What is fire?
FIRE – financial independence, retire early – is a financial movement that has gained massive popularity in recent decades. It has become a gateway to exit the workforce early and pursue your true passions in life.
FIRE’s growing popularity has driven an evolving demand for unique and curated FIRE plans. And it makes sense, because everyone’s financial goals are different.
If you want to learn specifics about what FIRE really is, see our post on what is FIRE. Or if you’re an enlightened individual already on the path to FIRE, check out our post on the importance of a high savings rate and its impact on your ability to retire early!
We have excellent news- FIRE comes in many sizes!
You may be curious on which different types of financial independence (FI) are right for you.
- Do you want to delay early retirement and keep living the high life?
- Do you prefer a swift escape from your 9 to 5 regardless of the consequences?
Depending on the route to financial independence you choose, you will need a different retirement dollar amount saved. Below shows an example of how different types of financial independence results in varying amounts of money needed to be saved for retirement.
- Coast FI #: $260,000. (See example in #4 below… assuming $60,000/year expenses)
- Barista FI #: $500,000. (See example in #5 below… assuming $40,000/year expenses full-time, $20,000/year with Barista FI)
- Lean FI #: $750,000. (Assuming $30,000/year expenses)
- FIRE #: $1,000,000. (Assuming $40,000/year expenses)
- Fat FIRE #: $2,500,000. (Assuming $100,000/year expenses)
1. Traditional FIRE
The one that started it all – regular ol’ FIRE. Traditional FIRE is designed for people who want to retire early, and generally have yearly expenses of $40,000-$100,000. This spread of expenses covers most Americans, hence why it’s the most common type of financial independence.
An important note here – FIRE is all about expenses, not income. Higher earners potentially achieve FIRE faster, but only if they maintain a high savings rate. Ramsey Solutions says, in reference to the FIRE movement, “No matter how much you cut down your lifestyle, it’s going to take a big income—probably somewhere in the six-figure range”1. We completely disagree. Understanding the FIRE calculation will clear this up.
Your FIRE Number = Yearly Expenses X 25
Your FIRE number represents the dollar amount you need saved and invested before retiring. Hopefully this formula sparked the question, “but NYOP, why don’t I see income in that calculation?”
Simply put, it’s about what you spend. This is because people with low expenses will have a more achievable FIRE number. Combine this knowledge with a high savings rate, and you could reach FIRE in a decade or less.
Read our will your savings rate let you retire post to understand why savers reach FIRE faster than earners.
Someone with $40,000 of yearly expenses will have a FIRE number of $1,000,000. On the other end of the spectrum, $100,000 of yearly expenses equates to a $2.5 million FIRE number.
Now you’re likely asking, “How do you expect me to save $1,000,000?” Well, we are on track to do it in less than a decade (we’re not the first either), and you can too after reading our what is FIRE post!
2. Fat FIRE
Some of our audience may be living a life of luxury that they are not willing to give up, and there is nothing wrong with that. In fact, Fat FIRE was designed just for you.
For those willing to increase their savings rate before they retire, any type of FIRE is possible. However, high earners will find Fat FIRE obtainable in a shorter time frame.
Fat FIRE utilizes the same formula as regular FIRE to determine a FIRE number. The only difference is Fat FIRE individuals spend more than $100,000 a year.
For example, a $200,000 per year spender needs $5 million to achieve FIRE(yearly Expenses X 25).
It’s also possible to increase your expenses in early retirement. A couple with $50,000 worth of pre-retirement yearly expenses may hope to achieve a lavish $4 million FIRE number (equating to $160,000 of in-retirement yearly expenses). They could sacrifice a bit now for the sake of future extravagance in retirement.
3. Lean FIRE
Lean FIRE, as the name implies, is on the opposite side of the FIRE spectrum as Fat FIRE. If you are anxious to exit the workforce, Lean FIRE is more attainable than the options we have listed so far.
The caveat is that you must be willing to live on a “lean” budget, which covers basic necessities. Your Lean FIRE number may range, depending on your geographic location, age, and fix expenses.
We at NYOP are not quite FIRE yet, but we’ve been able to live under $40,000 for three of the last four years, which we would require “lean”. Browse our habits that will save you money to learn how we did it. And to our reader’s expected surprise, we don’t feel like misers or cheapskates.
We consider ourselves intentional minimalists (also called a valuist), and are willing to spend on things that bring us real happiness. Now, I digress…
To hit a Lean FIRE living on $20,000 per year (remember our equation and multiply by 25), you need $500,000 saved. This type of living is actually achievable through intense penny-pincher techniques, or equally common geoarbitrage strategies.
An example of geoarbitrage would be a U.S remote worker living in a low cost of living (LCOL) country like Thailand or Indonesia while keeping the same income level – typically from remote job. This “expat” phenomenon is becoming more prevalent because of the global digital job shift.
As housing is typically the highest cost in annual spending, the best way to drastically reducing cost of living expenses is to move somewhere with more affordable housing and considered to be a LCOL area. An example of this within the U.S. could be a move from California to Wisconsin.
4. Coast FI
Up to this point, we have strictly talked about FIRE strategies. Now we will delve into financial independence techniques that do not necessarily include retiring early, hence the term “FI”.
Coast FI is a strategy for people who want to get more out of life when they are young, but still want that predictable traditional retirement. Coast FI lets you work part-time and make just enough money to support your current lifestyle (i.e. not saving extra for your future.)
In order to pull this off, you need to diligently accumulate wealth for a few years. This is mostly done by having a high savings rate, but having a big income won’t hurt.
The additional dollars you save during this time will be invested in retirement and brokerage accounts. Let these investments grow in the background for 20+ years, and it will become a fine pool of money you can dive into during retirement at the traditional retirement age.
Coast FI’s appeal comes from your ability to work part-time after the “wealth accumulation” phase. Coast FI also works better the earlier you start saving and investing because of compound interest. If you are less than thirty, you may only need a couple tough years until you “coast” to retirement (ergo the name Coast FIRE).
Coast FI has its own “number” that you can calculate, like the FIRE number. It’s trickier than the FIRE formula, however, because your time until retirement comes into account. The equation looks like this:
Coast FI # = FI # / (1+Expected Growth Rate)^# of years until retirement
If this doesn’t make sense, hop over to The Fioneers and get their Coast FI calculator to make it a bit simpler when plugging in the numbers. The Fioneers assume a 6% inflation-adjusted growth rate, which NYOP agrees with. One last piece of the puzzle is knowing your retirement age minus your current age.
Let’s crunch the numbers for Sally, a 25 year old expecting to retire at 55. Sally has a FI number of $1.5 million based on her yearly $60,000 expenses.
A small detail to remember with this equation is it represents Sally’s Coast FI number at that moment. If it takes her three years to save this amount, the goal post will have shifted a bit because she is closer to retirement and has less time for compound interest to work its magic.
5. Barista FI
On its surface, Barista FI is very similar to Coast FI. They both embrace the financial independence side of FIRE, and not so much the retire early side.
Because of this, both strategies are likely to include part-time work before hitting a traditional retirement age. The differences become apparent when we look at the ‘drawdown’ of each FI strategy.
The simple definition of a drawdown is taking money out of your investments. For Coast FI, you do not drawdown until you hit your planned retirement age. For Barista FI, you can drawdown early to supplement your living expenses.
Another way to think about Barista FI is relating it back to traditional FIRE. Let’s imagine Ruby, an ambitious investor trying to reach FI. Ruby just calculated her $1 million FIRE number based on her average yearly expenses hovering near $40,000.
But now, Ruby decided early retirement is not for her, and she would rather work seasonally (three months a year, to be exact). Barista FI allows Ruby to do seasonal work to ‘make up the difference’ between her investments and her cost of living.
Ruby was able to earn $20,000 during her busy, 3-month work season. Assuming she reached Barista FI, she can deduct this $20K from her $40K yearly expenses. That’s $20K remaining. Ruby then plugs $20,000 back into the FIRE calculation, and finds out her Barista FI number is $500,000 instead of the $1 million from before.
Since Ruby was willing to work instead of retiring completely, she slashed her FIRE number in half. Plus, she still gets 9 months of the year off. Barista FI is a great way to get satisfaction from a job (something people like Ruby crave), but avoid burnout.
Oh, and the name Barista FI?… Well the name stuck because of the coffee company Starbucks. Ever hear of it? They actually offer benefits to their workers, even those that are part-time.
Since healthcare costs are a major concern for Americans (and basically no other developed nation?…), members of the U.S. FIRE community would often do part-time work at Starbucks to get medical insurance.
6. Flamingo FIRE & Slow FI
Flamingo FIRE and Slow FI are two specific types of FIRE/FI that were coined by Money Flamingo and The Fioneers, respectively. We believe they relate enough to combine them in this post, and they illustrate the idea that FIRE can be exactly what you want.
Read their blogs here for specifics on their philosophies: Money Flamingo and The Fioneers.
The take away from these two ideologies of FIRE is that you can use a combination of techniques to match your own unique circ*mstances.
- Do you want to quit your dreadful job right now, consequences aside, and still retire early?
- Do you want to save a bunch of money very quickly, take a mini-retirement for 3 years, and live out your days with part-time work?
The choice is really up to you!
Comparison Table on Different Types of FI
Conclusion
Finding a FIRE plan that fits your financial goals is important, and hopefully we narrowed the options down for you. We want this article to clear up some of the confusion surrounding the ever-expanding financial independence movement and all the different types of financial independence.
There are so many ways to accomplish FIRE. Now go out and declare your FIRE intentions!
Check out our other posts!
- Barista FIRE: How to Semi-Retire Early and Enjoy Life
- Coast FI in our 20s: The Best Type of Financial Independence
- How To Invest Your First $1000 (So You Can Retire Early)
- Simple Investing Tips For Beginners
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