I’ve tried writing this post more than once, giving up each time. It’s tough to do this subject justice while remaining tactful. I’m not surprised that everyone else seems to have avoided it as well. I’ve been dying to write it though, because I think this is an important discussion for the FIRE community. If my attempt at starting this discussion is imperfect, please look past my meager writing and try to consider the topic at hand.
We’re going to question a lot of beliefs today. Many of our questions don’t have clean, easy answers. I think some of them are beyond our ability to answer. Personally, I’m okay with this. The world isn’t black and white, and it’s okay to do the best we can with what we have. However, we must accept the fact that thinking through all of this is going to make us uncomfortable.
As humans, our natural instinct will be to defend ourselves when we start to hear these questions and feel this discomfort. Your next inclination will be to attack the person asking the questions that cause those feelings. I know because I’ve been the uncomfortable person doing the attacking many, many times.
Please resist that urge though! If you get lost defending yourself or attacking me, you’ll miss out on an important opportunity. I think that every single person pursuing FIRE should at least consider what we’re discussing here today. I believe your life will be better if you do that. I believe you’ll find better, more fulfilling, and more efficient ways to pursue FIRE if you give these ideas due consideration.
And with that, let’s move on.
The idea of FIRE, reaching Financial Independence and choosing to Retire Early, is a great aspiration. (I prefer to focus on the FI part because there’s a lot of unnecessary drama over RE.) I believe our world would be a far better place if more people pursued this idea.
I think the very label of Financial Independence highlights the guiding principle of this movement: the idea that each human being can and should support itself.
The FIRE movement seeks to attain that state by reducing our spending, investing our savings wisely, and finding ways to increase our income for savings…all while trying to maintain a happy, balanced life.
I get a little frustrated when I see people over-focusing on the “reducing our spending” part of that. Many of us go way beyond frugality and dive into deprivation. I think this is the wrong way to do it. FIRE is not a short process – there are no get rich quick schemes. I believe it’s too difficult for most people to intentionally live in deprivation for the amount of time it takes to reach FIRE. I think someone trying too hard on this front will either end up quitting, or cause significant damage in their relationships or other parts of their lives. Mr. Money Mustache wrote a great post about this distinction.
If you’re capable of living a life of deprivation while pursuing FIRE, good on you! I wish you all the best and I hope some of what I write will help you. However, I hope the most extreme frugalists will be careful not to push their ideas on others too energetically. People in our world are increasingly vulnerable to social pressure. While this can make any one person a force for good, I’m afraid most individuals’ progress toward FI is tenuous enough that you’re more likely to scare them off than convince them to be like you.
Speaking of being preachy, if you spend any time around the FIRE movement you’ll hear a lot of rebelling against the rampant consumerism in our world. I think this is great! I believe that many of our world’s financial and social woes come from mindless consumerism. I think the pursuit of FIRE is more than a lot of people are willing to bite off; however, I think we can do a lot of good even if all we do is get them to step back and look at the damage consumerism causes in their lives.
As great as it is for us to preach against consumerism, but we’d better be careful.
FIRE only works because our economy allows us to invest our money and earn interest on it. We use The 4% Rule as a rule of thumb. Throughout the history of the stock market, a person who only spends 4% of his or her investment account balance has an extremely high chance of being able to continue spending at that amount for at least 30 years without running out of money. In most cases, that money lasts even longer than 30 years. This does account for inflation, but doesn’t account for an individual choosing to spend less than 4% in tough years or continuing have some type of income after giving up mandatory full-time work.
We’re lucky that 4% is a very conservative number. It leads us to some Shockingly Simple Math that shows how it can be relatively easy for any person to reach FIRE.
However, we need to ask a question: Why can we feel so confident in this 4% number?
Although there are endless ways for us to invest, the most common is buying low-cost index funds. This is definitely the simplest way to invest. It’s so simple, in fact, that JL Collins wrote a book on this subject called The Simple Path to Wealth.
Historically, the stock market has averaged more than 11% Return on Investment (ROI.) This is fantastic! When I wrote Pilot Math Treasure Bath, I dropped that number 3% to account for inflation, and then took another 3% to be conservative. Even at the resulting 5% ROI, I calculated that it’s possible to reach FIRE in a shockingly short amount of time.
But, why does the stock market offer such impressive returns?
Stocks don’t gain value because a company maintains the status quo. Stocks gain value because companies sell more goods or services and make more money as time goes on. In fact, what really drives stock price lately is a number called Earnings per Share, or EPS. Publicly traded companies have to report this number quarterly. If a company’s actual EPS equals or exceeds an EPS estimate selected by analysts, their stock price is likely to rise. If actual EPS fails to meet estimates, that stock price is all but guaranteed to drop.
(If you want a fascinating read on this topic, check out a book called The Number: How the Drive for Quarterly Earnings Corrupted Wall Street and Corporate America, by Alex Berenson.)
Now, my FIRE friends: What is the only way for a company to make more money quarter after quarter, and year after year?
Sadly, the answer is consumerism. Companies only make more money by convincing the public that they need to buy more stuff. Much of this stuff is nice, but not necessary.
Apple makes good products, right? (I’m typing on a 9-year old MacBook Pro right now.) Nobody needs a new iPhone, iWatch, iPad, and Mac every single year, but Apple does their damndest to convince people to buy them anyway. And with each year’s new release, there are lines of people outside Apple stores and millions of online preorders for Apple’s devices.
Many of us deride people for their Apple addiction. We buy Android, Windows, or Linux products that do as much as Apple’s, if not more, from a variety of manufacturers at drastically lower prices. However, we still benefit from the ridiculous consumerism that surrounds Apple, don’t we?
How many of us hold shares of AAPL and love the fact that it’s trading at $361 today? Even those of us who prefer the simplicity of index funds benefit from this ridiculous cultural phenomenon. Our very own sacred cow, VTSAX, is a whole-market index fund.
Owning VTSAX is owning Apple.
Owning VTSAX is also owning Amazon, Johnson & Johnson, Coca Cola, Verizon, and all the other companies in our country that only exist and thrive thanks to rampant consumerism.
Do we realize that every time we rail against consumerism, we’re railing against the very goose laying our golden eggs?
Do you see any hypocrisy in that?
Like I said, I’m not trying to reach a resolution around these questions. This thought should make us uncomfortable, but I don’t think we should feel obligated to completely alleviate that discomfort. I think the discomfort is a good thing. I think we need to realize and acknowledge the fact that our good fortune exists because of others’ consumerism. I wonder if, perhaps, we should consider being a little more thankful for all those consumers. Ideally, I think this discomfort could drive us to set some long-term goals for the FIRE movement.
If every single person on the planet embraced frugality and tried to save 50% or more of their income, our current economy would collapse. There might still be demand for expensive goods, from people who had achieved FI and wanted to spend excess money on nice things. However, without hundreds of millions of people trying to keep up with the Joneses, many companies would just plain go bankrupt.
This would mean lots of job losses and a big stock market crash. Even going forward, without businesses constantly expanding, overall market returns would not be nearly as large as they have been. The 4% Rule might quit working altogether.
Honestly, I don’t think this scenario is realistic. Even if the FIRE community flooded social media with envy-inspiring images of how great life is in FIRE, consumer culture seems so entrenched that I doubt we could convert more than a couple percentage points of humanity, let along the whole world.
Even if it did happen, I think we’d eventually figure out an equilibrium where our economy could function. Mr. Money Mustache wrote a great post about his ideal design for a city. His idea is basically a society where each person spends 10-15 years working hard, then retires to a life of meaningful living. I think this ideal could work. With such a small portion of the population working full-time, I think we could keep them busy and their companies profitable providing for our basic needs (food, clothing, housing, etc.)
Spending needs would be lower in this society, so maybe a Treasure Bath deep enough to work with the 4% Rule in our world of consumerism would work with a 2-3% rule in a Mustachian utopia.
However, we have to admit that the transition from here to there would be brutal. It would result in many years of chaos, and would require a complete redesign of our economy and our society. It could only work if we convinced the vast majority of humanity to live by the FI movement’s principles.
So, although we get to live great lives once we’re freed from financial insecurity and the drudgery of mandatory full-time work, we have to realize that our success is fueled by people who suffer from that same insecurity and drudgery every day. And if we actually wanted to bring all of them into our fold, it would cause worldwide chaos.
For me, this is just the first major hypocrisy of the FIRE movement. Let’s look at another.
One of the Pillars of FI is frugality. From efficient meal planning and shopping, to sniffing out free entertainment, to just redefining what holds meaning in our lives, the people of the FIRE movement have become masters at finding ways to enjoy life without having to spend a lot of money.
Another Pillar of FI is reducing our tax burden. We debate endlessly how to fund our tax-advantaged retirement accounts, and then how to get the money back out of them in time to be useful.
The Mad Fientist wrote one of the most efficient explanations of how to access money in retirement accounts I’ve ever read. He also wrote about how an HSA can be a treasure trove of money, upon which a person never has to pay any taxes. Justin, who writes on Root of Good, has a famous article explaining how he only had to pay $150 of taxes on $150,000 of income. Jeremy, of Go Gurry Cracker, has a famous post about how to never pay taxes again.
On one hand, I think these posts and those like them are brilliant! As long as your laws allow you to pursue strategies like this you absolutely should!
However, this leads to some more uncomfortable truths for us to consdier.
Frequently, when you see a post or comment about how someone effectively (and correctly) reduces his or her tax burden, there’s usually a post or comment nearby about all of the free government services people use.
People in the FIRE movement love the library…for good reason. The average library can potentially provide hundreds of thousands of hours of entertainment and learning for “free.” (In this case, “free” means “the money you pay in taxes.”)
For the average citizen who doesn’t try to optimize anything and pays a lot in taxes, this is a pretty good deal overall. But, isn’t it a much better deal for members of the FIRE movement who pay little or nothing in tax?
The FIRE movement loves parks as “free” entertainment. Those parks are frequently kept up by the government, and funded with tax dollars.
Mr. Money Mustache has identified riding bicycles as a foundational principal in his philosophy. He rides them on city streets, and on city- or state-funded bike paths. Even his ideal Mustachian community would have sidewalks and paths large enough for bicycles. I can only assume that his vision has members of the community contributing to the creation and upkeep of those thoroughfares…with taxes.
Many of us use real estate investing to help diversify our risks and potentially increase our returns. How many of us consider crime rates and police presence in the area when deciding whether to buy a property? How many of us rest a little easier knowing that we’re protected from the worst possible tenants by police who will enforce an eviction?
How many of our investment properties are insured against catastrophes like fire, in part because the insurance companies know a nearby government-funded fire department will keep fires from spreading out of control?
How many of us sleep easier at night in our own homes knowing that we can call on police or firefighters to protect us?
We generally scoff at the idea of private school. “Why would you pay more than the Root of Good family spends in a year just for elementary school tuition when your kid can attend public school for ‘free’?” If we live beyond walking or biking distance, do we put our kids on publicly-funded school busses in the morning?
College is expensive. Many people within the FIRE movement put great effort into “Hacking the FAFSA” to get government grants and/or cheap loans to help pay for college. The “hacking” aspect of this comes from the fact that most of us make a lot more money than we get taxed on. We’re trying to use every loophole possible to make it look like we’re poor…even though we may be well on the path to FI.
We’re a long way from solving the problem of health care in our country. Many of us benefit from provisions in the ACA that get us coverage despite pre-existing conditions, or reduce our costs. Many members of the FI movement rely on government subsidies to get any health care at all. Personally, I’m okay with this on some level. I believe that we’re better off funding as much preventative care as possible. It costs us far more to have uninsured people show up at the emergency room for conditions that should never have led there. And yet, do any of us honestly think that the ACA subsidies were intended for people in the double comma club?
I could keep this up all day, but maybe I’ve made my point?
It is good that we benefit from all of these “free” services. However, we must admit to ourselves that they aren’t actually free. They’re all funded by tax dollars. For those of us who do everything in our power to legally avoid paying taxes, are we getting more than our “fair share?”
What if these services were all privately owned? Do you know any teachers? They work very hard, doing an incredibly important job, for relatively little pay. I wonder how many members of the FIRE movement have advocated to increase teacher compensation while also doing everything we can to pay less in taxes.
Would you walk into a bookstore and take a bunch of books home without paying for them?
If you wanted to borrow some money from your parents or a friend, would you intentionally make it look like you had less money than you do to convince them to help you?
There are schools of thought, to which you maybe belong, that would label most of these actions dishonest. In some cases, they’d look a lot like stealing.
This makes me very uncomfortable, and I hope it has a similar effect on your. Remember, we’re not defending ourselves right now. Just step back and consider your position on this.
Do you know someone less wealthy than you? Maybe they spend their money stupidly, but maybe they also work hard and live honestly as they try to do their best in this world. How would that person feel if you boasted what a good deal you get on things like libraries, schools, emergency services, roads, etc. without having to pay for any of it in taxes, despite having a higher income and net worth?
I still think it’s okay to pay as little as possible in taxes. As an Air Force officer, I can tell you that the government wastes so many of your tax dollars that it makes me sick. Maybe if we all paid less, they’d have to waste less.
However, I also realize that I get a lot of benefit from the taxes I pay. I’m even unique here. I used to fly the B-1B in the Air Force. We burned roughly 2,600 gallons of fuel per hour at high-altitude cruise. We didn’t spend a lot of time in full afterburner at low altitude. Part of the reason is that we would have broken every speed limit in the book. Another part is that our fuel flow was closer to 44,775 gallons per hour in that configuration!
I also got to teach Air Force pilot training in the T-6A. It is one of the most fun aircraft I have ever flown. I enjoyed every minute of flying I got to do in the Air Force. I realize that my lifetime tax bill probably won’t be enough to cover my use of roads, emergency services, and public education resources…let alone a portion of the flying I enjoyed in the military.
Is it morally good for us to take advantage of so much that we don’t pay for?
Another key principle of the FIRE movement is finding ways to increase our income. Many of us start side-hustles to bring in extra money. Frequently those businesses include writing blogs or books, writing software, creating videos and podcasts, and other intellectual property.
We rely on the income from our creations to help us support our families in the short-term, and hopefully reach FI in the long-term. In general, I feel like we’re proud of those around us for the things they create.
And yet, any time you get a thread of commenters discussing frugality, people start coming out of the woodwork discussing the ways they save a buck on entertainment. We borrow books from the library or get them used. Libraries pay authors for their books, but I can tell you from experience that it’s not very lucrative. Used book sales don’t benefit authors at all.
I’m also a computer programmer. I have never finished a customer-facing project with fewer than a copule hundred hours of work. More involved projects might take thousands of hours of work.
Do we value the time of other human beings so little that we aren’t willing to provide them at least some compensation for putting in all of that work?
If it were your book or your computer program, how would you feel about someone who said, “Thanks for creating that…it was great! I made sure to take full advantage of it in a way that didn’t earn you a dime!”?
To be fair, I feel like most of us who write about FIRE will reach our goals without selling you our book. I feel like most of us are more interested in you benefitting from the ideas than making a buck off you. I haven’t hesitated to give out free copies of my book to aspiring pilots who do no more than ask. I’ve never heard JL Collins complain about people checking out The Simple Path to Wealth from the library.
Still, I think this is something worth thinking about.
They share passwords to streaming video accounts. They find pirated copies of books, songs, movies, and software. If you can find these things legally, then by all means go for it! However, I was taught that taking things that belong to others without paying is called “theft.”
For me, the worst part about these comments is that the things most people brag about “getting for free” are just entertainment. Many parts of the FIRE community deride people who mindlessly consume entertainment. “If they just spent a portion of that time getting control of their finances or starting a side hustle, they’d be out of debt and financially free in no time!”
We have lots of stories justifying theft to provide food that will mean the difference between survival and starvation. Of all things, is entertainment worth sacrificing our principles over?
Is it morally right to use outright theft to reach FI?
Please understand that I’m not perfect here either. I spent years digging for ways to get free stuff. I remember my first time at an open-air market in Russia seeing tables full of CDs for $1 each and thinking I’d hit the jackpot.
I’ve mostly reached FI, and I think it’s a lot easier to take some sort of moral high ground when it’s easier to afford the things you want. Still, I think we owe it to the members of our community who work hard to produce things we value to consider how we obtain copies of their work.
I hope reading this has made you at least a little uncomfortable. I didn’t try to induce that discomfort to just make you feel bad. Instead, my hope is that it will convince you to think through some of your mindsets. This blog doesn’t have many readers yet, but I’ll admit that I hope this post will prompt some open conversations wtihin the FIRE community.
You may notice that I didn’t provide many answers in this post. That’s because I don’t have them. I’m not sure any of us does. I think it’s very important for us to agree that it’s okay for these issues to continue being unresolved.
I’m a big believer in individual rights and individual decision-making. I don’t think any unified, overarching set of answers to all of this could be effectively enforced on all of us anyway. Like the Oracle always says, each of us just has to “make up your own damn mind.”
And yet, I believe there’s value in having this discussion publicly. I don’t presume to be the smartest person around. I hope to hear opinions of others that both support and oppose my ideas. I believe that each of us can reach a better conclusion by listening to both sides.
So please let me know what you think.
- Is it okay to deride consumerism when that is exactly the force that makes FIRE work for us?
- Is there a way to adjust our attitudes toward consumerism to acknowledge our inherent hypocrisy while still pursuing FIRE?
- Is it okay to maximize our use of taxpayer-funded services while doing everything we can to avoid paying taxes?
- Is our quest for frugality driving us to obtain others’ work through morally questionable sources?
Thank you, sincerely, for reading this today. Thanks in advance for sharing your thoughts.
The image of FinCon speakers is from a Teachable course offering videos from past conferences. I haven’t taken the course, and I’m not affiliated with it at all. You can find it here: https://finconuniversity.teachable.com/p/fincon19-virtual-pass.
The image of Tim Cook is from this USA Today article: https://www.usatoday.com/story/tech/2020/02/17/apple-says-iphone-sales-affected-by-coronavirus/4788905002/.
The B-1B photo in the post is from: https://www.dvidshub.net/image/4107819/patrolling-pacific-b-1b-lancer. You can see it and a bunch of other “free” (taxpayer-funded) military photos on that site.