Believe it or not, I didn’t originally plan for Pilot Math Treasure Bath to be a book. The idea started as just a blog, until I realized all the problems with that plan.
There are dozens (if not hundreds) of blogs about FIRE or the broader Financial Independent (FI) movement these days. I don’t know why, but I find it objectionable how common it seems to be for a person to discover the idea of FIRE and immediately want to start blogging about it. (Blogging is supposed to be cheaply available to the masses. I should have no reason to oppose that, right?)
In my lifelong pursuit of hypocrisy, I started thinking of topics for blog posts almost as soon as I started reading Mr. Money Mustache and the like. Starting a blog is so easy that I almost jumped on the FI noob bandwagon and did it without further thought.
Thankfully though, I took a moment to think a little further into the future and realized that a full-fledged FI blog would need to cover a lot of the basic principles that comprise the framework for the idea of FIRE. I decided I didn’t want to do this for two reasons. 1) The basics have already been covered ad nauseam. 2) The idea of writing about the basics failed to excite me.
As I further considered what I’d write about (and what name I’d choose for) a personal FI blog, I realized that most of what I had to say centered around the common gripes, misconceptions, and simple lack of education I was hearing from the pilots I fly with. Pilot Math Treasure Bath ended up being a catchy name that would allow me to focus on pilot-centric topics and hopefully help out my aviator friends.
I realized that it’d be tough to convince most of the pilots I know to read a blog at all, let alone one that would need at least 15-20 posts to even present my basic philosophy on Pilot Math. I decided that the average pilot would be far more likely to read what I have to say if I consolidated everything into a single book, and that set me on the path I took.
It would have been impossible to explain all my ideas perfectly or exhaustively in a book that I wanted to actually publish, so I figured that this website could host a blog where I could expand on what I’d written in the book.
While I think my focus on Pilot Math makes a lot of sense, I still have a few things to say about FI and FIRE movements in general. That’s what I’m calling “Vanilla FI” here. Anything I write about under this topic should still be pertinent to aviators focused on applying Pilot Math, but I hope these posts will reach some non-pilots as well.
I already wrote one post about inflation in my book’s Pilot Math calculations that qualifies as much as Vanilla FI as it does as a pilot-specific topic. You can also look forward to posts on the Inconvenient (or Unspoken?) Hypocrisy of The FIRE Movement, a mash-up of The 4% Rule and the concept of a Talent Stack, and more. I hope you enjoy reading, and please let me know if you have questions or topics that you think I should cover.
I just wrote about some ways to make sure that both pay and Quality of Life are fantastic once you get to a major airline. Here’s a teaser:
Dear TPN, I just made $4,400 flying to New York and back for a slice of pizza. How was your day at work?
No, I’m not exaggerating or kidding you. While this is far from an everyday occurrence, each of us has the power to increase the likelihood of getting good deals by choosing what companies we apply for and then what categories we bid for once landing a job.
The three different categories I’ve flown since starting at Delta each represented a unique combination of Quality of Life (QOL) factors. (Most of) my intent here is not to brag, but use these situations, along with some general industry insight, to present you with a comparison. I hope this will help you shop for jobs and categories in the future…or at least give you something new to debate around the flight school water cooler or while you pretend to work on TPS reports and science projects in your military cubicles.
This week on BogiDope I got to write about how to apply the principles from Pilot Math Treasure Bath to USAF Undergraduate Pilot Training (UPT.) I argue that not only will applying these principles pay off in the financial long-run, it will also help you perform better in the program. Here’s a preview:
“If you’re headed to pilot training, you absolutely must read our 3-part series on Winning UPT. It explains how to perform well in your training program. However, that’s just part of your life at that point. Today we’re going to discuss how being smart with your finances will help you do better at UPT, and set you up for success later in life.
Perspective – Start With Why
If you want to do well at UPT, you need to stay focused on why you’re there. Your ultimate goal is to become a combat-qualified aviator in the greatest Air and Space Force the world has ever known. With that in mind, you should put the vast majority of your time and energy for that year into studying, chair-flying, and whatever else it takes for you to excel in this program.
Let’s be honest, you’re probably not used to this. Was college 4-5 years of razor-sharp focus on your studies…or did you spend plenty of time enjoying yourself? Were there sports, social gatherings, pursuing romance, road trips, and other distractions?
It turns out, that’s okay in college. Most schools require core/gen ed classes to make you a well-rounded person, but they’re not all so rigorous that they prevent you from also allowing your general life experiences to make you well-rounded.
Make no mistake though, UPT is not about breadth. Your entire year in that program is razor-focused on getting you to build some pretty specific skills as an aviator. It’s important to maintain balance in life, but you can maintain that balance while crafting your environment to maximize your professional development.
We’re going to look at ways to do this through the lens of pilot personal finance. Part of the reason for this is that I just wrote a book on the subject, Pilot Math Treasure Bath, and I feel like I have some authority on the subject. This topic is near and dear to my heart, and I truly believe that your career and life overall will be better if you consider the principles I discuss both here today and in that book. I also believe that the career earnings of a professional military pilot have the potential to set you up for financial independence and ultimate freedom in life…if you handle those earnings carefully.
The other reason basing this discussion on personal finance is that our entire society is shaped around a mindset of spending and consumerism. If you’re not careful, that culture will steal your attention from doing well in UPT and divert you to focusing on things that matter far less than flying jets and pulling Gs. Designing your life to avoid consumerism will protect you against those distractions.”
I’ve received a lot of kind feedback on my book, and a tiny bit of tough love. I appreciate both types of responses and I hope you’ll keep them coming.
Pilots take our work very seriously because lives actually depend on our ability to do it properly. Every training flight and serious military mission concludes with a debrief where we identify the good and bad from our sortie, and identify things to work on in the future. We regard these debriefs as almost sacred, and they come with some important ground rules:
There is no rank in the debrief. If the Colonel Wing Commander screwed something up, the Captain Instructor Pilot addresses it.
Take your spears. No matter how great or important you think you are, a pilot humbly accepts his or her critiques and tries to find value in them.
All feedback is done with the ultimate goal in mind: making everyone safer and more effective at their mission.
In that spirit, I’m very thankful to the author of one of PMTB’s reviews on Amazon. I feel that the review was thorough, well-considered, and accurate. I only earned 4-stars in part because of how I didn’t go far enough in addressing the effects of inflation in my book. For the sake of transparency, here’s the full text from that section of the review:
My major beef (and it is fairly minor) with the pilot math portion of the book is that, while he acknowledges the role of inflation on page 104, he appears to totally leave it out of his calculations on page 69. While the average household spending as of 2016 was $55k+, accounting for inflation means that the pilot would need to spend $68k+ to afford the same expenses 7 years later just before their Captain upgrade. Then, the author suggests doubling the spending at Captain upgrade, but due to inflation, this will end up being actually closer to $140k in expenses than $115k. When the pilot retires in their 30th year, the expenses would increase to $235k annually – the equivalent of $115k in 2016 dollars. This is over double the expected expenses when the Captain first upgrades. Then, those expenses will again increase over time during retirement, either more quickly depleting the treasure bath, or requiring the pilot to work longer to get a self sustaining bath. The higher expenses in earlier years will no doubt reduce the power of compounding interest in the later years, since the pilot won’t be able to have as high of a savings ‘rate’. I will concede that he used today’s pay rates over thirty years, while pay rates would likely increase over time (though they have yet to keep up with inflation in my experience), so that might offset many of the increased expenses. He argues that he uses a conservative interest rate of 5% to account for some of this, though that means one would need an actual 8% interest rate over thirty years to account for inflation in order to make his numbers work. A minor point, but one that throws the calculations off a bit.
This is valid feedback, and I want to address it today. Even if I wanted to, it’s too late to change the charts in the book to reflect the increases that my reviewer suggests. However, I hope you’ll end up agreeing that Pilot Math has accounted enough for inflation to remain usable.
I’ll start with a small quibble. Yes, I could have overtly addressed inflation in the calculations in my book. I consciously chose not to, in part because the charts were already complicated enough. I had to try and keep them readable in paperback and eBook format. I’ve also posted the charts on my Calculators page so that you can download and customize them to your heart’s content. They’re pretty monstrous spreadsheets and I didn’t want to make them so complicated that they’d be impossible to figure out. (I hope to publish more user-friendly versions some day.) However, if you would like to adjust them for inflation, you’re welcome to do so.
Now, with that complete, let’s talk about inflation and how I addressed it in my Pilot Math.
First off, inflation sucks. If you ask 10 economists what causes inflation, you’ll get 435 different answers. The bottom line is this: over time, money tends to lose value. The US Bureau of Labor Statistics has a bunch of fancy tools to display historical inflation rates. Here’s annual inflation rates from 1957 to 2019:
Over the very long-term, we say that inflation averages somewhere around 3.0% per year. This means that if you stick a $1 bill under your mattress today, one year from now it will only be able to buy as much as $0.97 would have on the day you stashed it. That effect compounds as time goes on, just like interest in your investment accounts compounds in your favor.
Looking at this another way, if your family is able to limit spending to $57,758 (the value I use in Pilot Math Treasure Bath) this year, next year you’d have to spend $59,491 to buy the same amount of stuff. If this trend continued to Year 9 at a major airline (when I assumed you’d upgrade to Captain in the book) you’d have to spend $75,361 to get the same value that the $57K figure got you in Year 1.
In the book, I assume that you’ll double your spending to $115,516 after you upgrade, but my reviewer is correct in stating that inflation would require this figure to be much higher…somewhere around $150K in Year 9.
That’s a significant difference. At one point I calculated that a pilot’s total savings in Year 9 would be around $137,000. If we raised our spending figures to account for inflation, the total savings amount for the year would be more like $102,000. Does this completely destroy the whole theory of Pilot Math? I argue that it does not. However, this does mean that it would take longer to reach Financial Independence, the point at which passive income from investments covers all your annual spending needs.
So what’s the deal? Why didn’t I show the effects of inflation directly in my charts?
The 4% Rule
Let’s remember that one of the key assumptions of Pilot Math is The 4% Rule. This rule says that if you have a nest egg, a pot of investments, as long as you only spend 4% of the total balance of those investments each year, they will effectively last forever.
The study didn’t start at 4%…it solved for it. The authors were trying to determine a safe withdrawal rate for retirees, under the assumption of a maximum 30-year retirement timespan. They wanted to know what percentage could a theoretical retiree spend per year without running out of money before he or she died.
They examined this question by looking at every 30-year timespan since 1926. This means they accounted for the Great Depression and every downturn since. Their conclusions were impressive. If you invest 100% in the stock market, a 4% withdrawal rate gives your money a 98% chance of lasting for a full 30-year retirement. That 2% failure rate probably represents a person who retired the day before the crash that triggered the Great Depression. Starting retirement at any other point results in success, when using past data.
It’s very important to note that this conclusion comes from Table 2 in the version to which I linked and that table accounts for inflation. My reviewer was right in that I don’t show how my numbers account for inflation, but the original Trinity Study upon which I based my assumption of a 4% withdrawal rate accounts for it whether I show it in my charts or not.
I suspect that my reviewer had never read the Trinity Study itself, but I hope that he or she will because it’s impressive!
It’s worth noting that not only does the study show that a 4% withdrawal rate has an inflation-adjusted 98% success rate, but that after 30 years the total balance of the investment account more than doubles, even if half of it is invested in bonds.
In the context of Pilot Math Treasure Bath, this means you could quit working, spend $57,758 from your Treasure Bath in Year 1, increase that spending to match inflation each year, and after 30 years your Treasure Bath would have more than twice as much money in it as you had in Year 1.
While my reviewer was correct in noting that my numbers didn’t show the effects of inflation on spending, he or she failed to give equal weight to the other side of the equation. It turns out that airline pilots get pay raises.
When I started at my airline in 2016, first year FO pay was about $70/hr. Toward the end of that year, we signed a new contract worth a lot of money. The total pay raise over the four-year contract was 30.1%. My first year FO pay immediately jumped 18% to $83/hr. (They even sent me a check for about $10K, making the pay increase retroactive to January 1st of that year.) If you look on airlinepilotcentral.com, you’ll see that first year FO pay is currently at $92/hr.
Over the last four years, that average pay increase of 7.5% per year has more than doubled inflation.
When asserting that I should have increased my annual spending numbers such that they would have hit $75K in Year 9, my reviewer should have simultaneously asserted that I increase my annual income levels to reflect a Year 1 FO pay rate that would rise to $178/hr over the same time period. This would have shown a given pilot’s income effectively doubling, while spending increased by less than 35%.
Instead, my reviewer asserted that pilot pay rates have failed to keep up with inflation, though I don’t see that in more recent data, at least for major airlines. One of the compounding effects here is that pilot pay at my airline took a 50% during a period of bankruptcies and mergers in the mid-to-late 2000s. Those pay rates have failed to recover to what they would have been in todays dollars. However, I feel cautiously optimistic, at least concerning the future of my company.
Now, I don’t think it’s realistic to expect pilot pay rates to increase by an average of 7.5% per year. If we carry that assumption out to the 30-year timespan of the charts in my book, first year FO pay hits something crazy like $814/hr. Not gonna happen.
However, I think it is fair to expect airline pilot pay to at least keep up with inflation, if not beat it by a little bit, over time. For my book, I assumed that the two would increase equally, and kept everything in current year numbers for the sake of simplicity.
Stock Market Performance
I also accounted for inflation by assuming low investment returns. According to Investopedia, the historical average annual return for the S&P 500 since 1926 is 10%. This index started with only looking at about 90 stocks. Since it expanded to include a full 500 companies in 1957, its return is closer to 8%.
Remember, this return reflects gains that happened despite covering a timespan that includes the worst Depression and other Recessions in recent history.
For Pilot Math Treasure Bath, I assumed investment returns of only 5%. I chose this number to reflect an 8% return as a conservative take on the expected performance of the stock market going forward, and then reduced that number by a flat 3% to account for inflation.
Ideally, my assumptions reflect returns so low that they’re unrealistic. I used these assumptions in the hopes of showing bad-case numbers, hoping that you would be happily surprised when your actual results exceeded all of my estimates. I can’t promise this will happen, but I believe I at least did justice to the idea of assuming conservative investment returns.
CPI vs Inflation for Spending
Although my reviewer’s math works if we want to assume that a pilot’s spending must increase with an average inflation rate of 3% per year, I think this assumption may be inaccurate. The US Bureau of Labor Statistics tracks a value it calls the Consumer Price Index, or CPI. This index shows the increase in costs for a specific set of consumer goods over a given period of time.
Although inflation does affect the economy overall, the prices for specific products don’t always track with inflation. In fact, the prices for some things decrease over time. Solar power, for example, is getting more affordable as time goes on. Electronics like mobile phones and personal computers were once so expensive that only the rich could afford them. Today, they’re so cheap that mainstream society almost looks at them as throw-aways to be replaced every couple years.
The CPI takes all this into account by looking at actual prices over time. When you look at historical data, the CPI averages lower than inflation. I feel it’s unrealistic to assume that my $57,758 spending figure would have to increase by 3% per year indefinitely. Yes, I could have adjusted it for CPI, but that would have again made things less simple.
Although my reviewer’s critique of the way I showed my math was technically correct, I believe he or she lacked the context for understanding that I did account for inflation in several ways. (I apologize for not explaining this in the book. I guess I’d better start working on the 2nd Edition!) Here’s the list of ways that my Pilot Math accounts for and/or works in spite of inflation:
The Trinity Study that derived the 4% Rule accounts for inflation.
Pilots get pay increases that frequently beat inflation. I did not assume any pay raises for the charts in my book. If I had, I would have at least assumed annual pay rate increases equal to inflation.
I assumed investment returns far below the historical average. The S&P 500 averages more than 10% annual returns in the long run. Many analysts use 8% as a conservative estimate. I reduced that to 5% in hopes of showing investment performance that accounts for inflation. This effectively doubles the inflation protection assumed by the 4% Rule.
Spending numbers probably will probably increase in accordance with the CPI, rather than raw inflation rates.
Thanks again to Draco_CJ for reading my book and giving such a detailed review on Amazon! Thanks for the candid feedback, and I pledge to do better in the future. I hope the context I’ve provided here alleviates some of your concerns about Pilot Math’s accounting for inflation. I hope you’ll apply the principles behind Pilot Math and work toward filling a Treasure Bath, regardless of the specific point at which you’ll reach Enough. I still assert that point is closer than you think.
Nos Amo Servo! – Emet
The gorgeous hot air balloon inflation photo was taken by Will O on Unsplash. Nice work!
I spent most of last weekend at a networking event/conference called TPNx, hosted by The Pilot Network. It was an outstanding experience.
I’ve encountered a few people online who didn’t attend because we’d failed to communicate what happens at TPNx and why a person might want to go. I’ve done my best to explain that in my post about the event. Here are a few excerpts:
“TPNx was awesome this year. Adam Uhan wrote a short review of the event and he was spot-on. I want to describe some about my experience too, but, perhaps more importantly, I want to address a question I’ve been surprised to see a lot in the last couple days. Specifically: ‘What type of pilot benefits from TPNx?'”
“I also met a bunch of other pilots from all over the country. We talked a lot about career options. Some had lingering questions about stuff they’d read online and just weren’t sure they could trust. I was able to either set things straight for them, or refer them to a person or place where they could get that confirmation. I also identified lingering questions that will become future articles I write here.”
“The Southwest hiring team branched out a lot this year. They started off TPNx by spending hours at a table the first night in a private, small-group discussion and Q&A. They were available throughout the weekend for questions. Having access to the hiring team for a major airline for a whole weekend is something you’ll never get anywhere else.”
The Federal Aviation Regulations have a section (14 CFR 61.73) that gives you credit (and a Commercial Pilot’s License) for your military pilot ratings, which is nice. For the most part, you don’t need to know or care about most of the rules for civilian pilot ratings. However, there are a couple of critical points in your career when you will need to obtain civilian ratings the hard way. We’ll discuss those situations here today, then take a look at some ways to get that done next week.
For those who know what a Kobo is, I hope you’re excited to have another title available. If you don’t know, I won’t blame you. Kobo is an eReader that uses an electronic ink technology similar to Amazon’s Kindle. You could think of it like the Android to Kindle’s iPhone. (Or maybe the 1990s Mac to Microsoft’s Windows.)
I’m a big fan of competitive markers and customers having options. I think it makes everyone better. I think the Kobo is a good platform on it’s own, and I hope it keeps pressure on Amazon to continue improving the Kindle.
Just like Amazon, Kobo mobile phone and desktop apps you can use to read books from their store if you want to try it out.
Thanks for reading. I hope your Treasure Baths fill up quickly so you can focus on doing great things.
If you want aviation scholarships, Meira Leonard has created the ultimate list for you on her site, Blonds in Aviation. Don’t even bother reading more about it here yet, just click on the link or this picture and go see it!
From what I can tell, this calendar has several million dollars worth of paid flight training and other educational opportunities. You now have now excuse to complain about the costs of flight training until you’ve exhausted the possibilities here.
Are you watching TV right now?
Are you scrolling through an endless social media feed?
Are you shopping online?
If so, stop it! Don’t do any of those things again until you’ve applied for at least one scholarship. If that doesn’t get you excited enough to immediately move on to the next one, then set a timer on your phone for 5 minutes. Give yourself that much time to go back to what you were doing. When the alarm goes off, you have to apply for another scholarship. It’ll only take you a few weeks to get through the list, then you can go back to finding a good side-hustle to held fund your flying. I recommend this one for anyone with a pilot’s license.
I was going to build my own scholarship list, but Meira’s is far better than anything I could do. I’ve replaced what I was working on here with another link to her calendar. I know of a couple scholarships she doesn’t have yet, so I’m planning on asking her to post them on her list. If not, they’ll go up on the scholarships page here.
I got to attend the ATA conference as a rep for The Pilot Network over the days that I officially released my book. It was a fun experience and a bit of a reunion. I also gained some fascinating insight into interacting with senior military leaders after leaving full-time military service. Here’s the teaser to get you started:
What do you sell at a military trade show? It turns out there’s a lot…ish.
I just spent part of a week representing The Pilot Network at the annual Airlift/Tanker Association (ATA) conference in Orlando. It was a fun and fascinating experience. If you’re in the military and you’ve never been, ask your boss to send you TDY next year. If you’re not in the military, but you want to go, ask Matt Swee or Adam Uhan if you can help next year as a rep for TPN or one of our other sponsors.
Despite my perhaps unforgiving reception of the mass-messaging, It was interesting talking to individual leaders one-on-one. The ATA sets aside time for O-6s and above to walk through the vendor exhibit hall and speak with each of us. I got to go toe-to-toe with Colonels and Generals to explain what TPN is, help promote our sponsors, and to talk about the big issues in the Air Force.
I was very pleased to note that most of the O-6s I talked to get “it” on issues like pilot retention. One of them outlined his idea for fixing things, and it fit perfectly with my own ideas on the matter. Our mutual conclusion seemed to be: “Why the hell aren’t we doing this?”
New hotness aside, PMTB is also ranking high in categories like Aviation Piloting and Flight Instruction (#44,) Personal Success in Business (#680,) and Personal Finance (#2246.) It’s sold more than 145 copies in its first week, and, most importantly, I’ve already received feedback that it’s changing lives. If there’s a pilot in your life that you care about, please share this book with him or her!
If you have a minute, please take a moment and leave a review as well. It helps people to know if you’ve found the material in the book useful. (And it helps with sales.)
Thanks again. I hope you’re enjoying reading. I hope PMTB is making a difference for you and your family.