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Re: leanFIRE and fatFIRE definitions

Posted: Wed Dec 12, 2018 6:39 pm
by iopsi
Adding depreciation to a personal budget might be overkill, but if the budget is used as an example (for FIRE) i think it needs to be said if the person owns an house or such (and therefore pays no rent and has previously accumulated capital for buying it). Because in that case the capital that another person, that starts from zero, needs to retire is in reality greater than what the budget of the first person would imply.

By the way i went to read the leanFIRE subreddit out of curiosity and found a discussion about how one would need more than 300k (possibly 600k) to retire in southern Italy (written by americans)... and i'm very surprised because i don't think that many southern italians make that much in their lifetime. Even here in central Italy i don't think you would need 300k (unless you are not an actual minimalist).

The reddit FIRE communities (even the supposedly leanFIRE) are just about becoming conventionally rich at this point, and have parted ways (if they ever were the same thing) with real minimalism and the ethics of it.

Re: leanFIRE and fatFIRE definitions

Posted: Wed Dec 12, 2018 6:50 pm
by jacob
1) About 20k into new furnace, flood control, roof, and misc. House cost ~95k and is now valued at 210k+.
2) Once per decade.
3) What is 1kkk in acc?

As Scott2 observed, it gets complicated in "advanced mode". Having money creates financial flexibility. For example, I exchanged 50k of stocks for the house because the expectation value (ROI) was higher. This removed some expenses and created others. What I'm interested in from a FIRE perspective is whether the cumulative cost of rent from the alternative < cumulative cost of maintenance + sunk RE taxes + sunk insurance ... corrected for utilities, etc (sometimes heat is included in rent).

This is a hard test on whether this was a good move instead of renting. So far it is (mainly because we've gotten all the fixer-up stuff taken care off by now). Thus any appreciation of the house is pure profit.

It needs to be realized that such financial moves can not be made from a position of -zero- networth. If I (and DW) didn't have 50k each to buy the house in cash, I would have to add interest costs (mortgage(*)) which are sunk. Another hard test is whether that money performed better in real estate than it the stock market. It did as by my expectation.

If the house didn't meet those two hard tests, we would still be living in the 1bd/1ba apartment.

(*) Here's another complication. Do you just add the interest as a cost since after all, principal builds YOUR equity (Not your landlords) and is thus a kind of saving?

It's not a question of reading comprehension. It's an issue of understanding things in their right context.
Same reason people do financial analysis instead of just looking at the number at the bottom line (earnings).
Apples and oranges.

Re: leanFIRE and fatFIRE definitions

Posted: Wed Dec 12, 2018 6:51 pm
by jacob
iopsi wrote:
Wed Dec 12, 2018 6:39 pm
Adding depreciation to a personal budget might be overkill, but if the budget is used as an example (for FIRE) i think it needs to be said if the person owns an house or such (and therefore pays no rent and has previously accumulated capital for buying it).
But it is said. This shows why it's necessary to pay attention to the details if one wants to make a reasonable comparison. Do they rent? Do they own? Do they actually own? Do they have dependents? Do they have roommates (househack)? What's the COLA? Which year is the number from (inflation adjustment)?

Re: leanFIRE and fatFIRE definitions

Posted: Wed Dec 12, 2018 7:02 pm
by Stahlmann
...

Re: leanFIRE and fatFIRE definitions

Posted: Wed Dec 12, 2018 7:23 pm
by jacob
@Stahlmann - How much money did I have in 2009? How much has the market grown since 2009? How much do you think a junior analyst with a STEM phd makes at a small investment firm in Chicago? How many years did I work there? Do I split all my income 50/50 with DW? How much do you think DW makes? How much do you think I make from selling books? How much do you think I make on the blog itself? How much do you think I've paid in taxes?

Re: leanFIRE and fatFIRE definitions

Posted: Wed Dec 12, 2018 8:49 pm
by Scott 2
Comparison also breaks down on the asset side of things. If I were to withdraw 10,000 from my savings, I'd have 10,000. If I did the same from my 401k, I'd pay roughly $4,000 in taxes and penalties, ending up with 6,000. Should I call myself a millionaire once I have 1,000,000 in retirement accounts? Probably not, but it depends on my tax strategy for accessing the money.

What if someone has a pension? Or retiree health insurance? Social security expectation? Lives in a country with universal health care? Is geographically mobile? A well thought out strategy will account for all of it. Doing a high level comparison of assets between individuals? That's really hard.

I'm very interested to see how someone balances their inflows and outflows. Absolute scores? Much less so.

Re: leanFIRE and fatFIRE definitions

Posted: Wed Dec 12, 2018 9:10 pm
by classical_Liberal
It seems to me there are three major components. Required initial capital, ongoing cash flow, and everything else. Everything else encompasses skills, frugality, closed loop systems, etc. It's virtually impossible to quantify these things, even more difficult across differing lifestyles.

The other two seem rather straight forward. What's the cash burn rate, and how much invested capital did it take to reach that burn rate? The bickering is related to translating from up front capital investment in a certain lifestyle into cash flow amount. Maybe it's just easier keeping these categories separate. The choice of being most efficient in using initial capital investment vs cashflow falls into the realm of "everything else" anyway.

So (per the reported data in this thread) Jacobs Chicago lifestyle required an upfront capital investment of 100K + any immediate coats to make home function. Ongoing household cash burn rate of 15K (hence he needs a way to earn this, pick your poison). MMM's Longmont lifestyle Required upfront investment of (?) for house + costs to renovate (his skill/time in DIY is under "everything else" realm. His reported ongoing household burn rate of 25K. Seems pretty easy to compare the two using this metric.

Re: leanFIRE and fatFIRE definitions

Posted: Thu Dec 13, 2018 1:57 am
by BRUTE
classical_Liberal wrote:
Wed Dec 12, 2018 9:10 pm
Chicago .. 100K + any immediate coats to make home function
paging Dr. Freud? :D

Re: leanFIRE and fatFIRE definitions

Posted: Fri Dec 14, 2018 5:40 am
by classical_Liberal
Coat fetish? or maybe I was thinking how much colder Chicago is, vs the bay area? BRUTE may never know.

Re: leanFIRE and fatFIRE definitions

Posted: Fri Dec 14, 2018 9:35 pm
by BRUTE
brute's house also runs entirely on coats

Re: leanFIRE and fatFIRE definitions

Posted: Mon Dec 17, 2018 9:07 am
by jacob

Re: leanFIRE and fatFIRE definitions

Posted: Mon Dec 17, 2018 9:17 am
by tonyedgecombe
Those Reddit groups are full of people unwilling to pay the price of freedom.

Re: leanFIRE and fatFIRE definitions

Posted: Mon Dec 17, 2018 1:59 pm
by prognastat
One of the upsides of this forum being quite niche and requiring someone answer a question regarding the blog before being able to join is that there is left drift to the mean.

Re: leanFIRE and fatFIRE definitions

Posted: Mon Dec 17, 2018 3:35 pm
by Seppia
I will never understand reddit. It is so impractical to read and follow that my eyes hurt all the time.
It's the one platform I never managed to cope with (together with instagram, but I guess that's because I'm old)

/OT

Re: leanFIRE and fatFIRE definitions

Posted: Sat Mar 20, 2021 4:03 am
by BWND
This is a hard question. I think JennyPenny articulated it well earlier on - some people seek to design their lifestyle from the bottom up (tending towards lean), others look to identify the minimum they can cut in order to FIRE (fat). So there is an element of philosophical outlook here that is difficult to slap a number on.

Note on below - yes I know there are fat bodies that partake in a range of physical activities... just run with it a little :P

A lean body has little excess fat. It moves with little perceived effort and with great economy (power to weight). It can partake in a range of physical activities without risk of injury or exhaustion. It stores less energy than a fat body but in a crisis situation this smaller safety net is mitigated by agility and a wider range of options. To the untrained eye it looks like the lean body doesn't have any stored resources, but it actually has more than you think.

A fat body has essentially gone 'all in' on having enough calories stored to see it through whatever crisis arises. Fewer physical activities are available and these are replaced by market solutions - walking -> car; digging a large vegetable patch with a spade -> hiring 'a man' or a petrol machine. Resources are more visible.

You get the idea.

I think the measure is how resilient the lifestyle is. Lean = more resilient systems, Fat = remains with the straight line earn (albeit from investments) -> spend.

The Wheaton table becomes useful once again. The key demarcation line to me seems to be between 4 and 5. If you FIRE at 4 it's fat and if you FIRE at 5 it's lean. It's interesting that on the table both of these have a 4% SWR goal indicator but are two different things.

Re: leanFIRE and fatFIRE definitions

Posted: Sat Mar 20, 2021 11:50 am
by Tyler9000
I was reading Bogleheads this morning and saw people discussing this exact topic. It felt insane, so I came here and noticed that this thread was resurrected. Serendipity.

For reference, the OP in the BH thread defined it this way:

No way, no how: <80K
Lean FIRE: 80-120K
FIRE: 120K-200K
Fat FIRE: 200k+

Now on the surface, that just shows how out of touch some people are with how normal people live. But if you control the eye rolling long enough to read on, you quickly see the disconnect between those who connect to the ERE mindset and those whose lives revolve around income. Long story short, while we talk about absolute numbers relative to measurable needs and national averages, the traditional Bogleheads crowd seems to define it in terms of sacrifice where it's all relative to your current spending.

Lean FIRE: I'd have to cut spending somewhere.
FIRE: I could continue living exactly as I do now.
Fat FIRE: I could spend even more and live like a king.

So for people new to the concept, it's a sliding scale of sacrifice. That's how you get multi-millionaires in HCOL areas talking about how living on double the national average is completely impossible. They just can't comprehend the level of change required to do it any other way.

Re: leanFIRE and fatFIRE definitions

Posted: Sat Mar 20, 2021 12:09 pm
by jacob
The following graph (original @Fish) from this thread also shows the disconnect. It can be used to get an idea of WLs vs income and how they are not completely independent variables. In particular, WLs do to some degree describe the topography (years to retirement) as indicated by the coloring. There is some income dependence: If you make minimum wage, you're not going to reach FI in 5 years no matter how heroic your WL is. Conversely, if you're making maximum wage, FI is a given with even moderate levels of interest. This is apparent from how the color bands are squeezed at either end. Overall though, I think the map is a useful for seeing just how far apart the various groupings are in terms of "touch".

Image

Re: leanFIRE and fatFIRE definitions

Posted: Sat Mar 20, 2021 12:42 pm
by Quadalupe
Tyler9000 wrote:
Sat Mar 20, 2021 11:50 am
Lean FIRE: I'd have to cut spending somewhere.
FIRE: I could continue living exactly as I do now.
Fat FIRE: I could spend even more and live like a king.

So for people new to the concept, it's a sliding scale of sacrifice. That's how you get multi-millionaires in HCOL areas talking about how living on double the national average is completely impossible. They just can't comprehend the level of change required to do it any other way.
Yes yes yes! This describes perfectly what I was struggling with. I am/was mostly on a Lean FIRE track, which boils down to "doing without". I am looking to transition to a more real ERE lifestyle, which is more like "doing different" or "doing more with less". So I guess one axis is the propensity of "doing without". One other axis is "doing more with less".

LeanFIRE is high on doing without, low/medium on doing more with less.
FIRE is medium on doing without, low on doing more with less
FatFIRE is very low on doing without, low on doing more with less
ERE is low on doing without*, (very) high on doing more with less

* at least, that is my understanding. Jacob previously stated that seen from the outside his life would not be that different from his neighbors.

Now I wonder who/what is high on doing without and high on doing more with less. And if there are axes that I have missed.

Re: leanFIRE and fatFIRE definitions

Posted: Sat Mar 20, 2021 12:47 pm
by jacob
This whole "doing without or not" is part and parcel of the "sacrifice" vs "accumulate" that defines WL1 vs WL2/3. It's not surprising that this is the preliminary dichotomy of mainstream FIRE. Furthermore, high income often serves to stick people at the lower levels. If you're super-strong, there's less need to work on technique. Thus also not surprising that this dichotomy remains dominant in higher-than-median income groups. It is, however, resolved at WL4.

Re: leanFIRE and fatFIRE definitions

Posted: Sat Mar 20, 2021 11:26 pm
by Qazwer
It is very individualized definition though
Even on Bogleheads there are ranges

The thread Tyler9000 referenced had a post today summarizing all the different answers:

Fire-Type: Average, Median, (min-max)
Lean: 65K, 60K (20K-150K)
Fire: 97K 88K (35K-200K)
Fat: 144K 135K (45K-375K)

But it is by definition monetary based (financial)