Understanding LeanFIRE – All You Need to Know!
What is leanFIRE? It’s is part of the FIRE (financial independence, retire early) community. The FIRE community helps people retire before the average age, 60-65 years old. You may be wondering how that works and if you want to find out how any individual can do that, keep reading!
You may already know that if one wants to retire and live peacefully in financial terms, they should save as much money as they can while they are still earning. Now, the FIRE community recommends a certain amount of money one needs to retire, while the LeanFIRE community suggests a much less amount to retire, meaning one does not have to save as much while they are working.
Many people who opt for the LeanFIRE community live a minimalist lifestyle. Some leanFIRE folks live out of a van, and others have as few expenses as possible, which allows them to retire early.
Benefits of LeanFIRE
LeanFIRE is a great way to retire early if it works out for you. It has several benefits that may interest you and help you decide whether you want to choose it or not.
1. Less investment , LeanFIRE is cheaper
Opting for LeanFIRE means that you live a simple lifestyle with minimal expenses. Therefore, it requires less investment than the traditional FIRE and fat FIRE ways to retire early.
Now, this may not be everyone’s cup of tea, but if you are willing to live on less, it can work out well.
2. LeanFIRE means you have to get creative
When you opt for LeanFIRE, you are always looking to save money which can often bring out a creative side. For example, instead of going out to eat at a fancy restaurant, you cook at home with items bought at a much lower price than the money that you would spend at the restaurant. Also, you learned to cook something new!
3. LeanFIRE promotes a minimalist lifestyle
When you choose LeanFIRE, you have to ensure that you do not incur unnecessary expenses, i.e., spend as little as possible. People who want to live that lifestyle should go for LeanFIRE as it encourages you to live a simple life.
Drawbacks of LeanFIRE
LeanFIRE has benefits, but it also has drawbacks like the other ways of retiring early. If the disadvantages seem important enough to you, LeanFIRE might not be a good option for you.
LeanFIRE requires patience not just after you retire but also before you retire and while planning it. It requires careful planning because things can go wrong.
2. Restrictive spending
Of course, when you choose LeanFIRE, you sign up to live a restrictive lifestyle in which you will be very frugal about spending. Any unnecessary expense can stir up trouble for you as you have minimal funds.
3. Sense of no purpose
Often when people do not work, they feel a sense of no purpose, like they do not have any goals or achievements in life, and their life lacks meaning. Relying on the money you saved for retirement and retiring early may make you feel that way.
LeanFIRE v FatFIRE; which is the right one for you?
LeanFIRE, as explained above, allows you to retire early on less than the average amount of money while practicing a restrictive lifestyle to ensure that one has enough money for their necessary expenses and they do not spend on other things.
Meanwhile, FatFIRE is another way to retire early, except that it requires much more investment, but it helps you live a much less restrictive life as basic expenses are not the only things you can spend money on. In simpler terms, you can live a luxurious lifestyle if you opt for FatFIRE. Learn more about LeanFIRE vs. FatFIRE here.
Why should you opt for LeanFIRE?
If you believe you can live the simple life of choosing LeanFIRE, it can be quite an experience for you. You can retire earlier than the average retiring age and are not even required to save that much money as the lifestyle is basic with minimum expenses.
Why LeanFIRE is not suitable for you
As an individual who cannot live off of passive income and that too has to spend with many restrictions, LeanFIRE might not be your cup of tea. Also, if you have a family, you may not want to go for LeanFIRE, as raising a child adds a lot to the expenses. Therefore, it may not work out for you.
Some people have tried to make it work even with children, but one must never forget that it is more complicated with children because some of their expenses are unavoidable. Therefore, it can give you a tough time.
How much saving is required?
When you choose LeanFIRE, and you are wondering how much you need to save to retire early, you need to multiply your yearly expenditure by 25. Once that is done and you receive an answer, that is the amount of money you need to save if you want to retire early.
For example, if your yearly budget is $10,000, you must multiply that by 25, which is $250,000. The amount calculated is what you have to save to live the LeanFIRE way. Of course, there is inflation, another essential factor that one should account for when calculating how much money to save.
Inflation rises every year, so it is crucial to keep it in the loop to get the most accurate result and avoid issues that can cause problems to one.
What does a LeanFIRE budget look like?
As mentioned above, going LeanFIRE means one only spends on essentials. If you give it a thought, you may wonder what the essentials are? Essentials are items humans cannot live without, such as food, clothes, house, medication occasionally.
When you talk about food, cooking it yourself is the best and the cheapest way to live, and it also gives you something to do if you decide to LeanFIRE.
Next comes clothing, and again, you need to purchase it at the lowest prices. When trying to live on LeanFIRE, you look out for sales, discounts, anything that will get you the cheapest clothing, so you spend as little as possible.
Try to find housing in the cheapest areas of town or city you live in because that is how you save money on rent.
When calculating the total amount of money one has to save to live. The LeanFIRE way considers inflation. One cannot expect that the prices of all commodities will always remain the same.
When the prices increase, so will the total expenses, and if inflation is not calculated, it may not end well as one would have less money and more investments. Inflation has to be included in the calculation so that the final amount that one has predicted is as close to the real thing as possible.
Inflation rises at different rates every year, and sometimes it increases more than at other times. For instance, after Covid-19, inflation rates skyrocketed as people were trying to recover from so much economic loss that the businesses shut down. If someone is living LeanFIRE currently, they may be finding it hard to survive as the inflation rates must have been way beyond expectations.
Survival through tough times
It is beneficial to have a source of passive income coming in, such as investment made somewhere one gets returns, renting something, anything that can help you out if there are unexpected bumps in the road.
Going LeanFIRE is a tough decision that must be thought through to avoid as many hiccups in their way as possible. Retirement means one is no longer earning a stable income therefore
LeanFIRE is a great way to live one’s life as it encourages simple living. A person living with the least can survive in good and bad times because they already live a simple life, so it should not be that hard.
Moreover, one does not have to save a lot of money before they retire. But instead, a small investment would suffice to live for years. Prioritizing is extremely important when you choose the LeanFIRE lifestyle as you may have to give up many things that you currently spend money on while still getting a stable paycheck.
Opting for LeanFIRE is quite crucial with children as they come with many expenses, and therefore it is recommended to go for this way of retirement only if you do not plan to have kids.
Jon Kuperman is a software engineer and real estate investor. He’s always looking for new investments. He’s also hoping to achieve financial freedom through investing.