There are several different paths to FIRE – Financial Independence Retire Early. And different types of FIRE that may determine which path you choose.
Despite the end goal of FI being the same, no two people take the same approach.
In a world where we have so many different choices, lifestyles, and thought processes, we are able to use various strategies to find our way to our goals
There are of course the general “steps to FIRE” and “rules to follow to reach FIRE” But in reality, everyone’s situation is different.
And your journey to FIRE is solely your own.
The Basics of F.I.R.E: Financial Independence Retire Early
Financial Independence is defined as a status in which one has enough passive income to pay for their living expenses for the rest of their life, without having to be employed.
The goal in all cases is FI with RE taking on a different meaning and level of importance to each individual.
Some people choose to retire in the traditional sense of the word. Others may choose to continue to work with reduced hours.
In some cases one may choose to continue to work but in a completely different realm, doing something that they find meaningful to them, without worry of needing a high income to support themselves.
Those who are pursuing FIRE take a multitude of approaches to reach their goal.
Some of the most common strategies to achieving FIRE include:
- Frugal living / Living below your means
- Getting out of and staying out of debt
- Increasing income / Creating multiple income streams
Using a combination of these strategies will help you to reach your financial goal of FI.
The Different Types of Financial Independence Retire Early
There are many different variations of FIRE with two of the most popular being LeanFIRE and FatFIRE.
Other types of FIRE have also popped up over the years including CoastFIRE and BaristaFIRE. And maybe you’ve even heard of moFIRe and FIOR?
Each of these different types of FIRE come with different goals, depending on what suits your life and what you ultimately want to do when you reach FI.
This type of FIRE is the minimalists approach to FIRE. In order to achieve LeanFIRE you generally have an annual expense of $40,000 or less.
It is for people who have a more frugal and minimalist approach to life. You would need to carry through with this lifestyle throughout your lifetime in order to keep your expenses low and forgo the need for additional income.
The main appeal to this variation of FIRE is that you don’t have to save up millions in order to reach FI. It would only take a modest income and generally less time to achieve LeanFIRE.
In this case, according to the 4% rule, you would need a total of $1 million in after tax investments in order to cover your annual expenses.
So if LeanFIRE is dependent on having lower annual expenses and a frugal/minimalist lifestyle, then you can probably guess what FatFIRE entails.
FatFIRE is for those who choose not to embrace the full on frugal lifestyle and who want to have that extra cushion of passive income upon reaching FI.
Instead of an annual expense of around $40,000 as with LeanFIRE, you would aim to have enough money to supplement a budget of $100,000/year.
In this case, according to the 4% rule, you would need to plan to have a retirement total of about $2.5 million.
CoastFIRE or CoastFI is defined as having enough money invested, usually at an early age, that even if you were to not contribute to your investment portfolio anymore, you will have enough for when you reach retirement age.
This is due to compound interest and allows you to “coast” to retirement. See how that works?
Someone who is CoastFIRE does not touch investments and still works full time in order to cover their daily expenses.
They officially reach FI when they have enough in their portfolio to cover their total expenses.
Some people interchange BaristaFIRE with CoastFIRE but they are technically different.
Someone who is pursuing this type of FIRE does not have to work full time. They are able to withdraw 4% of their passive income for a majority of their living expenses but need to work part time to cover the rest.
So instead of continuing to work that high stress job, you can take a step back and start working a lower stress, part time job that you enjoy, to fill in the financial gaps. Even better if you can find that part time job that offers health benefits, which can be quite expensive if you are paying for them on your own.
So what about the other types of FIRE?
Besides LeanFIRE and FatFIRE there have been a myriad of other acronyms that have come up in the past few years to describe one’s FIRE journey.
Like I mentioned earlier, the path to FI is different for everyone so there have been some pretty creative types of FIRE that have popped up.
Also known as Morbidly Obese FIRE (really!). As if FatFIRE wasn’t enough, we welcome the hilariously named moFIRE.
MoFIRE is defined as having enough passive income to pay for annual expenses that exceed $100,000/year, and are actually closer to $200,000.
It would take a pretty high income to reach this FIRE goal and would most likely be met by those who not only have a high income but who continue to work that high income job for a long time.
I’m not sure that this is a typical goal in the FIRE community but it may occur naturally for someone with that high paying job that they love. Someone in this position may continue to work longer than they “have to” in terms of reaching FI.
“Financial Independence Optional Retirement.”
FIOR is an alternative to FIRE. There are so many people who bash the thought of FIRE because of the “retire early” part of the plan.
What will you do? How will you spend your time? Won’t you be bored?
Well FIOR solves that problem and is a great choice for someone who doesn’t actually want to retire, in the true sense of the word.
FIOR is exactly what it sounds like. Retiring is optional. Even in the FIRE community, many people don’t stop working altogether. They may instead work at a more meaningful job or have a profitable hobby that they take on. They still don’t need the income, but instead look for and find ways to fulfill their time.
This type of FIRE gives those who plan on reaching FIRE but continuing to “work” a new way to explain their intent.
Considerations to determine which variation of FIRE is for you
So how do you decide which variation of FIRE to pursue?
There are many factors to consider.
What are your financial goals?
Creating clear financial goals will help you by giving you an action plan and keep you on track.
Your goals should be specific, measurable, and timebound. Determining what you want for yourself, financially, will set you in the right direction to reach FI.
What is your FI timeframe?
Your strategy will be different depending on if you are 20 years old or 40 years old. Or if you plan on retiring in 10 years or 20 years.
What are your annual expenses or your planned expenses for when you reach FI?
Tracking your expenses is really important to do if you are on the path to FIRE. It allows you to be on top of your finances now and to plan for the future.
Knowing this number, will give you clearer direction and allow you to plan a better FIRE strategy.
Does your current location affect your FIRE goals?
Living in a high cost of living (HCOL) area may affect your timeframe for reaching FI. I do believe that there are some benefits to living in a HCOL area and that it is not necessarily a bad thing for everyone.
But generally, it may take you longer to reach FIRE and your expenses upon reaching FI may be a lot more than someone who lives in a lower cost of living (LCOL) area.
So what type of FIRE are we pursuing?
I can say that we are definitely not striving for LeanFIRE. We want to be comfortable when we reach FI and I don’t think LeanFIRE will give us enough cushion to relax and enjoy FI. I think we will always worry if we are at a point that is “enough.”
Reaching FatFIRE would be more ideal. It will be more work and take more time to reach, but it will also give us peace of mind.
If there is a downturn in the market, a recession, or an unforeseen reason that we should need more money, we would feel more comfortable having a larger stream of passive income to rely on.
I have to say though that we have always just thought of ourselves as pursuing FIRE, without all the fancy terms.
Reaching FI is a definite goal. But the one part of FIRE that alway threw us off was the RE part. We plan on “retiring” but picture ourselves still doing something that will most likely be income producing, in some capacity.
There is no doubt that we will definitely slow down, and take more time to travel and spend with family. We will not be tied to a full time job or a job of any type that we don’t love.
To us, reaching FIRE means getting off that hamster wheel for good and living the life that we want.
It is all about having options and opportunities.
So my answer?
To be the most accurate, I guess I will just jump on the bandwagon and coin a new term and say that we are pursuing FatFIOR.
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