What is your FIRE number? Your expected FIRE expenses?

[rube]

Indeed, we spend only about 7K, eh...... EACH person of the family
And with a family you make certain consessions. It is all part of 'the game'.

Also, imo, being a parent increases your responsibility level. I would probably have taken other, some would say more risky, decisions. E.g. accepting less 'buffer'. (Or maybe I am just making up excuses?)

[7Wannabe5]

Well, I haven't worked full-time for anybody other than myself since early 2002 when I was 37. I started my book business with $8000 I inherited, so maybe that was my FIRE number? My ex went missing after we split in 2007, and I had to help my kids with expenses until my DD25 was done with college 3 years ago, so my expenses were as high as $16,000/yr for some of those years. Now I'm living large and easy just supporting myself on around $9000/yr.

1) Book business
2) Retail arbitrage
3) Very low rent in exchange for some cooking
4) No rent in exchange for some elder-care
5) Kept woman or not-legally recognized marriage with terms of spousal support
6) Part-time substitute teacher
7) Perma-culturist
8) Poly-amorous courtesan-for-gift/barter
9) Hodge-podge of do-it-yourself-rather-than-pay-somebody-else frugal undertakings

I feel like I am forgetting something, but that's pretty much what I've done for cash or practical or luxury support since 2002. Except for the occasional very busy week of book sales, or a few straight weeks helping get a kindergarten up and running, I have never worked anything like 40 hours at any of the above. Actually, I should not have perma-culturist on the list because I have not broken even on my investment in that enterprise yet. In theory, I will be eligible to collect 1/3 of my ex's SS stipend when I am 62, and then my whole amount when I am 67. I doubt that I will ever have to seek full-time employment by other again, and I enjoy being a book scout, teacher, perma-culturist and barter-courtesan too much to ever want to stop engaging in these generalist activities completely, although I anticipate that I might vary the venue or terms/details of contract in which I engage in any of them in the future as circumstances or my druthers change.

Of course, it is also my intention to reduce my cash output to the level that I will be the WINNER of the FRUGALIST OF THEM ALL trophy. The problem is that it is too easy for me to cheat with my skills in the courtesan/barter category. I would offer a handicap if it weren't for the fact that I have suggested on more than one occasion that similar opportunities might appear for any of the fit young men on this forum who would go to the trouble of acquiring some ballroom dance skills. Those ladies will throw down $5000 on a spangly dress they only wear once.

[Chris]

there are also, for most of us, a handful of things that cost money that we are simply not willing to give up, either because they bring us more joy than they cost in dollars or because they prevent more discomfort than they cost.

Yep, that's me.

Assuming I'd live more like Jacob (get a roommate, ditch my car, quit international travel), my annual expenses would be below $8k.

[jacob]

I didn't intend to start some kind of No True Scotsman inspired argument about who's in and who's out of the ERE club My original point was that not all networths are created equal. It's just a nice summary but it doesn't really reveal the particulars of someone's financial status.

Consider, e.g. Mark Zuckerberg whose NW (48 billion) is mostly tied up in facebook stock. His fortune stands and rests with how FB performs. On top of that he can't convert that FB stock into cash and expect to end up with the same amount of NW as he nominally has now. As soon as he starts selling, FB price will drop ... likely he won't be able to find enough sellers to absorb all the shares he holds. It's not unlikely that maybe 30 billion in cash (or treasuries) is worth more than 48 billion in FB shares if the goal was to actually spend the money on something else.

Compare Zuckerberg to old-money wealth. Here a lot of the wealth is tied into an intricate web of cash flows and possessions. In many cases it's even hard to estimate just what the NW is. However, old-money becomes old because it's quite robust. Such a person always has some money coming in from somewhere. They're not just the founder and CEO of one company. They own many companies. They're on the board of multiple companies. They have well-connected friends. They own politicians (local or national).

I'd somewhat compare the different kinds of wealth both to investment methods, gardening methods, and FIRE strategies.

Level 1: The garden only grows potatoes. Success rests on how the potato harvest turns on. In terms of investing, it's like having your money in a single issue. In terms of FIRE, it's like a consumer with a lot of money. Representative billionaire: Mark Zuckerberg.

Level 2: The garden contains of random rows of different plants. The rows are diversified. If beans fail, maybe potatoes still do okay. It could be that the entire harvest fails if nothing was planted for a surprise drought. In terms of investing, this is like diversification. In terms of FIRE, it's the person with a side-gig or three and a bag of tricks to save money. Representative billionaire: Warren Buffett.

Level 3: The garden contains non-random guilds where things are planted to support each other and energy flows are deliberate managed. In terms of investing, this is like a hedge fund. In terms of FIRE, it's the web of goals approach to advanced (deliberate side-effect, reverse fishbone) contingency planning. Representative billionaires: Koch brothers.

The higher the level, the more robust/resilient the strategy is and the less money is likely needed.

It's probably a bad idea to rank levels ... but it seems pretty obvious that these three approaches are quite different from each other.

[Scott 2]

I'm certainly well over the 7k a year per person. A dumb townhouse purchase in my mid twenties set a floor for living expenses that immediately puts me over. Work commute alone is 3k a year. The government takes several multiples of the 7k mark each year.

These are expenses that are locked in for the near term and/or afford me high income, so I am good with them for the time being. The townhouse is my most regretted purchase, but I believe staying put is optimal for now, despite it being the source of most of my "optional" recurring annual expenses.

That all reads like excuses. The reality is I'm hedonistically adapted to certain luxuries I adopted pre-frugality. Getting the money to pay for them is easier than letting them go. When saving a year's living expenses every few months, it's hard to care about leaking a couple thousand here or there. Even less so when it is justified as making one more year full time quite pleasurable.

[Did]

It would seem that you all like the idea of 7k/yr expenses--or at least reading about it on this blog--but tend to prefer and produce more like 15-20k/yr expenses, or even more. Assets accumulate accordingly; FI dates pushed-back accordingly. This is interesting. Is it just me & three others that do the whole <7k/yr thing? FI or expenses is certainly not a competition, but it is curious that many (most?) of you tend to spend and accumulate almost two or three times the site's operandi.

The numbers are arbitrary for me. It's the concepts, proof of concept, and community that keeps me returning. The so called Jacob measure of spending is for many aspirational, but is also particular to him, and would not suit others with different responsibilities, skills or interests.

[ThisDinosaur]

I think I could beat 7k a year if I was still single and childless. I could be very comfortable in a minimalist RV. But I have a provider complex and want my wife and kids to have a suburban lifestyle. I think this can be achieved with far less than is usually spent on it.

[jacob]

At the recent Chicago meetup we talked briefly about Wheaton levels insofar as spending goes. For two person households where the lifestyle looks reasonably normal, I usually do the following split:
US median: 48k
JD Roth (of Get Rich Slowly): 36k
MMM: 22k
ERE: 10-14k
???: 2-5k

I frankly couldn't come up with anyone(*) spending less aside from various cave dwellers, etc. Otherwise, lower costs usually has to do with paid room and board and things like that. Indeed, AFAIR, both JD, MMM, and ERE does not include imputed rent in these figures and I think all of us own our homes fair and square (no mortgage). You could compensate either by adding full rental cost of equivalent; you could add the value of the house times market returns for the opportunity cost (but what market return rate to use); you could do the same with the cost of the house; or you could add in what a 30 year fixed mortgage would cost.

(*) I really have to rake my brain. I think I've seen some exceptions coming in around 2-5k (for two people total) here and there. A boat more or less permanently anchored out could probably do it. A very good stealth camper or someone staying mostly on BLM land. Once someone told me that they knew a small time farmer in Humboldt county (so imagine what they were growing ) spending only $600/year! I imagine this would include no health insurance, very low RE taxes, and near self-sufficiency for food. Really low cost budgets that involve homeownership really have to be in the western states. Out of our $10k budget, $4200 is RE taxes!! They would be ~1/10th of that were our house to be relocated west of the Mississippi.

In any case, exact cost doesn't matter as much as the knowledge of the possible range.

[Gilberto de Piento]

???: 2-5k

In Radical Simplicity I think Dan Price says he lives for something like this amount per year. The only thing I could find online was this article though: https://faircompanies.com/videos/dan-pr ... -5000year/

I am sure there are some dirtbag surfers and climbers doing this.

It might be a fun experiment to try to extend these levels further into the anti ERE direction. For example, "owes $100,000 on student loans and $300,000 on a house that is underwater, three months behind on payments, no income = level -5"

I just realized you said "lifestyle looks reasonably normal" so maybe these examples aren't helpful.

[cmonkey]

I just realized you said "lifestyle looks reasonably normal" so maybe these examples aren't helpful.

I'd have to say your -5 level looks/sounds pretty normal to me.

Out of our $10k budget, $4200 is RE taxes!! They would be ~1/10th of that were our house to be relocated west of the Mississippi.

I assume this to be the next leg of your journey once you tire of Chicago thus setting the ERE bar even lower? At 1/10th the level you'd be pushing near the 5K range.

Our RE/insurance is 3K/year so assuming we ever got to your level of spending our total would be about 8-9K annually. I would be up to the challenge but I don't think DW would be...

I see it as a long term challenge/game to see how low I can get. It's pretty fun.

[Scott 2]

I've always felt an accurate FIRE budget had to include:

Imputed rental income, or some other cost of capital, when owning the home
Taxes and other government expenses, driven by paying for the rest of the FIRE budget
Insurance, even if currently employer paid
Realistic accounting of "optional" expenses that support mental sanity
Allocation for known unknowns, like vehicle maintenance or healthcare expenses

IMO it's not possible to live without these, and excluding them paints an unclear picture to someone just starting out.

Really these items belong in any budget. I've just noticed the "and I save all the dollars" crowd is more likely to exclude them, as though a lower budget makes them a better person.

[IlliniDave]

Ernie Zelinsky talks about getting by on $6K/yr, but that was a decade or more ago.

It's also typical that the proponents of living on these low incomes (e.g., Zelinsky and MMM) typically have income levels substantially above that. I know for myself that whatever my expense level was at, having only that much money available on an ongoing basis would cause me an amount of stress. That's why my plan builds in room for far more spending than I intend to actually use. Leaves me free of guilt when I have my occasional weak moment splurges, and gives me peace of mind in the longer-term sense.

[jacob]

@Scott2 - OTOH, including them can also paint an unrealistic number because the more advanced one gets, the more complicated these arrangements begin to get.---Much like the financial arrangements of an old-money person or the financials of a company like General Electric.

For example, imputed rent is a way to translate homeownership into a "what if I rented" scenario. In practice, however, it's not like I write a monthly check to the amount of imputed rent which then gets cashed. Cost of capital is relevant, but what if it's very low. Should I use the SWR of 3-4%? In my case, I specifically bought a house because I figured that US market returns over the next decade would be flat whereas housing would be positive. Is my opportunity cost then more of an opportunity gain? I've gained 85k of home equity in the past two years. Should I have my house write me an imputed gain of 3k instead?

Examples for our house:
Imputed rent based on market rents: $18000/year
Opportunity cost at 3% for cost of home: $2781/year
Opportunity cost for cost of home at approximate market returns since we bought it: $2000/year (three days ago it was more like $900/year)
Opportunity cost at 3% at current value: $5469/year
Cost of mortgage at buying price: $4200/year
Average home equity gain: +$43000/year

Which one is "correct"? Which one should I use?

This speaks to the question of financial arrangements. It would cost $18000/year to replicate our house by renting it ... but if you qualified for a mortgage, you could haven gotten it for $4200/year --- and now it would be more!... But if you had assets, it would have made sense to use them instead and get it for $2781/year as far as accounting goes. However, in principle you only paid $2000/year due to the way that the market performed, and if you were market savvy, maybe you saw it more as financial move to protect your investments and possibly gain, in this case, it turned out to be 43000k/year.

As it is, I use $0.

So is the house a fixed cost (which I'm not writing checks for) or a speculative investment (that I'm not receiving checks for until I sell it)?

What about home improvements? For example, I just put in flood control and paid $5500 for that. Should I count that as a current expense? Should I then add it back as income (perhaps with a discount or gain factor) when I sell the house? Ditto a new furnace? Now in the long run, furnaces eventually need to be replaced and thus a depreciation rate is justified. OTOH, if I sold the house now, it would be a gain because the house now has functional heating instead of the non-working AS-IS heating it came with. I could also just use 1% of the home value ... but then I also do quite a bit of work myself, so ... maybe 0.5%?

Cost? Investment?

What if "optional mental sanity expenses" are actually cash positive? E.g. I buy a bicycle, fix it up, ride it around, and then a few years later, I will sell it for more than I paid. Should I count that as income instead? Can I deduct it against my expenses for buying bicycle tools? Can I deduct it in general? Should I add an hourly wage for myself for the time I spent working on it?

We own an old vehicle which DW mostly uses to drive around for work. If she didn't have this work, we wouldn't own the vehicle. As the situation currently stands, she gets reimbursed per mile at the federal rate. This means she pretty much gets paid to drive (positive cash flow after paying for gas). So in my budget, I only account for vehicle insurance (negative) but not gas (which should be positive). Repairs tend to be a few hundred per year which I add in. I don't consider depreciation, but if I did, maybe $1000/year tops? But that really depends on what we can sell it for (similar to the bicycle situation above). All things total, if we aren't actually making money for that car, we pay almost nothing.

Same situation with HDHP/HSA costs. I wrote a blog post once describing how it can practically pay for itself if you're able to fund it with the tax deduction. At one point I actually quit an employee based health insurance because I would be making a net income buying it from the market and then deducting it when it came to tax time.

Point being: It's possible to make up a wide range of single numbers that all describe the same budget, because budgets get complicated. And just like General Electric, the more complex the business, the easier it gets to reduce cash outlays. The problem is that we don't have a set of FASB rules for personal finance. So what I do personally is to account for the net amount of checks I have to write to keep me as a "going concern". The key point for me is not whether my expenses are 5k or 7k when accounting for depreciation or amortized self-insurance. It doesn't matter because my dividend income alone is 17k (and my SWR is under 1%). What's important to me is the fact that they're definitely nowhere near 17k no matter how pessimistically I add things together. In general, when I give my expense level, I'm only including ongoing cash expenses + expenses that are definitely sunk. I think of it as 5k/year + noise (which may be positive or negative).

In particular, as iDave points out. One of the reasons I can maintain low cash outlays is that I have six-figures of "walk around money" which allows for a lot of maneuvering space. This allows me to a) get good deals (e.g. buy a house in cash); b) it means I can consider the tax law when making decisions; and c) it means that I can treat some expenses as investments that could back later either with a gain or at least some recovery (e.g. flood control, furniture).

Someone with, say, a $1400 annuity income or a sporadic gig income, no access to cash (e.g. all in pension fund), and a poor credit score (whatever reason) would not be able to afford our house (as per the numbers above) because he doesn't have the "financial key" to unlock the cheaper price.

[jacob]

On further thinking, I think the question can be divided into two distinct frame-works:

1) The renting/income framework. The focus is on running income/expenses. Concepts like depreciation and imputed rent is used to turn assets and rare gains and losses into income and expenses.

2) The owning/asset framework. The focus is on remaining solvent. Often running expenses are eliminated by buying the asset (like a house or a table) instead (of course only if the NAV justifies it) and often even profiting from trading it by arranging one's life to take advantage of these opportunities.

I think a lot closer to (2) than (1) because these days my lifestyle is arranged a lot closer to this framework. I know that my average "bleed" is only 5-7k per year. That is what I require to stay solvent. However, in order to facilitate this I also maintain assets both in the form of cash but also in the form of tools, bicycles, and tables. Fiften years ago, I was renting rooms and living out of a suitcase. Back then it would make more sense to figure things out in framework (1).

Overall, I wouldn't say that either of them is the "right choice" at all times. However, I WILL say that one of them is the best choice at any one time. The reason for that is the NAV equation and the changing discount rates and value of assets in general. The house example is a pretty clear indication of how given the prices and rents, it's far better (at least 4x better) to own rather than rent. However, if asset prices crash and interest rates increase, it will be smarter to get back into rent/income mode. And I'm pretty sure, we'd do just that too.

[jacob]

The accounting/depreciation problem is also described by this quote.

“The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.

This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.”

--- Terry Pratchett, Men at Arms

Now imagine how the numbers would change if the wealthy were able to sell their boots again after 5 years or if they were able to make repairs to their own boots. And that this example applied to almost everything (housing, healthcare, entertainment, transportation, ... ) and not just boots.

[JL13]

Just to touch on the imputed rent issue, i think it's fair to treat it in the most economically reasonable way. I would segregate all expenses related to the house and impute the market rent. The house expenses (property taxes, maintenance, renovations, purchase price, etc) are all related to the investment in the house. I wouldn't include them in the budget, but would just include one simple number (the market rent) in the expenses. Conversely, the imputed rent goes in the investment income bucket. If you end up making bank on the house, or losing money on it, this really belongs in the portfolio doesn't it? Form an economic perspective, it should be totally irrelevant who the tenant is.

[Scott 2]

The picture you describe is much more complex than someone surviving on 7k of income a year, because they live in an RV, darn socks, and cook lentils. Not to say that isn't another viable path, but they are much different paths. The two frameworks you introduce are a good way of presenting this.

I think the comment that most are not living on 7k a year is perceptive. The lack of a standard accounting method leads to oversimplification, which leads to misunderstand, especially among the least financially educated. This oversimplification is what most want, and that's the real problem, IMO.

From what I've seen, for most who reach FIRE, that number is a snapshot in time. It often grows substantially from there, and they become wealthy individuals using their skill and wealth to get even more money. That creates some additional expenses, but they are easily offset by the resulting wealth. It's a much easier and more secure life than having optimized to live off that minimal FIRE number, where there's no place to go when surprises appear. Boiling things down to $XXXX expenses a year misses this.

I think it is the natural path, and I've been happy to take it myself. The person who figures out how to reach 25x expenses finds 33x is even easier, and so on. I'm not sure people starting out understand this happens, or believe it will happen to them. Getting to that point means getting good with money, and that skill doesn't suddenly go away. I think there are quite a few on this forum whose wealth is growing in excess of 100k a year, as a result.

[jacob]

@JL13 - From an income statement perspective, it doesn't matter. But it certainly matters from a cashflow perspective especially when the rental market and housing market get completely out of whack as is the case around here.

In that case, our household expenses would be 10k per year + 18k per year in imputed rent = $28000/year ... but we only actually pay $10000 for those $28000 spent, so big cost savings. The reason this kind of accounting makes me "uncomfortable" is that it can/should be taken to its logical conclusion for other things as well.

E.g. suppose I buy a breadmaking machine(*) that makes bread for 1/3 of the cost of store bought bread. By the same reasoning, we should add the imputed cost of the equivalent store bought bread to the expense side, but add it back on our "food account" but also deduct the actual price of flour, salt, etc. from our food account (as well as the cost of the breadmaking machine which we might recover when it's sold). And after a year, we do an inventory of our pantry and see if its value changed from last year (mostly it didn't). Presto! Our food account is now making money for us.

(*) Which is to getting bread as a house is to providing shelter.

And so on and so forth. This is why I don't like imputing because it tries to translate a choice into another choice. It's metaphorically like asking "what's the apple equivalent of this orange".

Let me put my financial situation in another way:

It seems to me that our standard of living is reasonably indistinguishable (blind study by contrasting and comparing to our neighbours) from a standard of living that would otherwise cost around $40-50000 per year. However, we only spend $10000/year. So can it reasonable be said that our expenses are $50k/year just because our neighbours rent, buy cars on credit, pay for lawn service, buy new furniture, and shop at Kroger? I don't think so.

I'd rather say that we enjoy a $40-50k/year standard of living for 20-25% of the cost by arranging our lifestyle/strategy/financials somewhat differently.

Indeed, I think that is less confusing that accounting for expenses out of which 80% never needs to be paid. First of all, that would result in me thinking I needed 5x as money as I actually do. Second of all, I would find myself not spending 80% of my "planned" expenses every year and thus end up with far more money than I predicted. It would make firecalc computations meaningless.

@Scott2 - Fully agree about the problem of simplifying a situation to a single number. Hence the long discussion here. Same problem with the 4% rule when it comes to investing, hence the equally long discussion there.

In my case, I've kept my $7000/year ceiling for many years now. This includes many different living situations. Single and married. Renting an room/dorm, an apartment, a house, and now owning a house. As I've become more and more skilled and better able to take advantage of the efficiency that's found in being able to construct complex arrangements, my standard of living has gone up significantly.

I like to put it as: standard of living = skill x cost of living, where skill for a consumer is set to 1.

What I did back in 2001 was to drop my cost of living to about $6000/year without having the skill. This resulted in a standard of living much like a poor student. Then I began to build skills so each dollar was spent more efficiently. After 4 years, I was able to rent a house with the person who became my wife. I'd say our standard of living back then was maybe at the $20-25k/level (for the two of us) with a skill level of around 2.

Currently our skill level is around 4 or 5 and we spend $5000/year/person.

Other words for skill level: skill leverage, efficiency factor, ...

Meanwhile, while expenses have stayed the same, income has gone up. My SWR is currently around 120 years!

[cmonkey]

I like to put it as: standard of living = skill x cost of living, where skill for a consumer is set to 1.

Just to be clear, in my mind this equates to something like what I did this week - found a $900 appliance for $150. The old applicance will be sold for ~50 so the efficiency factor here would be ~9? Is this an example of what you are talking about?

[JL13]

@Jacob

I see your point. I guess i was thinking that above a certain figure (say 5 or 6 figures) it would make sense to apply the rule, but this may just be the accounting training in me

Is it true then, that you capital expenses averaged out to zero over the past 15 years? I.E. The RV, the woodworking tools, the racing bike, the furniture, the boots have all been paid for by selling old stuff, like a revolving fund?

IOW, what are your net proceeds from sales and purchases of property and equipment?