‘Lean FIRE’ Can Help Middle-Class Americans Become Financially Free. Calculate This One Number to Get Started

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“Lean FIRE” enthusiasts aim to become work-optional earlier in life by maintaining a tight budget. The budget is sometimes defined as needing $40,000 a year or less for expenses.
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Retiring early to pursue your passions and live life on your terms might be closer than you think.

Lean FIRE is a variant of the Financial Independence, Retire Early (FIRE) movement for the average person who wants to become work-optional and is willing to drastically eliminate extra expenses. If you like the idea of traveling the world or having lots of free time on your hands, it might be the perfect outlet for you. 

“My partner told me about the idea of financial independence in 2013, and I ignored it until 2015 when I looked into it and realized that it was possible,” says Purple, an anonymous Black female writer who shares her FIRE journey on her blog A Purple Life. Purple left her career in marketing and reached financial independence at 30 with just over $500,000 in savings and investments. 

“I started making $35,000 [a year] working at an ad agency in New York City right out of college,” she says. Purple changed jobs every year or two, and with each new job, she got an extra $20,000 added to her annual compensation. She also moved from New York City to Seattle because she could maintain her high income while reducing her annual expenses by 50% without making significant changes to her lifestyle. By 2020, she had $500,000 in her investment account, $40,000 in cash, and was making $115,000 a year, setting her up with enough passive income to leave the workforce early.

“I achieved FIRE by saving my money,” she says. The FIRE movement bucks the timeline of traditional retirement prioritizes lowering your living expenses and generating more money each month to reach financial independence.

Here’s what you need to know about how to use Lean FIRE to retire early – and if it is the right approach for you.

What Is Lean FIRE?

Lean FIRE is a version of the Financial Independence, Retire Early movement in which participants accumulate an investment portfolio and plan to live off of the returns as annual passive income. The Lean FIRE movement prioritizes maintaining a frugal and disciplined lifestyle, sometimes defined as being able to live on $40,000 a year or less.

“When I discovered FIRE, I was desperate for a way to buy my time, freedom, and a way to quit the nine to five grind,” says Walli Miller, a financial coach and money mentor who teaches women how to build wealth and is on the path to becoming work-optional. In 2015, Miller stumbled upon an article about a couple who had achieved financial independence and entered early retirement in their forties. She says she was initially skeptical of the story because she assumed the couple made six-figure incomes from their respective jobs. However, when Miller started having difficulties at work, she revisited the FIRE article with newfound motivation and committed to making lifestyle changes.

“I started looking at where my money was going, and I made a list of all of my essential expenses, my housing costs, electricity, gas, and things like that,” she says. “We started trying to hone in on what we were spending money on and slowly decreased our expenses and debt. Then, we increased our investing once we paid off our debts.”

Miller and her husband achieved Lean FIRE by making the maximum contributions to their 401(k) and Health Savings Account (HSA), opening and fully funding their Roth IRAs, and using their brokerage accounts to invest in low-cost mutual funds and exchange-traded funds (ETFs). The couple invests less than 10% of their net worth in individual stocks and cryptocurrencies.

How Much Money Do You Need to Reach Lean FIRE?

To know what Lean FIRE means for you, your first step is to calculate your Lean FIRE number, a standard formula the FIRE community uses. Everyone’s exact Lean FIRE number is different, but a quick way to get a ballpark idea of where your net worth needs to be is to multiply your annual expenses by 25.

Annual expenses X 25 = FIRE number

This formula is based on the research paper Retirement Savings: Choosing a Withdrawal Rate That is Sustainable, popularly known as the “Trinity Study.” This study found based on its data that retirees can safely withdraw 4% of their savings in the year they retire and then make modest adjustments based on the prevailing inflation rate over 30 years. 

While the exact parameters of Lean FIRE vary in the FIRE community, including whether you’re calculating for a single person or a couple, the widely agreed benchmark for Lean FIRE is to maintain an annual budget that is no greater than $40,000/year in retirement, which comes out to a little under $3,400 a month.

Example FIRE Number:Monthly Expenses Target:
Figure 1: Examples of FIRE numbers and the corresponding monthly budget you’d need to maintain to be work-optional.

Purple notes that though she’s technically under the Lean FIRE category, as her annual expenses hover around $23,000, she believes her lifestyle is skewed more towards traditional FIRE because she splurges on first-class tickets when she travels and does not practice extreme frugality.

Your FIRE number gives you a roadmap for how much extra money you need each month to reach your financial goals. If there’s a gap between your current take-home pay and your target savings number, you can then use strategies like real estate investing or a side hustle to close the gap.

The Lean FIRE Lifestyle

The strategies Lean FIRE enthusiasts implement to achieve their FIRE number include:

  • Moving to low-cost cities while maintaining high-income remote jobs.
  • Moving in with their significant others, parents, family members, or friends to share living expenses and save money on rent.
  • Not purchasing large items like houses and cars.
  • Choosing to not have children.

Advantages of Lean FIRE

Here are a few advantages of Lean FIRE based on people we interviewed who have achieved it.

  • A Faster Path to FIRE – If you want to retire early and live life on your terms, Lean FIRE is the fastest way to achieve financial independence.
  • Minimalist Lifestyle – Lean FIRE enthusiasts embrace a minimalist lifestyle by spending on necessities like food, clothing, rent, and transportation and avoiding luxury items.
  • Freedom – Achieving Lean FIRE means never worrying about a job or unpleasant employment commitments again. You are free to invest your time in any activity you desire.
  • Doing More With Less – Practicing Lean FIRE means being able to accomplish a lot while adhering to a strict budget. You need to be creative in finding solutions that fit your budget. For many people, this invites creativity, but others may find it tough to maintain such a stringent budget.

Disadvantages of Lean FIRE

The thought of achieving FIRE early is attractive, but it does have some drawbacks. These are a few of the most commonly cited disadvantages:

  • Restrictive Lifestyle – Living on a very tight budget puts a lot of constraints on the type of activities and interests you can pursue. You can’t indulge in the simple luxuries you take for granted if you want to stay within your budget. 
  • Time Intensive – Lean FIRE enthusiasts must constantly decide between trading their time or money to achieve their goals. The price of maintaining a frugal lifestyle means you have to invest more time and take a do-it-yourself approach to save money in most cases.
  • Sacrifice Major Life Events – It’s easier to practice Lean FIRE when you forego major life events like having kids or buying a house. Though it’s not impossible to practice Lean FIRE as a parent or homeowner, it is challenging to maintain a budget when unexpected bills associated with raising a child or owning a home come up.

Types of FIRE to Consider

Though Lean FIRE gets you to a work-optional lifestyle sooner, it might not be everyone’s cup of tea. Here are some other interpretations of FIRE that might be a better fit for your lifestyle goals.

Lean FIRE vs. Traditional FIRE

Lean FIRE is exactly what it sounds like: a slimmed-down version of traditional FIRE. In FIRE, enthusiasts benchmark their lifestyle in retirement against their lifestyle pre-retirement, and are comfortable maintaining a standard of living that keeps up with the inflation rate. The index for net worth for traditional FIRE ranges between $1,000,000 to $2,500,000, which calculates out to  average annual expenses between $50,000 to $100,000. 

Lean FIRE vs. Fat FIRE

Fat FIRE is best thought of as the opposite of Lean FIRE. In this version of FIRE, enthusiasts are not concerned with living frugally. Instead, they want to live life to the fullest and enjoy all the pleasures and experiences that come with it. 

Whereas Lean FIRE aims for an annual spend of less than $40,000, Fat FIRE adherents expect $100,000/year in expenses or more, which means pursuing a minimum net worth of at least $2.5 million. Fat FIRE isn’t always about splurges, either; perhaps you have children, want to live in a metropolis, or expect to care for a loved one in their later years. All of these factors mean higher monthly expenses.

Lean FIRE vs. Barista FIRE

Barista FIRE throws out the “retire” part of FIRE, but still creates opportunities for a flexible, fulfilling lifestyle. Barista FIRE enthusiasts will be financially independent on paper, but continue to work a low-stress part-time job for health insurance, residual income, or other benefits. The term is a hat-tip to Starbucks, which offers health insurance to employees who average at least 20 hours of work a week.

Since your Barista FIRE job will cover some of your monthly expenses, you won’t need as big of a FIRE number, but you will need to keep working to avoid burning down your investments. 

Pro Tip

Lean FIRE doesn’t have to be permanent. Hit the number so you can spend some of your productive years pursuing your passions; you can always return to the workforce later.

Lean FIRE vs. Coast FIRE

In Coast FIRE, the goal is to make all your retirement contributions early in your career. Then, once you’ve done the hard work upfront, you allow the money to compound over a predetermined period until it hits your FIRE number. The beauty of Coast FIRE lies in the opportunity to direct the money saved from no longer contributing to your retirement funds to other worthwhile pursuits, and can lead to greater peace of mind that you’re “ahead of schedule” for retirement.

Lean FIRE isn’t for everyone, but if you’re itching to escape the rat race, it’s one of the quickest ways to do so. Know your numbers, take action or make more money to get yourself on track, and start stacking cash to jumpstart your journey toward financial independence.