Money blogger Finance Dee explains the four approaches to financial independence outlined by the FIRE movement
The Financial Independence Retire Early (FIRE) movement is the idea that you are able to retire early (RE) and have time freedom once you achieve financial independence (FI).
One is considered financially independent once they have enough money invested that they can live off a portion of their investments (4%) each year without having to worry about running out of money. People who are aiming to achieve FIRE have four approaches they can take to achieve a life of financial independence.
As with many things in life, there is not a one-size-fits-all approach to financial independence, so these four approaches offer FIRE followers a few methods to choose from that they can tailor to best suit their financial circumstances and their desired lifestyle.
So, today I will be giving you the lowdown on what these four approaches are and what type of lifestyle it could potentially afford you.
- Read Finance Dee’s first post, an introduction to the FIRE movement to find out more about her financial journey
Lean FIRE is best suited for those who wish to live a minimalistic or frugal lifestyle once they reach financial independence. Their budgets would likely be leaner than the average person and they would be happy to live life on a bit less.
For context, in the UK the average household expenditure per week is around £592, or £2,368 per month according to the Office for National Statistics. A person aiming for lean FIRE may aim for a monthly expenditure around or under £2,000.
Lean FIRE could be a good option for people who genuinely enjoy frugal living, may not want to have children, or have no interest in luxury houses, cars or holidays. The financial benefit to those who are aiming for Lean FIRE is that they can save up less money to reach financial independence as they will have set their lives up to live on less.
Fat FIRE is the polar opposite to Lean FIRE. Fat FIRE is a good option for a person who wishes to live a luxurious life once reaching financial independence. The limit really is endless with this one as luxury is subjective.
Fat Fire is in the eye of the beholder. Although a weekly spend of £800 could afford a luxurious lifestyle for one person, another person may need £1,500 per week to meet their own standards.
Those choosing Fat FIRE generally have to have higher a savings rates and this could mean (not in all cases) that they generally have a higher income.
Fat FIRE can be a good approach for people who are not interested in living on a budget and may take interest in five-star holidays, luxury cars, sending children to private school, etc.
Coast FIRE is slightly different in that it is more about your investment strategy than your lifestyle.
Coast FIRE is the concept of saving/investing money until you reach a chosen point (age or amount of savings) when you would stop saving completely. You would then allow the power of time and compound interest to work its magic on your investments.
For instance, a 30-year-old may wish to have a £200,000 pot by 60. If they decided to save £50,000 within 10 years (by 40 years old) and then stopping adding to the pot and leave it invested for 20 years, they would have just over £200,000 by their 60th birthday (assuming an average 7% return).
Last but not least is Barista FIRE. This approach is for people who do not wish to retire early but like the idea of financial independence. People who choose Barista FIRE are happy to continue working in some form once they reach financial independence.
This approach is well-suited to those who may wish to start their own business, desire to reduce their current work hours and have more flexibility with their week, or even for those who want to leave a high-paying job and work in a field that pays less.
The appeal of this approach is that it could afford someone the complete choice to work in any capacity they wish.
There really are a plethora of options to choose from. And even if none of these quite fit your personal needs, there is always the option to further tailor the above strategies or develop your own altogether to make it fit your life and circumstances.