The 5 Different Types of Financial FIRE

If you’ve heard of Financial FIRE or the FIRE Movement, you may have been presented with this idea of all these crazy people only eating Cup of Noodles for every meal, sitting in the dark, and never turning on their heat or A/C all for the purpose of saving as much money as humanly possible so they won’t have to work every again. And while there are a small number of FIRE focused people who do personify this notion, that doesn’t include the majority and is not the ideal for most people who want to reach FIRE. In fact, there are many different types of FIRE with different methods and goals for how to get there. We’ll talk about the 5 most common now!

What is FIRE?

For those who don’t know, FIRE is actually an acronym which stands for Financially Independent Retire Early. It is an idea that you can reach financial freedom before the age of 65. Now, this idea for most isn’t with the dream of doing nothing all day and just floating through society but to have the freedom to not rely on a paycheck to survive. The goal is to allow yourself the time to pursue your passions and hobbies. You can learn more about what FIRE is at this link.

Traditional FIRE

Traditional FIRE is the method of reaching Financial Independence by continuing to work, save, and invest until you achieve your FIRE Number. But what’s that? Your FIRE Number is the total amount you need saved and invested to live off your investments virtually forever. You can calculate your FIRE Number by multiplying your expected Annual Retirement Expenses by 25.

Annual Retirement Expense x 25 = FIRE Number

So, if you expect to need $50,000 a year in retirement, your FIRE Number would be $1,250,000.

$50,000/year x 25 = $1,250,000

This number works because of The 4% Rule. The 4% Rule states simply that, as long as you withdraw 4% or less from your investments, you should never run out of money. This was found to be true through a study in the mid 1990s, and has been the ideal for FIRE ever since. So once you reach your FIRE Number, you can withdraw 4% Annually without ever going broke.

Lean FIRE

Lean FIRE is like Traditional FIRE, except you intend to live as cheaply as possible. This is the “Roughing It” Method and might include the kind of people who might fit the idea we mentioned in the intro. Although there is no specific number, those attempting Lean FIRE will often aim to live off around $30,000 a year or less. The idea is to cover basic expenses like housing, utilities, and food as inexpensively as possible without a lot of money for discretionary spending like travel or entertainment.

The purpose behind Lean FIRE is that it allows you to reach Financial Independence faster. For example, if you can live of only $30,000 a year, your FIRE Number according to the 4% Rule is only $750,000.

$30,000/year x 25 = $750,000

Of course that’s still a lot of money, but significantly less than $1,250,000. The real question becomes though, can you live off $30,000 a year or less? If that answer is no, Lean FIRE is likely not for you.

Fat FIRE

Fat FIRE is (you guessed it) the exact opposite of Lean FIRE. With Fat FIRE, you expect to live with a significantly higher cost of living in retirement than you may have in your earlier life. Don’t actually expect to be driving a Lambo and flying Private everywhere you want to go, but this is more the “Rich Lifestyle” type of FIRE. Again, there is no specific number, but you can think around living off $100,000 a year or more. This would give you a FIRE Number of at least $2,500,000.

$100,000/year x 25 = $2,500,000

The positives and negatives flip here. This method allows a lot more discretionary spending so you will likely not have to worry as much in tough times. However, it take a LOT longer to reach Fat FIRE.

Barista FIRE

Although the name comes from making coffee, maybe you’ve heard it called “Bartender FIRE” or “Burger Flipping FIRE”. The idea of Barista FIRE is that you are financially independent with a parttime, low stress, or other lower paying job covering the difference in expenses and health insurance. In the US, Health Insurance is a big deal, generally offered by employers, and can be a very hard thing to pay for by yourself. So in Barista FIRE, you could work just enough to qualify for Health Insurance and your investments cover the expense difference from what you make.

So for an example, let’s imagine your expenses in FIRE are about $50,000 a year. In Traditional FIRE, as we determined earlier, you would need $1,250,000 invested. However, you could change this with Barista FIRE.

Let’s say you have job at “Happy Coffee Co.” working enough to essentially cover your Health Insurance. Well, that amount of work just so happens to pay you $25,000 a year in hourly and tips. Then your investments only needs to cover the difference of $50,000 and $25,000, which would also be $25,000. Because of this boost from working at “Happy Coffee Co.”, you’ll only need $625,000 invested to Barista FIRE.

Happy Coffee Co. Income = $25,000/year

Annual Expenses - Happy Coffee Co. Income = $50,000 - $25,000 = $25,000/year

$25,000/year x 25 = $625,000

As you can tell, this method is a significantly faster method to reach FIRE and also quicker way to improve your quality of life. However, you aren’t reaching “true FIRE” with this method. Although you may be able to go for a while, you will still rely on a paycheck which is what FIRE is generally trying to avoid. That said, you also know you don’t need to work yourself to death to enjoy a better quality of life. All depends on what you’re looking for out of FIRE.

Coast FIRE

Coast FIRE is an interesting concept where you save a lot early on, but slow down once you’ve reached a certain value and age. You can think of it kind of like the “Skater Method” of FIRE. You make a big initial push, then coast along for the ride. The value and age are different for different people, but you want to get yourself set for your retirement, then enjoy life without saving later on. Now this method often gets confused with Barista FIRE, because in both methods you will still have to work for some time. However with this method, you don’t touch the investments until a later date.

Best way to explain it is to use an example. Let’s say you want to be retired with the Fat FIRE method, but at the age of 60 while withdrawing $100,000 per year. The 4% Rule tells us we’ll need $2,500,000 invested to retire like that comfortable. Now, using our handy dandy Investment Calculator, we’ve learned that if we can get $325,000 invested by the time we’re 30, we’ll have $2,500,000 at a 7% growth rate by age 60.

$100,000/year x 25 = $2,500,000 by age 60

$325,000 at 7% ROI Annually = $2,500,000 in 30 Years

So let’s say from age 20 to 30, you save as much as possible and manage to invest $325,000. Now you know you only need $30,000 a month to cover your minimum expenses. With Coast FIRE, you know you only need to have a job making $30,000 a year after age 30 to make ends meet. You can of course make more, but you know you don’t have to save any more money to retire comfortably. You can now just spend your whole salary and know you’ll be fine until you reach age 60. Sounds pretty great!

The benefit of Coast FIRE is, once you’ve reached your Coast FIRE Savings, you will never need to stress saving again. However, depending on your age goals, you will have to keep working to make ends meet. You aren’t living off your investments until a specific age in Coast FIRE. You get to decide the age and how much you need saved which is good, but that can be frustrating.

The Wrap-Up

Even though there are 5 different types of FIRE, they aren’t mutually exclusive. You can actually use a Hybrid Method and combine any of the FIRE types. For example, you could Coast FIRE until you reach Fat FIRE or use a combination of Barista and Coast FIRE until your Investments reach a Traditional FIRE Number. My wife and I plan to use a hybrid method which we’ll discuss in a later post. What’s important is how you use these tools provided here are totally up to you. What matters is that you continue to keep learning to improve your Personal Financial Plan. Financial Literacy is the Number 1 Key to Financial Success!

*Disclosure* This is NOT financial advice and I am NOT a Certified Financial Planner. All information is provided for educational purposes only and is not to be construed as advice. Everyone’s financial situation is different and requires individualized planning. Seek out a Certified Financial Planner for assistance with your own financial situation.