leanFIRE and fatFIRE definitions

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prognastat
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Re: leanFIRE and fatFIRE definitions

Post by prognastat » Tue Dec 11, 2018 2:30 pm

@THF

Given that when I googled "Mr Money Mustache" auto-completed to "Mr Momey Mustache Divorce"...

jacob
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Re: leanFIRE and fatFIRE definitions

Post by jacob » Tue Dec 11, 2018 2:57 pm

I think the scoop is given by the forum rules:
Although MMM has verified it in public, he has not discussed it in public. Until then we should do the same thing.

TopHatFox
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Re: leanFIRE and fatFIRE definitions

Post by TopHatFox » Tue Dec 11, 2018 3:03 pm

Yeah, fair enough, I wouldn't want personal matters to be discussed out of context.

On a more general, non-MMM sense...relationships, ephemeral these days huh. Good news is, with FAT or LeanFire, you can enjoy the ride and not worry about working on top of your love life. ;)

Jason
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Re: leanFIRE and fatFIRE definitions

Post by Jason » Tue Dec 11, 2018 3:10 pm

I understand its house rules, but... MMM is a public figure. And not just to the FIRE community as he has gone out of his way to become a public figure. And he has gone out of his way to become one based on personal financial transparency. Therefore, if there is a radical alteration to his life that impacts his financial picture, he should talk about it otherwise people will talk about it, because they have a right to talk about it as he has set the precedent by using his personal life as a pedagogical tool. It comes with the territory. If divorce is the case, he should walk us through it, FIRE style. Because if he doesn't, people are going to do it for him.

TopHatFox
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Re: leanFIRE and fatFIRE definitions

Post by TopHatFox » Tue Dec 11, 2018 3:15 pm

@Jason, maybe he will. That'd be interesting to see. I usually sidestep that planning by avoiding marriage, but it'd be interesting to see how a divorce is handled with a multi-million dollar portfolio.

Jason
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Re: leanFIRE and fatFIRE definitions

Post by Jason » Tue Dec 11, 2018 3:31 pm

I understand its very painful and there is a child involved, and there are legal and privacy issues. But ultimately, he can't have it both ways. You set up shop on front street, you can't turn the sign around to "closed" just because things go sideways.

But, man, that picture of Mrs. Money Mustache swinging that sledge hammer does seem rather ominous right about now.

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Bankai
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Re: leanFIRE and fatFIRE definitions

Post by Bankai » Tue Dec 11, 2018 3:48 pm

jacob wrote:
Tue Dec 11, 2018 2:12 pm
If it's cold hard cash (cash flow) that matters then $27k/year requires $27k/4% = $675,000 in invested assets no matter how many persons are involved and $14k/year requires $350,000 or about half as much.
For some reason, I thought your expenses were ~$8k per person nowadays & MMM I'm pretty sure mentioned ~$25 for 3 persons, so $8.3 per head. Still, $2k per person (14/2 vs 27/3) is not that big of a difference.
jacob wrote:
Tue Dec 11, 2018 2:12 pm
I don't see why any adjustments should be made for choosing to add any number of children.
What? Are children not persons/humans? I also know people who spend very little on children. As well as people who spend tons, much more than on 'themselves' (i.e. child gets new branded clothes all the time, newest gadgets & multiple paid for activities, while parents... well, have occasional dinner out but other than that, work & watch telly). I guess most people fall somewhere in between, with non-essential spending per adult being in the same ballpark as per child. At least this is my impression, I've not seen any 'official' figures suggesting otherwise. Happy to be proven wrong on this but I believe the notion many people here have that children cost close to nothing is wrong, i.e. they certainly can cost close to nothing (but so can adults), but in the vast majority of the cases they actually cost a lot.
jacob wrote:
Tue Dec 11, 2018 2:12 pm
the type of persons (children, adults, couples, ...)
Assuming children cost less (presumably because of size?), the same logic applies to eg. fat people costing more (more of everything required, i.e. food, bigger clothes, house etc.), extroverts (bigger social needs to go out etc.). Should we have a model suggesting expenses based on some combination of age/BMI/temperament/sex etc.?

jacob
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Re: leanFIRE and fatFIRE definitions

Post by jacob » Tue Dec 11, 2018 5:03 pm

Data points: I'm currently at $7,250/yr (my half). It was briefly at $7700 but then health insurance premiums went down. I've never been at $8,000. Note that these are 2018 numbers. In 2016 (MMM's last blogged budget?), my number was in the 6k range.

Anyhoo ... Here's why I disagree with the idea of simple division.

Looking at the federal poverty guidelines, we have:

1 person: $12140
2 persons: $16460
3 persons: $20780
4 persons: $25100
5 persons $29420

It doesn't matter exactly what the numbers are, I'm just using them to illustrate a point. What matters is that in terms of poverty (and frugality), it does not scale proportionally with the size of the household. This means that as far as the poverty line is concerned(*) we can't just use an average number.

Eyeballing it, the first person costs 12k and each additional person costs ~4k. This reflects the fact that there are fixed costs that don't change or don't change much regardless of how many people live in the house. Base costs are things like RE tax, heating, electricity, car (especially when the count beyond 1 or 2 involve people who don't drive)... These are always paid by the first person. If you add another person the marginal cost is much less.

Thus according to the feds 2 people are experiencing the same poverty at $16460 ($8230/person) as 3 people are experiencing at $20780 ($6927/person) and so on.

This is an economics of scale issue and therefore you can't just divide and compare.

If you want a fair model, you should compare both the fixed costs (intercept) and the marginal cost of each extra person (slope). For example, the poverty line is y(N)=8k+4k*N, where N is the number of persons. Then you need to compare the intercept,slope parameters of ERE with the intercept, slope parameters of MMM and so on.

If I calculate the ERE HQ slope and intercept, I get y(N)=$9500 fixed+$2500/person*N. Thus if I add a child (at the adult rate), I'd except total costs to go from $14500 to $17000.

What you're suggesting is instead to compare y(N)/N which for the poverty line converges on 8k/N + 4k. In other words, it's converging on 4k as the fixed costs get shared with more and more people and converges on 0. This is the root of my objection. There's certainly a difference between 8/2 and 8/3.

In particular if you do a simple divide, it suggests that the way to get more frugal or stretch each dollar further is simply to have more children. This is true if you add room mates (who pay their own way) but it's certainly not the case for children in this day and age.

(*) And this is also the case for frugality, etc. so I think I need to be more careful about how I state my number. Of course if I was a 1 person household, there's no way I would live like I do now (3bd house + car). I'd loose the extraneous rooms and the car.

Jean
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Re: leanFIRE and fatFIRE definitions

Post by Jean » Tue Dec 11, 2018 5:08 pm

I think it makes sense to compare amounts per person linearly, because you choose with how much people you live as much as what you eat or anything else.

Fish
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Re: leanFIRE and fatFIRE definitions

Post by Fish » Tue Dec 11, 2018 5:17 pm

Equivalence scales are used to compare expenses between households of varying sizes. See below PDF for a brief introduction and some commonly used values.

https://www.oecd.org/eco/growth/OECD-No ... Scales.pdf

Laura Ingalls
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Re: leanFIRE and fatFIRE definitions

Post by Laura Ingalls » Tue Dec 11, 2018 5:18 pm

Not all household with children just have 1 or 2 drivers. Somebody in my close circle has a blended family with seven people six of them have regular drivers licenses. My household of four has three drivers.

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Re: leanFIRE and fatFIRE definitions

Post by jacob » Tue Dec 11, 2018 6:16 pm

If we go with the modern square root rule in @Fish's link, we get
ERE: 14500/sqrt(2) = $10253/year
MMM: 27000/sqrt(3) = $15588/year

Modified OECD (each additional adult is 0.5 and each additional child is 0.3)
ERE: 14500/1.5 = $9666/year
MMM: 27000/1.8 = $15000/year

Old OECD (each additional adult is 0.7 and each additional child is 0.5)
ERE: 14500/1.7 = $8529/year
MMM: 27000/2.2 = $12272/year

Roughly a 50% difference.

7Wannabe5
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Re: leanFIRE and fatFIRE definitions

Post by 7Wannabe5 » Tue Dec 11, 2018 6:18 pm

None of these metrics work for my situation. I have a scant 5 figure income, and I currently live in an 1000 sq. ft. house with a 78 year old man with a 7 figure income, a 55 year old man with a 6 figure income, and a morbidly obese dog with no income.

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Re: leanFIRE and fatFIRE definitions

Post by jacob » Tue Dec 11, 2018 6:24 pm

The metrics take total spending for an N person household and calculates the 1(*) person equivalent, so yeah they do.

(*) Or any other number and combination via a bit of algebra.

7Wannabe5
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Re: leanFIRE and fatFIRE definitions

Post by 7Wannabe5 » Tue Dec 11, 2018 6:59 pm

@Jacob:

Right, but I am not privy to most of that information, and I am not officially a member of this household in terms of either legal address or income tax status. So, it would actually be easier to track my total personal consumption rather than run some household equation.

classical_Liberal
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Re: leanFIRE and fatFIRE definitions

Post by classical_Liberal » Tue Dec 11, 2018 8:19 pm

@7WB5
If you want to use this information for personal comparisons, its probably best to identify areas that you gain advantage or disadvantage, by temporarily living in a household.

For example. My current, but temporary, situation with GF has use splitting all housing and related expenditures. Also all household groceries. All other spending is completely independent. Clearly i have an advantage by living in a one bedroom place with two people, but probably a disadvantage because her groceries tastes are a bit more expensive. Although both are relatively irrelevant because it's my chosen situation.

So... If I spend 400 mo on housing/utilities and 200 a month on groceries as part of a household of two, but all other spending (additional 900) is really based on household of one. Using the modified OECD could come up with the estimation of 600 *1.5= 900 +900 (of individual household one-like spending). My single household spending with similar lifestyle would be about $1800. This is actually interesting in that I have real, recent data indicating this is about correct.

I realize not everything is clear-cut, hence all the arguments regarding personalized accounting in the past, but this method probably passes the smell test for personal comparisons.

Edit: The more I think about this, the more it probably breaks down towards higher wheaton levels.

Jin+Guice
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Re: leanFIRE and fatFIRE definitions

Post by Jin+Guice » Tue Dec 11, 2018 11:06 pm

Ah, the household thing sort of explains my confusion at the high expenditure numbers for FIRE categories, sort of. I guess our household probably spends a fair amount since my gf is not as frugal as I am and I am spending more than I normally have due to my current job and dating her. I always calculate everything based on just my expenses, so I was thinking 40k for one person.

I'm really enjoying this discussion about the non-linearity of household expense scaling, it's something I think about while pacing around my house high as fuck on 8 cups of coffee like a true economics nerd. I've never come to any definitive conclusions.

It seems like a household running everything together would be more difficult to control expenses for. Jacob and his wife split shared expenses but have different discretionary spending IIRC? I think the MMM household counted everything together, which would raise expenditures if one person was less frugal.

As 7w5 notes, the less conventional your household, the more difficult the equation becomes. I don't think I've ever really been a part of a "household" since I like to keep my $$ as separate as possible, but obviously even choosing to live with a roommate you might enjoy living with will influence expenses.
TopHatFox wrote:
Tue Dec 11, 2018 2:29 pm
Damn, if even rich, educated, intentional people can't keep their relationships. Fuck.
Welcome to the dark side my friend.

thegreatvoid

Re: leanFIRE and fatFIRE definitions

Post by thegreatvoid » Wed Dec 12, 2018 1:54 am

love
Last edited by thegreatvoid on Sat Dec 22, 2018 12:09 am, edited 1 time in total.

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Re: leanFIRE and fatFIRE definitions

Post by jennypenny » Wed Dec 12, 2018 5:01 am

I'm not going to speculate on someone else's divorce, but if you want some clue as to why marriages might fail, read through the Limit your Choices thread. 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.

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Re: leanFIRE and fatFIRE definitions

Post by 7Wannabe5 » Wed Dec 12, 2018 6:09 am

classical_Liberal wrote:If you want to use this information for personal comparisons, its probably best to identify areas that you gain advantage or disadvantage, by temporarily living in a household.
Right, but why should I base my comparison on the default of being head of household of a household consisting only of me? It is obvious from the universal variety of calculations compared above that choosing to live alone should always be the most expensive option, as well as the least popular in the history of humanity until recently, so it has always struck me as funny that it is the default. Since I went right from college to motherhood, I have never lived by myself as head of household. The most frugal choices have to be either living with non-dependent others as head of household OR living with non-dependent others as non-head-of-household. A modern married couple is almost always a joint-entity head of household.

Of course, as I believe jp implied, there is a bit of dodging of a boundary issue, if there are no dependents included in household, unless your ultimate heirs are clearly declared. For instance, if you will leave your estate to World Wildlife Fund, then World Wildlife is the "baby" attached to your household. Since capital reserves can easily be converted to acreage, per capita spending per acre would be roughly analogous to household imports vs. self-sufficiency.

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