Do you ever wish you weren’t stuck in your job? Do you dream of a life where you can work when you want as much (or as little) as you want?
If so, FIRE may be right for you. But which type? There are many different kinds of FIRE.
What is FIRE?
FIRE, sometimes also written as FI/RE, stands for Financial Independence, Retire Early. Sometimes you’ll just see FI (financial independence).
FIRE is generally achieved through aggressive saving, far more than the 10-15% recommended by most financial planners (see Wikipedia: FIRE movement).
The OG of financial independence is Vicki Robin (fellow Brown alum) and author of Your Money or Your Life, which was an instant NY Times best seller in 1992.
FI and FIRE became somewhat mainstream through the Mr. Money Mustache (MMM) blog.
This is the MMM post that got me interested in FIRE: The Shockingly Simple Math Behind Early Retirement. In the post, MMM posits that your retirement depends on only one factor: your savings rate, as a percentage of your take-home pay.
Put simply, the more you save, the earlier you can retire or be financially independent.
What’s the difference between FI and FIRE?
To me, FI > FIRE. Being financially independent means you have choices. You can work at something without necessarily considering the income prospects.
On the other hand, FIRE suggests that you will retire early. However, retiring from work doesn’t necessarily translate into a joyful life. Many people, even traditional retirees, struggle with retirement because they don’t know what to do with their newfound free time.
I’ve found that many proponents of the FI/FIRE movement have a lot they want to do and accomplish, which is in contrast to the common misconception that we will just sit around once we hit FI.
To me, being FI (financially independent) means freedom. Freedom to choose how I spend my time. Freedom to choose how I want to contribute to society (i.e. work). Freedom to spend time with my family when I want.
The Math of FI
Put simply, you are financially independent once the income from your nest egg is equal to or greater than your living expenses.
The generally accepted “safe withdrawal rate” (SWR) in the FI community is 4%, based on the Trinity study. Basically, with a mixed portfolio of stocks/bonds, there is a very good chance that your portfolio will last at least 30 years. With a higher allocation to stocks, the nest egg would likely last much longer. See this post if you want to learn more: Updated Trinity Study.
Let’s take a look at an example:
If you have a $1,000,000 nest egg and you can live off of $40,000/yr or $3,333/mo, you are financially independent.
If you have a $750,000 nest egg, you’d have to live off of $30,000/yr or $2,500/mo to be FI.
That’s a lot of money to save for most people, but there are options to make it work with much less (e.g. see BaristaFire below).
The Types of FIRE
People have different lifestyles, so there’s a different type of FIRE for everyone. Let’s take a look at the different types of FIRE. I’ll define each of these in my own words.
TraditionalFIRE
TraditionalFIRE is accomplished through a combination of a middle to upper middle class income, aggressive savings rate, and a slightly frugal lifestyle. Time to FI is accelerated with higher income and a more frugal lifestyle.
Approximate portfolio size: $1M-$2.5M
Approximate annual expenditures: $40k-$100k
FatFIRE
FatFIRE is for those who want to live a somewhat lavish lifestyle and enjoy many of the luxuries life has to offer. Those who achieve FatFIRE usually have high incomes.
Approximate portfolio size: $2.5M+
Approximate annual expenditures: $100k+
LeanFIRE
LeanFIRE is for those who embrace frugal living and are minimalistic. They can get by with very little.
Approximate portfolio size: <$1M
Approximate annual expenditures: <$40k
BaristaFIRE
BaristaFIRE is for those who continue to work part-time or at a lower paying job to supplement their lifestyle. Many times, they will work as a barista, for example, for health insurance and supplemental income.
Approximate portfolio size: varies depending on lifestyle (amount required is reduced by 25 x each dollar you earn)
Approximate annual expenditures: varies
It’s important to note that each dollar of income you earn reduces the amount required in your portfolio by $25 (assuming 4% SWR). For example, if you consistently earn an extra $10,000 through work, you can reduce your required portfolio by $250,000.
SemiFIRE
Ok, I made this one up. SemiFIRE is when you stay at a job working in a reduced capacity (part-time) to supplement your income. It’s very similar to BaristaFIRE, but I would say the main difference is that, in SemiFIRE, you are still working at a high stress job or a job you don’t necessarily want to be at. In this case, I would argue that you are not actually financially independent, but you do have a little more freedom than someone working full-time at a job they don’t want to be at.
Approximate portfolio size: varies depending on lifestyle (amount required is reduced by 25 x each dollar you earn)
Approximate annual expenditures: varies
NoFIRE
I made this one up too. Some people really enjoy their job and never really want to quit. They do not aspire to be financially independent. They are completely fine with a low savings rate and enjoy spending most of what they earn, knowing that they can earn more when they need it.
Approximate portfolio size: varies
Approximate annual expenditures: varies
Which type of FIRE am I aiming for?
Currently, I would say that I am a mix of SemiFIRE and BaristaFIRE. I currently work as a patent examiner and realtor. Being a patent examiner can be tedious and sometimes stressful. I enjoy being a realtor and would probably continue to work in real estate even if I was financially independent.
I do not necessarily aspire to retire early. Instead, my ideal situation would involve continuing to work in real estate at a reduced capacity, spending time with my family, and pursuing passion projects in my free time.
It’s important to note that extreme frugality is not necessary to hit FI. Instead, I would recommend focusing on increasing your income by becoming more valuable in the marketplace. Learn more, learn from others, and contribute to society. The money will eventually come.
For many, including myself, we will have to continue to stick to our day jobs for a while and pursue additional income on the side. For me, my side hustle is real estate, which is actually starting to become my main hustle.
Which type of FIRE would you want to live?
If you’ve read this far, thank you! Let me know in the comments what you think and if any of these types of FIRE appeal to you.
Wow, long article. I think I would want to do some FATFIRE. I think traveling the world would be nice, but expensive. Maybe SemiFIRE too because work can be fulfilling and fun sometimes. I’m just tired of overworking. Maybe real estate will become my new side hustle.
Go for it!
I’m hopeful that my husband and I are setting ourselves up for FatFIRE, but I do know that I hope to have some combo of barista/semiFIRE in my 50s/60s. I’m 33 at the moment, and when I had my son a couple of years ago, it was such a blessing for my mom (who is retired) to come and help out taking care of him! I want to do the same for my kids, so the goal is ‘be ready to retire when grandkids come to help out’ and my husband will probably continue to work, but we will see! I’d also like to be able to pursue something a little less stressful. Engineering is a stimulating career path, but it can get pretty crazy!
That’s great! As I get older, I feel like time goes by faster, especially as a parent. I hope you can hit that FatFIRE eventually. I think I will always be working on something. The important thing to me is having the freedom to work on what I want.