PDF Summary:Early Retirement Extreme, by Jacob Lund Fisker

The modern world lures us into giving away our freedom, argues early retiree Jacob Lund Fisker. 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. Luckily, Fisker says, it’s possible to break out of this system: He did this by learning how to survive on just $7,000 a year, which allowed him to permanently retire at age 33. In Early Retirement Extreme, he teaches others how to do the same.

In this guide, you’ll learn the basic principles of Fisker’s frugal mindset and how you, too, can retire at an extremely early age. In our commentary, we’ll examine popular ideas from the early retirement community that provide intellectual context for Fisker’s argument and help you save even more money. We’ll also highlight counterpoints to Fisker’s point of view from books including 168 Hours and I Will Teach You to Be Rich.

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Car Owners Should Live in Walkable Areas, Too

Arguably, Fisker’s advice to avoid owning a car isn’t feasible for everyone. For instance, if you need to frequently visit family and friends who live in different cities, you may deem car ownership a necessary expense.

However, some experts on frugal living agree with Fisker that living close to work and grocery stores saves large amounts of money, even if you own a car. This is because, for the most part, the expenses of car ownership add up per mile you drive, not evenly over time. Every mile you drive requires more fuel and wears out parts of your car, reducing the time before your next repair. The exception is car insurance, which you pay at a fixed rate no matter how much you drive, but you can minimize this fixed expense by driving a cheaper used car rather than a new one.

Additionally, the average American spends about an hour a day driving. If you lived closer to the places you needed to go and spent that hour engaging in cardiovascular exercise—walking, running, or cycling to get around town—you could significantly reduce your risk of heart disease, diabetes, and cancer. In short, even if you own a car, you benefit from driving as little as possible.

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.

How a Housing Market Crash Could Impact Homeowners

Fisker warns that buying a house isn’t a surefire investment, as it’s not a foregone conclusion that the investment gains will cover the interest on your mortgage. However, if the housing market suffers a major recession or crash, the consequences of a poorly timed real estate investment could extend beyond the financial loss Fisker mentions—you could default on your mortgage and the bank could foreclose on your home. In the 2008 housing crisis, this happened to millions of households.

If the homeowners who lost their homes in 2008 had bought smaller houses within their means, as Fisker recommends, many of them might have been able to weather a recession while making their mortgage payments. Fisker might argue that these homeowners had foolishly bought a nice house because they wanted a status symbol to hold more status symbols. However, others argue that the idea of owning a nice house is a key component of the American Dream. In other words, these homeowners didn’t see their house as a status symbol—they saw it as proof that they were virtuous, hard-working citizens who embodied the ideal American.

While keeping your mortgage reasonably small is a relatively safe strategy, the most reliable way to protect yourself from a housing crash would be to buy a home in cash, as Fisker recommends. This would ensure that you have a place to live even if your income dried up entirely.

How a Crash Could Impact Renters

According to Fisker, the primary advantage of renting rather than owning your home is that you can invest your savings rather than putting them toward a down payment and mortgage interest. However, a severe enough real estate crash would likely have negative reverberations throughout the economy (as it did in 2008), jeopardizing your investments in other markets. Despite this, renting rather than owning a home could help you mitigate the downside of a potential market crash in other ways.

If you’re renting your home during a crisis-level crash, your landlord might default on their mortgage, and although legal protections would allow you to keep your home until the end of your lease, you could then be evicted by the bank. While this isn’t ideal, you’d likely be better off than if you were the one who defaulted on your mortgage, as you wouldn’t suffer major damage to your credit score. Healthy credit would give you a better chance to secure an affordable loan on a future home.

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.

(Shortform note: Increasing numbers of students nowadays share Fisker’s point of view, seeking employment in trades rather than higher education and white-collar opportunities. In 2022, mechanic and repair trade schools reported an 11.5% increase in enrollment from the previous year, while traditional four-year colleges reported a 3.4% decrease.)

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.

(Shortform note: Although Fisker contends that colleges have eroded their value by watering down their curricula, statistics show that the average four-year degree still confers a 25% boost in wages. Even courses in less marketable subjects provide students with valuable skills—for instance, one study shows that graduates of the University of Central Florida’s gender studies program demonstrate proficiency in project management, a skill that researchers say increases students’ earning potential by 22%.)

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.

(Shortform note: When you’re tempted to buy something you don’t need, you may struggle to muster the willpower to simply write it down and move on. You may find it easier to curb your impulse buying with a tactic called the “Envelope System.” To do this, identify a type of product that you habitually overspend on, such as clothes or snack foods, and budget how much you’re willing to spend on it for the next two weeks. Put this physical cash in an envelope and only allow yourself to buy that product with the cash from that envelope. This constraint, which makes it more physically and psychologically difficult to overspend, will hopefully reduce the amount of willpower you need to exert to avoid impulse purchases.)

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. For example, if you spend $60 a month on various movie streaming subscriptions, try canceling all of the services for nine months. After those nine months, you’ll have found other sources of entertainment and will feel content paying for just one streaming service at a time.

(Shortform note: This tactic has its roots in ancient Greece: The Stoic philosopher Seneca intentionally set aside days to practice poverty, eating less, wearing ragged clothes, and sleeping in a less comfortable home. By temporarily making a life of deprivation his new normal, Seneca hoped to overcome his fear of losing everything. This highlights an additional advantage of Fisker’s version of the exercise: You may find yourself feeling less anxious as you recognize that unexpected financial hardship wouldn’t necessarily be so bad.)

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.

(Shortform note: In contrast to the linear economy that Fisker describes, in which consumers use up products, throw them away, and buy new ones, some experts promote the idea of a circular economy in which companies design products to last as long as possible, facilitate the sharing of products between consumers, and recycle the material to make new products. By living the frugal lifestyle Fisker recommends here, you’re not only saving money, but you’re also pushing our current system toward a circular economy: Your money goes to companies that make quality goods and to online platforms that support the exchange of goods between consumers.)

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. For instance, if new specialists enter your industry and competition becomes fiercer, you may struggle to hold a job in your field—or earn income any other way.

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.

Uniquely Valuable Skill Combinations

A diverse skill set is arguably even more valuable to employers than Fisker describes. While Fisker asserts that having a variety of skills is valuable primarily because it lets you get jobs in a variety of fields, others argue that a diverse set of skills is worth more than the sum of its parts.

There are certain things that only people with a specific combination of skills can do. For instance, to be the creative director of a marketing department, you must know how to both craft compelling advertising and manage a team. While professional-level skills are rare, unique combinations of skills are even rarer and are therefore more valuable. If your skill set is unique enough to make you irreplaceable, you’ve guaranteed yourself a level of job security resilient enough to outlast tough competition and other disruptions to your 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. For example, if you teach yourself how to paint your house, you won’t have to hire anyone to do it for you ever again.

(Shortform note: Experts have identified which DIY skills are most helpful for minimizing your expenses: Basic plumbing is relatively simple to learn for many people and can save the $75 an hour or so you would have to pay a professional plumber. Free software makes it easier to file your own taxes and save hundreds on an accountant. In contrast, some skills require so much time and money to learn that you’d be better off outsourcing them. Learning to install a new fuel pump in your car, for example, requires such a heavy investment in the proper tools and know-how that it may be worth paying for a professional.)

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.

(Shortform note: When trying to decide whether to solve a problem yourself or hire an expert, weigh the risk of making expensive or dangerous mistakes. While online resources like YouTube have made learning household skills more accessible, some argue that they’ve also caused people to underestimate how difficult certain tasks are. If you mistakenly assume you know enough to complete a project after just watching one or two videos, you risk doing property-devaluing structural damage to your home, or even seriously injuring yourself if you’re tackling something like electrical work. Consider choosing low-risk projects like finish carpentry instead, at least when you’ve just begun building your DIY skills.)

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.

For example, learning how to set up a website for your online business may take you three hours and earn you $1,000 a month in online sales. However, learning how to create a slick custom design for your website may take 12 more hours and only earn you an additional $100 a month. In this case, it’s financially efficient to invest enough time in your website to make basic sales (increasing returns), then stop investing time in unimportant web design (decreasing returns) and learn how to optimize your business in other ways. For instance, you could further diversify your business skills by learning how to pull traffic to your website with advertisements.

How to Avoid Negative Returns

Fisker asserts that avoiding diminishing returns is valuable because it lets you do something else more productive—but others claim that sometimes even doing nothing yields more benefits than working more. Mark Manson (The Subtle Art of Not Giving a F*ck) argues that at a certain point, investing effort in a given area of life will not only yield diminishing returns but also eventually yield negative returns. For example, if you spend too long designing a website for your online business, you risk overthinking the design and making it more confusing than it was before, losing sales you would have otherwise made.

Manson contends that, in particular, the majority of creative work eventually yields negative returns. Thus, he recommends limiting your creative work to just a few hours a day and intentionally scheduling leisure time to do nothing productive. This way, you can rest your mind and ensure that the next time you do creative work, your effort will once again yield increasing returns.

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).

How Much Do You Really Need to Retire?

In the FIRE community, the most popular way to calculate how much you need to save before retirement is the 4% Rule: When your annual expenses are 4% of your total retirement fund, you can retire and survive by withdrawing 4% of that fund every year.

FIRE adherents draw this number from a 1998 paper known as the “Trinity Study,” the most popular historical analysis of various hypothetical investment portfolios. Unlike Fisker’s 3% estimate, this model takes inflation and varying investment returns into account. The Trinity Study determined that at any point since 1929, someone retiring with a fund big enough to support a withdrawal rate of 4% had an extremely low chance of running out of money over the course of a 30-year retirement. Thus, if history repeats itself, a 4% withdrawal rate—or, in other words, a fund 25 times your annual expenses—is a safe bet.

You may assume that if you want an early retirement that lasts longer than 30 years, the Trinity Study doesn’t apply and you’ll need to save more. However, some experts argue that a fund allowing for 4% withdrawals still has a good chance of lasting indefinitely. This is true for a number of reasons: If you receive social security payments, they’ll help your fund last. Also, annual expenses often naturally decrease with age, giving you more financial wiggle room. Finally, if you retire early, you may end up earning money with a hobby or business you pursued for fun.

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.

(Shortform note: What could cause the kind of economic collapse Fisker describes? For Americans, one possibility is that the United States could default on its national debt. If this happened, global confidence in the US’s financial system would plummet, along with the value of the American dollar. With less purchasing power, the demand for consumer goods would drop, causing businesses to slow production or shut down. Jobs in construction and manufacturing would be the first to disappear, as these industries are the most sensitive to changing consumer demand. However, if you still had savings, as Fisker asserts you would, you could profit as the dollar drops in value by investing in foreign stock markets or commodities.)

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.

Counterpoint: Don’t Bother Becoming an Investing Expert

In I Will Teach You to Be Rich, Ramit Sethi offers a counterpoint to Fisker, arguing that the stock market is so complex and unpredictable that it’s extremely difficult to create a fund that grows faster than the economy at large, no matter how much expertise you have. As evidence, he asserts that if you inspect the data, mutual fund managers only beat the market around 25% of the time.

Whereas Fisker writes that the time you spend educating yourself becomes more profitable as your fund grows, Sethi contends that active fund management often results in losing money through trading fees. Thus, instead of becoming an investing expert, Sethi recommends creating an automated investment system in which you choose a few simple funds to invest in, set up automatic monthly contributions, and walk away.

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.

(Shortform note: If the types of investments that interest you the most aren’t registered with the Securities and Exchange Commission, you must become an accredited investor before you’re legally allowed to invest. This law seeks to protect casual investors from the potentially catastrophic financial risks inherent in complex investments like venture capital or hedge funds. You automatically become an accredited investor if you earn over $200,000 a year or have a net worth of more than $1 million.)