Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now, while building a plan for financial freedom in 10 years or less. Today I am excited to welcome back to Radical Personal Finance, Jacob Lund Fisker, host or I guess I should say author of one of my favorite books on financial freedom called Early Retirement Extreme, author of the blog by the same title.

Jacob, welcome back to Radical Personal Finance. Yeah, thank you very much. I mean, it's been what, six years, seven? It's been a long time. Last time we had an epic three-hour podcast that for quite a while was the most listened to episode of my show, and we really had a great time.

It's been now how many years since you retired? Well, first time or second time around. I mean, I don't really think of it as retired per se, more like the option to do what I want whenever I want, whatever reason, right? But I mean, I retired, I stopped with my physics career in 2009, and then I had a stint in high finance, Wall Street kind of stuff between 2012 and 2015.

So I guess technically it's been five years. So about five years since you left the world of finance. So what I'd like to begin our conversation with today is just simply to ask you a little bit about how you view your personal financial philosophy and the path that you've taken with the benefit of hindsight.

Do you continue to feel satisfied with the path that you've taken with your life and your career, the early retirement extreme lifestyle so far? Yeah, I mean, I think it's working pretty well. I mean, it's sort of currently being cast within the framework of fire, but to me, as a financial independence retired early, but I never really saw those two things as the main characteristics of my philosophy per se.

I mean, financial independence was more of a side effect that just followed from the way I was otherwise living. So I'd say in contrast to what it has sort of become, it was not really a milestone for me as much as just a checkbox as in like, "Hey, now I can do this.

I have these options now that I didn't have before." And from my perspective, it's almost like financial independence is so simple that I often find myself wondering why is it not something everybody's doing? So I mean, in that sense, I'm living the same way that I've always, yeah, always probably pretty close description.

I've lived this way for like almost 20 years now. So I mean, it's working good for me and I'm getting better and better at it. Basically, I mean, my original motivation was to figure out how to live with a sustainable footprint. And what I did was to essentially look at the world GDP and look at the ecological footprint of the world and the world population and then calculate very simply how much could I spend if we all had to live with the same amount, same size slice of the pie.

And that number back then when I calculated in 2000, 2001 was about $6,000 per year. And so I wanted to figure out how that would be possible. And calculating it now, you get, I think, numbers sort of lag a little bit, but I think the 2019 numbers were 6,750.

So I've stayed sort of like in the 6,000 to 7,000 range for a while, while having like jobs that paid more, not spectacularly much, but then I just saved that. And for like the first four years, I did not even really know what to do with it. It was just sitting in a savings account because I knew that I did not grow up in the US.

Where I come from, this whole stock investing was thought of more as speculating back then. So I was just putting it in a savings account with the aim to buy a house. Yeah. So I'm kind of happy with it. - You're often talked about in the world of financial media for your frugality.

Famously, many years ago, you were talked about as someone who could live on $7,000 a year in California by some of the decisions that you made. But what I think a lot of people missed and didn't understand was that this came from a philosophical perspective that had a lot to do with sustainability and ecology.

Your goal was not simply to spend a small amount so you could quit working. Your goal was to have a more modest footprint. Is that right? - Right, right. Yeah. I mean, it's a very simplistic way of seeing it just in terms of money, but that's where people come from, right?

But I mean, admittedly, I grew up like your standard consumer. And before that, I started this when I was 24, when I was in grad school. So before that, I was sort of the regular consumer gadget, free techno-optimist, just having to have the newest stuff all the time. But then I had a little bit of an epiphany at that age, and then I changed track completely and realized I actually did not really know much about how to live well and very little.

So like with most people, I initially started out sacrificing. That's sort of like the trivial, the context-free knowledge. You don't know anything. So what is the simplest thing you can do? You can just cut things away, right? And then over the past 20 years, I've learned more and more skills and learned how to combine them.

So I've been able to stretch my money further and further and further. So I would say at this point, I mean, our lifestyle, we now live in a house in the western suburbs, about eight-ish miles from Chicago downtown, so just where the city ends and the taxation ends. And it's rather indistinguishable, I would say, from our neighbors.

I mean, if you visit us, you can see there's some weird things going on. Like we grow lettuce indoors, or we store food, which turned out to be great for COVID. And we're like one of – I wouldn't say the only, but we're one of the few people who don't have a lawn in our backyard.

I double-dig everything up, and now we grow vegetables. Last year, we had like 339 pounds. I weighed everything. I've started obsessing about this, like how well can we do this? I've learned woodworking. I've learned lots of different things. So when people think about 7,000, and they're spending, say, 70,000 themselves, they think, "Okay, he's living on a tenth of what I do, and I feel like I should have more money, so his life must be 10 times as miserable as mine is." But in reality, I spend my 7,000, and my wife spends another 7,000, so about 14,000 in total for two adults.

We spend it very, very differently. Our budget looks completely different than sort of the mainstream consumer, or I would maybe even say the typical fireperson. - What were the influences when you were in grad school that caused you to move from your more consumption-oriented ways into your current philosophy?

- Yeah, okay, that's a good question. So I would say, I mean, back then, it was like Web 1.0, where people did these corny web pages if they had something to say. There was no blogs, and no YouTube, no Facebook. Even MySpace was not a thing. So typically, you would come across some kind of website, and you'd read about that, and then you could follow it around, links to links to links.

So I can't really point on a single thing like you can today. I found this blog, and this guy was cool, and I just did what he did. That's sort of the typical story today. But back then, it was more put together, a bunch of many different things. And I had to sort of make sense out of everything myself, because I didn't know what I didn't know, so to speak.

But I think if I had to point at a progenitor site, so to speak, I would say there was a site called Burdened.net, I think it was. It was an anti-consumer site that talked a lot about the other side of our growth economy, as in what happens to all our junk, all the crap we buy when we're done using it, when it goes to the landfill, what happens, and where do our resources come from.

So before that, I was just sort of seeing a very narrow picture of the entire cycle, sort of like from the supermarket to my shelves and my phone, and then to the trash can. That wasn't even much of a thing like Craigslist or eBay. So typically, if you bought something and you got tired of it, then it just got filed in the attic, it just sat there.

Like dispersed entropy of our consumer goods. And that led me to the PGOIL community, which was a big thing at the time. So that's like always, I would say in general, like three different sort of pressure points for humanity. There's either population or resources, the resource depletion or the pollution side.

So at any one point over the past, I would say, 100 years, and probably going from the 20s to the 21st century, it'll be one of these three things. So my population was essentially solved-ish in the 20th century for now. And energy was the thing back then. And the concern back then was that the world would very soon run out of oil.

I mean, the energy consumption per capita peaked in the late 70s on a global basis. And I'm not sure, I don't actually think it has recovered yet. And of course, we know that in the US, it peaked initially in '72, which completely changed the geopolitical structure of how the US behaved on an international basis.

And shale gas kind of flipped that back again for a while. So my initial goal, based on the footprint, was to try to figure out how to live in a world where resources were harder to come by, so become more self-reliant. So that was my original initial drive. And then I was in grad school at the time.

I liked doing physics, and they paid me about, I think, somewhere between 20 and 25,000. I think in grad school today in physics, you earn about 30k a year. And since I was only spending like 6k, I could save the other, right? So that gave me a savings rate of around 75%.

And so those just went in on a savings account. And it was only later that... I mean, initially, those savings were intended to purchase a house in cash, because I did not want to get locked into a mortgage. It's like a death sentence, right? Something like that. Death pledge.

Yeah, death pledge. So I wanted to buy a house in cash. And it was only after I came to the US, but that happened very quickly, because you just get infused with this whole market economy thinking that, "Wow, if I invest this at 3% instead of 2%, then I would be pretty close to being able to make a living doing that.

And I would not be stuck in this academic track I was on. And I would not have to depend on a job, for example. So I just wanted that freedom instead of a house. I mean, I sort of started moving around in the world and getting settled in a house that sort of faded out of my now unconventional thinking.

I mean, ironically, we did eventually buy a house in cash. I'd like to ask a question about this philosophy and how you've shared it. I've followed your work for many years. You've done a little bit more media over the last few months, and I haven't followed every single one of those interviews.

But I read most of your written content. And while I understood that you had an attraction to environmental consciousness and ecological sustainability, and I knew that that was a component of your thinking, that was never the primary thing that you led with. You would often lead your message with a conversation about financial freedom and the lifestyle of going sailing on the bay and spending time with no boss.

And one of the things that I have observed as I watch the world, I see that so many people market their ideas in what I think are ineffective ways. And specifically, we're talking about one of those that I think is marketed ineffectively. Many people who are very concerned about ecological sustainability market their philosophy with a sense of guilt to try to cause people to feel bad about their consumption and to cause people to say no and deny themselves and stop being a consumer because you should feel guilty for your impact on the planet.

But I've observed that you can market it with just simply frugality and personal freedom, and you can kind of wind up in the same place. If you were to go back 10 years, were you conscious of what you were doing? Were you intentionally trying to get people to join you with a lower consumption lifestyle and leading it with a positive marketing message, or did that just naturally occur?

No, that was very sneaky and very intentional. So one of the things we kind of learned with the peak oil movement was that it was essentially preaching to the choir, very much so. And it was very hard to break out of this chamber of people because whenever you went elsewhere and said, "Okay, we have big problems here with the oil supply and that is going to cause some suffering, maybe loss of life, etc., etc.

Very depressing stuff, population bottlenecks. Yeah, anyway. And almost always, I mean, when you first find something that is so life-changing, when you first discover that, you feel like telling other people about it, you know, like, "Oh," you know, right? And almost inevitably and without any exception, people would always tell me, "Oh, Jacob, this is so depressing.

Please, please shut up about it. There's nothing I can do about it anyway. I'm like stuck in this life, etc." And I'd rather not hear about it. You see the same thing with climate change today. So I figured, well, I mean, like you said, I've been living in this way that is actually compatible with potentially solving this problem, at least protecting myself somewhat, becoming somewhat self-reliant, increasing some resilience.

But there's also this other side of it, which is I've sort of found a different way to play the game, which led to financial independence and not being stuck in this sort of life, what Thoreau called "lives of quiet desperation," or what I prefer the term "comfortable misery." And I'm not really happy about the way we're living, you know, but at least it's comfortable.

It's miserable, comfortable, and safe. That seems to sort of be what people try to optimize for. And so the reach by offering, well, you can have this and you can have financial freedom. And more importantly, you can do something without the most typical approach in these communities is essentially that the solution is to build community.

So say, okay, the climate is changing. There's going to be problems. What's the first step? Well, we've got to find, we're going to form a community of people who see this problem, and then we've got to study it as a community. And then once we've studied, we've got to find a community solution, and then we got to implement it as a community.

So I've tried doing a little bit of that as well. You know, I was involved in a nonprofit for a while, almost concurrently with writing the ERE blog. That's what I did right after I quit physics. But the problem is always, I mean, at the community level, you can sit and talk and agree on stuff, but it's hard to do the leadership required to get everybody to pull in the same direction.

Especially when people as individuals, you know, we essentially as consumers, we've been divided and conquered. So that we can't really do anything because, well, we had to go to work every day, right? And we had to pay our mortgage, we had to pay our bills and so on. And so with the financial independence thing, you can try to do sort of attack the problem at an individual level and say, okay, we can't, communities are really difficult, but at least you can do this.

If you do this and you get all these other benefits, and then some people are of course going to say, well, I don't believe in reality. I think technology can solve all our problems. And instead of me being frustrated by that, I could say, well, that's great as long as you're spending a little less, you know, that's helping the problem.

There's no longer hurting the problem. And it's kind of the same thing when people ask me, what do you think about the fire movement these days? And I'm like, well, practically nobody is spending 7,000. Isn't that like bad or something? Well, I mean, if you can take people who otherwise would have spent 100,000 and get them to spend 70,000, right?

That's, you know, for each one of those being sort of converted or changing their lifestyle is worth like five of my kind, right? So in that sense, I think that has been way more effective than the approach where you go after essentially attacking the problem directly. - So when you look at the fire movement and you consider, I guess, as one of the more well-known inspirations in the space, when you look at the fire movement, I hear that you're satisfied that at least we're moving in the right direction in terms of your personal goal of getting people to consume at a more reasonable level and that we're doing it with a more easily marketable message, helping people to live a better lifestyle, focus on financial freedom, and then having the environmental benefits as in some ways an unintended side effect for many people.

What are your thoughts though in terms of what you see to the extent that you watch the fire movement at all? Do you feel like things have been changed? Are you happy with the direction? What are your thoughts? - Yeah, so I mean, first of all, of course, the fire movement is huge now.

So it's much bigger than the three or four people that we were like in the 2010. So if I make blanket statements about it, I'm probably going to piss people off, at least some of them, right? But I think there are two perspectives on it. So the first thing is that the space has sort of filled out.

Back then, it was quite easy to dismiss me as being this crazy guy who lived in an RV at the time. You're familiar with the Wheaton EcoScale, right? - Yes, Paul Wheaton. Paul Wheaton says that... Go ahead, you can explain it. - Yeah, so he made the Wheaton EcoScale to describe the problem with doing outreach or explaining complex things within permaculture.

And I found that the same problem actually exists with the ERE philosophy, because it's substantially more complex than just earn more than you spend and put everything in an index fund, which is kind of what the intro fire movement has sort of settled on. So these days, I would say the ERE or the fire Wheaton scale has filled out.

So it's a lot easier to find someone who's inspiring to you, someone who's not too extreme. And once you've sort of learned things at a given level, you can move on to the next level and find a new teacher to inspire you. And you can almost always find another one who knows just a little bit more and when you're ready to move to the next step.

And that did not exist in the beginning. Even 10 years ago, people didn't really know where to put this kind of movement, what it was. At least like promoters of senior living lifestyles. There was this huge discussion about what retirement actually was. I mean, you're probably part of the early stuff.

It was immensely frustrating because of course, retirement does not mean the same to someone who does it at age 35, as opposed to someone who retires at age 75. I'd say sort of like on the flip side of that, of having it having grown much bigger, is that to a large degree, the sort of like the public appearance of the fire movement has changed.

I mean, we started out as a bunch of nerds who wanted to solve the problems of the world. And now it's sort of been taking over by entrepreneurial business oriented types who are seeking to sell seminars and camps and travels and consulting services and what have you. And fire has, I mean, the media narrative now for fire, which I think might be somewhat justified is that it's mainly a bunch of software engineers with six figure incomes who, you know, pat each other on the back for being frugal when they spend like 10% less than their co-workers.

Right. And I think there's some truth to that. And I think the problem with that is that the original intention is somewhat gone. That people who are not into the fire movement, who have not familiarized with sort of like that it is a very diverse set of people get the impression, well, that's just a bunch of rich people who want to be millionaires.

That's the impression I'm getting. And that could be completely wrong because I'm not really such a big, big part of sort of like the active fire movement. I don't know if that's correct. So that's what I mean. Right. So I'd like to pivot a little bit here because I wanted to get a little bit of your backstory and kind of update it.

But one observation or one area where I'd really like to explore with you is specifically some of the technical details. When you stopped writing for early retirement extreme, you went into the investment world and you spent several years working as a professional quant. And so I think you've often had a deeper level of analysis from the perspective of investing and personal financial management than many people who haven't had that kind of experience.

Do you look at, given your background, thinking about big systemic risks, do you think that the way that financial independence is talked about with many people, things like the 4% rule, using index funds, etc., do you think that these are safe ways to pursue financial freedom for most people?

Well, I mean, not that nothing is safe, right? I think maybe that's the problem, that there's not really this realization that people are actually dealing with financial markets and not a savings account. I think from that perspective, it's important to understand that the financial markets are a complex adaptive system.

So it's not an engineering problem as much as it's a socioeconomic or social problem or philosophical problem. So by a complex adaptive system, I mean that complex usually implies many components that are connected in different ways that are not immediately obvious. We have many different kinds of products and many different kinds of agents like private investors, institutions, entire governments, and they do not necessarily have the same goals.

They have different interests. And not all of these interests are necessary that the market should go up. I mean, if you're like a big bank, you might not care much that the market goes up because you're making your money doing transactions. And adaptive means that people are mainly looking out for their own interests and not so much the market as itself.

So the financial markets adapt to the environment as it changes and it adapts to itself. And I think the problem is when you get down to the sort of like the more simplistic level, like what's currently popular sort of in the, I would say, what's a good term for this?

Retail analysis is probably a bad term. Typical fire movement planning is that people like to use statistics to try to sort of get a grip on what this complex adaptive system is doing so it's easier to think about it. And that's where you get things like the 4% rule.

And the problem with that are things like, well, you take the average of all returns and you get something like 10% per year, right? Because that's what the market has returned historically for most of the 20th century. And then you can do something like sequence of returns, or you can do the sequence of returns randomly and you can say, okay, the minimum withdrawal rate is 4%.

And the problem there is I think at least that's my impression of seeing people talk about the 4% rule as they treat it very much like a permanent savings account or like an annuity. Well, all you have to do is you throw everything in stocks and then you like wave your hands a bit and you say 4% rule in the long run.

And that means you can take out 4% constantly just because historically the proof essentially is in the 20th century. But I mean, the 20th century, speaking a little bit more as a sort of like an operator, as a professional would have a different view of how this works. Especially as a quant, you're very concerned about what your sample data is and what the population data is and whether those two are the same thing.

So one of the problems, like in the 90s, there were people doing a lot of day trading. They almost stopped working, took out credit card debt, and then they started day trading dot com stocks. You see a little bit, I mean, we tried to have like a little bit of like a resurgence of that with games, game stonks, meme stonks and all that.

And everybody, as long as the main market goes trends upwards, right, then you can sit and day trade along that major trend and think you're a genius. You can even do pretty bad because you have this kind of rising tide underneath you that pushes everybody up. So that overall, you'll have more successes and you will have failures.

So you'll have a positive return rate, even though you might be adding negative alpha to that trend. So the 20th century had a lot of trends that often go ignored. The 20th century in the US, particularly where the 4% rule comes from, has some trends that might not be sustainable in the 21st century.

I mean, you had, especially if you do more recent data sets, like from the 80s, you have had interest rates that have just gone from like 20% down to zero. So if your investment history or autobiography is from that period, you have, through your entire investment career, been operating in a world where interest rates have been declining, which all things being equal pushes stocks upwards just because of that.

Not from any inherent sort of investment strategy in stocks, but just because interest rates are declining. The 20th century also has had the US rising to become a dominant economy in the world, essentially a global empire, if you will, winning the Cold War, sort of underline that. That cannot be repeated.

It's already the world empire, right? So we cannot do that again. So you do not get that boost again. The thing I mentioned earlier about energy use per capita increased until it peaked in the late 70s. So that is also on the decline. So now we're looking more at growth in efficiency of energy use, like the carbon efficiency.

So how much GDP do we get for each barrel of oil, instead of looking at how many barrels of oil can we drag out of the ground? So that's a different kind of economy again. So that's changing as well. And so if you're working in the quant world, trying to analyze these stuff, list off mathematically to find some kind of trading strategy, you want to detrend these things.

So you can see if you are actually adding some like intelligent strategy to this, or you're just riding a high tide. So the trends for declining productivity growth, because we essentially have the best economy on the planet, right? So it's hard to improve it. We have picked the low hanging fruit on all the branches, and there's less food further up.

So we have a lot of infrastructure debt that we need to pay to. So in that sense, and you can see that if you take the 4% rule and try it in other countries, you don't get 4%, right? If you go to countries that lost World War II, it's more like a 1% rule or a half percent rule.

Because if you lose a World War, that's pretty bad. So that was a long answer. It's pretty damaging to lose a World War. So this is trying to think of what order to approach this in, because the things that you're talking about are things that are important to me.

And I'm not waving my hands and attacking something like the 4% rule with passive index