Freedom is fantastic and Fat FIRE is one way to make your dreams come true.
What is Fat Fire or FatFIRE?
Fat FIRE is a term that describes an early retirement lifestyle with a higher spending rate and consequently higher net worth. Typically, Fat FIRE people have net worth of several million and spend nearly $ 100,000 or more each year.
Exactly how big is the fortune? If you’re a fan of the Trinity study, an annual spending rate of $ 100,000 a year means your net worth is likely to be close to $ 2.5 million.
We are talking about financial freedom.
When you achieve financial freedom (also known as financial independence), you break the time chains that bind you. Fat FIRE is a version of financial independence that allows more flexibility in retirement spending.
If you go to work at a certain time and have to do certain tasks during the week, you have limited use of your available time. You may have no choice. You have to pay bills and you may have a family to support.
What if you can reach a point where you can quit your job if you want to? Would you do it How would you spend your time?
I thought about what I would do if I didn’t have a typical 9-5 job anymore. It’s an interesting thought because I love a lot of what I’m doing now.
After thinking about this concept for some time, I realized that what I want to do will not be cheap. I recently started hearing the term Fat FIRE. The idea is that you build a nest egg that is large enough not to reduce expenses and to live in a very urban environment. I think we’re working towards Fat FIRE.
Can FatFIRE help what you do now?
Think about what you enjoy and what makes your heart flutter like a hummingbird. This way you can find out in a healthy way what you will do when you achieve financial independence.
Here are some things I like doing right now:
- solve problems
- Spend time with my family
- Planning the future, which can include activities, vacation, and finance
- Build things
- Concentrated time working on passion projects (like this blog)
- Spend time with friends I connect with
- Be active: train, ride a bike, go for a walk, etc.
What would I do with financial freedom?
Achieving financial independence would mean that I would become the master of my time and have 100% say in how I use it.
In addition to concentrating on things that I already enjoy doing, there are other things that I would like to pursue. Some of them are not activities per se, but they are still changes.
- You don’t have to worry about getting paid
- Travel the world
- Moving to a more accessible city
- Do not own a vehicle
- Demote our house and have less shit
- Eat more
- Make nice presents for family and friends
- Completion of Zelda: Breath of the Wild
- Read more
- Learn to enjoy nature and relax
And that’s probably just the tip of the iceberg. And I hope to pursue some of these things before I achieve financial independence.
Each of us has an inner dragon. What would this dragon do if it were unleashed?
Financial independence will be expensive
When I look at this list, I’m surprised at how much it will all cost. Granted, some of these things cost nothing (or very little), but there are some big dollar bills on this list.
Moving to a city in a walk-in urban area is likely to cost more living. Traveling around the world doesn’t have to be expensive, but plane tickets are not cheap. Eating more means spending more on food. If I buy more gifts for family and friends, my wallet will be empty.
All of that makes me wonder. Will our cost of living rise as soon as we achieve financial independence? How much nest egg do we need to build to make an income that supports this lifestyle?
FatFIRE vs. LeanFIRE: Define comfort
As I said, Fat FIRE is a term that describes a higher fortune and a higher lifestyle. Lean FIRE is the opposite. Lean FIRE retirees spend significantly less each year than their Fat FIRE counterparts and have less wealth.
A common element that struck me when I started writing these thoughts down was that we were reducing the number of things we own and the size, and focusing more on what brings us value in our lives at this time.
Maybe we decide to move or find a place that serves as the basis for long-term travel. Or maybe we decide to get closer to our children to temporarily help them.
But it’s about changing our plans whenever we want and having enough money to support our lifestyle.
The bigger our nest egg, the more options we have. I don’t want to be financially wasteful, but I also don’t want to feel like we’re super economical with everything we do. There is a time to be frugal and cut spending, but I dream of relaxing our budget when we achieve financial freedom.
I don’t want any extra crap storage space that I’ll never use. We already have a big house full of shit that we don’t use. We’re starting to change our habits, but I want to make our lives even easier once we achieve financial freedom.
Let’s look at the numbers
If we assume that we have no debts, including a mortgage, the amount of money we have to live on will, in my opinion, be less than what we now earn.
But how much money do we need to live this lifestyle?
That is a difficult question. Much of the equation is where we choose to live. If we find an urban environment where we could be happy that doesn’t have incredibly expensive real estate, we could live a comfortable life for a lot less money. But that’s a big IF. Our options could open up when we look at cities outside of the United States.
And we could choose to live in a cheaper place that isn’t super accessible to save money. It is not that there is a rule that we cannot compromise.
For this article, let’s say we should bring home $ 100,000 a year before tax to get enough options. This in turn presupposes that we are 100% debt free. We may be able to do a lot less what we want, and I hope we can calculate a more accurate number over time.
$ 100,000 a year may not be enough to live where we want to settle. The biggest risk I see is how expensive real estate is in larger cities. Prices are slightly in the $ 1 million range. We either have to have a larger nest egg, live in a smaller place, or find another place.
Rule of 33
An article on Financial Samurai entitled “The ideal payment rate for retirement does not affect the client“. I think he’s probably a little more conservative with my pension funds than I am. There was a comment on this article that spoke about the “Rule of 33”.
The “rule of 33” in this context is to multiply the amount you want to draw each year by 33, and that’s the size of your nest egg you want to shoot for.
You will often read about the 4% rule and this is more conservative. Especially if you’re retiring early, I think it’s a smart move to lower your estimates.
$ 100,000 x $ 33 = $ 3.3 million
I haven’t thought too much about how the various pension funds and “hopefully” some social security income play when we reach this age. In general, however, this is the amount for which we take photographs with our investment accounts after taxes.
In combination with the pre-tax retirement savings, we can hopefully save more than $ 3.3 million.
$ 3.3 million is a large sum of money. But if we wanted to keep track of everything on our list, this amount (plus a good amount of retirement assets) would give us many options, plus the option of leaving a legacy to our children.
I would prefer to set a higher number and face the situation where we don’t spend as much as we think than we run out of funds and have to work again. When I retire, I never want to have to enter the world of work unless I want to.
The Passive aggressive investor has a great article that describes how big your pension fund needs to be to get a certain annual income with different percentages. I found it useful to see how changing the annual payout rate changes the amount we should save. As mentioned in the article, you always have the option to adjust how much you pull out each year.
The above amount is based on current dollars. But over time, inflation will lower the $ 1 value. In other words, the above $ 3.3 million does not take inflation into account.
Let’s say we want to retire in 20 years, inflation will be 3% a year, and we hope to raise $ 100,000 a year. Here is our equation:
$ 100,000 * 1.03 ^ 20 = $ 180.611 (rounded)
That means if we want to live on $ 100,000 in 20 years, we should really be shooting for $ 181,000 a year. This changes the numbers quite a bit. According to the rule of 33 above, this now amounts to almost USD 6 million! If we use the 4% rule instead of the 33 rule, this is $ 4.5 million.
These numbers hurt my head. How the hell are we going to approach this amount? I am not 100% sure as we are just starting our FIRE journey. But I’ll keep thinking about it when our assets grow this year.
What if we can’t reach our goal?
Life happens and priorities change. If we cannot achieve our goal, are we doomed to fail?
We may have to change our plans. Or it could mean that we have to have a normal job longer. But it won’t be the end of the world. We are still at the beginning of our FIRE trip and have currently not set a target date.
But there is a good chance that we can reach our goal faster if we keep pushing hard. An earlier achievement of our goal could be through job increases or through an increase in our income through secondary employment. If our nest egg approaches a large number, we also have the opportunity to invest a lot in real estate or in other passive income streams.
For example, if this blog starts (big IF there), this can lead to additional income.
At the moment we are still trying to figure out how to increase our income and we are not intimidated by this large number. In fact, we are motivated to reach FAT FIRE.
Setting a general goal can motivate you to optimize your time, even if you are not sure whether you can achieve it.
Life is more than money
A recurring idea that keeps appearing in my articles is to pursue our financial goals. It shouldn’t sacrifice what is most important to us.
And money is not the most valuable thing we have.
This idea is an area that I am constantly fighting against. I am very passionate about making this blog successful with pure stuff, but it is no more important than the relationship I have with Andrea and my two girls. I would do anything for you.
Sometimes I have to stop what I’m doing and do a “time check” to make sure I don’t focus too much on my passion projects. I am a very passionate person and can get lost in what I want to focus on at a certain moment. This passion works well in pursuing goals, but it can also sacrifice what is most important to me.
It is not worth my financial goals to sacrifice my relationship with Andrea and my girls.
What do you think of my plan to pursue FAT FIRE? Do I shoot to spend too much in retirement?
Chris is a financial blogger who loves to be transparent about money. He has paid off massive credit card debt and is the blog author of Stir money. His main focus on Money Stir is how money is related to our relationships, personal development and planning for the future we want. He has been cited in Market Watch, The Ladders and other publications.
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