What is ERE?
Early Retirement Extreme (ERE) is a movement of individuals integrating ideas from anti-consumerism, DIY, the Renaissance man ideal, home economics, individualism, environmentalism, and rentier capitalism toward the goal of achieving financial independence extremely rapidly. Putting ERE principles into practice yields a lifestyle that meets all needs while minimizing ongoing inputs of money, natural resources, friction, and effort.
By embracing simple living, self-sufficiency, and prudence, a worker with a typical wage income can comfortably achieve a savings rate of 50-80%. The mathematics of compound interest and safe withdrawal rates dictate that an individual with such a high savings rate can achieve financial independence after only 5-10 years.
At that point, they may choose to retire permanently from work, perform non-remunerative work, or pursue other goals.
The acronym ERE is used as a noun to refer to the movement (You should consider adopting ERE principles) or as an adjective to denote the state of having achieved financial independence through ERE means ("In only two more years I'll be ERE!").
Earlier movements focused on different aspects of ERE. Borsodi and the Nearings focused more on self-reliant homesteading. Thoreau focused on simple living. YMOYL combined those two concepts. While ERE is the first to utilize systems principles to combine several different movements and maximize efficiency, it follows Your Money Or Your Life in its focus on combining simple living with financial independence.
In 2010, Jacob Lund Fisker self-published "Early Retirement Extreme: A philosophical and practical guide to financial independence" on createspace.com (in paperback format) and on Amazon kindle (in electronic format). By late 2012 it had sold 8,000 copies. The Early Retirement Extreme blog started in December 2007 and was regularly updated until late 2010.
ERE uses a web approach to lifestyle design in order to integrate personal finance and lifestyle in an efficient manner for individuals. If a lifestyle is seen as a collection of choices (where to live, how to work, how to get to work, what to eat, ...), the focus of ERE is on the connection between the choices rather than on the choices themselves. ERE is therefore not a collection of specific tips, tricks, or choices but a way of viewing the structure of the choices and how they fit together in the most optimal way. The purpose of ERE is to design a structure (a set of connections) that minimizes waste and maximizes the synergy between specific choices to increase efficiency and opportunity.
The unifying principle of ERE is a systems thinking approach to lifestyle design referred to as a Web of Goals, where negative side-effects are eliminated as far as possible and goals are chosen to have mutually reinforcing positive side effects. If a goal is seen as a primary objective, side-effects may be seen as secondary objectives. However, when secondary objectives are mutually reinforced they may be more easily achieved and even turn into primary objectives (a change of strategy) should the original primary objective fail or simply fail to inspire.
The Web of Goals can be seen as an evolving life-story that automatically minimizes waste (any kind of negative side-effect) and allows for the maximum possible number of opportunities in a rich world, or maximum resilience in a poor world. Over time this can lead to a complex arrangement of highly efficient choices that produce a given standard-of-living for much less than the normal cost or a higher standard-of-living at the same cost.
Compared to consumerism, where choices are ordered one-dimensionally on a price scale and prioritized according to affordability sacrificing one good for another, ERE is a brain-intensive replacement for consumerism with an S-shaped learning curve. ERE adds additional means of acquiring or building goods without having to purchase them, which increases flexibility and resilience.
One analogy is comparing monocropping agriculture with permaculture. Monocropping aims to increase the yield of a single crop by increasing the inputs of fertilizer and pesticides. In permaculture, higher yields are achieved through the synergy of many different kinds of inputs. Comparing standard-of-living between ERE and consumerism based on cost-of-living would be similar to comparing the yields of monocropping and permaculture based on the amount of fertilizer and pesticide used.
High yields in ERE are achieved by integrating additional inputs from many different fields resulting in greater personal competence. To increase efficiency ERE frequently borrows techniques from simple living, minimalism, frugality, DIY ethics, survivalism, car-free living, and others.
Financial Independence through significantly Living Below Your Means (LBYM)
This is a key part of a web approach. Implementing ERE can lead to a significant reduction in living expenses. Combined with a median income, this results in a high savings rate. Since expenses have been reduced, financial independence is achieved in 5-10 years depending on income and expenses. ERE uses conventional retirement planning calculations except that typical savings rates are greater than 60%, compared with the normally-recommended consumer savings rate of 10-20%.
Every part of one's lifestyle can be analyzed this way, but the most substantial gains come from optimizing the top three most expensive parts of the budget (see Pareto principle). These are usually housing, food, and transportation. Rather than buying these items separately, they should be selected as a holistic shelter-food-transport system.
A typical, systems-based solution would be
- a small apartment or cash-bought house
- within walking distance of a market that sells healthful bulk ingredients
- and within walking distance of work and other amenities
The strategic location of the home minimizes the distance that must be traveled, eliminating the need for a personal automobile. That in turn eliminates the need for a garage, making a smaller home more feasible. Cooking from scratch entails less transport than prepared food or restaurants, further reducing transportation needs.
In addition to meeting all basic needs for shelter, food, and transport at low cost, this solution has ripple effects, facilitating additional life goals. It involves very little effort spent on commuting and housework, and the freed time and energy can then be directed toward other projects. Traveling by foot or bike also provides exercise, eliminating the need to devote additional time to exercise. Cooking from scratch facilitates a healthy diet and provides light exercise. Those lifestyle choices free up time, improve physical health, and save money, which improves quality of life and reduces time and money spent on health care.
Focus on Production over Consumption
ERE focuses on production over consumption as a way of reducing monetary spending but also as a means of self-actualization. Hobbies are deliberately chosen to have an eventual potential for income generation or at least self-reliance. Production should be understood in a wide sense. It may involve using tools to produce things instead of buying them. Yet it may also involve networking with people, volunteering, or providing other kinds of valuable input. The focus is on adding value. Because of this motivation, ERE differs from a traditional retirement that focuses on travel, entertainment and other forms of pure consumption.
Because of the value added from home production, the standard of living given by a simple measure of spending differs significantly from the standard of living of a consumer with the same level of spending. The consumer needs to spend money on finished products and services. The ERE person spends money on tools, parts, and education in order to make her own products and services. A direct comparison between spending levels therefore becomes meaningless.
Develop "Renaissance" Skills
Using ERE's web approach when building a skill set not only develops useful skills, but also provides security by allowing a person to leverage those skills to generate income or opportunities. A diversity of different skills increases efficiency because it allows for more possible combinations to try when solving a problem. It also allows a person to solve a problem using their own skill-set instead of purchasing a solution to a problem. One can also provide for their own needs instead of purchasing needed items.
Examples of useful ERE skills include
- auto/bike repair
- basic health care
- plumbing/electrical skills
Aside from savvy consumerism, buying ready-made products restricts choice. For example, one can only buy various forms of grape wines whereas it is possible to make wine of any fruit or vegetable to one's personal taste given the skill to do so. Another example is food. One can buy prepared food, or learn to make food according to one's own tastes and needs. In general, prepared items are never perfect substitutes, and remove the pleasure of creation.
If other means can substitute for spending money, this automatically reduces the amount spent while yielding the same standard-of-living. Furthermore, increased knowledge makes it possible to see opportunities where others do not. For example, a savvy shopper may find a bargain item only to reject it due to a minor defect. If they knew a way to easily correct the problem, the bargain could be accepted.
Flexibility, Adaptability and Sustainability
The high-efficiency approach to resource use through reducing, reusing, recycling, repairing, and selling unused goods for others' use is more sustainable. The flexibility built into an ERE lifestyle allows the system to adapt and thrive in changing social, financial, and physical environments. This makes the ERE lifestyle much more resilient than the typical paycheck-driven consumer lifestyle. The combination of saving a sufficiently large portfolio and acquiring a large skill set is key. Money is extremely useful, but no portfolio is entirely safe. The skills acquired bring a second layer of security and expand adaptability. ERE principles teach people to be more resilient by needing less money to meet needs, diversifying income streams to maintain more than enough capital, and having the skills to be self-reliant when money is scarce or devalued. If society continues to prosper, the portfolio will carry the day. If it doesn't, it is likely that an ERE-minded individual will be a community asset when most people are used to paying others solve problems.
Serendipity is an unexpected positive opportunity. ERE affords a person the flexibility to take advantage of any unexpected opportunities that present themselves. It may be an opportunity to learn a new skill, an income or job opportunity, or even a charitable or political cause to which you wish to devote some time. Ordinarily most such opportunities are missed due to the failure to generate opportunities, the failure to recognize opportunities, and prior constraints. ERE maximizes serendipity by minimizing any constraints such as the inability to quit a job, the inability to act due to lack of funds, or the inability to relocate because of the difficulty. ERE also maximizes serendipity by increasing a person's awareness of opportunities by being widely competent and informed; and generates opportunities through interactions with many different people (not just work colleagues and neighbors) and through many different projects. Since serendipity is relatively rare, it is important to act on an opportunity when it presents itself. It may never appear again. See Myths and the Future
- Forbes Mom and Dad--Your College Grad's Financial Education is Just Beginning and They Need Your Help
- Il Sole 24 Ore: Ventiquattro, November 2010 (a monthly attachment), pg 25