Author Topic: Confused on FIRE number: leanFIRE / baristaFIRE  (Read 1604 times)

dizzy

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Confused on FIRE number: leanFIRE / baristaFIRE
« on: December 01, 2020, 01:27:22 PM »
I am confused about figuring out what is my FIRE #.  Do I just hit 25x annual expenses...do I take into consideration my "passive" income streams (bank bonuses, CC sign ups, tradelines, misc.) at all?  Gigs I will continue doing?  Some other way of calculation?  As of now those streams could totally cover my expenses, but my retirement accounts are nowhere near 25x.

How does the diversification of accounts play into this for someone age 39 (so far about 10% is taxable the rest are in pre-tax- solo401k, trad IRA, HSA)?

Junco

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Re: Confused on FIRE number: leanFIRE / baristaFIRE
« Reply #1 on: December 01, 2020, 01:34:49 PM »
I think of it like this..

Your FIRE number is when you have 25x your annual expenses invested and can live solely on 4% withdrawn per year.

That fact that your side gigs and hustles cover your expenses currently sounds like you are baristaFIRE now. You don't sound like you have a "real job" and are doing part-time work to cover expenses. If you let your current investments ride they will likely grow to be 25x your annual expenses eventually. However, you are not truly at FIRE because if you decide to quit your part-time work you can not live fully on your investments.

I would think of leanFIRE as when your investments cover your essential expenses (housing, food, transportation, healthcare) and then you use your side-hustles/part-time work to cover non-essential fun stuff.

Does this clarify it?


ixtap

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Re: Confused on FIRE number: leanFIRE / baristaFIRE
« Reply #2 on: December 01, 2020, 01:40:37 PM »
Have you played around with FIREcalc or a similar tool? They are designed to help you juggle all these variables.

If you have income expectations, depending on how realistic your expectations are, you should need ~25x (expenses - income). However, this also assumes that you will maintain that income going forward.

Perhaps you are more interested in CoastFIRE, where you let your current investments ride while earning enough to pay ongoing expenses until your investments have grown to be enough to support you?

As for taxes, it depends somewhat on what your spending level is. Again, there are tools to help you guestimate taxes, as well as strategize the best path for Roth Conversions depending on your actual income.

spartana

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Re: Confused on FIRE number: leanFIRE / baristaFIRE
« Reply #3 on: December 01, 2020, 04:00:05 PM »
My definitions:

Fat FIRE: You have far beyond your basic expenses and beyond your desired spending. You can handle any reasonable future expenses or portfolio changes.

FIRE: You have enough to cover your basic expenses and desired expenses to live the lifestyle you want with some wiggle room for market down turns so unlikely you'd have to return to work.

Lean FIRE: You have enough to cover your basic expenses and a few low cost desired expenses but very little wiggle room. If things change you'd likely have to go back to work or do something (like sell your house and rent, move to a LCOL area, move into Moms basement) to cover expenses.

Coast FIRE: You have enough of a stash invested that, if left untouch for years, would grow to FIRE levels. In the mean time you would need to work in some capacity (part time, temp, seasonal, full time between long Sabbaticals, etc) to cover your daily living expenses but don't need to save anymore towards the FIRE stash.

Barista FIRE: Not sure that is any different from coast FIRE.

You are currently not FIRE or lean FIRE yet if you can not live off you current investments/savings without having to work. You can probably be Coast/Barista FIRE now if you do not need to touch any of your current stash and can live off of your side gig etc income.  The trade off is a longer time to full FI and RE (maybe until traditional retirement age) but with the benefit of having more free time while younger.

So are you working full time now and want to quit to Coast FIRE?  Or do you want to work a bit longer so you can Lean FIRE and not HAVE to work but be willing to have a low expenses lifestyle? Or are you working full time and just asking how you should account for current and/or future side gig earnings? If the latter Is just lump it into one bucket and count it as inflation off-set money or "hooker and blow" money for unexpected expense increases.
« Last Edit: December 01, 2020, 04:07:38 PM by spartana »

John Galt incarnate!

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Re: Confused on FIRE number: leanFIRE / baristaFIRE
« Reply #4 on: December 01, 2020, 04:37:48 PM »

I am confused about figuring out what is my FIRE #.  Do I just hit 25x annual expenses...


Opinions vary as to the definitions of "leanFIRE and "baristaFIRE."

I distinguish  between them in terms of portfolio value.

A "leanFIRE" obtains when the portfolio's value is such that it generates just enough money so that the FIREee has enough of it to be happy and content without having to work.

A "baristaFIRE"  obtains when the portfolio's value is such that it generates most of the money the FIREee needs but they must still do part-time work to have enough money to be happy and content.

bmjohnson35

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Re: Confused on FIRE number: leanFIRE / baristaFIRE
« Reply #5 on: December 01, 2020, 06:07:02 PM »

As you can see, there are varying definitions and ways to measure FIRE.  I 2nd trying other online  FIRE calculators.  In the end, it's up to you how conservative and/or whether or not you want to include other sources of income into your calculation.  If you live in the US, make sure to factor in healthcare insurance into your annual costs.  Sometimes people forget to include vacation/traveling funds into annual expenses as well. 

Monkey Uncle

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Re: Confused on FIRE number: leanFIRE / baristaFIRE
« Reply #6 on: December 02, 2020, 05:31:47 PM »
Spartana pretty much nailed the definitions.

One thing I noticed: all of the passive income streams you listed are basically scams that operate in a legal gray area.  I'm not here to pass moral judgement on how you make a living.  But it seems likely that the companies you are taking advantage of will close those loopholes eventually, and you would be wise to either not bank on that income being there in the future, or have other gigs in the pipeline to replace the income.

Telecaster

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Re: Confused on FIRE number: leanFIRE / baristaFIRE
« Reply #7 on: December 02, 2020, 07:45:59 PM »
I am confused about figuring out what is my FIRE #.  Do I just hit 25x annual expenses...do I take into consideration my "passive" income streams (bank bonuses, CC sign ups, tradelines, misc.) at all?  Gigs I will continue doing?  Some other way of calculation?  As of now those streams could totally cover my expenses, but my retirement accounts are nowhere near 25x.

How does the diversification of accounts play into this for someone age 39 (so far about 10% is taxable the rest are in pre-tax- solo401k, trad IRA, HSA)?

This is how I would look at it:  You need $X to live per year.   That money can come from any combination of income from jobs/side hustles and withdrawals from investments.  If you have $Y from side hustles, and $Z from withdrawals following the 4%, and Y+Z = X then you're done (if you want to continue the side hustles of course). 



Malcat

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Re: Confused on FIRE number: leanFIRE / baristaFIRE
« Reply #8 on: December 03, 2020, 09:31:45 AM »
I recommend you do more reading and play with various calculators to better understand your own circumstances.

As for what to call it, who cares. There's very little actual consensus of what the various terms mean. FI means having enough money to not have to work. Anything else is just vague descriptions where you pretty much need to explain whatever your particular circumstances are for people to make sense of it.

For example, CoastFI could mean that you are 3 years out and decide to drop down to part time for the last stretch. Or it *could* mean that you saved a couple hundred thousand and plan to leave it alone to grow for 25 years while you take on projects here and there, and only make enough to live on.

Both cases might end up with the person retiring with 1.5M, but the paths are wildly different, leaving the terminology very vague.

I wouldn't worry too much about labels, worry about determining a plan that works for you, and then choose whatever label after the fact that helps you describe it to people.

Beyond that, it's not really worth much thought.

Zikoris

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Re: Confused on FIRE number: leanFIRE / baristaFIRE
« Reply #9 on: December 03, 2020, 10:06:14 AM »
I feel like people have kind of bastardized the original meaning of LeanFIRE. Maybe it never had a good name to begin with, because it sort of seems to indicate "less than", but the concept originally was not referring to just taking your current lifestyle and cutting out everything fun and enjoyable. It was about building a lower cost lifestyle overall that still included everything you wanted, and geared towards people who were more anti-consumer and minimalist and genuinely wanted that lifestyle, not people who would see it as a sacrifice.

For example, some more mainstream FIRE people these days would look at their budget:

$2000 - Housing
$600 - Food
$500 - Transportation
$300 - Bills
$200 - Restaurants
$100 - Cable TV
$300 - Misc

And they would say - Okay, if you cut the restaurants and cable and some of the misc, that's leanFIRE.

But an actual LeanFIRE person would do a budget that looked really different, because they would be axing stuff they didn't care about, while also funneling some of the savings into cool stuff. So for a (purely hypothetical!) experience-focused couple, it might look more like:

$850 - Housing
$300 - Food
$80 - Bills
$100 - Misc
$100 - Video games and books
$800 - Travel and activities (if they couldn't travel due to say a pandemic, they would instead do things like local bungee jumping and whitewater rafting instead)

Interestingly, despite spending way less overall, the LeanFIRE household not only is not sacrificing or living any sort of barebones lifestyle at all, they're doing way more fun stuff than the first household. They certainly would have less luxury in their lives overall, like they wouldn't have a car and their housing would be smaller/simpler, but for people that don't care about those things and have other stuff they'd rather focus on, it's a great way to live.
« Last Edit: December 03, 2020, 10:08:24 AM by Zikoris »

v8rx7guy

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Re: Confused on FIRE number: leanFIRE / baristaFIRE
« Reply #10 on: December 03, 2020, 10:09:14 AM »
Huh.  Interesting... I have never seen baristaFIRE defined.  It's a little different than I expected.

BicycleB

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Re: Confused on FIRE number: leanFIRE / baristaFIRE
« Reply #11 on: December 03, 2020, 10:35:39 AM »
What an insightful thread!

@John Galt, I especially like your LeanFIRE definition. That's almost exactly how I feel.

@dizzy, even without the moral considerations raised by Monkey Uncle, I would exclude the income from bank signups, credit card bonuses, etc from your FIRE calculation. They may not be reliable in future, and you may not want to keep doing them even if you can. FIRE is safer if you calculate it based on truly passive income.

To put it another way, financial assets like stocks and bonds have centuries of history establishing them as relatively reliable passive income sources. You can rely on them for the rest of your life pretty confidently. These side hacks are better viewed as temporary opportunities. Just my opinion, though.

spartana

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Re: Confused on FIRE number: leanFIRE / baristaFIRE
« Reply #12 on: December 03, 2020, 10:40:32 AM »
I feel like people have kind of bastardized the original meaning of LeanFIRE. Maybe it never had a good name to begin with, because it sort of seems to indicate "less than", but the concept originally was not referring to just taking your current lifestyle and cutting out everything fun and enjoyable. It was about building a lower cost lifestyle overall that still included everything you wanted, and geared towards people who were more anti-consumer and minimalist and genuinely wanted that lifestyle, not people who would see it as a sacrifice.

For example, some more mainstream FIRE people these days would look at their budget:

$2000 - Housing
$600 - Food
$500 - Transportation
$300 - Bills
$200 - Restaurants
$100 - Cable TV
$300 - Misc

And they would say - Okay, if you cut the restaurants and cable and some of the misc, that's leanFIRE.

But an actual LeanFIRE person would do a budget that looked really different, because they would be axing stuff they didn't care about, while also funneling some of the savings into cool stuff. So for a (purely hypothetical!) experience-focused couple, it might look more like:

$850 - Housing
$300 - Food
$80 - Bills
$100 - Misc
$100 - Video games and books
$800 - Travel and activities (if they couldn't travel due to say a pandemic, they would instead do things like local bungee jumping and whitewater rafting instead)

Interestingly, despite spending way less overall, the LeanFIRE household not only is not sacrificing or living any sort of barebones lifestyle at all, they're doing way more fun stuff than the first household. They certainly would have less luxury in their lives overall, like they wouldn't have a car and their housing would be smaller/simpler, but for people that don't care about those things and have other stuff they'd rather focus on, it's a great way to live.
I agree. I never used the word Lean FIRE myself. You're either FIRE and able to live the life you want or you're not. But around here people seem to assume you are making big sacrifices to your lifestyle if you chose to live on what many consider a low amount of income. We know that isn't true but it is hard to convince people that even if you had MORE money in FIRE you wouldn't spend any more because you're already living the life you want.

However most think it means enough to cover needs but not wants. But if your wants aren't expensive or are few then you can live a FIRE life on what, for others, would be a lean FIRE amount.
« Last Edit: December 03, 2020, 10:45:54 AM by spartana »

Malcat

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Re: Confused on FIRE number: leanFIRE / baristaFIRE
« Reply #13 on: December 03, 2020, 10:47:44 AM »
I feel like people have kind of bastardized the original meaning of LeanFIRE. Maybe it never had a good name to begin with, because it sort of seems to indicate "less than", but the concept originally was not referring to just taking your current lifestyle and cutting out everything fun and enjoyable. It was about building a lower cost lifestyle overall that still included everything you wanted, and geared towards people who were more anti-consumer and minimalist and genuinely wanted that lifestyle, not people who would see it as a sacrifice.

For example, some more mainstream FIRE people these days would look at their budget:

$2000 - Housing
$600 - Food
$500 - Transportation
$300 - Bills
$200 - Restaurants
$100 - Cable TV
$300 - Misc

And they would say - Okay, if you cut the restaurants and cable and some of the misc, that's leanFIRE.

But an actual LeanFIRE person would do a budget that looked really different, because they would be axing stuff they didn't care about, while also funneling some of the savings into cool stuff. So for a (purely hypothetical!) experience-focused couple, it might look more like:

$850 - Housing
$300 - Food
$80 - Bills
$100 - Misc
$100 - Video games and books
$800 - Travel and activities (if they couldn't travel due to say a pandemic, they would instead do things like local bungee jumping and whitewater rafting instead)

Interestingly, despite spending way less overall, the LeanFIRE household not only is not sacrificing or living any sort of barebones lifestyle at all, they're doing way more fun stuff than the first household. They certainly would have less luxury in their lives overall, like they wouldn't have a car and their housing would be smaller/simpler, but for people that don't care about those things and have other stuff they'd rather focus on, it's a great way to live.

Yeah, it's never really been clear to me, but I've always leaned more towards the other definition. When someone says they're at LeanFIRE, I usually think this means that they've saved enough to live on if they cut back on their spending.
To me it indicates how much fat their is in their budget.

As long as we're talking about relatively low spends, then both definitions tend to talk about the same amount of money.

It's when we get into higher spends that it's starts being really confusing. Like, if someone can barely cover their expenses at 80K/year, it starts seeming odd to describe that as LeanFIRE.

Then again, if someone's expenses are 15K and they've saved 600K, it seems odd to me to call that LeanFI, because there's so much fat in their budget.

Zikoris

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Re: Confused on FIRE number: leanFIRE / baristaFIRE
« Reply #14 on: December 03, 2020, 10:57:49 AM »
I agree. I never used the word Lean FIRE myself. You're either FIRE and able to live the life you want or you're not. But around here people seem to assume you are making big sacrifices to your lifestyle if you chose to live on what many consider a low amount of income. We know that isn't true but it is hard to convince people that even if you had MORE money in FIRE you wouldn't spend any more because you're already living the life you want.

However most think it means enough to cover needs but not wants. But if your wants a rent expensive or are few then you can live a FIRE life on what, for others, would be a lean FIRE amount.

The history is kind of interesting. LeanFIRE as a group splintered off mainstream FIRE at the same time the influx of high earner, high spenders happened. Basically, we collectively got sick of people appearing out of the woodwork in telling us the budgets we'd lived on for years/decades were wildly unrealistic and impossible, that retiring early on our normal incomes was impossible, etc etc. So now there are some separate groups that are basically what FIRE communities were before all the richy riches showed up, lol.

desk_jockey

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Re: Confused on FIRE number: leanFIRE / baristaFIRE
« Reply #15 on: December 03, 2020, 11:45:07 AM »
We seem to like to argue on these definitions as much as we argue on what retirement means and when to 911 the internet retirement police.

To me there is one basic term:  FI means reasonably conservative annual expenses are 100% covered by passive investments, specifically cash generated by: (a) withdrawing </= 4% annually of invested paper assets (b) free cash flow of real estate, (c) annuity payments or (d) any combination of these.

Anything less than that FI benchmark comes with the realization that one can obtain freedom before hitting the theoretical FI number:
  • I can use my hobbies (e.g. bank bonuses, tradelines, writing e-Books) to generate $5K / year, and thus lower passive cash needed from investments
  • I can receive a gift with equivalent value to $800/month by living rent free with parents and thus lower passive lower the passive cash flow needed
  • I can do seasonal work to generate $15K/year thus lowering investments
  • I can work a full-time easy job now and let my existing investments grow at a real rate of 5% for the next 25 years until I'm old

All these and more are valid approaches for freedom and financial security.  One can call them pre-, lean-, barista-, pseudo-, kinda-, or somewhat-FIRE as one might wish, but probably shouldn’t call it FI without a prefix as there is some form of dependence that would invalidate the I in FIRE.