In one of my first posts, I explained what FI (Financial independence) means. I also explained how to calculate when you’ll be able to reach your goal. In short, FI is having enough passive income to cover your expenses. But what level of expenses are you aiming for? Once you set your goal, the calculations are (relatively) simple. Before we open up an Excel spreadsheet (of course I have one open already) let’s pause for a moment. Before we plan what we need to do to get to a specific goal, we need to define what that goal is. “FIRE” as a goal could mean different things to different people. Today, I want to discuss the 5 most common types of FIRE that people use as goals.
You guys already know that I prefer the term FI (Financial Independence) over FIRE (Financial Independence, Retire Early). However, 3 of the 5 types of FIRE we’ll discuss today relate to the scenarios where you don’t work anymore. Therefore, today we’ll be using the term FIRE.
3 types of FIRE
1. Traditional FIRE
Out of all the types of FIRE, this is the most popular and well-known type.
Definition- Traditional FIRE
Traditional FIRE is the FIRE you all probably know. Traditional FIRE assumes you will keep the same lifestyle you have before you FIRE. Minus the whole job thing of course. Traditional FIRE is achieved once your passive income can cover your current level of expenses.
Advantages- Traditional FIRE
Traditional FIRE is one of the easiest goals to calculate. All you have to do is track your expenses for a while. Then, when you know your monthly/annual expenses, you apply the relevant Safe withdrawal rate to calculate your desired portfolio value. For example, if you want to use the 4% rule, you will have to multiply your annual spending by 25. Or, you can also multiply your monthly expenses by 300, it’s the same thing.
For example, a household spending £40,000 a year will need a £1,000,000 portfolio value to reach traditional FIRE.
I think it is the most popular type of FIRE for a reason, it has a good balance between lifestyle (not too low like lean FIRE) and speed (you don’t have to work a few additional years to achieve it like fat FIRE).
Disadvantages- Traditional FIRE
I think that once you stop working, your expenses will change. Some expenses will go down, like commuting and (maybe) buttoned shirts etc. On the other hand, some expenses will go up, maybe travel?
Assuming your expenses will stay the same can be problematic, especially in countries where healthcare is expensive (yes, of course, I’m thinking of the US). In that case, you might want to increase your goal (see “Fat FIRE” below).
My opinion- Traditional FIRE
For me and the Lazy FI family, traditional FIRE is the ultimate goal. I think it’s the same for most people in the Fi community.
Imagine not having to work another day of your life. Of course, you still can, if you want, but just having that option… wow. Being the master of your own time sounds awesome.
Of course, if you decide to have a lower lifestyle (see lean FIRE below), that means you’ll have to save and invest less and start living your dream quicker. If, on the other hand, you decide to have a higher lifestyle (see fat FIRE below), it’ll take more time. It’s a trade-off between your annual budget at retirement and how quickly you can get there.
While it is not perfect, traditional FIRE is usually based on actual expense data, it uses your level of expenses before you reach FI (with minor adjustments if needed). I prefer actual data over assumption. However, maybe a mix is better. For example, accounting for the fact your home will be paid off at some point so you won’t need to pay a mortgage. That should translate into a lower net worth target.
2. Lean FIRE
The second of the 5 types of FIRE is lean FIRE.
Definition- Lean FIRE
Lean FIRE is where your passive income can cover your bare minimum essential expenses. It assumes a frugal (minimalist) lifestyle after FIRE.
For example, if a household has annual expenses of £40,000 (traditional FIRE), lean FIRE could mean annual expenses of £30,000. The decrease of £10k could be all the “going out” and “holiday” line items in that household’s budget.
Using the 4% rule, this household will “only” need £750,000.
Advantages- Lean FIRE
The biggest and most obvious advantage of lean FIRE is that it’s easier (and therefore quicker) to reach than traditional (and fat) FIRE. Every £1 you reduce from your annual expense goal means £25 less you need to save and invest. This means you will probably be able to retire a lot earlier.
Disadvantages- Lean FIRE
There is very little wiggle room/safety margin in Lean FIRE. That scares me a bit. Because you’re already aiming for the bare minimum, every additional cost can ruin your plans. On the other hand, you can always (?) go back to work if needed?
Also, are you ready to live a minimalist and frugal lifestyle for the rest of your life?
My opinion- Lean FIRE
I am not a fan of lean FIRE, it’s not for me. Yes, I want to reach FI as soon as possible but what life do I want after I reach it? I do not want to be living off rice and beans just so I can leave my job a bit early.
One of the biggest upsides of FIRE is that people assume they will not produce additional income once they FIRE. However, most of them do. This fact supports the approach of aiming for lean FIRE. Let me explain.
If we assume we will generate additional income once we FIRE, there is no point in waiting until we can cover ALL of our expenses with passive income before we FIRE. Although, if the main assumption is that we’ll produce additional income, Barista FIRE (see below) is more appropriate in my opinion.
3. Fat FIRE
The third of the 5 types of FIRE is fat FIRE.
Definition- Fat FIRE
Fat FIRE is where you can live a luxurious (subjective) life. If we used £40k annual expenses for traditional FIRE and £30k for lean FIRE, fat FIRE can be £50k of annual expenses. The additional £10k of annual expenses could be used for whatever you consider being luxury. It can be holidays in fancy hotels instead, new cars every couple of years, or eating out 7 days a week.
Although, as you remember, there’s a way to eat out for free 🙂
Assuming a goal of having a £50k (annual) lifestyle and the 4%, the goal for such a lifestyle would be £1,250,000.
Advantages- Fat FIRE
I like fat FIRE for 2 main reasons:
- You (probably) worked hard to reach FIRE, why not do it “right” and live the life of your dreams? What’s the point of escaping the rat race just to live off rice and beans (lean FIRE)?
- It is very “safe”. What I mean by “safe” is that if anything goes wrong, there’s a lot of “fat” to cut off. Maybe that’s why it’s called Fat FIRE? Imagine
Disadvantages- Fat FIRE
As you can imagine, all this luxury comes with a price. The price you have to pay is that you have to work for longer (and in turn, enjoy FIRE for a shorter period). Is that a price you’re willing to pay? That’s for you to answer.
My opinion- Fat FIRE
I think that most people pursuing FI or FIRE get accustomed to a frugal lifestyle as part of their journey. For that reason, I think that even what FI/FIRE pursuers may consider as “luxury” is what other people consider standard.
I like the fact that you aim for a very comfortable life as well as the safety it provides.
The disadvantage, of maybe working for longer than you should, is something to keep in the back of your mind.
2 types of FIRE that are more FI than FIRE
As the following 2 types of FIRE require non-passive income, I struggle to categorise them as “FIRE”. However, I will title them with the word FIRE so you can understand if you ever see them mentioned elsewhere.
4. Barista FIRE
The fourth of the 5 types of FIRE is barista FIRE.
Definition- Barista FIRE
Barista FIRE is when you take into account future non-passive income. Usually, it will be a low(er than your previous career) paying job.
I see it as a mix of the traditional FIRE and the lean FIRE.
If we take the traditional FIRE example of £40,000 annual expenses and the lean FIRE example of £30,000 annual expenses, Barista FIRE would be the middle ground.
Barista FIRE would mean having the lifestyle of £40,000 annual expenses but only saving enough to cover £30,000 of annual expenses (£750,000 based on the 4% rule).
“So where does the additional £10,000 come from?”
* Lazy FI Dad taps himself on the back *
The remainder comes from active income, from a (usually) lower-paying job than the career you FIREd from. Sometimes, it comes from freelancing/contracting.
It’s not always £10,000 and not always 25% of your expenses, that was just an example.
The point in Barista FIRE is to reach FIRE as quickly as possible while having an easy-to-get low(er)-paying job to supplement the gap between what your passive income can cover and your expenses.
Advantages- Barista FIRE
The biggest advantage of barista FIRE is that it takes into consideration future non-passive income.
As a result, we arrive at the second advantage- you can reach FIRE quicker. This works great for people that are very anxious to reach FIRE already and/or people who hate their jobs.
It is also perfect for people who want to keep working a little, like freelancing or contracting. That way, you can work for a few months a year and travel the world (or whatever else you want to do) for the rest of the year.
Disadvantages- Barista FIRE
While I like taking into consideration future non-passive income, relying on it is a whole other level. Let’s say you retire from your career at 40, do you really see yourself serving coffee (or any other job you’re aiming for) at 60? 70? 80?
My opinion- Barista FIRE
If I had to choose between lean FIRE and barista FIRE, I’d choose the barista FIRE. I think it still allows you to live a nicer lifestyle. However, I’m not a fan of relying on this income.
One more thing to add is that you can use the “barista” income to bridge the gap between traditional FIRE and fat FIRE. In this scenario, your portfolio should provide you with a comfortable life while the “barista” income will go towards luxury expenses.
5. Coast FIRE
The fifth (and final) type of FIRE is coast FIRE.
Definition- Coast FIRE
Coast FIRE is achieved once you don’t need to contribute to your retirement savings anymore. In coast FIRE, you saved enough so that time (and compounding) will do its magic and when you can access your retirement money- it can cover all your expenses from that point onward. In coast FIRE, all you have to do is cover your expenses until you reach the age where you can access the retirement money. It’s more about covering expenses than savings. If you’re confused, see the example below.
Example- Coast FIRE
I think this is the least straightforward type of FIRE so I decided to add an example.
Meet Lazy FI Person, he is 35 years old. Lazy FI Person has £300,000 saved in his retirement accounts (workplace pension, SIPP and even LISA). He believes he will be able to access this money when he is 60 years old, that’s 25 years from now. He also assumes his retirement money will yield an average 4% real (after inflation) return after fees. No tax is taken into consideration, you can read the reasons behind that in a separate post dedicated to this topic.
How much will he have at age 60?
His £300,000 have 25 years to grow at 4% a year, that’s £300,000 * 1.04 ^ 25= £799,750.90, let’s call it £800k.
If Lazy FI Person can live off that from age 60 until his last day, that means he can stop contributing to his retirement accounts and focus on the more liquid accounts and on enjoying the present. Assuming he follows the 4% rule, £800k should cover £32k of annual expenses.
Advantages- Coast FIRE
I love coast FIRE and think it’s a very important number to track. The reason I love it is that it pushes you to take action. Did you reach coast FIRE? change where you invest your money. It can also be used as a stage that once you reach it, you can take your foot off the gas pedal a little, you can start spending more today because your future self is already taken care of. Now, it’s time to take care of your present self.
Also, the 4% rule is based on a 30 year retirement period. Assuming Lazy FI Person from our example has only 25 more years to cover (from age 35 to 60), he can now (maybe) save less before he FIREs.
Finally, another reason I like coast FIRE is that it forces you to look at the liquidity of your portfolio and separate the liquid part from the locked-up-until-you’re-older part.
Most people’s retirement can be treated as a 2-stage journey.
The first stage is until the “traditional” retirement age. I mean that the first stage is until you can access the retirement accounts (and maybe even some state pension?). The first stage can and should be funded by liquid accounts such as your current account, ISAs, rental properties and other investments.
The second stage can and should be funded by your retirement accounts (including, maybe, state pension) and anything left from stage 1.
If you look at your net worth as one number without considering liquidity, you could find yourself stick without available money before you can access your retirement accounts.
What do the Lazy FI Family do?
I must admit that I treat our net worth as one amount, despite my earlier warning.
The main reasons I’m not worried about running out of money are:
- Lazy FI Mum wants to continue to work (you can treat this as a high-earning version of barista FIRE).
- I want to continue earning money tutoring and teaching.
- We can always take a loan to bridge the gap. This is an option I hate and is an extreme last resort, I don’t think we’ll need it.
As you know, I also track our results each month and forecast our net worth in April 2026. According to my forecasts, that’s roughly when we’ll achieve coast FIRE anyway, a happy coincidence.
Disadvantages- Coast FIRE
While I’m a big fan of coast FIRE, I don’t think it can be a final goal. In our example, Lazy FI Person can’t quit his job today, he still has 25 more years to live and spend, how will these expenses be covered?
My opinion- Coast FIRE
I love the concept of coast FIRE, I really do. Reaching coast FIRE is where you can relax a bit and focus more on the present/near future rather than the older version of yourself.
However, I think it is only a stage, it should not (and can’t really) be the ultimate goal.
The 5 types of FIRE- Summary
I don’t think you have to choose just one out of the 5 types of FIRE. You can view them as stages.
For example, first, you reach coast FIRE* and see how you want to continue. Let’s say you want to continue to aim for lean/Barista FIRE. Once you hit that next goal you can ask yourself “how much do I hate my job?”. If the answer is “Oh my god, don’t even get me started”- you can go for lean or barista FIRE. If you’re OK with continuing to work**, you may aim for traditional FIRE. Once you get to traditional FIRE, you can ask yourself the same question and decide if you want to continue to fat FIRE.
This is how I view the 5 types of FIRE.
In summary, if you don’t hate your job- I don’t really see the point in lean FIRE, it is not a goal that excites or motivates me. I like the mix of traditional and barista FIRE. Fat FIRE is cool but the price (working for too long) is too high in my opinion. Finally, as I just explained, I think coast FIRE is more of a step/landmark rather than a goal.
*Depends on where you invested your money (retirement or non-retirement accounts), coast FIRE can come before or after lean and barista FIRE.
**As someone said on a recent MeetUp I attended, “Having a job you love is the ultimate FIRE hack”. Lazy FI Mum loves her job and has no plans of retiring before she has to. I think she is very lucky (besides marrying me) and I’m very happy for her. If you love your job, just keep going until you reach fat FIRE. Even then, no one’s forcing you to quit. If you still enjoy your work- keep doing it, it’s your life, do what makes you happy.