If you’re a Cryptonomicon fan, you might recall uber-hacker Randy Waterouse’s business partner, Avi, who had a spreadsheet which tracked a particularly interesting value.
The subject heading of Avi’s first message is: “Guideline 1.”
We look for places where the math is right. Meaning what? Meaning that pop. is about to explode—we can predict that just by looking at age histogram—and per capita income is about to take off the way it did in Nippon, Taiwan, Singapore. Multiply those two things together and you get the kind of exponential growth that should get us all into fuck-you money before we turn forty.
This is an allusion to a Randy/Avi conversation of two years ago wherein Avi actually calculated a specific numerical value for “fuck-you money.” It was not a fixed constant, however, but rather a cell in a spreadsheet linked to any number of continually fluctuating economic indicators. Sometimes when Avi is working at his computer he will leave the spreadsheet running in a tiny window in the corner so that he can see the current value of “fuck-you money” at a glance.
– Neal Stephenson, Cryptonomicon
There was a post recently at Lifehacker about the “crossover point,” another magic number—albeit with a less colorful name—representing the point where your investment income exceeds your living expenses.
For all intents and purposes, the crossover point _is_ the attainment of FU money, as you could essentially quit your job on a whim, check out, and live off of your investments for the rest of your life. What’s funny about the crossover point, is that you actually are in control of the major factor determining how long it will take you to acheive it.
In a simple model, you can think of your crossover horizon as being effected by 3 parameters: your income, the percentage of your income you invest, and the rate of return you get on your investments. Only one of these factors is really up to you to control to a large degree. Your percentage of investment is directly tied to your lifestyle, your ability to live frugally, and your willingness to skimp in the short term for a larger long term benefit.
The Hackszine FU Money Spreadsheet
To illustrate the point, I’ve created our own Hackszine version of Avi’s FU spreadsheet with Google Docs.
It would probably mean skipping yearly computer updates, eating out a lot, and the purchase of all the latest doodads and gizmos, but if you can be happy only spending half of what you earn and investing the rest, a hacker earning 50k a year can actually pass the crossover point in about 10 years.
Given 18 years of living like a spartan college student, your investment income will actually have passed your salary, at which point you can start raising your standard of living a bit while watching your investments continue to grow exponentially.
What I find really amusing and counter-intuitive about all of this, is that an increase in salary doesn’t necessarily put you any closer to the crossover point. Assuming you invest at the same percentage of your salary, you’ll have increased your standard of living, but you’ll also have increased the sum you’ll need to accumulate before hitting the crossover point. Think about it: if you can be happy living simply, assuming you earn enough to live on 50%, you could actually retire in 10-20 years, no matter what age you are.
Run Your Own Numbers
Keep in mind, I haven’t included the nitty gritty details like inflation and taxes, but you get the idea. I’ve given you all edit access to the spreadsheet (should this be called a wikisheet?), so you can run your own numbers, fix any glaring bugs, or even add your own FU money model to another sheet. Feel free to experiment with different scenarios and discuss this stuff in the comments.