ERE, the ratio
|Mike Dariano||Aug 14, 2019|
Relating to yesterday is the idea of Value and Cost. If there’re many options for any ‘jobs to be done’ there is also a ratio of Value:Cost.
For an education, someone could hire a private tutor, attend a prestigious schools, and get the highest possible grades paying for the best available help. That path has a high cost and TBD value. It’s also antithetical to the early retirement lifestyle—but it’s an option.
Jacob Fisker and other early retirement participants like Mr. Money Mustache, find pockets with extraordinary ratios. Whereas some people delight in coupons for 10% off, ERE believers try to find ways to pay only 10%.
One easy example is the public library. The cost of a library card is the time it takes to signup as well as some search costs that make it only slightly less convenient than Amazon. The Value is quite high as books provide a lifetime of entertainment, wisdom, and enjoyment.
While libraries are free books are fixed - a book is a book is a book - and that makes discovering rungs more difficult. If J.K. Rowling writes a new book there are no other ways to ‘hire’ her for entertainment except to buy the book. Other things, like education, are less fungible and exactly why it’s possible to tweak the Value and Cost ratio.
These two ideas; a ladder of options and a Value and Cost ratio give someone a mental model for solving problems. Rather than defaulting to the first thing that comes to mind, someone can generate a list of ‘rungs’ and then find the one with the appropriate ratio.
Recently my wife and I did this as we debated if we should buy annual passes to Walt Disney World in Orlando Florida. The passes can cost up to $4,000 a year for our family with cheaper ‘rungs’ below that. In addition there’s other things we can do for entertainment like beaches, different theme parks, movies, board games, etc.
Fisker would advise against the passes however on a per person per hour basis, our family trips to Disney cost slightly more than a trip to the movies. Mix in being outside, watching shows, and laughing together and it turns out to be money well spent. Disney fits the ‘What’ for our family and provides a good Value:Cost ratio even though the cost can be quite high.