Those of my 1s of Dear Readers who are old like me were adults at the time of the George “Dubya” Bush U.S. presidency from 2001–2009 may remember Dubya’s secretary of state, Donald “Rummy” Rumsfeld. Said Dear Readers likely will recall that he was . . . uuummm . . . somewhat controversial. And by “somewhat,” I mean so, so vvveeerrrry. For those of my Dear Readers too young to recall or not yet born when Rummy was Rummy . . . trust me.
And I quote
Anyhoo, like him or not, Rummy had one of the more memorable quotes of any public official during Dubya’s term in office. Or ever. In response to a reporter’s question (about which is unimportant for purposes of this blog post), he said, “[T]here are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don’t know we don’t know.”
I’ve repeated various quotes over the years. But few more than that one. I think it’s brilliant.
Those pursuing FIRE oughta keep it in mind. Because it’s true.
Focus, focus, focus
If you only focus on/plan for the first part of Rummy’s quote—known knowns—you might realize the fastest and biggest results. But if Lady Luck isn’t on your side, your plan might get seriously (or permanently) derailed by failing to have anticipated reasonably foreseeable challenges (known unknowns) or to have entertained the thought of—and been at least minimally mentally prepared for—a major unpredictable event (unknown unknowns).
If you focus only, or primarily, on the last part—unknown unknowns–I can see becoming scared out of your wits and paralyzed with fear. You might consequently wwwaaay over plan. Or plan so conservatively that you dramatically limit your ability to make (sensibly fast) progress. Worse, you might throw up your hands completely, concluding that there’s just no sense in taking any action at all. What with those thoughts of existential threats always being front of mind.
I sometimes wonder whether those over-focusing on unknown unknowns at the peak of the Great Recession in early 2009 have kicked themselves time and again at having missed out on one of the greatest null markets ever. Or whether those focusing on the known knowns and FIREd just before the start of the Great Recession kicked themselves time and time again for being too exposed to investments that experienced a beatdown and took several years to recover.
Not-passive-enough aggressive
As for myself, I like to think I’m somewhere in what I consider the sensible middle. Once I discovered FIRE, we massively increased our investments exposure. But we also hacked away at the expenses side of our ledger and dramatically decreased our spending. In short, we increased our upside and decreased our downside.
That said, if I’m being honest, we were too aggressive. Or at least not conservative enough.
To wit, just after I FIREd at the end of 2021, our investments (like just about everyone’s) took a sustained beating ultimately lasting more than a year and a half. I came to realize, based on how I took that experience mentally and emotionally, that I shoulda had a far bigger cash cushion to start out with.
Now, we got lucky in that that downturn didn’t dramatically derail us, much less permanently so. But having failed to prepare for how I’d actually, and reasonably, mentally and emotionally respond, I did myself a disservice.
Sure, I prepared for (or at least contemplated) the possibility of a downturn and how I thought I’d react. So, I never held a fire sale on any of our investments (#hodl, #diamondhands). But I didn’t appreciate how much I’d be mentally and emotionally affected. In short, I prepared somewhat for the known unknown of the possibility of a recession just after FIREing. But not for the unknown unknown of the possibility of me reacting more severely than I could have anticipated.
Lucky for me, the downturn, while significant, wasn’t Great Recession magnitude. Had it been, I dunno, in retrospect, that I’d adequately prepared. Maybe I had. I mean, I could’ve gone back to work and probably found some (decent) opportunities. Or we could’ve taken more out of our investments and then paid the piper in later years by lowering our withdrawals for some period. But I also likely would’ve kicked myself at having been as aggressive in our investments as we were. And finding any job (let alone a well-paying one) in a market environment like that during the Great Recession, would’ve been no easy task.
All speculation. All water under the bridge (I hope).
Well, isn’t that nice?!
But here’s another rub to Rummy’s quote. I think when people hear “unknown unknowns” they think of bad things. Scary things. Debilitating things. And no doubt those are all possibilities that oughta be considered.
But you know what? Unknown unknowns can just as likely be good things. Exciting things. Things that turbo-boost your already good situation.
Here’s just a few examples of some most excellent unknown unknowns that we’ve benefitted from along the FIRE journey.
First, savings from travel hacking and corresponding compounding of the savings. Sure, in discovering FIRE—and, in the course of that, travel hacking—I knew we’d lower our travel expenses a bit by engaging in the practice. But the happy unknown unknown we experienced was that we’ve saved way more than I ever dreamed (decreasing our expenses), including by avoiding one potential yyyuuuge expense. Much of the money saved has been invested, compounding the benefits, increasing our income/net worth.
Next, we moved into the fantastic home we’re renting several years ago. The initial rent wasn’t just lower than the place we’d moved from, but probably below the fair market value. Not cheap, but within our budget. What’s more, our new landlord also covers some of our utility costs. Other of our utility expenses are far lower than in the last rental, too. All good, and amounting to thousands of dollars of annual savings.
But the big unknown unknown? That’s been our landlord never having raised our rent one thin dime since we’ve lived here. Even during the massive run-up in rents nationally over the last few years. As with the savings from travel hacking, much of the money saved has been invested, compounding the benefits.
Last—and undeniably having the biggest positive impact for us—we had the benefit of our biggest investing years corresponding almost identically with the post-Great Recession bull market. What’s more, during the same period, we sold our place in the Midwest and invested the equity payout. Having had a plan ideally suited to take advantage of this unknown unknown phenomenon happening, we kinda sorta hit something of a jackpot.
And in the end . . .
I guess you could say that we mostly tried to steel ourselves for a massively bad run of luck coming out of left field, even if knowing that we couldn’t possibly completely shield ourselves from the impact. But we just as surely tried to enact a sensible plan, positioning ourselves to benefit from good luck. Be prepared, Dear Reader. For life’s unpredictable.
