FIRE movement is a trend among young people that’s growing in popularity thanks to its goal of retiring early. FIRE stands for Financial Independence Retire Early. The concept is based on following a very disciplined and aggressive saving and investing strategy. This continuous cycle of saving and investing over time will build a big enough nest egg that will give you the freedom to leave the workforce once and for all.
FIRE movement is not a new concept. It was first introduced in the book Your Money or Your Life written by Vicki Robin and Joe Dominguez in 1992. The main concept of their book is that most of us go through life exchanging time for money without thinking much about it.
While the FIRE concepts were created in the early 90s it took another 15 or so years for it to gain popularity. The great recession that saw 10 million+ people lose their jobs played a big part in it. A big portion of the people affected were the millennials who were barely out of school and very early in their careers. Along came quite a few blogs that focused on FIRE and millennials scarred by student loans and the thought of working till 65 while constantly fearing for their jobs made an ideal place for the FIRE movement to take off.
People who follow the FIRE movement get a bad name for being very cheap. What’s the point in saving a big chunk of your money and basically not enjoying life today in hopes of saving enough to retire early? What kind of “retired” life can you have after living with the bare minimum for so many years? There is no one size fits all for the FIRE movement. If you are planning to go down the FIRE path, you have to know that there are different types of FIRE.
There are definitely similarities between the different types of FIRE. You have to save a portion of your salary and invest it and grow to a point where the amount you earn from it can replace your salary. A simplified version of looking at it would be how do you plan on living once you retire and how quickly you want to get there, that would determine what type of FIRE is ideal for you.
How much do you need to save?
Anything I have watched, read or heard related to FIRE talk about the 4% rule and this seems to be universally accepted as a rule for everyone who considers FIRE-ing.
The amount you need to have saved and invested should be 25x your annual spending. The annual spending you have planned for your early retirement. Let’s say you plan on living in a budget of $50K during retirement. Then you will have to save 25x $50K which would come up to $1.25 million.
The idea is that the money you have invested will grow every year. If you are to withdraw 4% of your investments every year, the invested balance will not come down and should let you live your early retirement life forever.
This is the plain vanilla cookie cutter version of FIRE. This is the version where you maintain your current or working life lifestyle. If you live on $60K a year then you would need to save $1.5 million to reach the 4% safe withdrawal rate. I have seen on other sites that regular FIRE should have yearly expenses between $40K – $100K a year. I think the yearly expense is less important for regular FIRE. What’s important to you is probably maintaining your current standard of living and having freedom.
Lean fire is the bare bones version. This is where we start focusing on yearly expenses. For people who know nothing about the FIRE movement, this is the rice and beans or ramen noodles for every meal type of early retirement. That sounds a bit harsh but there is some truth to it. The type of FIRE is suited for people who plan to live a frugal and minimalist lifestyle. Commonly, Lean FIRE is for folks who can live on a $40,000 budget every year.
Regardless of the type of FIRE you are aiming for you can expect pros and cons with it.
Pros of Lean FIRE
- Quickest way to FIRE
- Freedom earlier
Cons of Lean FIRE
- Living in a small place
- Limited to living in a low cost area
- Constantly make spending sacrifices
Fat FIRE is for the folks who want to live on a $100k salary after they become financially independent. you will need a bigger nest egg to achieve this. Using the 4% rule, you will need to have $2.5 million saved. As you can expect this will take longer than Lean FIRE and regular FIRE to reach.
Pros of Fat FIRE
- Few worries about spending
- Travel when you want to
- Feeling of safety with the money invested
Cons of Fat FIRE
- Takes longer to achieve
The types of FIRE listed so far is more of a “retired” version. Typically, you reach your FIRE savings amount and are done working. This is a great in between fully FIRE and working a job you really hate. In this one you have a part time job that covers some of the expenses and the remaining is covered by your investments. The common part time job is getting a barista gig at a coffee shop.
How would this work? Let’s say you are aiming for lean FIRE and need 40K every year. You have saved up $750K so far but really need $1 million saved up to follow the 4% rule properly. Using the 4% rule you can withdraw $30K. But you will still need another $10K to cover your frugal lifestyle. This 10K could come from the barista job or whatever part time job you get.
Pros of Barista FIRE
- Quicker way to reach FIRE
- Leaving a job you hate quicker
Cons of Barista FIRE
- Finding a part time job that pays well
- Don’t have full control of your schedule usually
Coast fire all about future planning. You figured out your financial independence amount at a very early stage. The goal is to have a high savings rate early in your career and have it reach a point where you don’t have to save anymore. The invested money will grow into the total amount you need to FIRE eventually. There is no specific amount for this. It could be considered as a sub category lean or fat. Coast FIRE is the method you use to reach Fire Status and LEAN, regular or fat is more related to your lifestyle
Pros of Coast FIRE
- Time does a lot of the work
Cons of Coast FIRE
- High savings rate and amount at young age when your salary is probably pretty low
This is my favorite. MoFIRE stands for morbidly obese FIRE. In terms of spending limits I’m not really sure if there is a specific number for yearly expenses. If fatfire is at $100k this should be considerably more. It could be any number as long as it’s very high. Let’s say it’s $250K. How about doubling or tripling your current lifestyle? This should be everyone’s life goal.
Pros of MoFIRE
- No spending sacrifice at all
- Same as Fat FIRE and much better
Cons of MoFIRE
- Takes a long time to reach. Perhaps impossible.
- I can’t think of anything else