Early Retirement, Chris Davis on Berkshire's future, Howard Marks on market cycles, Threads vs. Twitter, Costco takes the high road, James Cameron, GEICO in the 1970s
Your definition of Fat FIRE is the opposite of everywhere I've seen it used.
Reference: FatFIRE Reddit group FAQ:
"FatFIRE is Financial Independence / Retire Early at an overabundant or luxurious level. Unlike FIRE (and leanFIRE in particular), FatFIRE is typically achieved through high incomes rather than minimalism or extreme frugality."
FatFIRE is not saving up enough to maintain a modest lifestyle without decreasing your standard of living. It is saving enough to maintain a life of wealth and luxury that explicitly surpasses the need for frugality.
The first time I’d ever seen the term “Fat FIRE” was in the article I linked to.
I doubt that the concept as you describe it can work except in cases where someone has come into significant wealth rather suddenly. To be in a position to not only maintain but substantially increase consumption when retiring very early is going to be a very unusual situation.
You don't need to increase consumption when retiring to be Fat FIRE. If you're living a life of extreme affluence prior to retiring, you can continue doing so after retiring if you have a big enough stash. This seems to most often describe people who are making extremely high salaries and have no wish to decrease their spending after retirement. If you're making $400k/year and spending $200k/year, that gives you plenty of room to build a huge portfolio while working and continue spending at that level.
I once suffered from spending! In the late ‘70s I developed a simple way to encourage saving. When I got my first real job in ‘74 I would earn way more that I had ever earned before. I had a short buy list—a TV &c.—and gleefully assumed that I would shortly be saving gobs of money. Five years later I was shocked—I’m not sure why it took 5 years—that I hadn’t saved much: my buy list had simply gotten longer and longer.
So one evening—I was now earning twice as much in Washington—I sat down and added up all of my contractually committed expenditures—car insurance, rental expense—, and I subtracted this sum from my expected after-tax income—W2 as a proxy. I then divided this sum by 52 to produce a weekly amount. This was my weekly spendable amount. Each week I wrote this sum on a 3x5 card, and during the week I subtracted every, I mean every, expense. Within a matter of weeks I found myself aiming to see how large a residual number I could end the week with. What I soon realized is that I had found a way to grasp the opportunity cost with every decision. This procedure soon became a habit, and since it became a habit I stopped worrying about saving.
I urge those who find it difficult saving to spend some serious time to figure out how to introduce opportunity cost In a workable manner into your daily behavior. (It might not be how I did it!) Done effectively, moralizing—thou shalt, god damnit!—will be expunged from your conscious behavior and replaced by a simple question, Do I really want to give up having this money to spend tomorrow, or the day after? Or, as Mark Twain nicely put it, Why put off until tomorrow, what you can put off another day?
I hope this will help a few readers to build opportunity cost into their daily life.
From an early age, I was obsessed with tracking my finances very carefully. I kept paper ledgers for my paper routes and tracked my income and expenses for the business and did the same for all of my personal expenses. This was in the mid 1980s. I kept those old ledgers for years but eventually discarded them and much else (college notebooks, etc) before a move to avoid needing a storage unit. I regret not having those ledgers today.
Thanks, Ravi. Yes, as we get older—I’m a few years ahead of you—, it is hard to throw things out. It is an emotional ‘trip’, but I have observed when we take long trips, I don’t think at all about what I have left behind.
You attended to expenses in a way that allowed you to be keenly conscious of your opportunity cost of every decision. This is how Warren and Charlie run Berkshire.
I remember Charlie saying at an annual meeting that they didn’t come into the office in the morning with a list of asset classes to buy. Their objective was to see if they could raise their opportunity cost. When I was a student at Chicago an associate dean told me: Arthur, there are just two things you need to understand to earn your MBA: opportunity cost and no free lunch.
Your definition of Fat FIRE is the opposite of everywhere I've seen it used.
Reference: FatFIRE Reddit group FAQ:
"FatFIRE is Financial Independence / Retire Early at an overabundant or luxurious level. Unlike FIRE (and leanFIRE in particular), FatFIRE is typically achieved through high incomes rather than minimalism or extreme frugality."
FatFIRE is not saving up enough to maintain a modest lifestyle without decreasing your standard of living. It is saving enough to maintain a life of wealth and luxury that explicitly surpasses the need for frugality.
The first time I’d ever seen the term “Fat FIRE” was in the article I linked to.
I doubt that the concept as you describe it can work except in cases where someone has come into significant wealth rather suddenly. To be in a position to not only maintain but substantially increase consumption when retiring very early is going to be a very unusual situation.
You don't need to increase consumption when retiring to be Fat FIRE. If you're living a life of extreme affluence prior to retiring, you can continue doing so after retiring if you have a big enough stash. This seems to most often describe people who are making extremely high salaries and have no wish to decrease their spending after retirement. If you're making $400k/year and spending $200k/year, that gives you plenty of room to build a huge portfolio while working and continue spending at that level.
Yes, as I wrote, I think that’s more like “level FIRE” in terms of maintaining pre retirement standard of living in retirement.
I don’t think that any retirement plan requiring a major reduction in standard of living makes sense.
I once suffered from spending! In the late ‘70s I developed a simple way to encourage saving. When I got my first real job in ‘74 I would earn way more that I had ever earned before. I had a short buy list—a TV &c.—and gleefully assumed that I would shortly be saving gobs of money. Five years later I was shocked—I’m not sure why it took 5 years—that I hadn’t saved much: my buy list had simply gotten longer and longer.
So one evening—I was now earning twice as much in Washington—I sat down and added up all of my contractually committed expenditures—car insurance, rental expense—, and I subtracted this sum from my expected after-tax income—W2 as a proxy. I then divided this sum by 52 to produce a weekly amount. This was my weekly spendable amount. Each week I wrote this sum on a 3x5 card, and during the week I subtracted every, I mean every, expense. Within a matter of weeks I found myself aiming to see how large a residual number I could end the week with. What I soon realized is that I had found a way to grasp the opportunity cost with every decision. This procedure soon became a habit, and since it became a habit I stopped worrying about saving.
I urge those who find it difficult saving to spend some serious time to figure out how to introduce opportunity cost In a workable manner into your daily behavior. (It might not be how I did it!) Done effectively, moralizing—thou shalt, god damnit!—will be expunged from your conscious behavior and replaced by a simple question, Do I really want to give up having this money to spend tomorrow, or the day after? Or, as Mark Twain nicely put it, Why put off until tomorrow, what you can put off another day?
I hope this will help a few readers to build opportunity cost into their daily life.
Thanks for the great comment!
From an early age, I was obsessed with tracking my finances very carefully. I kept paper ledgers for my paper routes and tracked my income and expenses for the business and did the same for all of my personal expenses. This was in the mid 1980s. I kept those old ledgers for years but eventually discarded them and much else (college notebooks, etc) before a move to avoid needing a storage unit. I regret not having those ledgers today.
Thanks, Ravi. Yes, as we get older—I’m a few years ahead of you—, it is hard to throw things out. It is an emotional ‘trip’, but I have observed when we take long trips, I don’t think at all about what I have left behind.
You attended to expenses in a way that allowed you to be keenly conscious of your opportunity cost of every decision. This is how Warren and Charlie run Berkshire.
I remember Charlie saying at an annual meeting that they didn’t come into the office in the morning with a list of asset classes to buy. Their objective was to see if they could raise their opportunity cost. When I was a student at Chicago an associate dean told me: Arthur, there are just two things you need to understand to earn your MBA: opportunity cost and no free lunch.