One of my favorite websites is the fantastic Mr. Money Moustache (MMM). This website and the book Early Retirement Extreme (ERE) by Jacob Lund Fisker caught my attention a few years ago and the concept of financial independence has been stuck in my head ever since. There are a number of great podcasts, books, and articles, on the topic and the “FIRE” movement (financial independence / early retirement) has grown into a semi-mainstream concept.
The biggest lesson I took from MMM and ERE is the impact that a person’s savings rate has on the ability to grow wealth. The flip side to the savings rate is the consumption rate – together they equal 100% of earnings. The money you earn is either spent and disbursed to another party via consumption – the pizza place, daycare, car payments, etc. – or it is kept and accrued in your accounts – savings, investment account, real estate, etc.
The impact of the consumption / savings rate is laid out most excellently in this post from MMM:
I decided to take a stab at making a simple calculation along the same lines – using a few basic inputs to see the time required to create a “Passive Income Symbiote”. The goal is to create a passive stream of income equivalent to gross earnings – to entirely replace wage earnings with passive income. If you can live on what you currently earn then it’s easy to imagine living on that same amount, but with all of your time free to use as desired. I chose the word symbiote with the idea that the goal is to have the Passive Income Symbiote be the “host” and the person becomes the “parasite”, living on the efforts of the host.
The basic elements for the calculation (spreadsheet attached, feel free to use and share if you like) are:
Income / earnings – how much you make
Consumption rate – how much of your earnings you spend
Return on investments – what you earn on your savings
Earnings increase – if you expect an annual raise, how much it is
Earnings increase spent – how much of any earnings increase you spend (also known as lifestyle inflation)
Many of these factors are hard to change or controlled by outside forces – bosses, annual evaluations, how the stock market performs – the spending / saving ratio is the factor easiest to quickly adjust. It’s also the factor that has the most impact on the time required to fully fund a PI Symbiote. I’ve included some suggested ranges for items like return on investments and annual earnings increase. There’s a relative limit on some items and I’ve tried to based the suggested ranges on my perception of those general limits. (You might get a 100% raise at your job but it’s more likely to be a moderate increase of 3-5%, for example.)
Good luck on your journey and creating your own pet Symbiote. Cheers!
I recently read Dream Hoarders – How the American Upper Middle Class Is Leaving Everyone Else In The Dust, Why That Is A Problem, And What To Do About It by Richard Reeves of the Brookings Institution. Despite having a very long and unwieldy title it was a very good read about the “Top 20%” in the United States. The book calls out unfair advantages that the upper class has carved out for itself and how these advantages have created “mobility stickiness” at the top – if you’re born in the top 20% you’re likely to remain there, more so than your chances of remaining in the bottom 20% if you are born there.
Reeves criticizes practices like legacy admissions at elite universities, college savings plans, nepotistic internship placing practices, the interplay of zoning and access to public goods like schools, and more. The book is a quick read and very informative.
Below is an example of the sort of information presented in the book. I really enjoyed the graphic presentation of data throughout, as well as the casual and plainspoken writing style. It makes the subject matter easier to grasp and relate to. I also enjoyed Reeves’ perspective as a non-native American – he was born in Britain and frequently refers to that land of dukes, dames, and queens and how his perception of America as a more meritocratic place has been challenged through his research on wealth and social mobility.
If you have a chance to pick up this book at your local library or purchase online I’d highly recommend it. It’s important for those of us in the Top 20% to recognize unfair practices and work to create a more fair playing field for our children and future generations.
I’m sending out these books as part of my “Sharebook” campaign – my personal project to send out books I’ve enjoyed and start a number of book chains to continue them being passed after I first ship them.
So many of us use computers today as our “workplace” and Mr. Scott mentioned that he created a page with a motivational message to be the default opening page for his browser. I love this idea and created a simple page (current version below, I plan to revise but wanted to set up something now to start from). The bolded item is based on Eat That Frog by Brian Tracy – a good motivational read about tackling the biggest, most important task of each day first thing.
I wanted to share my modest attempt at this “Start Page” idea as I think the idea is a really good one and thought you might enjoy as well. If you’d like to use my Start Page for yourself you can find it at: