What Is Lean FIRE? Early Retirement for the Minimalists

lean fire
Photo by Norbert Levajsics on Unsplash

Financial independence is a relative term. The less you spend, the less you need to retire early. Lean FIRE describes those who are financially independent will minimal annual expenses. These people live life on a “lean” budget. 

FIRE is an acronym for Financial Independence, Retire Early. 

Lean FIRE is independence for those with low annual spending.  

You may be able to retire early than you originally thought if you’re willing to spend less. 

Lean FIRE defined

An annual budget of $40,000 dollars is a popular number used to quantify a “lean” budget. 

That’s about 35% less than the average American household. Or as the BLS likes to call them, consumer units. The average spending per consumer unit for 2018 was $61,224.

I think $40K became the rule of thumb because the math works out nicely. Using the 4% rule, you need a net worth of $1 million dollars to support annual spending of $40,000 per year. Who doesn’t like round whole numbers like one million dollars?

“A categorically optimized version of your current monthly spending that allows you to achieve financial independence”

Simple Money Habits

Instead of picking an arbitrary number like $40K, you should calculate your own “lean” budget and then calculate your Lean FIRE number with a safe withdrawal rate, i.e. the 4% rule. If you’re living a lean life on $50K per year, then your lean FIRE number is $1.25 million. 

My Personal Lean FIRE Budget

To create my own Lean FIRE budget, I rely on Habit #2, spend thoughtfully, and seek value. 

If I’m going to minimizing my expenses and retire on a lean budget, I want to make sure I’m spending money on the right things. The things that are most important to me, and give me the most pleasure in life. Since I tracking all my spending in 39 different categories, I can do this at a pretty granular level. 

Here’s a higher level breakdown of how I categorize my expenses.

Bucket #1 – Necessary 

These are the essentials. These are the categories that keep you alive and keep the light on. These are categories like mortgage/rent, utilities, groceries, insurance, and gas. 

Bucket #2 – Discretionary 

These are the wants. These are the categories that make life fun and more luxurious. These are categories like restaurants, travel, entertainment, clothes, electronics, and personal care. 

You have much more flexibility in the discretionary categories. To start the budget evaluation, it’s smart to start with the discretionary spending first and cut back in low value categories. Which categories give you the least joy? Cut those down to the bone! Here’s what happened when I did this for all 21 of my discretionary categories. 

My Lean FIRE discretionary budget = $1825 dollars per month. 

After you evaluate all your discretionary categories move onto the necessary categories. You may not have a lot of flexibility in the short term. Downsizing the house or moving to a cheaper part of the country is typically your best strategy. I plan to move out of the city and find a much cheaper place to live. No more cable and no more gym memberships once I flee city living! That will save me a few bucks every month.

My Lean FIRE necessary budget = $2262 dollars per month
Total Lean FIRE budget = $4087 per month or $49,044 per year

This is an amount of money that I can spend and not feel deprived. It’s less than I spend now but I reduced the target spending category by category, cutting down in places that aren’t as important to me. 

Spending money on different things impacts your life in different ways. For example. I really enjoy spending money on travel and experiences. I get way more value from those dollars spent compared to spending money on clothes. If I’m optimizing my spending habits for a Lean FIRE budget, I’m cutting down on new clothes!

How Long Does it Take to Achieve Lean Fire?

The answer to most questions in the personal finance community, it depends! 

Lean FIRE is definitely a faster track than regular FIRE. Less spending means you need less to support your budget. I’ll round down my monthly FIRE budget to $4000 for this example. 

  • Monthly Lean FIRE budget = $4000
  • Expected Investment Return = 5%
  • Safe Withdrawal Rate = 4%
  • Starting Amount = $0

My target portfolio value for lean FIRE is $1.2 million dollars. 

Monthly Expenses * 12 Months / Safe Withdrawal Rate of 4% = $1.2 million

($4000 * 12) / 4% = $1,200,000 dollars

Below I plotted monthly saving amounts with an annual return of 5%. If I have zero dollars today and save 500 dollars per month, it will take me 50 years to become lean FIRE. Yikes. 

If I up that savings to $4000 per month, I’ll hit my Lean FIRE goal in about 17 years. That’s pretty incredibly to think about. If you start with nothing, you can achieve a lean version of financial independence in less than 2 decades. That is much more interesting to me than working 9 to 5 until you’re 65.

how long does lean fire take

Lean FIRE is a safety value, not the end goal

I view my lean FIRE budget as a margin of safety. During down markets, I shift to the lean FIRE budget. I want to avoid selling stocks in down markets at all costs. Bear markets can last a long time, which is why I have several years of expenses invested in bonds. 

For all those pursuing FIRE, I recommend setting your targets higher than Lean FIRE. Fat FIRE is the ultimate pursuit and a worthy goal for ambitious high achievers. Think of Lean FIRE as a backup spending plan. It’s the category by category budget that cuts back when times are tough and markets are dropping. 

Need help planning out your FIRE or Fat FIRE journey? Check out the list of habits that I used to achieve financial independence at the age of 32.