So as promised last week in Part 1, today I want to talk about how to deal with the continued onslaught of automation in the workforce.
You Can’t Fight The Future
As noted in Part 1, the future is coming and it’s actually going to be coming faster and faster as each advanced technology builds on the last. This is an essential part of why automation is such an underrated risk to most people and why they’ll never see it coming! That’s because most people think linearly (ie. 1+1+1+1….) whereas technology grows exponentially (ie. 1+2+4+8+16…). Besides everyone’s brains naturally thinking linearly, we also heavily refer to the past in order to predict the future, unfortunately this past has mostly been linear too.
In some cases, past performance is very useful in predicting the future. People’s actions are a perfect example of this but when you’re trying to predict where technology will go everything is slowly turning exponential as software eats the world. IT, computers, programming and automation are all no strangers to exponentially increasing returns however as existing businesses and industries are being drawn into this realm they start to benefit from the same exponential increases. Unfortunately we all still view those industries as they have been in the past (linear). This is what leads everyone to be “shocked” when solar panel prices drop consistently year after year by 12%+. When it comes to say, how much RAM there is in a computer we’re all very used to how the story goes. You have 4GB one year, then after a bit it jumps to 8GB, then 16GB, 32GB etc. This is exponential growth but it doesn’t seem weird because it’s been happening for decades now with computers.
When it comes to the energy industry though, the amount of energy you got per $ of coal hasn’t really much changed in 100 years. There’s been some inflation and some improvements in technology but you’re not talking about much of an advancement even over 100+ years. Contrast that with solar which has plummeted in cost, halving in the last 6 years. Energy production is now in the realm of technology and the exponential advancements it accords means within about 10-15 years it’s highly likely that all power will be essentially free due to how much we’ll be able to produce per dollar. Rather cool but again, it sounds “wrong” or “impossible” because we’re not used to thinking about energy production in this way.
So as you can see, it’s very easy to under predict the development of technology and the more it develops, the further on the exponential curve it gets and the more pronounced the jumps are. If you’re going from 2GB of RAM to 4GB, well that’s only an increase of 2GB. Going from 32GB to 64GB though is a whopping 32GB increase or 16x more than the 2GB->4GB jump! In fact, it’s been noted that given how far technology has developed over the past few decades, experts estimate we’re actually at the “knee of the curve”, the part of the exponential curve where it just rockets into infinity. Wait Buy Why’s fantastic AI Revolution piece illustrates this perfectly with their first diagram:
We’re all running around frantically saying how life is “so fast paced these days” but the truth is, you haven’t seen anything yet! As those bigger and bigger jumps start to take hold, change will come about quicker and quicker resulting in more jobs being pushed out at an ever increasing rate.
When most hear of these revelations they get all defensive and want to protect themselves by pushing back and resisting the change that’s taking place. Just like the huge energy companies are resisting renewables or Kodak resisted digital cameras, it’s never a good long term strategy. At best you sacrifice everything in the future for some smaller minor gains in the present. Not what we want!
So rather than push back, rather than cry when our job is inevitably automated in 5, 10, 15 years’ time what if instead we were ready for it?
What if by that point your mortgage is paid off and you have enough money saved up that you never have to work again for the rest of your life? To a lot of people it sounds like a pipe dream that’s only possible if they win the mega draw 6000 or something but if you’re already doing well with mutilating your mortgage and hitting close to that 70% savings rate mark you might be surprised to see this table:
|Savings Rate||Working Years Until Retirement|
If you’d like learn more about how these figures were generated you can stop by Mr Money Mustache where he explains it excellently. For now though I can assure you many people the world over use very similar numbers to plan for their early retirement or “financial independence” (as they don’t just sit around playing golf).
Obviously this site is about paying down your mortgage in a super-fast period of time, usually 5-10 years but let’s just assume you can kill it off in 7 years for now. If you’re also hitting that 70% savings rate, the above chart tells us that you’ll be able to save enough money over 8.5 years and then retire. Forever.
You can live from that point onwards off your savings and this isn’t just for 10 years or something, it’s indefinitely. You can retire at 35 and live off the returns for another 70 years if you live that long and best of all, over that period it doesn’t matter if a robot steals your job, because you won’t NEED it anymore!
Although 70% is a target I talk about as being important a lot, I also chose it initially as it continues to help you kick ass even after your mortgage is dead. You develop this one single habit, saving 70% of your income, and it enables you to essentially crush anything and everything life might throw at you. Obviously HOW you invest that saved money is critically important but that information is outside the scope of this post. There’s excellent resources all over the web for that though.
If you can set yourself up with the correct habit, the habit of saving 70%, your life not only will be orders of magnitude easier and more stable, but you will be preparing ahead of time for what will no doubt be a huge, huge issue in the future. Even starting from scratch, at a 70% savings rate you can have your house paid for and be fully, financially independent in 15 years. If you start this journey straight away when you finish school or graduate that could mean reaching “retirement” at 33 or 37! You’ll also have an answer the next time you interview and the person asks “so where do you see yourself in 10 years time?” :D
This higher level strategy is I think a fantastic way to plan out your life as even if I’m wrong, even if computers, robotics and automation for some reason just freeze and never ever evolve any more from now on… you’re still able to either quite your day job after 15 years or continue working but on your own terms. You can travel the world for 5 years, come back and volunteer to help people. You can completely change careers, pursuing a long lost dream with the knowledge that it doesn’t matter if you completely fail and make $0 off of the venture. You can start your own business or just stay at home all the time taking care of your kids. It’s under your control which is how your life should be.
It’s a simple and highly flexible strategy that relies on nothing external:
- Hit a 70% savings rate and mutilate your mortgage
- Once it’s paid off, divert that same 70% savings rate to properly diversified investments
- Enjoy your life through the years and retire after your investments are enough to support you to an even better one
And the best part? You can embrace the future, its amazing changes and have a great time living in it! What advancement are you most looking forward to?
The benefits include: 1) How to pay off your mortgage faster than 99% of people with one hour a month of work 2) How to get rid of your debt and have the freedom to spend money on the things you love, guilt free 3) Clear outline of how to setup your expenses, mortgage and general finance 4) How offset accounts work and how to get the same result without being gouged by the big banks 5) How to cut through the crap and focus on the things that truly matter when taking down a mortgage 6) How to adjust the strategy so it works for you, even if you have kids, even if you only have one income 7) How to do all of these things and maintain a normal social life (and never be cheap).