Disclaimer: This article is not financial advice. It is intended for educational purposes only. Consult with your financial advisor or a certified financial professional for guidance on investment choices.
Maybe you don’t actually have to retire early to create a life you love.
That’s the spirit behind Barista FIRE, an offshoot of the traditional financial independence movement. Rather than aspire to achieve financial freedom, proponents of Barista FIRE maintain a part-time job, but also draw passive investment income each month in order to meet their average monthly income needs. Barista FIRE requires a nest egg in order to produce this passive income, but the number doesn’t need to be as high as traditional retirement targets.
- Barista FIRE is a term coined by financial bloggers.
- Some FIRE enthusiasts had reached financial independence, but still chose to keep a job to help offset some expenses, most notably health insurance.
- Health insurance benefits are important to have as you age because medical expenses typically rise with age.
- Barista FIRE was named after Starbucks offering its employees health insurance if they offered a 20-hour work week.
- If you pursue Barista FI, you’re essentially cultivating different streams of income, some of which are active and others passive.
Barista FIRE is sometimes referred to as Barista FI, since you’re not actually retiring early. We’ll use both terms interchangeably throughout this article. Here’s what to know.
Table of Content
What Is the FIRE Movement, and Where Does Barista FIRE Fit In?
FIRE stands for “financial independence, retire early.” The FIRE movement puts forth the idea that becoming work-optional isn’t about reaching a certain retirement age; it’s about having enough money invested that the compound interest gains can sufficiently cover your annual expenses.
This is achieved by reaching what is called your FIRE number. A (very) rough calculation of FIRE number is to multiply expected annual expenses when no longer working by 25. This is the amount of retirement savings you’ll want to have ready to tap, but know that performance on investment accounts can vary widely from year to year. A traditional FIRE number is typically well north of $1 million.
There are many people who don’t actually want to stop working and enter full retirement. Instead, they want to downshift to doing more fulfilling work, or they want to be able to work part-time so that they can spend more time pursuing hobbies or passions.
Barista FI can provide the following:
- Enhanced Flexibility: Barista FIRE provides individuals with the freedom to design their own schedules and pursue activities outside of work. With more control over their time, individuals can prioritize family, hobbies, travel, and personal well-being, without the constraints of a demanding full-time job.
- Reduced Stress: Unlike the high-pressure corporate world, Barista FIRE allows individuals to transition into low-stress, less demanding jobs. This shift can greatly enhance mental health and overall well-being, ultimately leading to a happier, more fulfilling life.
- Pursuit of Passion: By choosing part-time or freelance work aligned with their passions and interests, Barista FIRE practitioners can find joy and fulfillment in their daily activities. This emphasis on personal satisfaction and purpose is a key motivator for many individuals pursuing this alternative approach to retirement.
For some, true financial freedom is having time independence and location independence, not necessarily being fully financially independent.
How to Calculate Your Barista FIRE Number
Estimate your Barista FIRE number based on how much active income you expect to produce each year. Then, subtract this number from your expected annual expenses. Then, apply the 4% rule by multiplying this number by 25 to arrive at your Barista FIRE number.
Your Barista FIRE number is the amount of money you need in invested assets such as index funds to produce sufficient supplemental income.
Barista FIRE Calculator
(Annual Expenses - Expected Annual Active Income) x 25 = Barista FIRE Number
For example, let’s say that John is in his late forties and wants to downshift out of his corporate job and work part-time. He estimates he can produce $30,000/year as a part-time consultant, and his expenses will be $65,000/year.
($65,000-$30,000) x 25 = $875,000
John’s Barista FIRE number is $875,000. When his invested assets hit this number, he could expect them to produce $35,000/year in interest, which would close the gap on what he needs to make his expenses.
Obviously, there are several factors at play here. Investments historically gain in the long run, but from year to year the returns may vary widely. Also, if you adopt Barista FIRE, you’re drawing interest from your accounts, rather than reinvesting these gains, so you won’t accrue as much wealth unless you continue to contribute to these accounts.
Barista FIRE Vs. Coast FIRE
Coast FIRE, also known as Coast FI, is another interpretation of how to reach financial independence. In Coast FI, you’re not trying to work less; instead, you try to frontload your investments so that compound interest alone can carry your retirement accounts the rest of the way and achieve financial independence.
The Coast FI number and Barista FI number are lower than a traditional FIRE number, but in both approaches you’ll need to continue working and producing active income.
Barista FIRE Vs. Lean FIRE
Lean FIRE is a version of FIRE in which you push your expenses very low in retirement, which allows for a lower FIRE number. Proponents of lean FIRE aspire to retire decades ahead of traditional retirement age, but for some the budgets for living expenses are simply too tight.
Some financial bloggers classify Lean FIRE as needing a FIRE number of less than $1 million, but this is a subjective interpretation that becomes more outdated as money inflates.
Barista FIRE Vs. Fat FIRE
Fat FIRE is a supersized version of FIRE in which you know you want to someday stop working, but expect to have a lot of expenses. This might be due to having multiple kids, elder care, the part of the world you want to live in, or goals to travel more often in retirement. Fat FIRE will take you longer to reach financial freedom, usually requiring a FIRE number over $2.5 million, but if you can drum up the funds, you’ll be able to live a more lavish lifestyle.
Frequently Asked Questions
How Long Does It Take to Achieve Barista FIRE?
It varies by individual. Your Barista FIRE number is determined by your expected yearly expenses and whether your existing investments will be enough to cover your expenses.
Do I Have to Adjust My Living Expenses to Reach Barista FIRE?
You’ll probably want to cut back on some expenses as you approach Barista FI to reduce the pressure. This is a good best practice to cultivate generally in personal finance.
Start Setting Financial Goals Today
Achieving Barista FIRE means an alternative path to financial independence. By combining part-time work with moderate savings, individuals can enjoy enhanced flexibility, reduced stress, and the pursuit of passions that make life worth living. ◆
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