The FIRE movement (Financial Independence, Retire Early) works on a simple premise. Save and invest enough money and eventually, you’ll have enough that your investments can support your lifestyle. As the FIRE movement has grown and evolved over the years, different sub-categories of FIRE have been defined. I’ve written about two of my favorite types of FIRE in previous posts – Barista FIRE and Coast FIRE. Another type of FIRE – and what I’m writing about in this post – is Lean FIRE.
I often think of Lean FIRE as a bit of a shortcut to financial independence – a way to pull the plug and escape the working world sooner, rather than later. The gist of it is that if you need less money to live on, you can hit your FIRE number sooner. Lean FIRE comes with an obvious tradeoff though. If you opt for this route, you have to be okay with living on less – perhaps far less than what you might have expected.
Depending on your situation, this is a tradeoff you might be willing to make. FIRE often acts as an escape hatch for people who are unhappy with where they are in life (usually with their job). I know that’s how I felt years ago and it’s what initially drew me to the FIRE movement.
With this in mind, I can see why Lean FIRE can be appealing to some. If you’re already a low-spender or someone who doesn’t need much to be happy, then Lean FIRE is a potential FIRE option for you. A few years ago, it could have been a path for me. But as often happens, life happens and things change.
What Is Lean FIRE – The Low Annual Spending Definition
The generally accepted definition of FIRE is that you’ve reached financial independence once you’ve saved up 25 times your annual expenses. There are a lot of studies that show that you can withdraw 4% of your portfolio annually and theoretically have it last forever. So, once you’ve saved up 25 times your annual expenses, you theoretically should earn enough from your investments that you don’t have to work again.
The problem with FIRE is that it can take a long time to save 25 times your annual expenses. Even for the most aggressive savers, brute force saving that much can take a decade or longer. If you’re in a job that you hate, the idea of saving your way to FIRE can be daunting. And the more you need to support your lifestyle, the longer it’ll likely take you to reach your FIRE.
Lean FIRE attempts to solve this problem by dramatically reducing your annual spending. The less you need to spend each year, the faster you can reach FIRE. The tradeoff, of course, is that you have to live on less than what you might otherwise spend normally.
There isn’t any set definition of what constitutes Lean FIRE, but it seems like most people consider it as spending less than $40,000 per year. That means for most, you’ll need to save less than $1 million. Depending on what you need, you might be able to save just $500,000 to $1 million to find yourself financially independent.
How Does Lean FIRE Work?
Many of you reading this might already understand the numbers behind Lean FIRE, but I think it’s still worth putting here so you can get a good visual of what you need to save to reach this point.
In general, I assume that for most people, Lean FIRE means saving less than $1 million. If you had $1 million, that would generate $40,000 per year of income. Thus, for most people, Lean FIRE probably means living on between $30,000 and $40,000.
That means most people aiming for Lean FIRE need to save the following to generate this amount of income:
- $30,000 Per Year of Income = $750,000
- $35,000 Per Year of Income = $875,000
- $40,000 Per Year of Income = $1,000,000
Depending on your situation, you can aim to live on even less. However, realistically, most people (not all, but most) will need fairly unique situations to live on much less than the above numbers for long periods. There are people out there that are living on $500,000 portfolios. But whether that’s possible to do forever remains to be seen.
I personally think $40,000 per year is realistic and comfortable for many to live on. Depending on where you live, you might not even have to sacrifice much. Once you get under $30,000 per year, you’re looking at living on less than $2,500 per month. That’s doable, but much more difficult if you start having to think of others in your household.
An Alternative Definition – The Basic Essentials Definition
Another definition of Lean FIRE I’ve seen (and this may be more of a sub-category of Lean FIRE, rather than an alternative definition) is that Lean FIRE means you’ve saved enough that your portfolio can cover your basic necessities. Basic necessities typically include housing, food, and transportation.
This definition of Lean FIRE is interesting because if you’re covering your necessities, you’ve set up a great foundation. The problem with this definition is that you’re still going to need some income to cover other costs. And depending on what you consider necessities, the number you have here might not be very different from your normal Lean FIRE number.
In a lot of ways, this definition of Lean FIRE is probably closer to Barista FIRE, which is when you only need to earn a small amount each year to cover your expenses.
My Thoughts On Lean FIRE – A Good Goalpost (But Not The Ideal Endgame)
I don’t have a problem with Lean FIRE as a concept. Indeed, for a long time, I thought I could easily live on $40,000 or less per year forever. The problem is that none of us knows what the future holds and trying to plan our lives under the assumption that it’ll always look the same is a foolish exercise, in my opinion.
That being said, I see Lean FIRE as a possibility for someone who’s single or for a family living frugally that doesn’t plan to have kids. However, if you start adding more people into your household or start having more people rely on your income, it gets increasingly difficult to live a comfortable Lean FIRE life.
To me, Lean FIRE isn’t a good end game. Living frugally is fine and if you are truly happy living on a small amount each year, then more power to you. But for me, living frugally to get to your Lean FIRE number, only to then live frugally for the rest of your life isn’t a great goal. Money isn’t everything. But budgeting and pinching every penny in your life shouldn’t be everything either. All of us, I think, deserve more in our lives.
Still, Lean FIRE can still be a good goalpost to aim towards – another stepping stone on your way to whatever financial goal you might have. It can be a nice initial escape hatch too if you find yourself in a position where you just can’t take it anymore.
I think the best way to use Lean FIRE is to combine it with other types of FIRE. Barista FIRE, for example, is when you put yourself in a position where you only need to earn a small amount each year to cover your yearly expenses. Anyone can earn enough money to enjoy themselves a bit. Think how easy it can be to earn a few thousand dollars each year, especially if you already have your basic necessities covered.
Meanwhile, Coast FIRE is when you reach a point in your saving and investing journey where your money can grow large enough by itself to support your life at traditional retirement age. If you’ve reached this point, you can take chances without a lot of risks.
Combine Lean FIRE with Barista FIRE and Coast FIRE, you can do almost anything you want.