The original FIRE movement is renowned for its frugality and extreme savings measures. Luckily, there are several types of FIRE out there, so you can choose the lifestyle that works best for you. Here, we’ll look at different ways to “FIRE” up your finances.
The OG FIRE
If you’re not big on personal finance, the word “FIRE” probably conjures up images of orange flames and roasting marshmallows. But in the financial world, FIRE stands for “financial independence, retire early.” And it’s become quite the lifestyle choice for people who want to quit the rat race as soon as possible.
The original FIRE concept arose from the 1992 bestselling novel Your Money or Your Life. The authors promoted moving away from materialism and measuring the value of your goods in the hours spent working to afford them.
Eventually, this sparked a financial movement that emphasized reaching financial independence to free up your days. The objective is to accumulate enough income-generating assets that you can live off your portfolio for the rest of your life, starting in your 30s or 40s.
Achieving FIRE involves years of aggressive saving, often stashing 50-75% of your income into your portfolio. Ultimately, you want to save 25-30x your annual retirement expenses for a comfortable retirement. For instance, if you plan to spend $50,000 annually, your FIRE number would be $1.25 to $1.5 million.
Once you reach your FIRE goal, you’re ready to retire and follow the 4% rule. Essentially, this rule posits that a well-stocked portfolio can handle inflation-adjusted withdrawals of 4% for decades.
Common Types of FIRE in Finance
Theoretically, once you achieve FIRE, you can live off your portfolio indefinitely – as long as you stick to your budget. However, the original FIRE movement is often only attainable for those who start wealthy or stick to a tight budget. Fortunately, several types of financial independence have cropped up in recent years, allowing you to pick the lifestyle that suits you best.
Lean FIRE
If FIRE is frugal living, then Lean FIRE is minimalism at its finest. Lean FIRE adherents often plan to spend under $40,000 per year in retirement (or even under $25,000). As a result, they aim for a lower standard of living during and after their working years.
Many in the Lean FIRE lifestyle make sacrifices to achieve their goals, including:
- Living with parents or in low-cost housing
- Keeping incomes low enough to qualify for social programs
- Not having children or pets
Living the Lean lifestyle means that it usually takes far less time to reach financial independence. As a result, Lean adherents often have the option to retire much sooner.
But this early retirement comes at a cost. Generally, Lean FIRE withdrawal limits only cover basic necessities like food and rent. As such, you may find yourself picking up extra jobs in retirement if you want to go on vacation or eat out regularly.
Fat FIRE
Fat FIRE strives to attain an upper-middle-class income level in retirement. While exact numbers vary, Fat FIRE lovers typically aim to spend between $100,000 and $200,000 in retirement. Based on the 4% rule, you’d need to invest at least $2.5 to $5 million before leaving the workforce.
Unfortunately, Fat FIRE is usually out of reach for most households in the United States. To achieve its lofty spending goals, you often need to save much more money for longer. Plus, many who prefer the Fat lifestyle don’t curb their spending during their working years, which reduces their saving potential.
Coast FIRE
Coast FIRE, sometimes called CoastFI, involves spending a few years saving as aggressively as you can. The goal is to build a large enough nest egg that compound interest will grow your account for you. Once you reach this tipping point, you can “coast” along to retirement without contributing another dime. If all goes well, your fully stocked portfolio will be waiting when you get there.
Unlike the other types of financial independence we’ve explored, Coast FIRE doesn’t involve retiring early. Instead, once you reach your Coast FIRE number, you can go into “semi-retirement.” Usually, this involves working a part-time or passion job to fund your daily expenses and other savings goals.
Barista FIRE
Barista FIRE is perhaps most similar to CoastFI. Essentially, Barista lovers save enough to semi-retire while withdrawing from their portfolio. They often work part-time jobs that offer healthcare to offset the bulk of their expenses. (Such as a Starbucks barista, after whom the lifestyle is named.)
For instance, say you have $250,000 in your retirement account. Based on the 4% rule, you can withdraw $10,000 per year without drawing down your principal. You can use this $10,000 to supplement your part-time income.
In other words, the goal of Barista FIRE is investing enough to semi-retire while still withdrawing from your portfolio. Many in the lifestyle use their newfound financial independence to explore passion careers, freelance work, or traditionally less-well-paid jobs.
Other Types of FIRE in Finance to Consider
We’ve looked at some of the more common types of financial independence out there. But a few other styles have branched off these main movements – some more fringe than others.
Slow FIRE
Slow financial independence tries to find the sweet spot between enjoying the journey and the destination. If you’re working the Slow FIRE path, you may invest more and spend less than average. At the same time, you still aim to balance your life as a whole, rather than throwing yourself headfirst into your financial lifestyle.
For example, many Slow FIRE lovers start by maxing out their 401(k)s every year. They may also stash a little extra into a goal-based account, such as saving a down payment for a house. However, they’re not in a hurry to leave the workforce, instead starting themselves on the path and correcting as necessary. While they hope to reach financial independence eventually, when isn’t as important as how.
Flamingo FIRE
Flamingo FIRE – named for the Money Flamingo blog – combines 3 types of retirement lifestyles: semi, early, and traditional. To reach these goals, you “FIRE” in three phases.
Phase 1. During this period in life, you work full-time to build your nest egg. When you reach 50% of your FIRE number, whatever that is, you move to the next stage.
Phase 2. During this period, you move from the pre-retirement FIRE lifestyle to the CoastFI lifestyle. While you don’t have to add to your nest egg, you can’t withdraw from it either. Instead, you can work part-time and explore the world, as long as you cover your annual expenses.
Phase 3. At this point, you’ve hit your original FIRE number. Now, you’re ready to retire – or keep saving and enjoy a more lavish lifestyle in retirement.
Baby FIRE
Baby FIRE is kind of like retirement – but add in a baby. Yes, a smiling, loving, kicking bundle of baby joy. Think of it as a way to enjoy an extended vacation…one where the newest family member doesn’t let the adults get much sleep.
The goal of Baby FIRE is to save and invest enough to cover your expenses during an extended maternity leave. This gives one or both parents a chance to properly bond with the child(ren) during the early years.
The beauty of Baby FIRE – especially if you’re a couple – is that you can still continue to work part-time without increasing your expenses. Both parents have a chance to get out of the house (if they choose) without worrying that working less will compromise their lives.
FIOR
FIOR is perhaps the loosest definition of FIRE. It stands for “financial independence, retirement optional,” and as the name suggests, it emphasizes that not everyone enjoys the same journey.
FIOR adherents encourage everyone to follow the path that makes the most sense for them. Depending on your lifestyle, that may involve retiring early, on time, or not at all. You may save up enough to travel and then take a year off work, or job hop to sample each of your passions in turn.
In other words, FIOR is about living your most fulfilling lifestyle – whatever that looks like.
Types of FIRE: The Ideal Match is the One You Choose
There’s no right or wrong way to FIRE as long as your needs are met, and you enjoy your life. While participating in any of the FIRE lifestyles may involve some sacrifice now, your newfound freedom come retirement may make it all worth it.
Another secret of FIRE is that just because you reach one doesn’t mean you have to be done. For instance, you can save up for Baby FIRE in your early years. Then, after you return to work, you can grind away until you reach Coast FIRE. And if you decide you’re not ready to semi-retire just yet, you can keep going until you hit the OG FIRE.
The choice is yours.