Contrary to its name, Barista FIRE does not necessarily mean you are financially independent and working at a coffee shop for health coverage. It means that you have enough in your retirement funds to cover x part of your expenses and the rest with your part-time job.
Barista FIRE may not be for everyone – but it is an option for people to achieve freedom and flexibility sooner in their life.
Introduction about FIRE
Some of you may be wondering – what is FIRE anyway? FIRE stands for Financial Independent, Retire Early. The retire early part may not be too appealing to many people, including me, but FI is a sensible goal to prioritize.
Having FU money is surely nice, but having an option to completely quit your job forever is even a nicer option.
To achieve FIRE essentially means you’ll save aggressively and/or build enough assets to pay off your living expenses without having to work again. You can achieve this by reducing your expenses and increasing your income by finding a higher-paying job and/or owning assets.
To find out your FI number – you find your annual expenses and multiply it by 25.
FI number = annual expenses x 25
For instance, if your annual expenses is 20k – your FI number is 20 x 25 = 500k.
25 is basically derived from a 4% rule.
Where does the 4% rule come from? In 1998, three professors from Trinity University in Texas did a bunch of financial modeling and experiment on stock and bond market return since 1926.
In the study, they found out that the most optimal withdrawal rate for a 30-year retirement is 4%. If you withdraw 4% of your portfolio every year, you’ll have a high probability that you will not run out of money at the end of 30 years.
If you’d like to learn more, check out a great write post by Mr. Money Moustache about the simple calculation behind early retirement.
FIRE Categories
Recently – I learned about different types of FIRE, and I think it is interesting to learn the typical path of FIRE so you can optimize your FI strategy.
Coast FIRE
Coast FIRE means you’ll have enough in your retirement accounts and without additional contribution – it will grow enough to cover your retirement. However, you’ll still be working to cover 100% of your expenses from your job.
If you don’t mind working and want a piece of mind in your retirement, this could be a good option.
The key of Coast FIRE is taking advantage of time and compound interest to grow your fund.
Barista FIRE
Barista FIRE means you’ll have enough in your retirement accounts to cover some part of your expenses, and the other part will be covered by your part-time job. If you dislike the idea of working 40+ hours, you could consider this option.
For instance, you may withdraw some gains off of your investment to cover your living expenses and use your part-time salary to cover your expenses. In the US, some people do this for health benefits and/or other employment perks.
Lean FIRE
Lean FIRE means you’ll have enough in your retirement accounts to cover 100% of your expenses. As its name suggested, your annual expenses will be slightly lower than the average household spending. You’ll most likely live on a budget.
For instance, the average household expenses in the US is 40k. If you aim to spend 30k, this is considered as Lean FIRE.
You can achieve fewer expenses by having a minimalistic/DIY lifestyle, moving into a cheaper city (geo-arbitrage), or living in cheaper housing. Because of the smaller FI number, this is more attainable and quite appealing to most people.
Fat FIRE
Fat FIRE is the opposite of Lean FIRE. It usually means you spend over 100k a year. If you have some parents to take care of and kids as well, or if you are living in an expensive city – you probably need a good amount of money every year. You may be able to afford a more expensive lifestyle such as shopping, luxurious car, traveling, and more.
Because your expenses are more, you’ll need bigger investment funds. People who achieved Fat FIRE usually fall in the high-income bracket.
If I calculate my number correctly, I think I have achieved Coast FI. Personally, Lean FIRE is what I aim for. Fat FI definitely does not seem realistic for me, unless I find a higher-paying job and stick to it longer which means more stress in my 30s.
I am planning to fill my time in honing my music skills. I don’t think expecting my hobby to pay for my living expenses, which is probably not a good strategy in the long run – I am afraid it will kill my creativity instead.
How Barista FIRE works?
Let’s say that Joe’s annual expenses are 30k. So, Joe’s FI number is = 30x 25 = $750k.
If Joe decides to go with traditional FI – it will take him 11.5 years with 80k assuming a 5% rate and 0 net worth.
But with Barista FIRE, he can aim for 500k of investment fund – which will take him seven years instead. He can withdraw 20k from his investment annually and find a part-time job that pays 10k.
He can achieve this by doing freelance work, tutoring, or other part-time work (if Joe makes $25 an hour, he can work 10 hours per week).
In this scenario, Barista FIRE allows Joe to reach freedom four years earlier.
Things to remember:
During his Barista FIRE period, Joe most likely has to keep working on his part-time job. If Joe wants to be 100% FI, he has to earn more than enough to increase his portfolio.
This sounds great in theory, but in reality, most people have family, a house, retiring parents, pets, and other obligations. If you expect your annual expenses to increase, Barista FIRE might not be for you. Unless you can somehow rely on a small number of living expenses from your part-time job.
If you despise your job – it might be worth looking into finding the job that you hate less. A lot of people feel lost in life/their career – but it does not mean you can’t change.
It took me ~two years to completely transition from software engineering to data analytics. But eventually, I did it. It does not matter how long it takes you as long as you make progress towards your dream.
The Benefit of Barista FIRE
Achieve freedom sooner
Instead of staying in the job you dislike for several years, you can achieve freedom sooner and a better work-life balance. Some people despise their job, maybe because of a toxic culture, terrible bosses, workload, politics, etc.
Access to health insurance
Unfortunately, the healthcare system in the US sucks – most health insurance is tied to employment. Working part-time allows you to get health benefits and potentially other interesting employment perks.
A structure in your day
A job can be the largest part of some people’s lives, and they may struggle to find a new routine after retirement. With a part-time job, you can have a structure in your day while figuring out your passions or what comes next to your life.
Social interaction
After you retire, you will likely lose out on social connections from your old job. For some people, it might be hard to shift from having social interaction to almost none in our life.
Working part-time allows you to still meet people and enjoy social engagement that you might crave in your life.
You still receive a consistent paycheck
For some people, even though they know that they have enough money in their retirement, it can be scary to go from receiving a paycheck to no paycheck at all.
Having a paycheck coming in can give you a little peace of mind. Knowing this can also especially useful when the market is not doing well, so you wouldn’t have to withdraw your investment during bad months/years.
You are learning new skills
Some people derive happiness from learning new things and being productive. Finding a part-time job may allow you to improve your social, leadership, multi-tasking, handyman skills, or whatever skills you wish to learn.
Barista FIRE job ideas
There are a lot of options out there – but these are some ideas that might be interesting:
- Librarian
- Barista
- Kayaking instructor
- Pottery instructor
- Walking city tours
- Photographer
- Piano teacher
- Tax preparer (it is is more seasonal than part-time)
- Online Tutors
- Bartender
- Videographer
- Online Tutor
- Consultant
Some companies that offer good benefits for part-time employees:
- Chipotle
- REI
- Costco
- Lowe’s Home Improvement
- Staples
- Starbucks
- Whole Foods
- UPS
When Barista FIRE is not for you
I think Barista is a good option to have – but there are some cases when you may want to re-consider Barista FIRE.
You enjoy your full-time job
If you enjoy what you do now, it may make more sense to learn what’s next and explore the typical career path in your role.
LinkedIn is a great tool to “stalk” people’s career history (Go to LinkedIn – search your role – choose people).
If you dislikes your manager (I feel the same way, I feel that my manager has dual personality) – it is not a bad idea to start connecting to people and applying new jobs.
You are a few years away from FI (and don’t hate your job)
If you have a few more years to go before FI and you don’t hate your job, it makes more sense to stick with it. Why would you trade your good-paying career with a lower-paying role? Yes, you would work full time but soon you’ll achieve FI and don’t have to worry about look for a part-time job.
Your Barista dream role won’t likely support you financially (at least soon)
If you dream of being an author, blogger, musician, or artist – it is probably a good idea to work on your skills in your free time while building your nest eggs.
Wishing your art to make some money right away might only put unnecessary financial stress on your shoulder and kill your motivation.
But to yell at your creativity, saying, ‘You must earn money for me!’ is sort of like yelling at a cat; it has no idea what you’re talking about, and all you’re doing is scaring it away, because you’re making really loud noises and your face looks weird when you do that.
Elizabeth Gilbert, Big Magic
You just don’t want to work at all after retirement
Some people just want to focus on their family, traveling, or maybe their hobbies. And, that’s fine too!
Conclusion
Instead of working for a decade or two in a cubicle, Barista FIRE offers an option to access your freedom sooner in life. If you are in your 20s/30s, this may make sense because you can achieve a greater work-life balance a lot sooner.
But be careful to not over-romanticize Barista FIRE. While a part-time role usually means less stress and offers benefits such as more structure and socialization in your life, but at the same time, you still rely on an employer/client for your income.
Vi, a software engineer with a keen interest in personal finance, had planned to retire once she reached her lean FI/RE (Financial Independence/Retire Early) goal. However, after achieving the goal, she took few months of a mini-retirement filled with travel and adventure and decided to continue her career.
For the past five years, Vi has been using Personal Capital (Empower), a free financial tool. Her favorite features include the dashboard for net worth, allocation, and planning, which help track her FI/RE goal and keep those investment fees in check.