financial advice of others when choosing your investments. By personally understanding the principles at work, he says you can significantly reduce the risk of any investment and greatly increase your returns.
The more money you’ve accumulated and invested, the more time you should spend learning how to manage it. Since smarter decisions earn you more money as your fund size increases, educating yourself on investing strategy will eventually become more profitable than any other way you could spend your time.
Tip #2: Pick Investments Based on the Work You Prefer
The specific assets you invest in should depend on how you like to spend your time, according to Fisker. A day you spend researching the most promising commodities will look very different from one you spend working closely with a tech startup as an angel investor. Research various investments and choose whatever interests you most.
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Here's what you'll find in our full Early Retirement Extreme summary:
- How the modern world lures us into giving away our freedom
- How you can permanently retire in your 30s
- Three tips for minimizing your cost of living
