What is Lean FIRE? The Frugal Way to Retire

Steve Cummings

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What is Lean FIRE?

With so much news about the FIRE movement, you have to wonder which way is best for you. Many people have mentioned Barista FIRE or even regular FIRE. The two that are not always talked about are Fat FIRE and Lean FIRE. 

The lifestyles of people are different. Some people hope to live life to the fullest having a very fat retirement with no worries of spending vast amounts of money because they can. Others like to live a more frugal lifestyle and reach FIRE earlier and live on less. These types of people are part of the Lean FIRE group. 

What is Lean FIRE?

Lean FIRE (Financial Independence Retire Early) is the ability to stop working and retire before the average retirement age of over 60+ years of age but retiring on a lower cost of living standard. To live the Lean FIRE life, you must live a life of spending less than the average American and having a lower standard of living than most people. 

When thinking of FIRE, we often think about how to save and invest more to reach early retirement. This could mean cutting monthly expenses by about 10-20% to save more. You can also increase your income to help you reach your FIRE goals. 

People wanting to hit Lean FIRE will typically cut expenses even more. They will try to cut costs by 25% or even more to live on a lean budget to help them save more money and learn how to live less. 

This can be done by living in a low-cost living area. You could live in a van and travel or even own a tiny house to help minimize expenses. 

The more you save, the more that money can compound over time and help you to reach Lean FIRE more quickly. 

How Much Do You Need for Lean FIRE?

When looking at retirement numbers, you need to create a goal to hit for your retirement. You cannot just wait until you are 60+ years old and think you have enough. This takes proper planning and calculations. 

The 4% Rule

The FIRE movement uses the 4% rule to help figure out the amount of money you need. It is a simple formula to help you come up with a number to reach for. 

You take your annual spending and multiply it by 25. If you spend $40,000 per year, the formula will look like this:

$40,000 x 25 = $1,000,000

For Lean FIRE, people are going to be cutting their spending. This can help them reach FIRE much more quickly. Numerous factors may change what Lean FIRE is to them with people. 

The average spendings for a family of 2 in America are around $66,861, and a family of 4 would be about $85,000. We can take these numbers and figure out what regular FIRE would be for them. 

A family of 2 would need around $1,675,000, and a family of 4 would need $2,125,000. 

So having just $40,000 per year and saving $1,000,000 can be considered Lean FIRE. If you want to be more frugal, you can go at $30,000 per year, which would be $750,000. 

With much less need to retire, you can retire much earlier. 

This can be done through living below your means.

Living Below Your Means

It is time to start living on less. Living below your means is about living on less. You do not live paycheck to paycheck anymore. There needs to be a budget, and saving should be an important goal. 

If you want to help reach FIRE or Lean FIRE, you must learn to live on less. This can help create more considerable savings. 

Living below your means can just start with cutting spending. Cut the things that do not add value to your life, and you can save much more. 

My sister-in-law and her husband make coffee at home and take their coffee machine everywhere to save money and make a great cup of coffee. If you enjoy something, you can save money, but you must think about creating those opportunities. 

What Are Some Pros and Cons of Lean FIRE?

As with retirement and other types of FIRE, there are pros and cons. Each person is different. Therefore, the pros and cons could be different for your family. 

The Pros of Lean FIRE

These are a few pros that may help sway you to go for the Lean FIRE path.

Quicker to Financial Independence

Lean FIRE is a quicker way to achieve Financial Independence. You are saving more and living on less. Because you live on less, you will need less to retire on. That means your nest egg will be less. 

If you can save and invest enough, you should hit Lean FIRE much quicker than regular and Fat FIRE. 

Less Stress

Money can be enormous stress for families or individuals. Achieving Lean FIRE much quicker and help lower that stress. 

You no longer have to worry about having enough money to retire.

The thought of trying to maintain a particular lifestyle like the people next door is not something you are into. Keeping up with the Joneses is not necessary. 

With less stress, you will live a happier life. Why not hit the enormous milestones of early retirement and live a much more comfortable life. 

Living a Frugal Lifestyle

Often people think about frugality as not being the happiest life. They may think you are living stingy, or they just don’t know what the difference between being cheap vs frugal

With frugality, you live a more purposeful life. Life is about saving money on things that don’t matter and spending on things you care about. 

My wife and I enjoy traveling and doing adventures. We save on rent and eat in all the time to put our money towards travel and experiences. It is all about our priorities. 

With these additional savings in the frugal lifestyle, you can live a more enjoyable life without worrying about spending too much money. You spend with purpose. 

The Cons of Lean FIRE

Some of these cons may sway you to choose a different path for your FIRE journey.

Having a Family Has Challenges

Having a family comes with more costs. Children need food, clothing, and they just typically come with more expenses. This makes a living on a frugal and lean budget much harder. 

The income from the family may be different if a spouse is staying at home with the children or if daycare costs affect your bottom line. 

With Lean FIRE, the budget is more restricted, making it harder to do with a family. Living expenses can be higher, so you may have to adjust some of your financial goals to accommodate a family on the Lean FIRE budget.

Restrictive Budget

Living a Lean FIRE life, you may have a more restricted budget. This can be a budget that may not allow you to have everything you want. If you choose this lifestyle, this may be something you enjoy, but having a fatter nest egg would be best if you like to splurge on things. 

Having some extra money can help if things get tight. Budgeting becomes a must. 

You cannot go out and regularly spend on things. You must live on your budget, or the value of your retirement may decrease quicker than you had expected. 

Relying on Your Passive Investments

This is not such a lousy con unless your passive investments take a massive nosedive. We are all about buying more income-producing assets. Most people working on achieving FIRE have a lot of their investment money in index funds like a suitable Vanguard Index Fund

If investments lose value due to a downturn in the market, you must have backup cash that can help withstand that downturn times. 

This comes with proper planning.  

Ways to Achieving Lean FIRE

As we want to achieve Lean FIRE, we need to take some steps or make it easier and quicker. 

1. Where You Live Matters

Living in an LCOL place vs an HCOL can help you achieve your Lean FIRE goals. If the cost of living is lower, you can achieve Lean FIRE much quicker. 

There are plenty of reasons for choosing one place over another, but the cost of living in an area can be a factor and a way to achieve Lean FIRE.

2. Saving Matters

You have a high savings rate does matter. The more you can save, the more you can put those savings into investments. 

The earlier you can save, the less money you will need when you are older to invest. The power of compounding interest does wonder on your finances. 

The more you can save, the faster you will have enough money to hit Lean FIRE. Start to cut down your budget and make savings a priority.

3. Invest Invest Invest

Investing is the best way to get your money to grow. This can be from investing in the stock market, investing in yourself, or buying more income-producing assets to create more passive cash flow. 

Retirement income cannot just come from emergency savings. It needs to be a part of your building wealth strategy that focuses on accumulating money and assets. 

You need to invest your money. Investing will allow you to grow your money much faster and help you to hit your personal-finance goals more quickly. 

Is Lean FIRE Right For You?

There are plenty of things to consider. Can you save and live on a restrictive budget? How much are your investments? Can you be patient enough to allow everything to grow in a timely fashion?

With Lean FIRE, you need to know if you can live a frugal life or if you may need more money. Calculating your future expenses can be hard, but you can make this work with proper planning and investments. Having income streams to cover costs is vital to having a Lean FIRE life. So plan accordingly. 

Other Forms of FIRE

If you do not see yourself as a Lean FIRE person, you can look at the other types of FIRE. 

Barista FIRE is all about retiring early and using a part-time job like a barista to help supplement some of your retirement. It can also help with having health insurance.

Coast FIRE allows you to save and invest early enough in life to coast the rest of the way to retirement. This helps people have some peace of mind when investing early on. They can then have enough not to have to worry about retirement. They can continue to work their jobs while their investments continue to grow. 

  • Fat FIRE

Fat FIRE is for those wanting to have a more significant retirement. They can save and invest more to have a fatter retirement. 

  • Regular FIRE

This is Traditional FIRE. You save up to 25x your spending and live life the way you live now but in early retirement. 

Final Thoughts:

If Lean FIRE is something you ever considered or are now considering, you can think about saving and living a life on less. Living life on less is not so bad at all. It allows you to not worry about money as much, and you will live a more frugal lifestyle. 

Lean FIRE is not for everyone. People have different goals and dreams and want to have a particular lifestyle when they retire. So when you are planning, make sure not to compare yourself to others. Create a life you want to live. 

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