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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