5 different types of FIRE

Early retirement may sound like a pipe dream, but for members of a growing movement, it’s the goal.

The Financial Independence, Retire Early movement, also known as FIRE, is made up of people who hope to build up enough wealth that they can ditch their jobs long before they reach traditional retirement age.

Although the movement has attracted critics, with skeptics arguing that FIRE members are making big sacrifices now for their future, it’s also gained a loyal following. With that increased popularity has come an expansion of the original idea, giving rise to new types of FIRE savers.

Here are 5 different types of FIRE.

What is the FIRE movement?

Much of the FIRE movement comes down to two strategies for building wealth: saving and investing, and limiting spending.

Participants typically calculate their FIRE number — the amount of money they’ll need to save to support their lifestyle in retirement — by multiplying their expected annual expenses in retirement by 25. The calculation is based on the 4% rule, which suggests retirees can safely withdraw 4 percent of their portfolio value annually.

Many FIRE participants plan to reach their goal and retire as soon as their 30s or 40s.

But the traditional FIRE movement isn’t for everyone. Jannese Torres, a Latina money educator, found that when she first learned about the FIRE movement, the number she calculated for herself was daunting. She opted for a version of FIRE that involves creating multiple income streams to replace the paycheck you’ve been using to sustain your lifestyle. This is called Cash flow financial independence.

“There are a lot of different flavors of the FIRE movement,” Torres says.

What are different kinds of FIRE?

There are numerous approaches to FIRE. Here are a few:

• Lean FIRE: If you’re planning to have lower-than-average expenses in retirement, you may want to consider Lean FIRE. This approach is typically for minimalists who can live off a lot less money than others, and who plan to do so in the future. While you may be able to get to your savings goal faster via Lean FIRE, you likely won’t have much room for spending beyond strict necessities.
• Coast FIRE: Savers who implement the Coast FIRE approach aren’t necessarily trying to retire early. They focus on saving and investing enough money that eventually they can stop making contributions but still watch their money grow. In other words, they’ll be able to “coast” into retirement.
• Fat FIRE: If you’re hoping for lavish vacations, lots of eating out and shopping in retirement, Fat FIRE may be the method for you. It requires saving and investing aggressively so that you don’t have to limit your spending in retirement. Understandably, it’s one of the more challenging approaches to gaining financial freedom since you’re aiming for a high annual expenditure in retirement.
• Barista FIRE: The FIRE movement doesn’t require earning six figures and it doesn’t have to mean saving for total retirement. Instead, some people use the Barista FIRE approach to save now so they can work part-time or more relaxed jobs later in life. They may want to replace their traditional nine-to-five gig for a few hours of work a week as a barista, for example, hence the name.
• Cash flow financial independence: This approach, also called Cashflow FI, focuses on generating income streams — with some of them ideally being passive income streams — to cover living expenses, Torres says.

Who is FIRE for?

The FIRE movement is for those who are willing to purposefully save, invest and limit their spending now in order to give themselves more flexibility later.

“For most people, it’s really just about wanting more autonomy and freedom over their lives,” Torres says.

Traditionally, the FIRE movement has been for people who want to retire early. While many FIRE participants still hope to ditch their day jobs before they hit age 65, others are simply hoping to give themselves more freedom by working less. There are many ways to apply aspects of the FIRE strategy to personal finances, even if you don’t want to follow the “rules” of the movement to a tee.

“There are elements of financial independence that we can build into our lives even if we’re not 100% financially independent,” Torres says.

FIRE’s growth has also made room for more diverse voices within the movement.

Bottom line

FIRE is a way to gain financial freedom and possibly early retirement by saving, investing and cutting expenses. As the movement has grown, various types of the approaches have developed. Lean FIRE, Coast FIRE, Fat FIRE and Barista FIRE are just four flavors of the FIRE movement.