What Is Lean FIRE? The Frugal Way to Early Retirement

By Todd Kunsman

Financial Independence

Published on

Updated on

With so many new approaches to early retirement and the FIRE movement, it might be hard to keep track of it all! But the good news is that you have more options to pursue the right path that fits your personal finance needs.

Another popular retirement strategy is called Lean FIRE. And just like the name implies, you are slimming down your finances but still setting yourself up for success.

Like any of the types of FIRE, you’ll still be aiming for 25x your annual expenses.

However, Lean FIRE helps you “trim the financial fat” and become much more frugal to reach your retirement goals.

Below you’ll learn everything you need to know about Lean FIRE and if it is the right money move for you.

FIRE Definition Recap

To learn about Lean FIRE, we must first understand the general FIRE movement. By now you probably know that FIRE stands for, “Financial Independence, Retire Early.”

This is a lifestyle method that seeks to help you accumulate wealth to a sustainable level in the long term. It requires the cutting of expenses, aggressive debt tackling, and a build-up of savings to allow individuals and couples to retire as early as their 30s or 40s. 

What is Lean FIRE? 

Lean FIRE is the ability to retire before the traditional age of 60+, but with much lower costs of living. By spending less per year than the average American, saving 25x your expenses will be much more achievable.

Where the general FIRE movement would advocate cutting your expenses by 10% or 20%, following the Lean FIRE method could see you reducing expenses even more. And where other versions of the FIRE movement focus on increasing your income, Lean FIRE encourages a minimalist lifestyle. 

Participants of Lean FIRE will still aim to save up to 25x their annual expenses and live on lower-income during retirement than the average American.

You may cut your expenses by living in a van or tiny home, for example, or foregoing having children and living in a low-cost area of the country. The money you save will go straight into investments and savings to accrue that all-important compound interest. 

How Much Do You Need to Lean FIRE?

As with a lot of things in life, there is no one right answer. How much money you need will depend on your age (and years worked), as well as your exact expenses and post-tax income.

But, there is a solid amount of information from people who have already done it to guide you. 

To calculate the amount you’ll need to have in investments and savings, we’re looking at the amount you will have to have invested in order to generate an annual passive income that is the same or higher, than the one you currently live on.

The simple formula

The general formula is 25x your annual total expenditure. For example, if you spend an average of $35,000 per year, you’d require $875,000 in savings and investments.  

And the lower you can get that number, the less you need to have saved and invested. If you only spent $26,000 per year, you’d only need $650,000 in your retirement accounts to live on with the 4% rule.

Lean FIRE requires you to do a few things:

  • Cut your expenses dramatically, 25% or much more
  • Learn to live on less and need less in the future
  • Save and invest aggressively to reach 25x your living expenses

The Pros and Cons of Lean FIRE

Like the other pursuits of financial independence, there are pros and cons to Lean FIRE as well. Only you can decide what’s best for you and your family if early retirement intrigues you.

The Pros of Lean FIRE

1. Fast Route to Financial Independence

Lean FIRE is one of the quickest ways to achieve long-term financial stability and reach retirement. If you can manage the lifestyle changes and consistently save and invest; then Lean FIRE has been proven to sustain early retirement for the rest of the lifetime. It will provide you with financial security without having to work.

2. Support a Minimalist Lifestyle

Living frugally will allow you to carefully consider your waste, and might see you switching to public transport or a vegetarian diet in order to save money. But these choices also contribute towards a reduction in your environmental impact.

Those who want to live a minimalist lifestyle, without a focus on material items, will get along well with the Lean FIRE movement. 

3. Finding Cheap Thrills

Taking up Lean FIRE leads you to find more creative uses for your time. Instead of taking a trip to the cinema or going bowling; you might spend weekends camping and fishing for free at a local lake.

Lean FIRE encourages us all to find free fun things to do. You never know, it could lead to you starting up a new hobby or finding a different passion! 

4. Lower Stress Levels

By setting out and sticking to a clear financial plan; the Lean FIRE movement could reduce any stress or anxiety you feel surrounding your money.

For many of us, financials are a big source of mental pressure, and this can weigh on our minds as well as our bodies. By tackling this head-on with Lean FIRE, these feelings could subside as the lifestyle is quick to provide results. 

The Cons of Lean FIRE

1. Lifestyle Restrictions

Inevitably, those living on a budget will have to prioritize their spending and forego some of life’s luxuries. But Lean FIRE adds further pressure to your financial outlays, as you are expected to cut your living expenses by over 20%.

Each Lean FIRE participant will choose what to reduce, but for some, this will mean no Netflix, going out to eat, etc. It’s do-able for a New Year’s resolution, but living this reduced and minimalist lifestyle for multiple years or even decades is likely to take its toll. 

2. Patience Required

Living the Lean FIRE lifestyle requires planning, and for a lot of us, time. Chances are, if you’re looking into early retirement then you haven’t yet reached financial independence.

That’s okay, but beware that joining this movement will require research alongside consistently making good financial decisions. You must be mentally prepared to take this on before you start your journey if you want it to be a sustainable lifestyle. 

3. Reliance on Passive Investments

As with all types of FIRE, those who take part in this movement often rely on investments in the stock market and other passive sources to increase their income.

In normal times, there is little risk in this as investments can sit for years and have the chance to grow with inflation, if nothing else.

But, in 2020 the stock market crashed by approx 40% due to the coronavirus crisis. It meant that those who reached their financial independence goals were quickly hit by a large cut to their overall funds.

And while this luckily was fairly short-term, it will have affected those who rely on dividends and investment returns for their nest egg. Imagine a longer bear market or a recession?  

4. More Challenging With A Family

One of the challenges with Lean FIRE is if you have kids. This adds more expenses to your plate, which might be more difficult to keep at an ideal number.

“The cost of raising a child until age 17 is $233,610 on average. Low-income married couples spend $174,690 on average to raise a child. And low-income single parents spend $172,200 to raise a child from birth until age 17,” according to SpendMeNot.

That doesn’t mean it’s impossible to do with children, but it will take a lot more discipline and frugality to achieve a long-term lean financial lifestyle.

But if you are single or have a spouse with no plans of having kids, Lean FIRE can be a practical option for sustainable early retirement.

How You Can Achieve Lean FIRE

Are you ready to achieve Lean FIRE and get on the path to retire early? There are a few things to keep in mind and do to help you get there.

Where you live

Where and how you live can determine if Lean FIRE is possible for you. You can research states and cities where there is a low cost of living, but also fits your lifestyle. For example, moving to San Francisco or New York City will not be a great choice for you.

Reduce the size of your house. You can look into a tiny house, which allows mobility and everything you need. It has exploded in popularity and might be an option for you.

Additionally, swap out your mortgage by living rent-free in a van. Vanlife has exploded in popularity in recent years, with millennials and older generations alike choosing to forego the usual living expenses for a nomadic life on the road.

If you can work online, living in a van can also accommodate low-cost travel that a Lean FIRE lifestyle might not otherwise allow.

Master how you spend money

Follow the 30-Day rule when you want to make a purchase. This will help you curb impulse spending and build better money habits for long-term success with Lean FIRE. 

But beyond that, this is where you will become a budgeting master.

Sticking to your budget, analyzing, and focusing on the numbers is going to be a big key to your overall success. If you are not sure where to begin, you can check out my budgeting 101 article.

Invest more aggressively

Work with a financial advisor or do your research to put your money into the best-returning tax-advantaged investment accounts.

There’s nothing worse than your hard-earned cash losing value behind the cost of inflation, so one of the first basic moves you make is to ensure your cash is in a high-earning account. 

  • Company 401k
  • Traditional IRA or Roth IRA
  • Health Savings Account, like Lively
  • High-yield savings account
  • Taxable brokerage account

Passive income streams

Create passive income streams in order to supplement your current financials and produce sustainable long-term income.

This could include monetizing a blog, renting out a room in your house or Airbnb, starting a Youtube channel, flipping books, etc.

Find side hustles that can elevate your investments, savings, and be a good fallback for income as you begin preparing for your financial independence.

Tools to help you on your Lean FIRE journey:
  • Personal Capital to monitor net worth, investments, spending, and more for free.
  • Blooom to monitor your 401k or IRAs. Get recommendations, catch hidden fees, and more for free.
  • YNAB or Savology. These budgeting tools can help you keep to a stricter budget, especially since Lean FIRE you need to keep your costs down.

Is Lean FIRE Right For Me?

There are plenty of factors to consider before going with Lean FIRE as the right choice for you. If living on less, even extreme frugality sounds feasible for you, then Lean FIRE might be perfect for you.

Additionally, if you have no issues moving to a different state (even country) to save on where you live, then Lean FIRE also would be a great choice.

It’s certainly not the right fit for everyone, but it’s a great path to early retirement, escaping your W-2 and 9-5 job, and needing way less money than Fat FIRE, for example.

Alternatives to Lean FIRE

  • Traditional FIRE

If you’re looking for a more aggressive savings and investment plan which means you aren’t required to supplement your income, traditional FIRE may be a better option. 

In opposition to Lean FIRE, the Fat FIRE movement pursues financial independence and early retirement with a significantly higher cost of living. 

CoastFIRE sees younger participants investing a large proportion of their income at a young age, so that they can stop investing while still working and achieving financial independence in the future. 

Similar to Coast FIRE, but instead you can retire early and work part-time to help cover a portion of your expenses. This lets you dabble in early retirement but still lets your investments compound.