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The Financial Independence and Retire Early (FIRE) movement is not very old. But lately, it has started to get more and more traction. There are many blogs on the subject, and we are beginning to see several articles in the media about the FIRE movement.
With many different people starting to follow the movement, there are several sub-movements with varying kinds of FIRE. You probably have heard of the FIRE way. But have you heard of Lean FIRE or Fat FIRE?
It is interesting to see what are all these different FIRE ways. All these acronyms are 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 exciting thought!
By the end of this article, 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) is the version I have already discussed on this blog. It is generally for people who will 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. For regular FIRE, you need to accumulate enough to cover all your expenses in retirement. Each year or month, you withdraw some money from your invested capital. And then, you use that withdrawn money to pay for all your expenses.
Generally, people withdraw a fixed amount each year, adjusted only for inflation. 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 article. For instance, if you spend 60’000 USD per year, you will need 1.5 million dollars before retiring.
To reach Financial Independence, you must 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 is in the frugality. People reaching 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 incomes that seek to accomplish this goal.
Some people want to reach FI as fast as possible. Some people are moving to a cheaper state or even to another country. Some people are even living in their RV instead of having a home. With this, one can reduce expenses very low.
Generally, we use 40K USD as the threshold, but it is more about the mindset than the actual expenses. In some countries, you can be lean FIRE with 60K USD. For instance, in Switzerland, lean can be significantly higher than in some other countries. So, it is possible to be lean FIRE in every country, but not with the same expenses.
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.
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 who try to reach Fat FIRE do not worry much about 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.
Again, it depends highly on where you will retire. If you retire in Switzerland, 100K is not that high. But if you retire in Thailand, you would already be at Fat FIRE with 50K.
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 costs.
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 pretty 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 that the nest egg needs to be much smaller to retire. However, in that case, only one person of the couple is retiring.
I am not sure this is FIRE since instead of being financially dependent on your job, you are now financially dependent on your spouse.
There is a story behind the Barista FIRE name. You probably know about Starbucks, the coffee chain in 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, you will earn some income and 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. You expect your net worth to grow enough solely with stock market returns to reach your Financial Number without saving any more. 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 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 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. With the 4% rule, your FI number 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 is 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 becoming 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 determine which kind of FIRE you are.
- You will semi-retire to reach FI faster. Then, you are Barista FIRE.
- You will spend more than 100K USD per year. Then, you are Fat FIRE.
- You will spend less than 40K USD per year. Then, you are Lean FIRE.
- You will let your net worth grow with your investments and cover your expenses with your income. So, you are Coast FIRE.
- You will spend between 40K and 100K USD. Then, you are Regular FIRE.
- You will do something different. Then, you are your kind of FIRE!
If you are in another country, you can adapt these numbers based on the cost of living in this country. The numbers are not the same in every country.
So, what kind of FIRE are you?
Which kind of FIRE am I?
Our kind of FIRE is in between Regular FIRE and Fat FIRE.
Ideally, we would like to be in the Regular FIRE category with expenses around 60’000 USD per year. However, we are currently spending significantly more than that, putting us at Fat FIRE, with about 120’000 USD per year.
However, some of our expenses will fall once retired. Mainly, we will pay less in taxes. But since we are far from retirement, it is difficult to know precisely where we will be in retirement.
We are working on reducing our expenses. But I will not likely be Lean FIRE. Especially since I want to retire in Switzerland, an expensive country. To reach FI, I will be frugal and grow my income as much as possible.
I am working on increasing our income in the coming years. It will help us reach FI faster. Hopefully, we will not fall into the lifestyle inflation trap and end up as Fat FIRE. It is not something we want. But we recently had children, increasing our expenses in the long-term.
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.
It is all up to you to decide which way you want to take to reach FI. And it is interesting to know there are several ways. From there, you can also do your own FIRE!
And just like that, there are also many different reasons to become financially independent.
So, what kind of FIRE are you? If you follow your own particular way, I would love to hear about it!