Calculating Lean FI Numbers As An Entrepreneur

Traditional financial independence (FI) through saving and investing? Or the more work intensive but potentially quicker route of side hustling and building passive income streams?

Why not both!

Using myself as an example, I’ll show you how I think when I calculate how much we need to keep a roof over our head and food on our table. So-called lean FI.

Why lean FI? Because as someone who has always been starting projects of varying success, there is no way I will not create more income after I reach financial independence. Why overshoot by going all the way to traditional or fat FI? I will create more income, I just want to reach my first goal of not being dependent on an employer for my financial survival first.

The bare bones/lean FI

After writing my first annual review of how Etsy has treated me, I got to thinking about how this entrepreneurial financial independence journey is slowly plodding along. I am also thinking about how much I feel like I need to safely declare myself employer independent.

Since we both try to build our independent incomes in the Frugasaurus household, we split the shared expenses roughly in half. With mortgage, student loan, groceries, internet and electricity, the bare bones of my half of the expenses comes out at between 10-12k NOK, or roughly $1400.

If I add to that the need to have a few thousand NOK to save for repairs, travel, etc and another couple thousand for taxes, I have concluded that a lean FI number we could actually live on would account to about 200 000 NOK ($24k) per year, or about 16 666 NOK ($2k) per month (let’s round that up to 17 000 NOK for ease, shall we?).

If I was only reaching this goal by following the 25x rule, that means I would have to have roughly 5 million NOK ($600k) invested before I could call myself lean FI. For reference, that is twice the value of our current home, or 2.5 times what I will have earned in total after my current 4 year contract expires. It is a lot of money. Not impossible, but certainly a substantial amount.

The power of passive income and diversifying

Although passive income isn’t really passive (more like front-loaded work), there is a lot of power in having a project potentially earning you money in your sleep. If you keep nurturing it, it can in many ways work similarly as investment income or stock dividends. But if you don’t have the money to make index funds work for you yet – perhaps you have the time to make projects which can reap dividends?

In November and December of 2018, my little Etsy shop made me 500 NOK per month. If that is representative for the months to come, that is an added 6000 NOK per year. That is 150 000 NOK out of the 5 million I do not have to save in order to reach lean FI. That is as much as I could invest in a year at my current income if we had no large house repairs or other expenses crop up, and if both our emergency funds were fully funded.

So you could say that at this level of income/expenses, every 500 NOK per month I add to my sidehustle income stream is more than a year I don’t have to work to save for traditional FI. Now there’s an appealing story if ever I heard one.

Safeguarding against changes

You income streams can obviously look very different from my own. But in general I would say that any penny you earn joyfully, and would like to keep earning even after you’re employer independent, is money you can (by annual earnings) multiply by 25 and subtract from your total 25x your annual expenses traditional FI goal.

You might be surprised to see how quickly the number goes down and becomes not just realistic but achievable in not too long.

For me, I expect my sidehustle income to grow into my primary source of income while I am still young and have energy and drive to spare. With a goal to get up to around 25k NOK ($3k) monthly income before taxes, which I consider a comfortable income level with more than enough to save for the future. My plan is to keep investing slowly and surely even after employer independence, so by the time I grow older I will have a significant nest egg to draw from if I get sick or my passive income streams start drying off due to growing untrendy or something changes drastically with the internet or society in general.

But the plan is to grow employer independent long before my nest egg is big enough to sustain us. Because I am impatient and because the job market is volatile. And I just don’t trust the job market or employers after graduating with flying colors and then jumping from one short term contract to the next for three years.

Where are you in your journey?

Using the 25x annual expenses guideline for bare bones FI, we can calculate how much we would need to be sustained off investment income alone. But because most early retirees are entrepreneurial and savvy people, many end up working and earning money after they reach financial independence. That’s why we think lean FI is more than enough to get started, and we will keep building from there.

How are you thinking about your savings and sidehustle numbers? Do you feel it is too risky to stick to a bare bones budget, or are you already well on your way to go above and beyond? Are my numbers way out of whack? Risky to the extreme? Let me know and share your thoughts with others in the comment section!

8 Comments on “Calculating Lean FI Numbers As An Entrepreneur

  1. Love it!

    My semi-passive semi-entrepreneurial endeavours completely cover my expenses (plus a little extra for index funds) and I class myself as a form of FI, for the reasons that if I were to get a windfall big enough for the 25x rule to cover my expenses I’d still be doing the same or very similar projects because I enjoy them. I also don’t feel they’re any riskier than depending on an employer for work and money.

    So keep working on that Etsy shop! I’m excited to hear when it becomes your full-time gig!

    • Thanks!

      I hope to reach the same point where my sidehustles cover my expenses as soon as possible. It’s slow going next to full time, but we will get there! 🙂

  2. I love this!! I don’t love my sidehustle enough to grow it (I mostly have it to pay down debt…) the fact that yours could soon cover your expenses is wonderful!

    • Thank you! Paying down debt is definitely a good reason for a sidehustle! 🙂

  3. Thanks for writing this post. I share this perspective, but have never taken the time to formulate my thoughts into a coherent article. Glad somebody else has done a good job of it. People can get so entrenched and focused with blinders on towards reaching that ideal target Fat FI number years down the road that they miss out on this often less stressful, more joyful and fulfilling option. Entrepreneurship may not be for everybody, but those inclined in this direction would benefit from thinking about it along the lines you described in this post.

    • Thank you. I think we will see a generational shift when it comes to FI. People who are seeing “traditional FI” way overshoot, and opt for a slightly different route. As you say, it’s not for everyone, but imagine the years you can reclaim if it is! 🙂

  4. Your numbers make sense!

    I was wondering at the need to include mortgage payments in your fi numbers, though – do you plan to reach fi while you still have a mortgage, and if so, could you elaborate on that decision a bit?

    • Thanks! We do include mortgage payments in our initial FI numbers, because we expect to hit entrepreneurial FI before we’ve paid off our house. It is our plan to pay off all debts early though, so getting the mortgage out of the way will be a large expense-reducing factor in the long run. But we hope to earn enough off sidehustles to cover even the mortgage.

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