Intrigued by the FIRE movement but not into the frugal lifestyle it most often demands? There are actually different types of FIRE for different lifestyles! Read on to find out which iteration best fits you and your lifestyle.
FI/RE , also known as FIRE, stands for Financial Independence, Retire Early. The 3 main tenants of the FIRE movement include:
- Saving a massive amount of your income (usually 50% or more)
- Living well below your means
- Investing heavily in low cost index funds
The purpose of the FIRE lifestyle is to allow you to become work-optional years—or even decades—prior to the traditional retirement age of 65+. While this initial concept was developed in the 1990s, the FIRE movement now has many different iterations that allow you to customize your journey towards the overall goal of financial independence.
The Standard Approach To The FIRE Movement
Calculating your FIRE number is based on adding up your annual expenses and multiplying the total by 25. This is known as the 25x rule. As we always say, personal finance is personal, and determining your FIRE number requires a good amount of personal reflection. You should consider the 25x rule as a goal-setting tool, rather than a precise prediction.
On average, the average total annual expense for a family in the United States is around $60,000, so the traditional FIRE number is $1,500,000.– U.S. Bureau of Labor Statistics. “Consumer Expenditures – 2019“
The 25x rule can help you refine your retirement plans. But you probably shouldn’t hang your entire retirement on this formula alone. You’ll want to ask yourself questions like:
- Where will you live and what does the cost of living look like?
- How will I pay for health insurance?
- Who else is relying on me for income?
- Do I expect to travel a lot or be a homebody?
This is the standard approach to the FIRE movement, but there are many other approaches, as we will dive into below.
Think FIRE, but on a budget. People who opt in to Lean FIRE will typically have an expected annual retirement expenditure amount of $40,000 or below. If your current expenses are low, and you don’t plan on increasing them by a lot in retirement, this might be the most fitting types of FI/RE for you. This version of the FIRE movement also appeals to those opting for a very minimalist lifestyle as they are on their FIRE journey as well as during retirement.
Example: If you plan to spend $30,000 annually in retirement, your portfolio would need to reach $750,000, per the 25x rule.
You achieve coast FI/RE when you have enough money invested at an early enough age that you no longer need to invest any more to reach financial independence by the traditional retirement age of 65-69. This type of FIRE is great for 1) people who are not in a rush to retire early but want to ensure they are set financially for retirement, and 2) tracking your progress.
Following a Coast FIRE approach, if you could save $182,000 by age 30 and simply not touch that money for 35 years, then it would eventually grow to $1 million by age 65 assuming a 5% annual rate of return after inflation.
This is FIRE, but ballin’, meaning this is for people who want to live lavishly. People who pursue Fat FIRE expect a high annual expenditure, usually upwards of $100,000 per year. We’re talkin’ carros del año, trips always, no restrictions on luxury items.
With Fat FIRE, you are truly free to live like a boss. You can do whatever you want, wherever you want in the world. And if you choose to earn supplemental income because it makes you happy, that’s an option too. It’s the hardest level of FIRE to achieve, but arguably, the most fun.
Think FIRE, but hybrid. Under this type of FIRE, you are still saving for a specific amount following the 4% rule. However: you don’t want to grind away at work during what some may call some of the best years of your life. Instead, under Barista FIRE, you’ll have the option of quitting your day job, withdrawing 4% of the portfolio you have built up so far, annually, and supplementing the income that’s left to be covered with your side hustle or a lower stress job that you would enjoy—like, say, becoming a barista, hence the name.
Key thing here is choice and freedom. By building your F.U. fund and investing consistently, you could choose to leave a toxic workplace in pursuit of a job that you are more excited about. Barista FIRE also allows you to test run early retirement, so you can get an idea of what life in FI/RE could look like.
Coined by The Fioneers, Slow FI is the concept of incrementally taking steps to build more joy and freedom into your life, while pursuing FIRE. The Fioneers define Slow FI as:
“When someone utilizes the incremental financial freedom they gain along the journey to financial independence to live happier and healthier lives, do better work, and build strong relationships..”
People pursuing Slow FI could retire early or could retire at the traditional retirement age. The ultimate goal is full financial independence (AKA not having to rely on a job as your primary source of income and financial stability), but the focus is on making the journey as remarkable as the destination.
Like slow dining and slow travel, Slow FI focuses on the process, connection to the world and people around us, and our experiences along the journey. Slow FI enables us to live our best lives along the way.
The FIRE Movement Is For Everyone
Just like personal finance, your FIRE journey is personal. Pursuing early retirement is not just for the ultra-rich. With the right level of planning and intentionality, you can also achieve FIRE and not have to work for the rest of your life.
Check Out Our Podcast Episodes About FIRE
- Episode 105. How To Achieve FIRE With A 9-5 | EFG, Everyday Finance Gal
- Episode 93. How FU Money Can Help You Pivot Your Career | Gianni LaTange, First Gen Money Musings
- Episode 92. How To Use Your 401(K) To Pursue Financial Independence | Marie Coleman-Johns And Stephanie Stockwell Of Winenance
- Episode 76. How To Buy Back Your Freedom With FIRE | Jamila Souffrant, Journey To Launch
- Episode 69. How To Pursue FIRE As A Couple With Different Income Levels | Gay Husbands On FIRE
- Episode 58: How To Retire Early and Live An Intentional Life | A Purple Life
- Episode 31: Why Achieving Financial Independence Matters For Communities of Color | Julien and Kiersten Saunders of rich & REGULAR