Deciphering the Secrets of FIRE, LeanFIRE, and FatFIRE: A Guide to Shared Terminologies
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Financial Independence Explained: FIRE, LeanFIRE, and FatFIRE
If financial independence and early retirement interest you, you’ve probably stumbled upon acronyms like FIRE, LeanFIRE, and FatFIRE. These terms aren’t about literal fire, instead, they’re all about achieving financial freedom before the traditional retirement age!
So, what are they, and how do they work?
Here’s a brief breakdown of the FIRE movement and how it could help you achieve financial freedom:
1. **What is FIRE?**
FIRE stands for Financial Independence, Retire Early. The idea is straight forward – save diligently for as quickly as possible, and retire early to enjoy financial freedom. This might mean being able to step back from work within 10 to 20 years!
How much needs to be saved? Well, everyone’s situation will be different. But a common recommendation from the FIRE community is 25 times your annual living expenses. So, if you spend $50,000 per annum, you should aim for a net worth of $1,250,000.
2. **Understanding LeanFIRE and FatFIRE**
FIRE comes with its variations catering to different lifestyles and income brackets. We have LeanFIRE for those living modestly and FatFIRE for those living more lavishly.
**LeanFIRE** – You’re hoping to live on a smaller budget in retirement. Depending on income, you’re aiming to retire with an income range between $25,000 to $50,000 per year.
**FatFIRE** – You expect a higher than average income in retirement. Typically, people in this bracket are often high-income earners and plan to maintain a similar lifestyle post retirement.
3. **How to Achieve Both**
Achieving either LeanFIRE or FatFIRE isn’t complicated, but it requires a clear plan:
**LeanFIRE** – Here, you need to calculate your annual living expenses. For instance, if you plan to have an annual income of $30,000, you will need to save approximately $34 thousand per year for 15 years.
**FatFIRE** – Following the same steps as LeanFIRE, but here if you plan to have an annual income of $100,000, you will need to save around $136 thousand per year, for 15 years.
4. **FAQs**
**What’s Coast FIRE?** – This means your savings will grow enough to support your retirement at traditional age without having to save more.
**What’s Barista FIRE?** – This status is when you need to earn just a little bit more income to support your early retirement.
**Does LeanFIRE work?** – Yes, but it requires great financial discipline. You must remain aware of your spending habits throughout.
**What is a FatFIRE number?** – The estimates vary, but typically your portfolio should have at least $2.5 million if you intend to spend $100,000 a year in retirement.
**How to achieve FatFIRE?** – FatFIRE mostly suits high-net-worth individuals like doctors, business owners, etc. Often, a windfall like selling a business helps them reach FatFIRE.
In a nutshell, these financial philosophies are about envisioning the end goal – enjoying life on your own terms. Whether it’s achieving FIRE, LeanFIRE or FatFIRE, motivation is the key ingredient! So, what’s your route towards financial independence?
