FIRE: Elite vs reasonable budget – how much is too much when you want to retire early?

So as I’ve been pondering the early retirement theory FIRE (Financial Independence Early Retirement): save like an obsessed person every month, put a big balance (enough of a balance) away into investments and then retire from a 9 to 5 existence when your income from your investments covers your living expenses.

It’s a real thing. Type FIRE and retirement into Google and you get a wealth of information and examples from across the world.

However, as I ponder this, I keep circling back to one thing :

What is a right monthly living expense to set?

Should it be one of going out and eating at fine restaurants, flying business class on exotic holidays, taking taxis, buying clothes when the whim appears, being lavish when giving presents. Or should it be enough to cover a handful of holidays (mostly local) a year, eating out once a month, using public transport or a bike, which is free-ish, and buying second hand clothes or just enough of what you need?

How do the two of those stack up?

So I thought I’d try have a more detailed look.

Let’s start with two examples. But before, I do want to caveat this exercise. Clearly the first sets of numbers I am going to show you below are in the realm of senior level two person working families. This is central Paris after all and living in such a European capital costs lots of money. Outside of Paris, the numbers would look very different – see the very last example.

Some base assumptions first:

  • Family of four (2 adults, 2 kids)
  • Living in Central Paris, France
  • Kids at school

The Reasonable Monthly Budget (all in Euros)

Housing     4 500.00
3 bedroom apartment
15th arrondissement
Average price per m2                9 055.00
Comfortable SQm2                        95.00
Purchase price            860 225.00
20 yr mortgage/month                4 500.00
Transport metro tickets 5 zones 2pax      150.00 €
Food per month      780.00 €
Going out 1 per month      100.00 €
Gifts (when invited out)        25.00 €
Babysitter 4 hours/month        40.00 €
Clothes mainly kids      200.00 €
Netflix/internet/phones      172.00 €
Travel (holidays) monthly accrual      585.42 €
5 weeks vacation with 3 weeks out of country
Schooling public      150.00 €
Healthcare      100.00 €
Contingency      450.00 €
TOTAL    7 252.42 €

So, lets explain some of my assumptions- as this is still a lot of money- which is primarily biased by two elements:

Firstly housing: Paris is expensive and I’ve assumed the need to live in the 15th which is close to some bilingual schools, but the general cost of Paris is pretty consistent: it is expensive.

I’ve assumed one outing per month for the above. Clothes may be a bit high but with kids growing up, I’d prefer to be on the higher end. Travel assumes three-star hotels with 3 weeks out of the country and 2 weeks in local. This is probably on the high side but as one always tends to spend more when on holiday, I’d rather be on the high side.

The contingency is random and equals simply 10% of the housing expense as things always come up and this is also meant to cover the monthly utility costs which are covered by the building association. Schooling might be a bit low as I haven’t factored in school supplies and reading books.

All in all, I’m thinking the pluses could balance the minuses so we’re in the range of something livable in Paris.

Excluding housing, the total cost is 2752 euros/month for a family of four in central Paris which is still high but probably in the right zone for the purposes of this exercise and for a family that still wants international travel. Also, as one needs furniture, repairs etc from time to time, the number becomes more believable. To live this lifestyle in Paris, you need both parents working at mid-to senior level jobs.

So, 7.252 euros per month equals approx. 87.000 euros per year. To cover this, you’ll need a portfolio of approximately 2.200.000 euros.

I think this is reasonable for a FIRE retired living, bringing up 2 kids in central Paris with a full mortgage on your home. Without the housing, you’ll need only 825.000 euros as an investment portfolio.

If you wanted to pay off the housing completely, you need the 825.000 and 860.000 purchase price so around 1.7 million euros to start with.

Now let’s look at the same family living a more “elite” lifestyle.

The Elite Monthly Budget

Housing            8 400.00 €
3 bedroom apartment
15th arrondissement
Average price per m2            9 055.00 €
Comfortable SQm2                180.00
Purchase price    1 629 900.00 €
20 yr mortgage/month            8 400.00 €
Transport metro tickets 5 zones 2pax                150.00 €
taxis 1/day                400.00 €
Food per month            1 200.00 €
Going out 2/ per week            1 040.00 €
Gifts (when invited out)                135.00 €
Babysitter 6 hours/week                240.00 €
Clothes mainly kids                200.00 €
Netflix/internet/phones                172.00 €
Travel (holidays) monthly accrual            1 448.33 €
5 weeks vacation with 3 weeks out of country
Schooling private            1 333.33 €
Healthcare                100.00 €
Contingency                840.00 €
TOTAL          15 658.67 €

The biggest changes here are housing, travel and entertainment, but food is also higher. I’ve assumed a much larger place at 180 square meters. Also, I’ve assumed using a taxi once per day. Travel outside the country is in business class and further afield and hotels are 5-star.

Here we arrive at over double the more reasonable budget and one would need a portfolio of 4.7 million euros to cover this lifestyle.

If you lived on a paid off mortgage, you’d need 2.2 million euros. So, this amount plus paying an apartment off cash, in our example, would mean you’d need 3.8 million euros before you could retire on this lifestyle. (2.2 million plus 1.6m purchase price.)

That’s a big gap in portfolio needs: An incremental 3 million euros.

Clearly there are a million examples of something in between and some much lower. If you wanted a life outside of Paris, you’d probably be able to get by with something much lower and let’s be frank, most of the French do get by on much lower, but Paris is somewhat of an exception.

But if you want to live in central Paris, send your kids to good public or private schools, have a bit of a social life and get some decent travel in, I would think you would need around 2 million euros saved up before you can start seriously contemplating saying goodbye to your 9to5 existence.

Then again saying goodbye doesn’t necessarily mean you stop working – it just means you stop working on someone else’s terms.

So end off, let’s look at an outside Paris example. I’ve taken a small coastal town (not the cheapest and re-run some numbers. I added this a bit late as reading the above, I think we’re being too biased just looking at Paris, after all I am sure a fair bit of people would love to rather live in the countryside.

The out-of-town monthly budget.

Housing     1 480.00
3 bedroom home
15th arrondissement
Average price per m2                3 000.00
Comfortable SQm2                        95.00
Purchase price            285 000.00
20 yr mortgage/month               1480.00
Transport bus tickets month      104.00 €
Food per month      540.00 €
Going out 1 per month        30.00 €
Gifts (when invited out)        15.00 €
Babysitter 4 hours/month        32.00 €
Clothes mainly kids      165.00 €
Netflix/internet/phones      172.00 €
Travel (holidays) monthly accrual      585.42 €
5 weeks vacation with 3 weeks out of country
Schooling public      150.00 €
Healthcare      100.00 €
Contingency      148.00 €
TOTAL    3 521.42 €

You can see the numbers are vastly different.Housing especially, completely changes the game and food is also less expensive and transport somewhat as well. The rest is all pretty similar for the needs of this exercise.

To live retired this lifestyle, you would need a portfolio of 1.000.000 million euros. Take away housing and that requirement goes to 612.000 euros. That is vastly different from the 4.7 million euros needed to live the Elite lifestyle (almost 8x less).

So depending on what lifestyle you want and where you want to live, your wealth need prior to leaving the 9to5 are vastly different.

Aim for at least 600.000 euros and if you can shoot as high as 2.000.000, then your ability to live almost anywhere increases dramatically. Happy savings!

The CFO

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