The first step to Financial Freedom. Lean FIRE.

What exactly means Financial Freedom? What is FIRE?

FIRE literally means “Financial Independence Retire Early”.

It is one of the most famous terms in the personal finance community.

People in the FIRE community pursue Financial Freedom and usually adopt the 4% Rule to know if they are financially independent.

Following this rule, you know that if you accumulate in your portfolio an amount equal to 25 times your annual expenses, you are financially free.

From this moment you can withdraw 4% of your portfolio each year for your living expenses and no longer need a job.

Lean Fire is a specific type of FIRE.

Lean FIRE: A Minimalist Approach to reach Financial Freedom.

A famous type of FIRE is the “Lean FIRE”. This is essentially a low annual spending FIRE.

If you read the Lean FIRE Subreddit community on Reddit, you know that it refers to an annual spending lower than $40,000, using the following description :

For those that want to approach the problem of financial independence from a minimalist, stoic, frugal, or anti-consumerist trajectory.”

The LF Community is known for embracing frugality, stoicism, and minimalism, trying to achieve financial independence in this way.

If you choose this way of life you do not have to struggle to save up millions of dollars.

The beauty of this path consist in the fact that is easily achievable by anyone without the need of a high-stress/high-income job.

Even a very modest income from a lower paid job can be adequate to achieve Lean FIRE in a not too long time frame.

Some of the major critics of Lean FIRE raise a serious and important objection. You may technically be financially free, but you can’t spend on anything else, except for the essentials.

How much I need to spare for Financial Freedom?

This simply depend on the size of your family: larger your family, higher the expenses.

It is certainly possible to reduce spending by adopting frugality, but there is an obvious limit beyond which one you cannot go.

This point is the federal poverty line: if you spend below this annual amount you’re in a deprivation condition.

The U.S. Department of Health & Human Services shows the poverty guideline related to different family sizes:

2021 POVERTY GUIDELINES FOR THE 48 CONTIGUOUS STATES AND THE DISTRICT OF COLUMBIA
PERSONS IN FAMILY/HOUSEHOLDPOVERTY GUIDELINE
For families/households with more than 8 persons, add $4,540 for each additional person.
1$12,880
2$17,420
3$21,960
4$26,500
5$31,040
6$35,580
7$40,120
8$44,660

In the Lean FIRE Subreddit, you’ll see many people define the annual spending in about 50% more than the Federal Poverty Guideline.

persons in familypoverty guidelinePoverty G.L. plus 50%
1$12,88018735
2$17,42026130
3$21,96032940
4$26,50039750
5$31,04046560
6$35,58053370
7$40,12060180
8$44,66066990

These guidelines provide a nationwide baseline, but as the three main costs are housing, food and transportation, the amount required to reach Lean FIRE can vary greatly, because some places are more expensive than others.

When can I achieve Lean FIRE?

The time you need to reach lean FIRE depends on various factors, basically: your savings rate, your annual expenses, your Portfolio, inflation, etc.

You can make an idea and calculate it with a useful app, Networhtify .

Is Lean FIRE Right For me?

Only you can decide.

It depends on your family conditions, on your lifestyle and spending habits.

If you’re a naturally frugal person, Lean FIRE might is perfect for you.

If you really enjoy spending your money, if you like to own a new iPhone and a shiny new car every year, then Lean FIRE might not be your best choice.

Personally, even though I’m a frugal person, I think Lean FIRE is an extreme way to live your life.

I think it would only be suitable for me if I had the misfortune of doing a terrible, extremely stressful, and unrewarding job.

Fortunately this is not my case.

I truly believe that a well-paid and meaningful job plays a crucial role in living a good life, so if you enjoy your job, you can reduce, but don’t have to stop working completely.

If you plan to reach Lean FIRE but are concerned about maintaining a low spending rate, a good solution may be deciding to do a part-time job.

Deciding how to reach Financial Independence is a personal decision. Do the math, consider your alternatives, and keep in mind that a part-time job is always a great tool you can use to your advantage to have more choices and flexibility.

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