leanFIRE and fatFIRE definitions

Simple living, extreme early retirement, being wealthy, ...
oldbeyond
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Re: leanFIRE and fatFIRE definitions

Post by oldbeyond » Wed Dec 12, 2018 9:03 am

It has always bugged me that people compare MMM's household budget with jacobs personal one(I guess because J/MMM choose to present them differently), leaving the impression that jacob is 4x as efficient(25k vs 6k). MMM spending 50% more/capita seems reasonable though - there's no doubt in my mind that jacob is more hardcore, but 1.5 JAFI is still pretty badass. A lof of people here(me included!) do not manage that.

CS
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Re: leanFIRE and fatFIRE definitions

Post by CS » Wed Dec 12, 2018 9:45 am

Public figures don't owe anyone anything. MMM is not an elected official (and even then). Saying he has to talk about something "or else" strikes me as a threat. :o (and yes, I edited this post to take out some in the judgment of it. Working on my reactionary nature. Sorry folks.)

'Alpha' is probably part of the problem when it comes to relationships. Who wants to live with a bully? :lol: :lol: :lol: (I'm not saying those particular people are - but we all know some like that - and admit it, it's easier to breath when they are out of the room. Can you imagine someone like that trying to rule your life? Oh heck to the no.)

The scaling for relationships is something I've thought about too. This thread has an impressive amount of mathematical precision. This, as opposed to my lazy calculation of an estimated 50% more capital needed for being single. For my spending level that would be for housing and transportation (if there was a car involved). A bit less if no car. My last roommate situation was awesome - as opposed to the college years - so that clearly is the way to go if I wasn't already sharing a household with someone else. That still puts me in the MMM spending range for a single person, which I suppose is why I read ERE forums (1-2 Wheaton levels up).
Last edited by CS on Wed Dec 12, 2018 10:12 am, edited 2 times in total.

Scott 2
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Re: leanFIRE and fatFIRE definitions

Post by Scott 2 » Wed Dec 12, 2018 10:14 am

IMO the MMM budget isn't even close to the big round number on his blog. There are a bunch of caveats around business expenses at the end of the post. Saying what you "could" live is not the same as living it. On top of the extra spending, he has a huge backstop in the event things go sideways, that allows for other more risky spending choices. It also makes me wonder about other creative accounting in the rolled up number.

Presenting his life, at the rolled up price, to someone starting from zero, is misleading at best.

I think he's got a great strategy for living a cost effective life. My issue is really with anchoring on a single number. The budget of a skilled financial player is too complicated for single number comparison.

I keep tallies on several views of a rolled up number. Depending on how I do it, the value can range from 14k (my expected single person cash outflow), to 62k (overall household expenses for two people, including imputed rent of a owned home and what my employer pays to cover insurance, internet, etc.). Even the 62k number ignores a substantial amount of taxes, which are unquestionably my biggest expense.

Mike34087
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Re: leanFIRE and fatFIRE definitions

Post by Mike34087 » Wed Dec 12, 2018 12:24 pm

Well I guess I'm the authority on it since I started the leanFIRE subreddit and put $40k on the sidebar.

We just made it up. It was simple and easy and kept the people that need to spend $100k a year out. The only real logic behind the number is that it was below the median household income in the US. I mean you can't really call yourself lean if half the country spends less than you do.

The Old Man
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Re: leanFIRE and fatFIRE definitions

Post by The Old Man » Wed Dec 12, 2018 1:01 pm

oldbeyond wrote:
Wed Dec 12, 2018 9:03 am
It has always bugged me that people compare MMM's household budget with jacobs personal one(I guess because J/MMM choose to present them differently), leaving the impression that jacob is 4x as efficient(25k vs 6k). MMM spending 50% more/capita seems reasonable though - there's no doubt in my mind that jacob is more hardcore, but 1.5 JAFI is still pretty badass. A lof of people here(me included!) do not manage that.
The MMM budget is extremely misleading as you have inadvertently demonstrated. The MMM budget does not include an imputed rental value for the house (or at least the foregone income from long term bonds); if included the household budget would be near $40 K. MMM is an engineer, so he should have a working understanding of finances to include opportunity costs. To not include it just smacks of MARKETING! The $25K makes MMM seem much more badass then he is in reality.

As far as his divorce goes, I believe it would be good manners to respect the man's privacy. Divorce is a thermonuclear strike at one's life and finances, so it would be instructive to see how MMM/FIRE weathers the storm. It would be painful to see him lose his child and go back to work. We should leave it up to MMM to talk about it.

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Re: leanFIRE and fatFIRE definitions

Post by jacob » Wed Dec 12, 2018 1:22 pm

The Old Man wrote:
Wed Dec 12, 2018 1:01 pm
The MMM budget does not include an imputed rental value for the house (or at least the foregone income from long term bonds); if included the household budget would be near $40 K.
Neither does mine.

It's not like it's a secret. The budget specifically lists mortgage = $0, no? Also see viewtopic.php?p=120039#p120039 ... it really depends on whether you're reporting cash flow or "earnings". Also if it's per capita, per responsible adult (children and kept spouses not included then), or OECD-adjusted.

What I mainly care about from my FIRE perspective is what living is costing me (jacob) as a going concern. Not what it costs to acquire from scratch. (For similar reasons, I don't include depreciation cost of an unused education, for example ... or imputed loss of health insurance deduction because I get book royalties without which health insurance would be nearly free for me.)

However, if I add foregone long term bond income to our budget, it would increase to 2*7250+2800 = $17300/yr/household(*)

(*) Disclaimer: This budget includes virtual or imputed money.

Of course a person who didn't have $100k lying around in cash would have had to get a mortgage instead and this would be more expensive. IIRC, the online quote back then was 12*$371=$4452/year.

Also, this is based on the 2014 purchasing price. However, in the past 4 years, our house has more than doubled in market value, so maybe I should use that instead.

In any case, this shows why it's hard to compare apples and oranges; and this is exactly why I did the adjustments in my original response to @Bankai.

PS: This is also why corporate reporting involves three separate statements and multiple combinations of ratios and not just one number for
"earnings". Maybe a similar system should be developed for personal finance.

Jin+Guice
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Re: leanFIRE and fatFIRE definitions

Post by Jin+Guice » Wed Dec 12, 2018 1:24 pm

CS wrote:
Wed Dec 12, 2018 9:45 am
Public figures don't owe anyone anything. MMM is not an elected official (and even then). Saying he has to talk about something "or else" strikes me as a threat.
+1.
CS wrote:
Wed Dec 12, 2018 9:45 am
'Alpha' is probably part of the problem when it comes to relationships. Who wants to live with a bully?
+1 again. Being alpha is more useful in acquiring the girl/ person/ thing than keeping it in my experience (most of us learn the hard way that something that was an attractive feature the first night might be a critical flaw on the 7th year).
jennypenny wrote:
Wed Dec 12, 2018 5:01 am
Apparently, being happy and encumbered is worse than being unencumbered to FIRE-types.

Maybe the difference between fatFIRE and leanFIRE is the difference between commitments, and money is just a measure of that. If so, leanFIRE people aren't necessarily better or further up the Wheaton scale. It's possible some leanFIRE people use money as an excuse for designing the kind of unencumbered lifestyle they would prefer regardless.

It might come down to different values, not different skill-sets or know-how
I'm just reposting this because I like it so much, despite being someone who is trying to avoid most responsibility/ commitment. I recently read "The Righteous Mind: Why Good People are Divided by Politics and Religion." It's very interesting and discusses this to a certain extent.

Scott 2 wrote:
Wed Dec 12, 2018 10:14 am
There are a bunch of caveats around business expenses at the end of the post. Saying what you "could" live is not the same as living it. On top of the extra spending, he has a huge backstop in the event things go sideways, that allows for other more risky spending choices. It also makes me wonder about other creative accounting in the rolled up number.
Scott 2 wrote:
Wed Dec 12, 2018 10:14 am
I think he's got a great strategy for living a cost effective life. My issue is really with anchoring on a single number. The budget of a skilled financial player is too complicated for single number comparison.
Both of these are important, but it really matters what audience you're addressing. If you're competing for the lowest household expenditures (which is a game I think many of us compete in without taking too seriously) then it's important to find some uniform/ fair way to calculate it. However, simply spending the least isn't necessarily the most ERE thing, it's possible to spend a high amount of money efficiently if you are really doing some shit. If you're making up your own budget then what you "could" live on is important, if know yourself and really could live on that amount. If you're really doing good and detailed accounting and running an ERE life, it should be possible to separate business and personal expenses and state what you run your household on even if you spend much more running your business. If you're just using your business to buy yourself under the table daily lattes so your followers don't find out then you should stop because it's common knowledge that the only thing holding everyone back from retiring is buying lattes everyday.

Peanut
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Re: leanFIRE and fatFIRE definitions

Post by Peanut » Wed Dec 12, 2018 1:49 pm

@Scott2: MMM also leaves out charitable donations. Apparently in 2016 that number was 100k.

So maybe there coupd be different FIREs for different types of expenses? Household vs business vs philanthropic...

Scott 2
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Re: leanFIRE and fatFIRE definitions

Post by Scott 2 » Wed Dec 12, 2018 1:58 pm

Right, MMM leads a much different life than 1.5 Jacobs. He uses business endeavors to generate income from his hobbies/interests, then distributes it for himself or others, again under the context of the business. It is a great strategy, just not comparable to living below the poverty line.

prognastat
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Re: leanFIRE and fatFIRE definitions

Post by prognastat » Wed Dec 12, 2018 2:06 pm

I don't mind MMM separating out business/philanthropic as these are charges I would likely never incur myself and wouldn't help me know what could be possible in my situation. I do think there's value in mentioning imputed rent. It's not been an issue for me as it didn't take long to figure out that until my house is paid off I wouldn't be able to directly compare my expenses to MMM/ERE without removing mortgage/rent.

Of course there is a cost to having money invested in a home rather than investments. For example say MMM has 400k in his house. At 4% SWR that would equal 16k annually. So to compare this to someone paying a mortgage or renting his spending would then be closer to about 43k annually. Now people could simply take his spending and add their mortgage/rental costs to make a comparison, but I don't think all readers realize this.
Last edited by prognastat on Wed Dec 12, 2018 2:19 pm, edited 2 times in total.

Peanut
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Re: leanFIRE and fatFIRE definitions

Post by Peanut » Wed Dec 12, 2018 2:08 pm

thegreatvoid wrote:
Wed Dec 12, 2018 1:54 am
Brad Pitt, Johnny Depp, Elon Musk, Trump ... if these Alpha males can´t keep a women, what makes a normal smug think he can. Delusion !

That´s why I think Day 8 in @Jacob ´s 21 Day makeover should be cut. Marriage / Dovorce is the biggest wealth killer for men.

Hmm don’t think so. Some studies have shown men actually increase income by 1/3 after divorce. Divorced women tend to be less well off than previously. And a minority of divorced women receive alimony.

—Well 3/4 of the divorced alphas you listed left their first wives for another woman. Did not limit their options!

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Re: leanFIRE and fatFIRE definitions

Post by jacob » Wed Dec 12, 2018 2:21 pm

thegreatvoid wrote:
Wed Dec 12, 2018 1:54 am
That´s why I think Day 8 in @Jacob ´s 21 Day makeover should be cut. Marriage / Dovorce is the biggest wealth killer for men.
Haha, if you read the actual post you'll see it has nothing to do with marriage.

http://earlyretirementextreme.com/day-8 ... gaged.html

Peanut
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Re: leanFIRE and fatFIRE definitions

Post by Peanut » Wed Dec 12, 2018 2:24 pm

prognastat wrote:
Wed Dec 12, 2018 2:06 pm

Of course there is a cost to having money invested in a home rather than investments. For example say MMM has 400k in his house. At 4% SWR that would equal 16k annually. So to compare this to someone paying a mortgage or renting his spending would then be closer to about 43k annually. Now people could simply take his spending and add their mortgage/rental costs to make a comparison, but I don't think all readers realize this.
Mostly agree, although you have to live somewhere. And I just ran the calculation and a standard mortgage on 400k is more like 21k/yr. I think the biggest reason why households with children spend so much is their mortgage. That and it’s harder to lead a ‘passably middle-class’ lifestyle (an ERE appropriation) if you refuse to pay anything for your kids’ socialization with peers in the form of birthday gifts, school trips, etc. IIRC in the NYer piece MMM had a hard time with chipping in $20 for pizza at his kid’s friend’s house.

Jin+Guice
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Re: leanFIRE and fatFIRE definitions

Post by Jin+Guice » Wed Dec 12, 2018 2:47 pm

Peanut wrote:
Wed Dec 12, 2018 2:24 pm
That and it’s harder to lead a ‘passably middle-class’ lifestyle (an ERE appropriation) if you refuse to pay anything for your kids’ socialization with peers in the form of birthday gifts, school trips, etc. IIRC in the NYer piece MMM had a hard time with chipping in $20 for pizza at his kid’s friend’s house.
I think there are still ways to ERE your way out of this. We all face this problem to some extent living in a society where waste is the default option. I think some of us think it's worth it to occasionally just spend the $30 and buy a few rounds for your friends and some of think it's better just to ditch those friends. My go to move is inviting friends over to a dinner party at my house where I make all of the food. Having kids is going to exacerbate the problem, as will strong social ties with anyone, but this is where that web of goals shit is really going to pay off.

The Old Man
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Re: leanFIRE and fatFIRE definitions

Post by The Old Man » Wed Dec 12, 2018 4:17 pm

jacob wrote:
Wed Dec 12, 2018 1:22 pm
Neither does mine.
Its been a while, but when you were living in an RV I thought you included an amount for the rent. I thought RV living was your solution for living cheaply in the most expensive location in the USA.

There is a difference between your personal budget that takes into account your own unique circumstances and a public budget which is used to promote a particular lifestyle. If you had zeroed out your housing costs when you were in San Francisico (bought a $10 million dollar house in cash, so no mortgage), then I would have thought your claimed $7K budget was sheer MARKETING for the GULLIBLE.

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Re: leanFIRE and fatFIRE definitions

Post by jacob » Wed Dec 12, 2018 4:44 pm

I did include rent for the park spot but I did not include imputed rent of the RV itself, nor the potential cost of a auto-loan, nor opportunity cost of long term bonds since we bought it in cash.

I've always reported outgoing cashflow for one person (me) regardless of whether I have been single or married or renting or owning. I've never added in any kind of imputed expenses. Thus when we sold the RV and moved to an apartment in Chicago 7 years ago, I included what we paid in rent. And when we bought a house in cash 5 years ago, I've included what we pay in RE tax and insurance but not any virtual money I save by not having a mortgage or don't make by not renting out rooms.

When I calculate my budget, I'm mainly interested in whether it's sustainable from an SWR perspective. I want to know how much $$$ I'm losing on an ongoing basis given my lifestyle. Not what it costs to replicate/buy it from scratch.

I see where you're going with this though. Imagine getting a $100,000 PhD in 100% self-reliant MacGyverish homesteading and then buying a $300,000 homestead and a $100,000 timberland lot that includes mineable ore. Lets for the sake of the argument assume that there's no RE tax and no mandatory health insurance cost (after all the MacGyver PhD includes self-doctoring skills) so that the cash expenses with $0/year. In order to compare this to anything else, one simply has to make some adjustments in order to convert the different kinds of capital.

Or consider an enlisted soldier in the military where a lot of the expenses are paid.

Or someone who is WWOOFing and getting room and board for free along with a $100/month stipend.

I'm beginning to think "we" need to set some kind of standard procedures for intercomparison.

black_son_of_gray
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Re: leanFIRE and fatFIRE definitions

Post by black_son_of_gray » Wed Dec 12, 2018 5:37 pm

jacob wrote:
Wed Dec 12, 2018 4:44 pm
I'm beginning to think "we" need to set some kind of standard procedures for intercomparison.
It seems to me the rub is not comparisons within a Wheaton level, but between levels.

In particular, the lower Wheaton levels are more concerned with income, not expenses. The middle levels are more about micromanaging relative expenses (i.e. same standard consumer lifestyle, just more cheaply obtained). The higher levels are much more holistic and difficult to break down (the whole greater than the parts).

So comparisons within levels might look like:
Level 1 - (scarcity) people in this level just compare numbers on their pay stub and that's that.
Level 2 - (accumulation) Who has more money in their checking account?
Level 3 - (exponential growth) Who had better returns last year?
Level 4 - (embracing efficiency) Who gets best deals on standard consumer items? (Black Friday, Groupon, etc.)
Level 5 - (Optimization) What is your SWR?
Level 6 - (Yields and Flows) Who has most "excess capacity" or fewest/shortest draw-downs?
Level 7 - (Systems Theory) How many redundant cogs in your ecosystem can independently support you? e.g. viewtopic.php?f=7&t=8215&start=20#p128954
Level 8 - (Chop & Carry) Comparison is meaningless, gurus sitting at the tops of different mountains do not compare summits.

In principle, comparisons between levels must either adopt the metric of 1) the person at the lower level, 2) the person at the higher level, or 3) some outside, common denominator metric. 1 and 2 aren't fair to one person, and 3 isn't fair to either.

If it is an ERE vs MMM comparison, I think it is fair to consider that MMM has developed his own financial ecosystem and therefore the comparisons would be at the level of ERE Indicator. Given his blog, investments, and entrepreneurial ventures, I'd wager that MMM is probably at ~3+ (>2 at the very least).

Redo
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Re: leanFIRE and fatFIRE definitions

Post by Redo » Wed Dec 12, 2018 6:03 pm

jacob wrote:
Wed Dec 12, 2018 4:44 pm
And when we bought a house in cash 5 years ago, I've included what we pay in RE tax and insurance but not any virtual money I save by not having a mortgage or don't make by not renting out rooms.
Do you include any maintenance/hydro/utility costs in your budget?

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Stahlmann
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Re: leanFIRE and fatFIRE definitions

Post by Stahlmann » Wed Dec 12, 2018 6:17 pm

wow. I need to update my reading comprehension skills. the vibe I got from RV livinig post was "just be creative (above average) and lower exepnses". I was thinking too that camper was included in outgoing expenses (somehow)... because I assume that nobody would buy old beater (at least from me, in my rough calculations).

yep, I'm aware about continuum represented by "living outdoor without tent to ... something ... to living in castle with servants" from the ERE bible, but well...

somebody recently ressurected living in the boat topic... I was dissilusioned as I did rough calculations for let's say case for me in my nearby "possibilities" and wanted to say "that doesn't work nowadays !!!!!!!!!!!!!!!!!!!one111" (yes, millenials can do math too!), well... with more advanced accouting it could work.

I stopped with asking anal compulsive questions recently to study lives of the ERE Masters in solitude :lol: , but I need to break my monk mode in such situation:
1) how much have you put in the house in terms of renovations?
2) international visits to family in Denmark 2x per year?
3) side question: I still don't get why you haven't crossed 1kk in acc. you became more risk aversed after stunt at investment firm (as your "extra" earnings created large safety buffer)?

[ok, it seems thinking will more interesting to me]

Edit: ok, with 1kk USD/EUR in acc probably even above mentioned costs are daily fluctuation of portfolio.

yep, stories about dog and plumbing are familiar to me.
Last edited by Stahlmann on Wed Dec 12, 2018 6:59 pm, edited 1 time in total.

jacob
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Re: leanFIRE and fatFIRE definitions

Post by jacob » Wed Dec 12, 2018 6:27 pm

@Redo - Yes, water, sewerage, gas, and electricity are $2150/year for the household and I include that because it's an ongoing expense.

(A lot of this is taxes, connection, and minimum usage fees. We use ~10% of gas and electricity compared to the average American household but 50% of water.)

Simple maintenance cost (like paint, supplies) would fall under the food+misc budget and thus would also be included. Again, they're ongoing costs. Keep in mind that I DIY a lot of stuff. I renovated our bathroom building a new vanity and medicine cabinet from scrap wood and installed it ourselves. Faucet was free. Sink was reused. Total cost ~$50 most of which was a new mirror, light fixture, and plumbing parts. The paint was also leftover stuff.

I don't include big one-time stuff like a new 30-year roof(*). This I consider part of the house in the sense that it increases the cost basis of the house. As long as the value > cost basis, I don't worry about it, as this expense will be paid by the next buyer. Conversely, I wouldn't include the [imputed] capital gain on the house as a negative expense. I treat the house as an investment. If it didn't make sense, we'd go back to renting. What matters to me are the carrying costs.

(*) Why not? Because what I care about is whether my lifestyle is sustainable from a FIRE perspective. A more accurate (accounting) calculation would depreciate this cost over 30 years. This would get annoyingly complicated. As Scott2 said .. (and which was pointed out in the earlier threads) ... when things get advanced, there are many ways to present the data.

So overall, I use some combination of cash-based and accrual based accounting that makes sense to me given that I want to know if I'm sinking or swimming.

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