Lean FIRE

Lean FIRE means reaching financial independence on a budget that covers the essentials and not much more. Because the yearly spending is low, so is the FIRE number, and you can stop working years before someone who wants to keep a bigger lifestyle.

There is no official cut-off. In US forums you'll see figures like $40,000 a year or less, but those are habits of the community, and a lean budget in Lisbon looks very different from one in Zurich. If you'd have to say no to things you care about to live on it, it's lean.

A worked example

Say you can live on €18,000 a year. At a 4% withdrawal rate that needs €450,000. Compare it with €30,000 a year, using the same start: €50,000 invested and 7% a year before 2% inflation.

Spending less helps in two ways. The target shrinks, and every euro you don't spend can go into the portfolio instead, so you get there years sooner.

Who it suits

People who already live cheaply and like it, people with a paid-off home, and people who plan to move somewhere with lower costs. It also works as a first milestone. Reach lean, then decide whether to keep going.

The catch

A lean budget has little slack. One large bill, a few years of high inflation, or a crash early on can push your spending above what the portfolio can safely pay. The usual ways to protect yourself:

• Use a lower withdrawal rate

  At 3.5% the same €18,000 needs about €514,000. You work a little longer and get a lot more room.

• Price in housing and health

  Rent can rise faster than inflation, and health costs grow with age. If your budget leaves them out, the number is too low.

• Keep a way to earn

  A bit of income in bad years takes a lot of pressure off. If that sounds like the plan anyway, look at Barista FIRE.

At the other end is Fat FIRE, where you keep a comfortable lifestyle and need a far bigger portfolio. New to the idea? Start with What is FIRE.