I retired at 35 after working a 14-year career in information technology. In other words, I FIRE'd. Hang around the personal finance community long enough, and you'll hear terms like LeanFIRE, FatFIRE, CoastFIRE, and BaristaFIRE.
LeanFIRE and FatFIRE are more traditional types of early retirement, but CoastFIRE and BaristaFIRE are hybrid approaches, allowing more spending and enjoyment earlier in life.
CoastFIRE is when you save enough money early in your life. This money grows over time, so you don't need to save more for retirement. You can choose a job you like, even if it pays less. BaristaFIRE is different. Here, you save some money, but not as much as CoastFIRE. Then you work part-time or in a less stressful job. This way, you still earn money but also have more free time.
Let's talk about these two types of FIRE in more detail, and also how to determine which is right for you.
First, What Is FIRE?
FIRE, which stands for Financially Independent Retire Early, is a financial and lifestyle movement that has recently gained significant popularity. The core idea behind FIRE is to achieve financial independence at a relatively young age, typically in your 30s or 40s, and then have the freedom to retire from traditional employment and pursue your passions and interests without being tied to a 9-to-5 job.
This movement is about taking control of your finances and life to achieve greater flexibility and autonomy.
To reach FIRE, individuals typically follow a few fundamental principles. First and foremost, they aim to save and invest a substantial portion of their income, often as much as 50% or more, to build a nest egg to sustain their desired lifestyle.
Frugality is a fundamental aspect of the FIRE philosophy, as adherents seek to minimize unnecessary expenses and prioritize savings. They also emphasize investing wisely to generate passive income streams, such as through stocks, real estate, or other investments, that can cover their living expenses.
Achieving FIRE requires careful planning, discipline, and a long-term perspective. Many FIRE enthusiasts adopt minimalist lifestyles, reduce non-essential spending, and focus on reducing debt. They also aim to maximize their income potential through career advancements or side hustles.
The ultimate goal is to reach a point where their investments generate enough income to cover their living expenses, allowing them to retire early and pursue their passions, whether traveling the world, starting a business, or dedicating more time to hobbies and family.
Coastfire vs. Baristafire
CoastFIRE is a financial strategy where individuals save aggressively early in their careers to amass a significant nest egg. Once this amount is reached, they no longer actively contribute to their retirement funds, allowing the power of compound interest to grow their savings until retirement. The key to CoastFIRE is reaching a financial point where future contributions are unnecessary for a comfortable retirement.
How It Works
- Early Aggressive Saving: CoastFIRE requires intense saving in the early years of one's career.
- Investment Growth: Investments are expected to grow over time, providing sufficient funds for retirement.
- Reduced Financial Stress: After reaching the CoastFIRE target, individuals can pursue less lucrative or more fulfilling jobs without worrying about retirement savings.
What About Baristafire?
BaristaFIRE takes a different approach. It's a hybrid model that involves reaching a level of financial independence where one can afford to work part-time or in a less stressful job to cover current living expenses. At the same time, their existing savings continue to grow for full retirement later. The term is often associated with taking a barista or similar part-time job that might offer benefits like health insurance, hence the name.
How It Works
- Partial Retirement: BaristaFIRE practitioners typically work part-time or in less demanding roles.
- Covering Living Expenses: Income from these jobs covers daily expenses, avoiding the need to dip into savings.
- Enjoying a Balanced Life: This approach allows for a more relaxed lifestyle while working towards full retirement.
Comparing Coastfire and Baristafire
- CoastFIRE: The goal is to save a substantial amount early on.
- BaristaFIRE: The purpose is to accumulate enough to retire partially and then work part-time.
- CoastFIRE: Often leads to a full-time career, then a potential shift to a less demanding job.
- BaristaFIRE: Encourages a balance between work and leisure earlier in life.
- CoastFIRE: Focuses on the long-term growth of investments.
- BaristaFIRE: Relies on steady, albeit reduced, income while preserving savings for later.
Which One Is Right for You?
Consider Your Financial Situation
- CoastFIRE: Ideal if you can save lots of money early in your career.
- BaristaFIRE: Suitable if you prefer a gradual transition to full retirement.
Assess Your Lifestyle Preferences
- CoastFIRE: Better if you're comfortable with a traditional career path before easing into retirement.
- BaristaFIRE: Great for those seeking a balanced lifestyle with more time for personal pursuits early on.
Think About Your Long-Term Goals
- CoastFIRE: Opt for this if you can maximize savings early for a more secure retirement.
- BaristaFIRE: Choose this if you value a more relaxed approach to work and life before fully retiring.
CoastFIRE and BaristaFIRE offer two distinct paths towards financial independence and early retirement. CoastFIRE emphasizes early and aggressive saving to coast into retirement eventually. At the same time, BaristaFIRE allows for a more immediate balance between work and personal life, with a gradual move towards full retirement.
The choice between the two depends on your financial capacity, career aspirations, and lifestyle preferences.
Ultimately, both strategies champion the idea of financial independence and offer a framework to achieve it. Whether you opt for the aggressive saving approach of CoastFIRE or the work-life balance of BaristaFIRE, the key is to align your financial strategies with your personal goals and values.
By understanding the nuances of each approach, you can make an informed decision that sets the stage for a fulfilling and financially secure future.
Steve Adcock quit his job after achieving financial independence at 35 and writes about the habits millionaires use to build wealth and get into the best shape of their lives. As a regular contributor to The Ladders, CBS MarketWatch, and CNBC, Steve maintains a rare and exclusive voice as a career expert, consistently offering actionable counseling to thousands of readers who want to level up their lives, careers, and freedom. Steve lives in a 100% off-grid solar home in the middle of the Arizona desert and writes on his own website at MillionaireHabits.us.