(Disclosure: Some of the links below may be affiliate links)
The Financial Independence and Retire Early (FIRE) movement is not very old. But lately, it has started to get more and more traction. There is a ton of blogs on the subject, and we are beginning to see several articles on the media about the FIRE movement. With many different people starting to follow the movement, there are now several sub-movements with different kinds of FIRE. You probably have heard of the FIRE way. But have you heard of Lean FIRE or Fat FIRE?
It is very interesting to see what are all these different FIRE ways. All these acronyms are a bit ambiguous and can make matters a bit complicated. It is not extremely important to know what kind of FIRE you are. But it is an interesting thought!
Once you finished reading this post, you will know what kind of FIRE you are! Or maybe you will define a new kind of FIRE! And that is perfectly fine. Each way to FIRE has its differences.
1. Regular FIRE
Regular FIRE (or FIRE simply) is the version I have already talked about on this blog. It is generally considered for people who are going to retire with yearly expenses between 40’000 and 100’000 dollars.
There are different ways to reach FI. But the idea is the same for most of these ways. You need to accumulate enough to cover all your expenses in retirement. For this, each year or each month, you withdraw some money from your invested capital. And then, you use that withdrawn money to pay for all your expenses. Generally, people are withdrawing a fixed amount of money each year. The most common rule is to withdraw 4% per year. It may not be the safest withdrawal rate. But it will do for examples in this post. For instance, if you spend 60’000 USD per year, you will need 1.5 million dollars before you can retire.
To reach Financial Independence, you will need to accumulate this nest egg while still covering your expenses. To reach FI faster, you either need to be frugal or grow your income. It is still not very easy to accumulate such an amount of money. But it is worth it since there are many reasons to want to become financially independent.
2. Lean FIRE
Lean FIRE (or leanFIRE) is almost the same as FIRE. But people are spending much less. Generally, people who spend less than 40’000 USD per year in early retirement are considered leanFIRE.
The principles remain the same. You save enough money to cover your expenses in your retirement using a Safe Withdrawal Rate (SWR). The main difference is that you have to save much less than people on Regular FIRE. If you spend 20’000 USD each year, you will need 500’000 savings with a 4% withdrawal rate.
The difference between Lean FIRE and Regular FIRE are in the frugality. People that reach for Lean FIRE have to be much more frugal than those trying to reach the regular FIRE. People with medium income generally achieve it. But there are also people with very high income that seek to achieve this goal.
Some people want to reach FI as fast as possible. For this, some people are moving to a cheaper state, or even to another country. Some people are also living in their RV instead of having a home. With this, one can reduce expenses very low. Of course, it is not possible to leanFIRE in any country. I do not think this is possible in Switzerland.
It is faster to become lean FIRE than to become FIRE. You need to accumulate much less money. However, for some people, this means sacrificing too many things. That is why more people are pursuing regular FIRE. I do not think I could live in Switzerland with so little expenses. I like the frugality of it, though!
3. Fat FIRE
If the Lean FIRE movement is the frugal version of regular FIRE, Fat FIRE (or FatFIRE) is the non-frugal version! People that spend more than 100’000 USD per year are considered Fat FIRE.
Once again, there are the same principles as regular FIRE. The difference will be that you will need a much bigger net worth to be able to retire. If you spend 120’000 dollars a year, you will need three million dollars to retire (4% withdrawal rate). That is a lot of money you need to accumulate.
People that try to reach Fat FIRE are not worrying too much about their spending. But they are wondering a lot about growing their income. You need a substantial income to accumulate that amount of money. Even though they are spending a lot, some people with huge incomes are still frugal compared to their peers. In the United States, many physicians are pursuing this way of FIRE.
4. Barista FIRE
Barista FIRE (or baristaFIRE) is more different from the other kinds of FIRE: It is only a semi-retirement FIRE. The idea is simple. You follow the same principles as regular FIRE. You accumulate your nest egg to cover some of your expenses, but not all. And you work some part-time each year to cover the missing expenses.
Let’s take an example to be more explicit. If you spend 40’000 USD each year, you need one million dollars to retire with a 4% withdrawal rate. However, if you were to earn 10’000 dollars a year in retirement, you would only need 750’000 dollars of net worth. A quite small income can make a massive difference in the amount of money you need in retirement! You can semi-retire years earlier than other people with this technique.
There is a second way to be Barista FIRE while entirely retiring. It is to let your spouse work and stay at home. There are a lot of men (and also women) doing that. They are retired, but their spouse is still working. In that case, the spouse is bringing some money home. That means once again that the nest egg needs to be much smaller to retire. However, in that case, the only person of the couple is retiring.
There is a story behind the Barista FIRE name. You probably know about Starbucks, the coffee chain from the United States. They have a ton of employees. And they offer health insurance to their employees, even part-time. If you work at Starbucks in early retirement, not only will you earn some income, you will also reduce your health expenses. Hence the name Barista FIRE! Of course, you do not have to work at Starbucks to achieve Barista FIRE. Any part-time job will do ;) If you can get benefits and income, it is even better.
To learn more, The Frugal Fellow has a nice post on Barista FIRE.
5. Coast FIRE
Coast FIRE is very close to Barista FIRE. It means that you expect your net worth to grow enough solely with stock market returns to reach your Financial Number without having to save anymore. And you are covering your living expenses with a side income.
It may sound like working to reach FI. But there is a difference. For instance, if you were earning 120’000 dollars each year and you were saving 50% of your income. Then, once you have reached Coast Fire, you only have to find cover 60’0000 income per year. And your accumulated net worth will grow by itself until you reach Regular FIRE once it becomes bigger than your FI Number.
It is a bit difficult to know how much you will need to reach Coast FIRE. Let’s take back the example with 60’000 dollars a year in expenses. Your FI number, with the 4% rule, will be 1.5 million dollars. Let’s say you plan to retire in 30 years. And let’s also say you expect a 5% return from your investments each year. If we take back the compounding interest formula, we need to solve the equation 1.5M = P (1.05) ^ 30. It gives us 347’066 dollars to reach Coast FIRE. After 30 years, this net worth should become 1.5 million dollars if everything goes according to plan. It is significantly less than your FI number.
The objective of this type of FIRE is that you will have to save less money during the accumulation phase. You will not have to focus a lot on increasing your income and spending less.
6. Fart FIRE (or Fast FIRE)
Ok, this one is more of a joke than the others! It is also called Fast FIRE. But since the domain FastFire.com was already taken, Fart, the Swedish word for Speed (close enough to fast!), has been used instead to form FartFIRE. So there no relation with the smelly gas here! The idea is that it is not so important to know which category of FIRE you are in. What is important is that you need to be able to be FIRE as soon as possible.
You need to focus on going to FI fast. There are many ways to increase your speed on your path to FI. You will find that once you reach FI, you will not have to worry about money anymore. And that is more important than worrying about what kind of FIRE you want to reach!
The term was coined by Mr. 1500 days to freedom on his blog.
Which kind of FIRE are you?
Now that you know the different kinds of FIRE there are, it is pretty easy to find out which kind of FIRE you are.
- You are only going to semi-retire to reach FI faster. Then, you are Barista FIRE.
- You are going to spend more than 100K USD per year. Then, you are Fat FIRE.
- You are going to spend less than 40K USD per year. Then, you are Lean FIRE.
- You are going to let your net worth grow with your investments and cover your expenses with your income. So, you are Coast FIRE.
- You are going to spend between 40K and 100K USD. Then, you are Regular FIRE.
- You are going to do something different. Then, you are your kind of FIRE!
So, what kind of FIRE are you?
Which kind of FIRE am I?
I am falling into the Regular FIRE category.
Our current yearly expenses are around 60’000 USD. I am currently spending too much for my liking. I am working on reducing that. But I will not likely be Lean FIRE. Especially since I want to retire in Switzerland, an expensive country. To reach FI, I am going to be frugal and grow my income as much as possible.
I am also going to work on increasing our income in the coming years. It will help us reach FI faster. Hopefully, we are not going to fall into the trap of lifestyle inflation and end up as Fat FIRE. It is not something we want. But we are planning to have children. It will increase our expenses in the future.
As you can see, there are different kinds of Financial Independence and Retire Early (FIRE) movements. You can be extra frugal and embrace the Lean FIRE way. Or you could still spend a lot of money and reach Financial Independence with the Fat FIRE movement. Or you could semi-retire to make your way to FI much faster. In the end, it is all up to you to decide which way you want to take to reach FI.
If you want to know more about the different kinds of FIRE there are, I invite you to read What is the Difference Between Fire, Lean Fire, and Fat Fire? from Adam on minafi. com. He is the one that first coined these terms together. And he did a lot of research on people in each of these categories. It is a nice read with many numbers for each of the FIRE styles.
So, what kind of FIRE are you? If you are following your own particular way, I would love to hear about it!