Perhaps my favorite part of FIRE, is that there is no “right” way to do it. There are people living the FIRE lifestyle by traversing the country living in their van on $20,000 per year. There are people that have used a FIRE approach to catapult themselves to vacation homes and luxe lifestyles. And there is everything in-between.
First, some terms:
- Financial Independence – financial independence means you have amassed enough money to cover your living expenses. You no longer *need* to work in order to maintain your current lifestyle. In most common FIRE plans, financial independence is defined as 25X your annual spending rate. So, if you spend $35,000 annually, you would need $875,000 saved in order to maintain this lifestyle. A few calculators to demonstrate the concept here, here, and here. It should be noted: financial independence does NOT mean “rich”.
- Retire Early – quite simply, you no longer NEED to work. You might choose to work either a part-time or full-time job. You might pursue independent contracts and one-off jobs that interest you. You might shift your focus to pursuits of passion instead: music, art, woodworking, etc. Some people choose to take a series of mini-retirements punctuated by returns to work (think: 6 months off to travel the Pacific Northwest followed by a return to a W2 job when you return). The main concept here is that you have earned financial independence and now have time freedom to choose the lifestyle that best suits you. Work is no longer a prerequisite to survival – hence you have retired early.
Flavors of FIRE
There are almost as many paths to financial independence as there are flavors of jellybeans. There is no one-size-fits-all and frankly, that’s part of the fun.
That said, FIRE falls into a few primary “flavors”, each with their own nuance and offshoots:
FIRE
FIRE is the Coke Classic of financial independence (man I must be hungry writing this post!). The goal of FIRE is to gather resources / savings to generate enough income to sustain one’s current lifestyle. This is achieved through the three main FIRE principles: Earn, Save, Invest. Adherents of Traditional FIRE are committed to saving a large portion of their W2 paychecks, investing aggressively, and living a less consumeristic, more minimalistic lifestyle but are otherwise looking to keep their current financial lifestyle the same.
FIRE fans are often attracted by the contrarian nature of the strategy. It’s a rebuke of traditional financial advice doled out by stockbrokers and financial advisors. It is inherently anti-consumerism. Most importantly, it is lifestyle design in its most raw form: converting money freedom into time freedom.
leanFIRE
leanFIRE follows a very similar mentality and strategy as traditional FIRE but adherents choose to live a more minimalistic, less materialistic “lean” lifestyle.
leanFIRE requires annual income at or below $40,000, but some proponents get by on as little as $15,000 or $20,000 per year.Obviously this type of lifestyle requires some sacrifices. It might mean forgoing children or even a spouse, living in a much smaller house or perhaps a van or RV equivalent, and almost always means living in a lower-cost-of-living city in the US (or even a MUCH lower cost of living country outside of the US). That said, by making these conscious financial decisions, leanFIRE advocates can retire on as little as $400,000 – $500,000 in investable assets ($20,000 / year at a 4% withdrawal rate = $500,000).
fatFIRE
Obviously at fatFIRE Group, we are big proponents of the fatFIRE flavor of financial independence. Much like the name implies, “fat” means that you are living larger than average. You are able to live in a nice house in a high-cost-of-living city, have a family, take luxury vacations, eat out regularly, and otherwise enjoy an upper middle class lifestyle. You’re not “rich” but you are able to enjoy the finer things in life.
There is no universal definition of fatFIRE, but it is generally agreed that passive income should be at least $100,000 per year. The fatFIRE subreddit explains it much more eloquently and succinctly than I can:
“You can achieve financial independence and early retirement without compromising your lifestyle. This requires a larger nest egg than a typical leanFIRE or FIRE goal. On this sub, we choose both abundance and sustainability.”
With this enhanced lifestyle comes increased savings – you simply need to amass a larger nest egg in order to live this lifestyle. To earn $150,000 per year passively requires a $3.75M at a standard 4% withdrawal rate. This is simply not feasible for most households. But for the right high-earning professionals, this can be attained with some rigor and persistence. At fatFIRE Group, we help our clients do exactly this. If you’re interested in learning more, we’d love to hear from you.
baristaFIRE
A newer variant of FIRE, baristaFIRE is a hybrid of the fat and lean flavors of FI. It often means keeping one foot in the working world on a part-time basis – usually for healthcare or other benefits-related reasons. Starbucks is one of the few companies that provide full healthcare and additional benefits (401(k), life insurance, etc) to all employees who meet a minimum-hours-worked threshold. Hence the barista in baristaFIRE. Healthcare is usually one of the biggest expenses for FIRE followers in the US, so anything that can help reduce these out-of-pocket costs while also bringing in some ancillary income is a welcome extension of our core FIRE principles.
baristaFIRE also applies to spouses who choose to remain in the traditional working world. The FIRE lifestyle is not for everyone. Some people simply love what they do and couldn’t imagine doing anything else as a career. Some choose to remain at their jobs to solve the healthcare conundrum above. Regardless, baristaFIRE is a nice compromise that allows both spouses to pursue the lives they love, while doing what’s best for their families.
coastFIRE
coastFIRE is another hybrid that is kind of the best of both worlds. If you are coastFIRE, you have achieved your FIRE number (or are close to it) but you feel more comfortable to keep working for a period while you…..coast into retirement. I see this often with professionals that are in low-stress, often high-paying jobs, where it simply doesn’t make sense to leave unless there is some compelling event – a new boss, layoffs, change in role / responsibilities.
Some critics of coastFIRE say that it’s disingenuous for an employee to continue on for months or years at a time, often doing the minimum to get by. But realistically, many employees do this anyway without the financial backstop of FIRE as a parachute. coastFIRE also allows people to “try on” FI to ensure that they are properly budgeting for the retire early portion of FIRE.
Next in our FIRE series….FIRE glossary!
