FIRE (or Financial Independence Retire Early) has been a growing theme over the last several years. This movement has been championed by bloggers such as Mr. Money Mustache, and typically focuses on spending less and saving more to achieve a target retirement number (or the amount of money a person needs to save to be financially independent).
This number is usually based on the 4% safe withdrawal rate - and FIRE movement members attempt to live on this for the rest of their financially independent lives. (Some opt for a more conservative 3% rate as well).
It sounds great, but it also sounds constricting. According to the Financial Independence sub-Reddit, at it's core, FI/RE is about maximizing your savings rate (through less spending and/or higher income) to achieve financial independence and have the freedom to retire early as fast as possible.
However, I've found most FIRE advocates focus specifically on the savings more side of the equation. Many FIRE bloggers focus on maximizing their savings rate at their current incomes, living extremely frugally, and planning a lifestyle that will allow for extreme frugality for years to come.
But let's talk practically today, and why that's not for me, and why I believe that's not for everyone. Here's my thoughts on FIRE, and why this "lean FIRE" approach can be dangerous. Furthermore, I'll share tips and tactics on FIRE for non-frugal people. Because you don't have to be super-frugal to achieve financial independence and retire early.
Underlying FIRE Themes
After reading countless FIRE blogs, and following bloggers like Mr. Money Mustache for a while, I've found a few underlying themes to the FIRE movement. And I've found a big divide in people's philosophies around FIRE.
Before we even get into "true" FIRE, there is a lot of semi-FIRE thoughts. So I want to spend a minute breaking it down.
FI - Financial Independence: A lot of people associate FIRE with financial independence. And while that's half the equation, it's not all of it. My definition of financial independence means that you have enough money that you never have to work again. You can choose to work because you want to, or get bored, but you don't have to.
A lot of FIRE bloggers (and individuals) have a mindset of "well, if I run out of money, I can go back to work or I can supplement". And while that is true in a financial planning sense, I argue that if you have to supplement your savings, you are not truly financially independent.
RE - Retire Early: When it comes to retiring early, this means stopping work. So, you can be financially independent but not retired. Maybe you don't want to retire because of boredom. Or maybe you simply left your main job, but not work a bunch of odd jobs. Either way, if you're working in some form, you're not retired.
So, when I discuss true FIRE, I'm talking about people that are working towards true financial independence so that they can retire early (and not work). There are definitely hybrids of this in every sense, so keep that in mind as we go.
Now, speaking of FIRE, there are two major branches in the FIRE movement. One is called the "lean" FIRE movement, and the other is the "fat" FIRE movement.
The "lean" FIRE movement is comprised of minimalists and extreme frugality-focused individuals, with less of a focus on earning more. These advocates not only follow strict budgeting and financial goals, but also follow more philosophical minimalist approaches like those advocated by The Minimalists. I estimate that 80-90% of FIRE movement individuals fall into this camp.
On the other end, there is the "fat" FIRE movement, which puts less of an emphasis on minimalism and frugality, and more of an emphasis on smart investing and earning more. While there are fewer advocates in this camp, Todd Tresidder of Financial Mentor coined the term "fat" FIRE and is an advocate on his site. I'm personally an advocate of this approach as well.
In almost all cases of FIRE though, these underlying themes exist:
Minimalism - Many people pursuing FIRE are also focusing on minimalism. Maybe it's easier to combine extreme frugality with minimalist ideals, but it could also be a lifestyle choice as well.
Extreme Frugality - The "lean" FIRE movement really focuses on extremely frugality and spending optimization. In some cases, it's almost Machiavellian in that the end goal of early retirement totally justifies the means to get there.
Earning Extra Income - The "fat" FIRE movement is more focused on earning extra income and side hustling, but the goal is simply to boost income to achieve the end financial goals.
A Word Of Caution About Typical FIRE Methods
What many people don't talk about is the financial danger of "lean" FIRE. What's dangerous about retiring early and achieving financial independence? The assumptions made to get there.
To achieve financial independence, you have to have your retirement number. This is unique to everyone, but it's basically the amount of money you need so that you can live for the rest of your life without working.
A simple way to get to this number is to take your annual expenses and divide by 0.04. The reason 0.04? Because that is based on the 4% safe withdrawal rate. It's considered "safe" because it theoretically has a 96% chance of leaving 100% of more of the original principal.
So, let's say you want to live on $3,000 per month, or $36,000 per year. Your target retirement number would be $900,000.
But there is danger in these assumptions (and I'm only talking about the financial dangers):
- Under-Estimating Expenses: The biggest danger in the "lean" FIRE approach is simply under-estimating future expenses. I've seen some bloggers and forum-posters attempting live on $20,000 or $24,000 per year. The idea of living on $2,000 per month sounds sexy because the target retirement number is only about $600,000. However, what happens if you encounter unexpected medical expenses? What happens if the health care market changes and health care costs rise unexpectedly? What happens when rents go up? There are a lot of potential changes in expenses over time (think 40 years or more), and in almost no scenarios do expenses drop.
- Under-Estimating Investment Performance: The 4% rule is a good bet most of the time, but not all the time. It also relies on historical market performance. But things change. If you're retiring early at 40, you could potentially live another 60 or more years. Will the market perform as expected? Will you need to withdraw more to cover unexpected expenses? Plan accordingly.
- Becoming Too Dependent On Government Programs: Some "lean" FIRE advocates focus on the availability of government programs to help them achieve their goals. For example, subsidized health care, food stamps and SNAP, WIC, and more. These programs can change or be eliminated, which could potentially cause an increase in expenses.
- Planning Based On Today's Taxes, Not Tomorrow's: We are at historical lows when it comes to taxes. In 1985, there were 15 different Federal tax brackets, with the highest being 50% on incomes over $169,020 (roughly $377,000 today). Given our country's deficit and ballooning entitlement spending, odds are taxes will rise again, and this could be harmful to individuals practicing "lean" FIRE.
Do You Have To Be Frugal To Achieve FIRE?
This is a loaded question, and I purposely included it as a heading...
Do you have to be extremely frugal to achieve FIRE? No.
Can you be wasteful with your spending? No.
What do I mean by this? You don't have to live on $20,000 or $24,000 per year to achieve FIRE. You can live on $80,000 per year and still achieve FIRE. But at the same time, you shouldn't be wasting your money.
Do you enjoy eating out? Then eat out! Do you enjoy going to the movies? Then go to the movies? Don't want to clip coupons? Then don't.
But at the same time, you likely shouldn't be driving a high-end sports car, or flying on a private jet to Vegas because "you deserve it". I'm not here to tell you how to spend your money, but if FIRE is important to you, you should be focusing on the big expenses to make big progress.
Paula Pant says it best: You can afford anything, but not everything.
Remember, focus on building a high achiever net worth regardless of your FIRE goals.
FIRE For Non-Frugal People
FIRE is completely attainable for non-frugal people. There's just not a lot of people writing and blogging about it. You can attain FIRE at any income or expenses level - it's just math. The more expenses you have, the larger your retirement number will have to be.
Going after "fat" FIRE is probably a safer bet over the long run anyway. Remember the cliche - Shoot for the moon. Even if you miss you still land among the stars. If you shoot for a large retirement number, even if you come up short or take more time than planned, you'll likely have a much more comfortable retired life.
It's important that, when considering FIRE, you also consider the dangers above. So, beyond your "normal" expenses, plan for higher expenses in retirement. Plan for higher medical costs and more taxes. Plan for government programs to end, or entitlements like Social Security to start later. Just plan for it!
So, what does FIRE look like for non-frugal people? Here's some numbers to think about. The target retirement number is based on the 4% safe withdrawal rate.
Annual Expenses | Retirement Number |
|---|---|
$48,000 | $1,200,000 |
$60,000 | $1,500,000 |
$72,000 | $1,800,000 |
$84,000 | $2,100,000 |
$96,000 | $2,400,000 |
$108,000 | $2,700,000 |
$120,000 | $3,000,000 |
$180,000 | $4,500,000 |
$240,000 | $6,000,000 |
As you can see, it's perfectly fine to spend $10,000 per month. It simply makes your target retirement number $3,000,000. That's also a big driver towards the "lean" FIRE movement - a lower retirement number is simply achievable faster or "easier".
So, how could you possibly achieve "fat" FIRE? Can you really save $2,000,000 or more "early". It's totally possible - it's just math!
1. Start Early: The best way anyone will achieve "fat" FIRE is to simply start early. Check out this article on how to become a millionaire by 25. To summarize, it takes $305 dollars per day starting at age 16 to make it to $1,000,000 by 25. Okay, so maybe you didn't start at 16? Well, if you want to save $2,000,000, it takes $365.29 per day for 15 years. So, if you start at 25, you'll have $2,000,000 saved by 40.
2. Don't Waste Money: How do you get to that magical $365? Well, don't waste money. It's fine to live the life you want to live, but if the life you want to live includes early retirement, you can't be wasteful. What's wasteful? Big purchases you don't need, and regular little purchases you don't need. Don't buy fancy cars, don't rent expensive homes, don't go to Ruth's Chris when Chili's will do just fine.
3. Earn A Lot More: And no matter what, you're going to have to focus on earning more. If you're not into extreme frugality, you have to make up the difference in hustling. Work more at your primary job, and then side hustle or get a second job. Fill you free time with money making activities. Remember the goal - $365 per day.
The biggest driver of FIRE for Non-Frugal People is going to be earning more money. You are going to have to side hustle. You are going to have to build passive income streams. But it is possible.
Final Thoughts
"Lean" FIRE is easier, more common, and more written about. But it comes with it's own set of challenges - frugality, potential money shortfalls, and more.
"Fat" FIRE is harder, simply because it requires more money - but it has the potential to give you more safety in your financial lifestyle during early retirement.
Just because people aren't writing and sharing thoughts on "fat" FIRE doesn't mean it doesn't exist. Early retirement and financial independence is possible at any income level and spending level. Don't feel like you have to save everything or you will fail. Don't feel like you need to earn $100,000s per year or you'll fail.
Financial balance is important - your finances are not an either/or proposition. You don't have to save OR earn. You can do both. And whichever FIRE path you choose, remember this.
What are your thoughts on the "Lean" FIRE vs. "Fat" FIRE debate?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
Josh says
I’ve been learning about this stuff ever since I started paying my massive student loan debt and I’ve noticed the emphasis on the minimalist lifestyle, especially lately.
I agree with you – it’s far too risky due to the long retirement runway. I’m 80% focused on income growth and I’ll worry about keeping my expenses within a certain range. I’m not trading my car in for a bike! Love the piece – always thought about this dynamic – glad to know I’m not crazy.
Robert Farrington says
The biggest driver of wealth in your early years will always be income growth – so you’re on the right track.
Ivy says
And now that the market has declined quite a bit, does your thesis still hold?
Robert Farrington says
100%! Even more so, honestly. The biggest drive of wealth in your early years is always how much you can save and how much you can grow your income to save that delta.
Justin says
I look forward to using these principles not on outrageous student debt but on my own debt accumulated from starting and running a business that failed. I think any debt can be cleared with enough room to grow from it using these ideas.
Lila says
Thank you so much for writing about this. I quit reading FIRE blogs because they made me sad….people are tolerating jobs they absolutely hate just to reach FIRE.
I didn’t want to tolerate 25+ years in a job I loathed just to achieve FIRE. I want to enjoy my life in the present while planning for the future.
Robert Farrington says
I think it’s totally possible to find that balance as well. What if you had a lower paying job that you enjoyed, and then side hustled the difference and/or more? There are a lot of ways to achieve FIRE.
Mrs. Adventure Rich says
I love Paula Pant’s “you can afford anything, not everything” quote. It has become our motto!
I think we are heading for lean-normal FIRE… but we are still earning in our planning phases 🙂
Working Optional says
Thanks for highlighting the assumptions – some of them are key but easily forgotten when planning for FI/RE.
For example, Living on $25K/year when you’re a few years out of college is a little different than if you have kids and pets thrown in the mix two decades later.
If you can still pull it off, then great but then the estimates should be adjusted accordingly.
Robert Farrington says
Right? One of the frustrating aspects of reading so many lean FIRE blogs is that these are single young guys and gals – I could live on $10k per year as a single guy. But you start adding in family, goals, and more, and it becomes a different lifestyle. Plus, it’s a long life ahead of you.
It’s not to say you can’t achieve FIRE, but you have to think through your strategy more.
Divnomics says
Love. this. post! Been thinking about this a lot lately and definitely fall into the fat fire category. And I know there are many out there who have the same mindset. To make things worse… the 4% rule is another thing that isn’t what every FIRE blogger/person is following. But is overly talked about already. There are other ways than withdrawing the portfolio bit by bit. Or is that qualify more as semi-fire?
Robert Farrington says
I don’t view “other ways” as FIRE you’re working. You may be financially independent and can do what you want, but if you’re working, you’re inherently not retired. I don’t see a “Semi-FIRE”.
The Vigilante says
Seems like you have a good handle on FIRE and healthy interest in knowing yourself before jumping in! However, there’s one little detail I’d want to point out: In your “Under-Estimating Expenses” category, you mention living on certain amounts per year and how glorious that sounds, but express skepticism about expenses remaining so low over time. While that’s a healthy concern to have (and one of the main reasons I intend to have a substantial cushion beyond 4% myself), that concern could easily be overblown by a reader who doesn’t realize that the 4% Rule is derived from the results of the Trinity Study in the inflation-adjusted category. Meaning, basically, that the 4% Rule worked, historically, where one would increase spending each year with inflation. It’s not $2,000/month forever – in fact, about 15-20 years down the line, you might find yourself withdrawing $4,000/month and still be applying the 4% Rule to your initial investment!
Robert Farrington says
Totally agree, but with inflation, prices rise too – a loaf of bread that might cost $2 today will cost $4 15-20 years down the line. It’s all relative.
Wealth Noir says
Thanks for helping me find a name with Fat FIRE. I’m very focused on FIRE, but am not willing to go ultra frugal to get there, especially after having been very successful career wise and having a reasonably nice standard of living.
– Damien
Robert Farrington says
Glad we could help put a name to what you’re working on!
Happyworking says
Agree 100% with FAT FIRE, the one common theme I see on the lean FIRE forums and websites is the disdain for other people living life. I have read to many comments about driving to work in a 10K car and laughing at the person driving a 50K car etc etc. Its about the journey as well as the destination.
Robert Farrington says
Glad you found a message that works better for you!
Peerless Money Mentor says
Gotta love Paula Pant! Her motto is what I try to live by. Great read!
Christine says
Loved this article. It’s refreshing to see a perspective on wanting/ being able to retire early while also living a lifestyle that suits your current desires. Yes, I want to retire as soon as possible, yes I want to take those ski vacations now. All about prioritizing.
JP says
Just throwing this out there… $365 per day is assuming no investment returns. I would hope that you would achieve positive investment returns while you were gathering $2M. Also, depending on investment returns and strategies such as real estate could allow for a much greater than $10k a month investment return out of $2M.
Llz says
Is FIRE possible if you have kids? If so, how?
Robert Farrington says
Totally possible. It’s just math.
Kids or no kids, you focus on earning more and saving more. I’ve found my kids, at least, don’t need much in terms of money. Yes, food is expensive (we’re lazy and eat out a lot), but if you focus on earning, the rest falls into place.
Jacob says
I understand the importance of investing as much as you can, early, but there are other things that we are missing.
I take the lean FIRE approach because I’m in my 20s and prioritize travel internationally (in which most cases money can’t be earned- so I need to be frugal with what I do earn) because I find it to be more of an investment in myself.
Many people put so much emphasis on working their life away to put in investments while neglecting the present.
Whichever FIRE you choose, don’t forget that your future isn’t guaranteed so don’t wait until “later” to follow your dreams.
Greenbacks Magnet says
I have had to learn to have balance. I am all for FIRE as a PF blogger myself, but it can’t be all saving, no living. I just try to budget and plan my expenses in advance. I do limit travel and cut my expenses. It allowed me to save a ton of $$.
Nice post. I really like the daily saving rate info. $300 a day for like a decade or so to million dollar portfolio and millionaire status. Can’t beat that.
Thanks,
Miriam
Ann Stokman says
Love the FIRE movement. I wish I would have discovered it long ago….
Lisa says
I love the idea, but for those of us who started full time employment later in life with a reasonable retirement plan option, it seems a lost cause and deflating to my future security in life. I am working beyond my full retirement age (USA) in order to save more, will sell one vehicle, planning gardening to help with the grocery bill, use wood stove/solar to decrease oil consumption, work part time in something that contributes to household income, as well as fun, and keeps the mind active. Will hubby and I be able to vacation around the globe, no. Will we be able to take a yearly vacation to all 4 corners of the US or Canada, no. While retirement is a long sought after goal, it is scary, but to continue beyond in my present career, unthinkable.
Some Dooood says
I started at age 25 and am now 40, with $1,600,000 put away over that time. According to the chart above, and my own calculations too, enough to support expenses of about $65k / year. Not bad, but not exactly enough to live on passive income in coastal California. The biggest mistakes I’ve made so far are wasting a lot of money regularly on expensive luxuries (a few hundred dollars here and there, but done many times over the past 15 years probably adds up to at least $200k total.) I have also stayed at jobs I hate, but that paid well, for way too long. That has been the real mistaken as it has taken a real toll on me — I am a 40 year old burnout with no kids and no wife, not necessarily a bad thing to not go the typical wife / kids route these days, but combined with the isolation of working long hours for many years probably not the healthiest thing either. What do you think given I can’t take anymore of the rat race — is my best bet just to drop it all and expat overseas or should I keep trying to scale up my savings to meet what I would need to maintain the go-go california lifestyle (probably at least $2-3M)?
Shadowman says
I’m 69 and retired at age 50. My model was pessimistic in every factor. Yet two unknowns threatened its success: a brand new health care requirement that caused an unplanned expense that topped-out at $18k/yr before my wife and I could switch to Medicare. The other unknown, which is still a threat, is the decreasing purchasing power of the dollar; its decline will continue for as long as politicians spend money that we don’t have. So, every time you look at a chart, remember that the modest level of spending that you live at today will require more dollars to fund in the future. I’d like to think that this is what Suze Ormond wanted to warn you about.
damnedindenial says
ive started doing this a year and a half ago, ive taken a dual approach lower my expenses and increase income. in a year in a half I am 10 percent the way to my first million, ive moved in my car through the freezing winters of wisconson and indured many things. I will be free or die trying
Robert Donovan(rdtradecraft) says
SO glad to hear an alternate view of the Frugally Insane Retire to Exiguity movement(A thesarus is a terrible thing to waste). I use the term post-subsistence to describe what most FIRE practitioners are doing. They have enough to support a reduced spending lifestyle, which is fine–for getting started. What always blows it for me is the insistence on NEVER spending any more, even as your capital base and income expand to support it.
What most people tend to be referring to, IMO, with the term financial independence, is post-satiation. This is a term used in economics to denote a point at which you are no longer willing to work harder to add to your lifestyle because your current one is sufficiently satisfactory that the extra work no longer seems worth the gain. This gets to your point about the retirement number. Different people will have different retirement numbers depending on where they decide post-satiation is. This is a personal choice.
There is nothing wrong, in my view, with starting at LEAN Fire to get to post-subsistence at the lowest income possible, and, as your income increases, continuing to add to your nest egg to increase the amount of income it generates. As this happens, your standard of living supported by that account can increase so long as spending never increases faster than the income generated by your FIRE account. At some point, you’ll hit a point where you have everything you want, and enough socked away to have a high chance of covering any unforeseen circumstances, and no longer feel the need to constantly increase your standard of living, even though you may want to let the nest egg keep increasing for security against future emergencies and expenses. This is post-satiation–wherever you decide to stop.
Workman says
I’m confused , who can afford to save 300 dollars a day?
Robert Farrington says
Families who earn upwards of $160,000 or so per year can start hitting that number if they make certain choices. That could be achieved with two incomes of $80,000 per year or any variation of it. That’s basically trying to save $108,000 per year.
And note, that could be done through a combination of things – such as 401k matching (if both get a 5% match, that’s $8,000 per year being saved for them).
MURUGAN says
I am not from FIRE movement but from FILL movement which stand for financial Independence for living a life (depends for individual wether frugal, luxury base on day to day life without strict military rule).