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Baisius comments on Open thread, Oct. 20 - Oct. 26, 2014 - Less Wrong Discussion
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I have a question about the Effective Altruism community that's always bothered me. Why does the movement not seem to have much overlap with the frugality/early retirement movement? Is it just that I haven't seen it? I read a number of sites (My favorite being Mr Money Mustache, who retired at age 30 on a modest engineer's salary) that focus on early retirement through (many would say extreme) frugality. I wouldn't expect that this, or something close to it, would be hard for most people in the demographic of this site. It seems to me that the two movements have a lot in common, mainly attempting to get people to be more responsible with their money. If you take as an axiom that, for members of the EA movement, marginal income/savings equals increased donations, it seems as though there is tremendous opportunity for synergies between the two.
Possibly donating money is easier when it's funging against luxuries than when it's funging against early retirement, and it's hard for people who don't plan on retiring early to read and follow frugality advice that's framed in terms of how much better financial independence is than whichever luxury?
I have found this to be the case. I still find the advice useful, but find myself thinking about how I'm going to retire early before remembering there was another reason I was saving that money.
It takes roughly 2.5 million dollars invested prudently with a return of 7% per annum in order to live off savings. You would have to be earning a great deal and live extremely frugally in order to accomplish that. However, there are people that retire from daily work at 35 who have done it. However, given student debt and this kind of thing I think it is harder now than ever before. I have an issue with extreme altruism movement and the early retirement crowd because I think there is a loss of meaning in both.
Why, can you not live on less than $175k/year?
No, I would have to lay off most of my servants. I can't imagine living like that.
That estimate needs at least two more vital numbers: the expected volatility of your returns and the expected inflation.
At the current amount I live off, $2.5 million would last me for 200 years, and that's if it returned 0% post-inflation. I might have less expenses than "real adults", being a student, but unless you're assuming a family of 12, those numbers sound insane.
I could live on $20k/year easily, given I stay in the same place. A ROI of ~3%/year on an investment of $1,000,000 would sustain me for life, given that it remains constant at worst.
(Expenses: ~900USD in student loan payments, ~400USD food/utilities/internet/transit, = ~1300/month = ~15600/year. I'll also note that I am not drawing even half that in SSI at the moment, but if not for the student debt, SSI would be livable. This relies on not paying rent/mortgage/whatever you pay for housing. If housing is an issue, location obviously matters--$30k/year in Silicon Valley isn't worth much, but it might get you further in, say, St Louis. I specifically picked St Louis because it is both an excellent city for cheapskates and, at least some journalists there seem to think it's becoming a tech town. I do not live there.)
Of course, if I had $1,000,000 to invest, I'd probably just spend the first $100k to wipe out most of the loans, and invest the rest. The interest drops a little, but the reduction in expenses more than makes up for it (expected gains are ~8k/year). In reality, the most likely reason that I wouldn't win forever if someone handed me a million dollars is that I have no experience with financial shenanigans and probably would fail completely at making these payments/investments happen. That, and the no moving thing (but that's a whole other can of worms).
This is a question that's been bothering me for some months as well, ever since I encountered Early Retirement Extreme a few months ago.
We here in Vancouver have substantial overlap between the meetups for Mr. Money Mustache, effective altruism, rationality, and life extension. It's weird, because there's about a dozen people who are all friends, so we go to each other's meetups lots.
Anyway, much of what the effective altruism community is comes from what was popular in its precursor communities. Less Wrong, academia, and the non-profit world don't all focus on the early retirement movement. If frugality isn't a value in effective altruism lifestyles yet, then let's see if we can't make that happen.
What are some strategies for pursuing this? I considered trying to write something, but it seems that the central message of "people are kind of bad at spending money efficiently and you are a people and you are probably bad at it too" is hard to convey without being rude, and unlikely to succeed. Particularly when you're, in effect, going to be asking them to give their money away instead of saving it for retirement.
Oh, well, I've actually received requests to write something up, except for Less Wrong. For the record, I'm unsure why there isn't more about personal finance on Less Wrong, let alone within effective altruism. I figure readers of Less Wrong will be more amenable to being told they're bad at thinking about stuff. On top of that, if they're already intending to give away their money, it wouldn't be that much of a problem. Alternatively, if people do save enough for retirement, then they could spend several extra decades volunteering for effective charities for free.
Anyway, I figured that we spread the ideas more among the community as it already exists, and then the dozens, hundreds, or even thousands of people who integrate it into their own effective altruism lifestyles could brainstorm how to make it amenable to the general public.
I'm also unsure why there isn't more about personal finance / money management here. It seems like an excellent use-case for rationality: it's so trivially quantifiable that it comes pre-quantified, and it's something that a lot of people are bad at, so there ought to be room for improvement.
Even though LW's in-practice target audience is a demographic unusually susceptible to the meme that it's completely impossible to beat the market, investment is only one part of managing money. (And I wonder how many people with enough income to do so even invest in index funds.) Optimizing expenditures is another part; have there been any posts on how to, say, optimize diet for low cost with an at-least-superior-to-the-average-American level of nutrition? Or higher-level skills: how to cultivate the virtue of frugality and so on.
I like the way you think. Less Wrong has a culture, and a jargon (i.e., technical or artificial language specific to its culture). I don't mean that as an insult; I use it, so I'll work with it in producing content regarding to this frugality side of personal finance. That is, I can term it as 'optimizing expenditures', or 'cultivating a (set of) habits'. That may quicken in the minds of Less Wrong users the relevance of this information to rationality.
Of course, what we may find in the course of exploring money management is that Less Wrong itself can improve upon the advice of these websites for ourselves. That would be interesting.
Well there's the Soylent idea, thought I don't think it was from LW. Soylent being 100% of all required daily nutrients stored in powder format then used to make shakes. In theory after a number of iterations it should be the healthiest food possible for humans to consume as well as being fairly cheap.
For some reason a noticeable part of LW has decided that the answer to all personal finance questions is two words -- "index funds" -- and tends to be hostile to suggestions that finance is a bit more complex than that.
Note that "frugal living" and "personal finance" are quite different topics. EAs, for example, are interested in the former but not in the latter as they donate their free cash flow and so don't have to manage it.
I don't really see the early retirement movement being compatible with EA...
I don't think that the majority of people within the EA donate all the money that's free cash flow and save nothing.
Our preliminary results from the 2014 EA survey suggest you're right.
Isn't the fact that finance is complex the very reason why unless you're an expert you probably had better play it safe than try to outsmart the market and risk getting burned?
What makes you think that investing in what is typically large-cap US equity is "playing it safe"?
There are index funds that also include smaller-cap equity, non-US equity, and bonds. And even a large-cap US equity index fund is probably better than gambling except for the small minority of people who know what they're doing.
Of course, but LW rarely gets into specifics of which index funds other than prefer low-cost ones.
Heh. Do you think there might be a fallacy involved in this argument?
Sure, it's not like these are mutually exhaustive. Then again, hiding cash under your mattress probably isn't better than index funds either.
My point is not that investments betters than index funds can't exist, it's that it's hard for most people to know what they will be ahead of time.
To me, it's more about financial independence than early retirement. Financial independence gives you the options to do a lot of different things; "retire" and volunteer for an effective charity, continue working and donate 100% of your income to charity, continue working and balloon your nest egg to establish a trust to be donated to an effective charity upon your death, etc. The knowledge that you are 100% financially independent gives tremendous security that (as well as it's other benefits, such as decreasing stress) allows someone to comfortably and without consideration give large amounts of money.
In the context I treat them as synonyms.
Ahem. That is an excellent way to stop being financially independent in short order.
I believe that "giving large amounts of money without consideration" in this context does not include the part that you need for the financial independence.
In other words, if you need X money to be financially independent, and you have X+Y, you are free to spend up to Y in whatever way you wish, including e.g. donating the whole Y to a charity or investing them in a new project, even if for an average person spending Y this way would seem insane.
If you're making money with the goal of being financially independent you're done when you have X so you can and should stop. Where does Y come from?
I don't agree with the "should stop" part.
Until you reach X, you work because you have to. To some degree you are motivated by fear. You probably take jobs you wouldn't take if you were born in a billionaire family.
After you reach X, the fear motive is gone. But you can still do things for other reasons, for example because they are fun, or because you feel competitive. Some of those things may bring you more money.
I think this is a mischaracterization, as 1) I don't think giving everything above a certain threshold is a majority behavior (note that GWWC's pledge only requires you to give 10%), and 2) EA's discuss investing for the purposes of giving more later.
What I was trying to mean was that effective altruism might benefit from those who don't retire, per se, but become financially independent early in life, and can remain so for the remainder of their lives, so that they can spend the rest of their careers volunteering for effective causes and organizations. Thought I can't find the particular blog post right now, I recall Peter Hurford pondering that if he concluded doing direct work in effective altruism was the path for him, instead of earning to give, he might keep working a high-paying job for sometime regardless. That way, he could gain valuable experience, and use the money he earns to eventually become financially independent, i.e., 'retire early'. Then, when he is age forty or something, he can do valuable work as a non-profit manager or researcher or personal assistant for free.
I can't recall if he's the only person who has considered this career model, but maybe some should take a closer look at it. This is how early retirement beyond frugal living habits might benefit effective altruism.
The problem is that you have to show this is better than just giving all your "excess" money to the effective causes right away and continuing to work in the normal manner.
Well, nobody from within effective altruism has written much up about this yet. It's not something I'm considering doing soon. Until someone does, I doubt others will think about it, so it's a non-issue. If some take this consideration for their careers seriously, then that's a problem they'll need to assess, hopefully publicly so feedback can be given. At any rate, you make a good point, so I won't go around encouraging people to do this willy-nilly, or something.
This seems like a case of privileging the hypothesis. Why should we have to show that early retirement + EA volunteering is superior to working a standard job and donating free cash flow, and not the other way around?
This is a career path I am very seriously considering. At the very least, I will continue to invest/save my money, if for no other reason that it doesn't seem intuitively obvious to me that I should prefer saving 100 lives this year to 104 lives next year. Add to this that I expect the EA movement to more accurately determine which charities are the most effective in future years (MIRI is highly uncertain to be the most effective, but could potentially be much more effective) and subtract the fact that donations to current effective charities will potentially eliminate some low hanging fruit. After all of that, I suspect it is probably a little more optimal to save money and donate later than to donate now. However I still can't shake the feeling that I'm just writing reasons for my bottom line of not giving my money away. This is a difficult question that there have been a number of threads on, and I don't claim to have a good answer to it, only my answer.
The only suggestion that I see get brought up here as an alternative to index funds is "invest in Bitcoin/altcoins!", to which hostility is understandable.
I think that'd be great Evan. In the UK I make extensive use of the excellent http://www.moneysavingexpert.com/ - I couldn't find anything similar for Canada alas. But there are a bunch more topics for this. One option would be for you to put what you write on a wiki (e.g. the nascent EA one) so that others could help build it up.
I haven't read too much of these websites myself, but I intend to, as basically all my friends you know anyway are eager to have me write this up. If I do so, I'll make a separate version for the effective altruism forum. I invite you to collaborate or review, either. I'll let you know when I get started on this.
Are you asking why EAs aren't more concerned with frugality?
Yes.
Well, Julia Wise and Jeff Kaufman are.
Probably because it's largely composed of or at least represented by the kind of people who REALLY like living in places like NYC and the Bay Area, which are the opposite of frugal.
In regards to early retirement, there's something of an obsession with maximizing productivity as well as earning to give, both of which run counter to retirement.
This is actually a point I have made to myself about the movement.
Thanks for the link. I had not heard of that site, but I really enjoy it.