You know what FIRE is and you’re sold. This is the life for you. But did you know there are several different types of FIRE? 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 this concept involve:
- 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 iteration that allow you to customize your journey towards the overall goal of financial independence.
The Standard Approach To FIRE
A principle of the FIRE movement, calculating your FIRE number, is based on adding up your annual expenses and multiplying it 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 25S rule as a goal-setting tool, rather than a precise prediction. Since it’s not very specific, it can give you a starting retirement number to work toward.
On average, the average annual expenses for a family in the United States are around $60,000, so the traditional FIRE number is $1,500,000.U.S. Bureau of Labor Statistics. “Consumer Expenditures – 2019,” Page 5. Accessed Jan. 10, 2021.
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?
- What does my post FIRE life look like?
This is the standard approach to FIRE, but there are many approaches, as we will dive into below.
Want to calculate your FIRE number? Check out this compound interest calculator.
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.
Example: If you plan to spend $30,000 annually in retirement, your portfolio would need to reach $750,000, per the 4% 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 between 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.
Your Coast FIRE number = A / (1+r)t. A = amount you need saved to be financially independent. r = annual rate of return after inflation. t = years to for investments to compound.
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.
- Live in the most expensive cities in the world, which all have wonderful culture, food, nightlife, entertainment, schools, and arts
- Live in a comfortable house with at least three bedrooms, two bathrooms, and a yard if you have one or more kids, or a luxury two bedroom or greater condo if you are a childless couple or individual
- Save or have enough to pay for all your children’s college education
- Travel for 8 or more weeks a year while living in 4 or 5 star hotels
- Drive a safe and reliable car that’s not older than five years
- Eat and drink the finest foods (truffle butter, please!)
- Afford excellent healthcare (gold plan or higher without needing subsidies)
- Take care of all your parents financial needs since they sacrificed so much to raise you
- Have no need for either partner or spouse to work every again
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 FI/RE, 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 paying, lower stress job you would enjoy, like becoming a barista, for example.
Key thing here is choice and freedom. By building your F.U. fund (a pool of money to say “F.U.” to a job you don’t enjoy, 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.
“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..”— The Fioneers
People pursuing Slow FI could retire early or could retire at the traditional retirement age. The ultimate goal is full financial independence, but the focus is on making the journey as remarkable as the destination.
Like slow food 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.
Listen to our conversation with Jessica, one of The Fioneers, on Episode 84.
FIRE Is For Everyone
As you can tell, there are many different types of FIRE. Just like personal finance, this is personal too. To pick the FIRE you want to achieve, it is best to analyze your current spending and, from this number, predict what your expenditure should be. Your FIRE number might overwhelm you. Break it down further, split it into some of the other FIRE styles. You can do this!
Want to learn more about FIRE?
Check out our video training to learn the basics of FIRE and how to start your journey towards financial independence!
Check Out Our Podcast Episodes About FIRE
- Episode 103. How To Pursue Intergenerational Wealth with FIRE | Mahi Amaha, Black Womxn Are Wealthy
- Episode 84: How To Work Less & Live More with Slow FI | Jessica of The Fioneers
- 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