FIRE Financial Independence Retire Early

How to Get Started With FIRE: Lean vs. Fat vs. Barista

The Financial Independence, Retire Early (FIRE) movement has gained a lot of traction and publicity over the last few years. Its popularity shouldn’t come as a surprise: why would you want to slave away at a 9-5 until you’re 65 if you could build your wealth enough to stop working within the next decade or so? If you’ve come to this conclusion yourself, you’re probably wondering how to get started with FIRE — but there’s more than one way to approach it.

We’ll take a look at three of the most popular FIRE strategies — lean, fat, and barista — and dish out some advice on how to calculate your FIRE number, and invest and track your portfolio to reach it.

How to calculate your FIRE number

Sometimes, people dismiss FIRE as being impossible because they’re under the impression that the only way to retire early is to stash away enough money to cover them for the rest of their lives upfront. So, if they expect to live fifty more years and need $50,000 a year, they figure they’d need to save up a whopping $2.5 million — and we can all agree this is unattainable for most people.

But the calculation above fails to account for the fact that your money will grow over time when you invest it. In other words, reaching FIRE isn’t like trying to grow an apple tree that will yield enough apples in a single harvest to last you for the rest of your life. It’s about caring for your apple tree so that it will continuously yield new crops that will feed you for season after season.

If you invest in the stock market, your wealth will grow over time — for example, the S&P 500 sees an average return of around 10% a year. As a result, even if you withdraw some money each year, the interest you’ll earn could offset the loss (depending on how much you withdraw). So, the key to financial independence is working out the FIRE number that allows you to withdraw enough money to cover your expenditures while remaining financially independent for the rest of your life.

To find your number, you’ll need to understand the 4% rule.

The 4% rule 

Although it’s a given that you can withdraw a little money each year while leaving your total balance unchanged, “a little money” is a rather vague term. The real question is: exactly how much can you afford to take out each year? It’s not something you want to leave down to guesswork or luck.

The most frequently stated guide is the 4% rule, which says that withdrawing 4% of your portfolio each year should leave the total amount untouched. Why and how? It was the result of a study regarding stock and bond returns between 1926 and 1976, which showed that savers who withdrew 4% of their portfolio a year were extremely unlikely to run out of money in their lifetime.

As they say, past performance can’t predict the future with 100% accuracy, but many experts swear by this rule of thumb — and you can use it to find your FIRE number.

Simply multiply the annual income you’ll want when you FIRE by 25 (or divide it by 0.04), and you’ll have your FIRE number. 

Let’s say you want to withdraw $40,000 a year:

40,000 ÷ 0.04  = 1000000

So, in this example, you’d need to save up at least $1 million to FIRE safely. Or would you?

The 3% rule?

It’s worth noting that not everyone believes the 4% rule is entirely reliable. A 1998 Trinity University study, which used more recent data from the stock and bonds markets, found that a withdrawal rate of 3% is more secure. While withdrawing 4% a year means you’re unlikely to run out of money, it doesn’t exclude the possibility completely.

If we go by this rule:

40,000 ÷ 0.03 = 1333333.33

You’d need to save more than $130,000 extra to FIRE — not a small difference by any means, but at least you can rest safe in the knowledge that your money is extremely unlikely to dry up.

If you’ve just calculated your number, you might be receiving heart palpitations trying to work out how it’s possible for you to save millions. But don’t panic — you can get there through intelligent investing, as we’ll show you shortly. But first, let’s take a look at a few different ways to approach FIRE.

Choosing the right FIRE strategy

FIRE is often presented as a singular movement where everyone believes and does the same things. FIRE-ers are often presented as an ultra-frugal group who save every cent they can and monetize every waking hour of their lives so they can stash as much money as possible into investment accounts. But the reality is that FIRE folks are a pretty diverse bunch.

Despite what the name FIRE might suggest, not everyone wants Financial Independence and to Retire Early. Plenty of people just want to become financially independent as soon as possible so they can work on projects that mean more to them, while others aim to truly retire. Maybe they want to have children and focus on their family without having to work at all.

And not only do people have very different ideas of what they want to do after they become financially independent, but they also have very distinct ideas about how much they need to be “financially independent” in the first place. To see this, let’s look at the three most popular forms of FIRE:

  1. Lean FIRE
  2. Fat FIRE
  3. Barista FIRE

Lean FIRE

Many people achieve FIRE through frugality: they buy cheap clothes, live in affordable accommodation, and keep their expenses down to a minimum — all in the pursuit of one day not having to work at all. No pain, no gain, as they say. 

But some FIRE-ers realize that living frugally isn’t so bad after all and decide they’d be happy to continue the same lifestyle after retiring — after all, a frugal retirement means a lower FIRE number and the chance to FIRE quicker. Many people decide they’d rather sacrifice a few of life’s indulgences if it means that they can buy back a few more years of their time.

But where exactly do we draw the line between lean and regular FIRE? There are a few different definitions — some consider “lean” as living off an income that’s lower than average for a specific area, while others think it means your income is 75% or less of the median. Or maybe you’d rather think of it as the mindset that you won’t spend your money on anything other than the bare essentials. 

For instance, the average household expenditure in the US in 2019 was $63,036. So, if you’re willing to survive on $50,000 or less, you could reasonably say that you’re lean-FIRE-ing (although you should probably reduce that number a little if you’re a single-person household). Often, people aim for even lower numbers, like $30,000 a year. 

Lean FIRE is the most viable way to FIRE for most people since it doesn’t require such a mind-boggling number. But, if you’re lucky enough to be on a high income, you might just be able to manage a fat FIRE.

Fat FIRE

Fat FIRE is the polar opposite to lean FIRE: retiring (or achieving financial independence) on a very comfortable annual income, which affords you plenty of luxuries and indulgences during your “golden years.”

If you’ve already spent ten years living as frugally as possible to make FIRE happen, maybe you want to experience everything you’ve deprived yourself of during your “retirement.” Or perhaps you’re on such a high income that you can afford to live well while you’re working toward FIRE and want to be able to continue doing that comfortably for the foreseeable.

Either way, fat FIRE could be for you.

Again, there’s not an exact number or rule for what constitutes fat FIRE rather than regular FIRE, but it’s generally viewed as being an amount that gives you a higher-than-average income. This could be $75,000, $100,000, or even more.

Barista FIRE

If lean FIRE involves living modestly and fat FIRE means a more lavish lifestyle, the name barista FIRE might seem puzzling at first. It’s surely not related to a coffee-fueled retirement, right? Not quite.

Barista FIRE is for those who plan to work part-time during their retirement, meaning you don’t have to reach such a high FIRE number upfront since the same withdrawal rate won’t apply in the same way. Instead, you can top up your money along the way. A coffee shop job would be the perfect option, which is where the name “barista FIRE” comes from.

So, since the standard withdrawal rates don’t apply here, how do you work out your FIRE number? Unless you’re planning on working part-time until you drop dead, you should use the same method — the difference is that you’ll work toward it gradually while earning money from your part-time job rather than waiting until you achieve it to retire.

Let’s say you hope to earn $20,000 a year from your work (plus what you earn from investments minus expenditures) and you plan to work part-time for ten years. You can deduct $200,000 ($20,000 multiplied by ten) from your FIRE number, meaning you could semi-retire far earlier — especially if you have a partner also working part-time.

How to achieve FIRE through investing

Now you’ve seen the different ways to fire that are out there, it’s time to take this from theory to reality.

If you had to reach your FIRE number through savings alone, it would be impossible for anyone to achieve except for the highest-earning, most stringent savers. If you managed to save $1,000 a month, ten years of saving into a low-interest account would only net you $120,000, and it would take forty years to finally reach $480,000 — that’s a lot of money, but would mean you could only withdraw $19,200 a year comfortably.

Fortunately, you can make the process happen faster by investing. Why put your money somewhere it will grow at a maximum of 1% or 2% a year if you could bump that up to 10%? 

So far, we’ve used the example of investing in the stock market, and this is the most popular option in the FIRE community.  However, there are far more ways of growing your wealth — from a cryptocurrency portfolio to precious metals to crowdfunding. Why not use a combination of all the above?

Using Money Minx 

When you’re working toward something as important as achieving your FIRE number, of course you’ll want to be sure that you’re on track to reach your goal. To do this, you need to track your net worth. One way to do this is through Money Minx — our software adds your accounts in one place and tells you your total net worth, helping you to see where you are in relation to your goal.

You can opt to either connect your accounts (meaning they’ll sync automatically) or manually (meaning you’ll have to enter in the balance yourself).

A particularly useful tool for FIRE-ers is our projected net worth tool, which gives you a sneak peek of what your net worth is likely to be a few months into the future if it continues along a similar path.

You can also take a look at the portfolios of similar investors for some inspiration over your allocation.

Time to light the FIRE

Lighting a fire comes down to three aspects: oxygen, heat, and fuel. When it comes to FIRE, they would look more like this: saving, investing, and tracking your goal. At Money Minx, we can certainly help with that third and final element.

You can get started on Money Minx for free and start adding your accounts straight away. Or, if you’re taking your FIRE seriously, you could upgrade to Pro for tailored insights and advanced features, including tips from AI about how to manage your money. Why not give it a go?

Sarah Bromley is a personal finance and fintech writer based in the U.K.

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