With so many new approaches to early retirement and the FIRE movement, it might be hard to keep track of it all! But the good news is that you have more options to pursue the right path that fits your personal finance needs.
Another popular retirement strategy is called Lean FIRE. And just like the name implies, you are slimming down your finances but still setting yourself up for success.
Like any of the types of FIRE, you’ll still be aiming for 25x your annual expenses.
However, Lean FIRE helps you “trim the financial fat” and become much more frugal to reach your retirement goals. Below you’ll learn everything you need to know about Lean FIRE and if it is the right money move for you.
What is Lean FIRE?
Lean FIRE is the ability to retire before the traditional age of 60+, but with much lower costs of living. By spending less per year than the average American, saving 25x your expenses will be much more achievable.
Where the general FIRE movement would advocate cutting your expenses by 10% or 20%, following the Lean FIRE method could see you reducing expenses even more. And where other versions of the FIRE movement focus on increasing your income, Lean FIRE encourages a minimalist lifestyle.
Participants of Lean FIRE will still aim to save up to 25x their annual expenses and live on lower-income during retirement than the average American.
You may cut your expenses by living in a van or tiny home, for example, or foregoing having children and living in a low-cost area of the country. The money you save will go straight into investments and savings to accrue that all-important compound interest.
How Much Do You Need to Lean FIRE?
As with a lot of things in life, there is no one right answer. How much money you need will depend on your age (and years worked), as well as your exact expenses and post-tax income.
But, there is a solid amount of information from people who have already done it to guide you.
To calculate the amount you’ll need to have in investments and savings, we’re looking at the amount you will have to have invested in order to generate an annual passive income that is the same or higher, than the one you currently live on.
The simple formula
The general formula is 25x your annual total expenditure. For example, if you spend an average of $35,000 per year, you’d require $875,000 in savings and investments.
And the lower you can get that number, the less you need to have saved and invested. If you only spent $26,000 per year, you’d only need $650,000 in your retirement accounts to live on with the 4% rule.
Lean FIRE requires you to do a few things:
- Cut your expenses dramatically, 25% or much more
- Learn to live on less and need less in the future
- Save and invest aggressively to reach 25x your living expenses
How You Can Achieve Lean FIRE
Are you ready to achieve Lean FIRE and get on the path to retire early? There are a few things to keep in mind and do to help you get there.
Where you live
Where and how you live can determine if Lean FIRE is possible for you. You can research states and cities where there is a low cost of living, but also fits your lifestyle. For example, moving to San Francisco or New York City will not be a great choice for you.
Reduce the size of your house. You can look into a tiny house, which allows mobility and everything you need. It has exploded in popularity and might be an option for you.
Additionally, swap out your mortgage by living rent-free in a van. Vanlife has exploded in popularity in recent years, with millennials and older generations alike choosing to forego the usual living expenses for a nomadic life on the road.
If you can work online, living in a van can also accommodate low-cost travel that a Lean FIRE lifestyle might not otherwise allow.
Master how you spend money
Follow the 30-Day rule when you want to make a purchase. This will help you curb impulse spending and build better money habits for long-term success with Lean FIRE.
But beyond that, this is where you will become a budgeting master.
Sticking to your budget, analyzing, and focusing on the numbers is going to be a big key to your overall success. If you are not sure where to begin, you can check out my budgeting 101 article.
Invest more aggressively
Work with a financial advisor or do your research to put your money into the best-returning tax-advantaged investment accounts.
There’s nothing worse than your hard-earned cash losing value behind the cost of inflation, so one of the first basic moves you make is to ensure your cash is in a high-earning account.
- Company 401k
- Traditional IRA or Roth IRA
- Health Savings Account
- High-yield savings account
- Taxable brokerage account
Passive income streams
Create passive income streams in order to supplement your current financials and produce sustainable long-term income.
This could include monetizing a blog, renting out a room in your house or Airbnb, starting a Youtube channel, flipping books, etc.
Find side hustles that can elevate your investments, savings, and be a good fallback for income as you begin preparing for your financial independence
Is Lean FIRE Right For Me?
There are plenty of factors to consider before going with Lean FIRE as the right choice for you. If living on less, even extreme frugality sounds feasible for you, then Lean FIRE might be perfect for you.
Additionally, if you have no issues moving to a different state (even country) to save on where you live, then Lean FIRE also would be a great choice.
It’s certainly not the right fit for everyone, but it’s a great path to early retirement, escaping your W-2 and 9-5 job, and needing way less money than Fat FIRE, for example.
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