There isn’t one single way to reach financial independence (FI), and a one-size-fits-all approach doesn’t work because we all have different circumstances and dreams.

Let’s explore the various types of FI and find the one that’s right for you. But before we do, a reminder of the calculation used to determine how much money you need to be financially independent: your annual expenses multiplied by 25; you then live off of around 4% of your assets.

You can read more about how much you need to retire here.

Lean FIRE

The calculation for lean FIRE is the same: it’s still 25 times your annual spending. What differentiates lean FIRE from traditional FIRE is that your annual spending is lower than average, so you’ll be retiring with a smaller pot of money and have a lower cost of living.

Your assets cover your essentials, such as housing, transport and food, but there won’t be much in the way of luxuries like eating out, holidays and expensive hobbies. It means living a simple lifestyle.

Is It For You?

Lean FIRE is a good fit for you if:

• You don’t want kids – it’s expensive to raise a child
• You’re very frugal
• You care about the environment; you won’t be buying lots of “stuff”, flying a lot, driving a big, polluting car, and if you’re not having kids then you won’t be adding to the population
• You’re anti-consumerist
• You’re a minimalist
• You’re a Stoic
• You enjoy free or low-cost hobbies like walking, running, reading, listening to podcasts, going to the cinema (especially using an unlimited card or Meerkat Movies)
• You want to retire in the fastest time possible

Choices and Considerations

• You’ll need to live in a small flat or house, or even be more radical, for example, live on a boat or in a motorhome
• You’ll need to live in a cheaper part of the country or a cheaper part of a city. Living on £20,000 a year would be very difficult in London, for example
• Not having kids
• If you have kids, you won’t be able to send them to private school

Risks

• There’s not a lot of wiggle room in your budget. It’s hard to cut back if you need to; you won’t be able to eliminate expensive holidays or eating out if you’re not doing them
• You might change your mind about the lifestyle you want, for example, you might decide that you want to have kids or that you want to travel the world, and you don’t have enough money
• The risk of running out of money is higher
• You might feel more stressed because you don’t have such a big safety net
• Sequence of returns risk

Traditional FIRE

With traditional FIRE, your lifestyle is pretty similar to how it was when you were working – except you don’t have to go to work. There’s enough to cover your essential expenses, like housing, transportation and food, and also enough for luxuries like hobbies, eating out, and holidays.

Is It For You?

Traditional FIRE is a good fit for you if:

• You don’t want to live a super-frugal lifestyle. You want to cover the essentials and still have enough money left over to spend on some luxuries
• You want some flexibility in your budget to give you peace of mind. If times get tight, for example, the stock market suffers a significant drop, then you’ve got scope to cut back your spending on the luxuries and not worry about covering the essentials, running out of money, or losing sleep at night.

Choices and Considerations

• Do you want kids? This will push your FI number up considerably, and the more kids you have, the more money you’ll need. If you or your partner stays at home to look after them, your earnings will take a hit. This results in a double whammy of earning less money and also needing more to cover your costs
• As with lean FIRE, your choice of housing and location will have a big impact on how much money you need. Aiming for a bigger FI number allows you to live somewhere bigger and/or in a more expensive area, but also means that it’ll take longer to reach FI

Risks

• Sequence of returns risk

Fat FIRE

No restrictions, no cutbacks, no frugality. Growing a pot big enough that you can live in an expensive city, go on lots of holidays (possibly travelling business class), travel during the tourist season when it’s more expensive, eat out regularly, buy more expensive food, and run a nice car.

Is It For You?

Fat FIRE is a good fit for you if:

• You want to live in an expensive city
• You want to be able to indulge in expensive activities like travelling, eating out at nice restaurants, sailing, or horseriding
• You want lots of flexibility in your budget, giving you more options and more security
• You don’t want to have any worries about running out of money

Choices and Considerations

• Fat FIRE requires a significantly bigger FI number. It might take years extra to reach it. Possibly many years

Risks

• Fat FIRE removes the financial risks – it’s very, very unlikely you’ll ever run out of money
• A risk is that you decide that you want to live the Fat FIRE lifestyle and accept that it’ll take X number of years extra to get there. During that extra time you’re working, you’re…well…working! Instead of hitting FI years earlier. This is not so much a problem if you enjoy your job and have no issue working the extra years, but if you hate your job then you’re slogging it out for the promise of a future that’s years down the line; that’s sacrificing a lot of todays for a tomorrow that’s not guaranteed. You could be hit by the proverbial bus.

Barista FIRE

Financial independence is not an all-or-nothing proposition. It’s not a case of you don’t bother at all, or you save and invest aggressively until you never need to work again; it’s more nuanced than that.

With barista FIRE, you amass enough assets to cover some of your expenses and then work part-time to cover the rest.

You still follow the 4% rule to live off of your investments, but that 4% won’t be enough to cover all of your expenses. Between your investments and your part-time job, you have enough.

The reason it’s known as Barista FIRE is that many people in America choose to work part-time at Starbucks as a barista because it offers decent benefits to its employees, including healthcare, which is much more important for Americans because they don’t have the NHS, or the equivalent free to use health service in European countries.

The appeal of Barista FIRE is that you don’t have to wait until you hit 25 x your annual expenses before you have more freedom. You could cut years off of working a stressful office job by replacing that income with your investments and a part-time job. You also don’t have to save and invest as aggressively as you would pursuing lean FIRE, traditional FIRE and fat FIRE, since you’ll still be working and earning an income.

Possible Jobs

• Barista (obviously!)
• Van driver
• Teaching English (online or face to face). I completed a teaching English as a foreign language (TEFL) course to give me this option
• Tutoring (online or face to face)

Is It For You?

Barista FIRE is a good fit for you if:

• You want to get away from your 9-5 job quickly
• You want to keep working to some extent, perhaps for a sense of purpose or to have a routine

Choices and Considerations

• It’s not full retirement – you still have to work
• It’s a slower route to full FI

Risks

• If you lost your job or couldn’t work due to ill health, it would affect your income
• You might not enjoy your part-time job. You might find it as stressful as the job you escaped. All while being paid less

How to Calculate Your Barista FIRE Number

1. Decide what your annual budget will be. By way of example, let’s call it £30,000. With traditional FIRE, to achieve £30,000 a year from your investments, you would need £30,000 x 25 = £750,000. A safe withdrawal rate of 4% of £750,000 = £30,000. Let’s see what difference part-time income makes
2. Calculate (or estimate as best you can) what your annual part-time income will be
3. Subtract your annual part-time income from your target annual budget. Let’s assume in this example that a part-time job brings in £1000 a month, or £12,000 a year. That means the calculation is £30,000-£12000=£18,000. That means that your investments need to produce £18,000 a year to supplement your part-time income of £12,000 to reach your total income of £30,000
4. Your barista FIRE number is 25 x the difference between your target annual budget and your annual part-time income. Continuing our example above, we calculated that the difference is £18,000. Therefore, the calculation is 25 x £18,000 = £450,000. That’s £300,000 less than is needed to reach traditional FIRE. 4% of £450,000 = £18,000. £12,000 from the part-time job brings the total income to £30,000, the example target budget we chose

Ready Reckoner Table

Below is a table to give you an idea of how much money you would need to accumulate in investments and how much you would need to top this up through a part-time job.

The annual budget is your budget for the year, your barista FIRE number is how much you need to have in assets, the investment income is how much 4% of your barista FIRE number would be, and the part-time job income assumes that you earn £1000 a month from a part-time job.

I’ve created a downloadable spreadsheet that you can use to work out your own barista FIRE number:

Coast FIRE

The goal of coast FIRE is not to save up enough money so that you never have to earn an income again. Rather, it’s to have enough money invested so that when it’s left to compound over time, without new money being added, you’ll have enough money to live on comfortably when you reach the traditional retirement age. The younger you are, the less money you’ll need to invest because your investments will have more time to grow and compound.

This means that when you’ve amassed enough money to let it compound, you can stop saving for retirement. You still need an income to cover your monthly expenses, but you’re no longer saving and investing for your retirement.

Unlike with barista FIRE, you don’t withdraw any of your investments to cover your expenses. You leave the money untouched until you reach the traditional retirement age, allowing it to grow slowly over time. You “coast” along.

To work out how much money you need to invest, you need to know several pieces of information:

• The amount of money you want to have in retirement (your target annual budget)
• The age you will retire
• How much you currently have invested
• How much you can invest on a monthly basis

There’s a handy calculator that you can plug your details into and it will calculate how long it will take to reach your coast FIRE number: https://walletburst.com/tools/coast-fire-calc/

There are three parts of the calculator that I suggest you tweak:

• Investment growth rate: this is before inflation. I personally think 7% is a little low, but if you want to be conservative, leave it at 7%
• Inflation rate: as I write this in June 2022, inflation is around 9% in the UK. However, the long-term average is around 2.5%
• Safe withdrawal rate: 4% is the widely accepted rule of thumb. Again, if you want to be conservative and live off of less, you can reduce this

Is It For You?

Coast FIRE is a good fit for you if:

• You’re young, as you have time on your side for compound interest to work its magic
• You don’t mind/are happy to work until the traditional retirement age i.e. you’re more focused on the FI part of the equation rather than the RE part

Choices and Considerations

• It’s not full retirement – you still have to work
• It’s the slow route to FI

Risks

• If you lost your job or couldn’t work due to ill health, it would affect your income. Unless you were near the traditional retirement age, you likely wouldn’t have enough money to support a comfortable retirement

There you have it, a menu of FIRE options to choose from. Which one is right for you?