Retiring can be a massive dream for many people in the world. Doing it early is an even better dream since most people work most of their lives, hoping they can reach early retirement. One thing we could do is bridge the gap with Barista FIRE.
Before we jump into Barista FIRE, let me inform you of the concept called FIRE.
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What is the FIRE Movement?
FIRE is financial independence retire early. Many people would like to phrase it as financial independence, retire eventually. Those people would probably do some part-time work.
Mr. Money Mustache helped make this movement thrive by retiring early and writing about it in his blog. He talks about finances, passive income, index funds, saving more, and retiring early. He helped popularize the FIRE movement.
Those not familiar with the movement have all been about increasing savings, having a safe withdrawal rate, and leaving behind your “9-5 job” for a seat in the non-working chair, aka your couch. It takes time to accumulate wealth and living frugally, but with some discipline, many people can walk away with a lot of money.
Traditional FIRE may not be for everyone, but you can quickly figure out how much money you need by multiplying your annual spendings by 25 to equal a safe withdrawal rate for your retirement. Through compounding and building wealth you can make your investment portfolio help last you until you pass away. We can figure this out using the 4% rule.
At that point, you will need to make some plans for after you retire, like where to live, what to do, monthly income, healthcare, and anything else people may do when they are retired.
What if we could make this a bit faster? What if we could stay working, not worry about health care, retire, and make these things happen?
This is where the concept of Barista FIRE comes out. It gives us options to work part-time; with the proper employment, we can also benefit from healthcare. So what does this all mean?
The FIRE community is full of phrases describing different types of early retirement. Not everyone is in the same boat. Some people enjoy their job and want to keep working while others would rather quit and do something more satisfying.
Ways to FIRE
There is more than one way to FIRE. Here are just a couple of ways to FIRE.
Fat Fire: Fat FIRE is the ability to live it up in your retirement years without really having to cut down on any expenses
Lean FIRE: Lean FIRE is when someone has saved up for early retirement but will need to live on a thin budget.
Coast FIRE: Coast FIRE is having enough savings at a young age and not contributing any more to your retirement accounts. You can allow your investments to compound until you retire.
How can we be on the road to financial freedom and still have some jobs we enjoy? The answer is Barista FIRE.
What is Barista FIRE?
Many people may wonder what Barista FIRE is? Is it something that only coffee shop baristas can achieve, or is it something more?
Typically, when you hit financial independence and retire early (FIRE), you stop working and enjoy the good parts of retirement life.
You have been working your whole life to achieve your financial goals and are ready to hit early retirement.
Sometimes, you may be stuck at a job you hate. This is the worst part. Your nest egg is getting big enough to get close to retirement, but you are on the verge of not wanting to keep going to work. That is when Barista FIRE comes in.
Barista FIRE is when you can cover almost all of your expenses from savings but will need additional income to supplement your retirement.
For instance, if your job is not going well, but you are close to retirement, you could retire. You could then take up a part-time job working as a barista at Starbucks to get health insurance, and you are essentially living the Barista FIRE life.
Achieving Barista FIRE:
To achieve Barista FIRE, you first need to have some good financial goals to help guide your way. Let’s set those up and work towards hitting Barista FIRE.
1. Find Your Financial Independence goal.
Our goal is to have a high enough liquid net worth that can help sustain us while living off our retirement funds. Calculating our goal can be done easily by taking your annual expenses and multiplying that by 25.
If you spend $40,000 x 25 = $1,000,000.
Your retirement goal will be $1,000,000 according to the safe withdrawal rate of 4%.
2. Figure out how much you need to make through side hustles.
Side hustles are just part-time jobs on the side. These side hustles will help you supplement your income as you no longer work for your regular job.
You will need to figure out how much money you could make through that.
Using the safe-withdrawal rate of 4%, we can figure out how much less you need to save up.
Let’s say you can make $10,000 as a side hustle or even a part-time job. We take that number x 25 to get the amount of $250,000
$10,000 x 25 = $250,000.
We can now take our Financial Independence goal of $1,000,000 and subtract the $250,000.
$1,000,000 – $250,000 = $750,000.
With earning just $10,000 a year on a side hustle or a part-time job, you will no longer need to save an additional $250,000, which could take a while at a job you dislike.
Your Barista FIRE number would then be $750,000.
3. Take Action
Now it is time to take action. We have the steps to make things happen. We have our financial goals i
Now it is time to take action. We have the steps to make things happen. We have our financial goals in place, and we have a good amount of retirement savings before we hit our Barista FIRE.
Let’s start saving and investing more money for our future retirement. You can use traditional or Roth IRAs to help create a sizeable retirement fund.
Vanguard low-cost index funds are some of the best funds to invest in for your portfolio. You can even invest using ETFs such as VTI.
Why do we seek Barista FIRE:
When talking about Barista FIRE, it is hard not to mention why we do it. Our working life can be a life full of stress, anxiety, and wanting to do something else.
People will often work their whole lives at a job they may or may not like and retire at 65 or older.
Early retirement is not something that is often talked about. Sometimes people want to retire to enjoy the good life before they get too old and not have the time, ability, or mental capacity to enjoy all that the world offers.
FIRE, Financial Independence Retire Early, gives us the ability to stop work and try something new or just retire early. You need to have a good amount of retirement savings to help pay for most of your living expenses.
Barista FIRE gives us more options than we can think of. It is not just Coast FIRE, which provides us with enough money to coast until we hit retirement. This is enough money to retire and take on some small job.
When growing up, I had a job as a camp counselor. I loved living outdoors, having fun with kids, eating free food, and enjoying my summer.
The problem was that this occupation did not give me much of an income. It was enough, like $180-200 a week, which is like nothing. I loved the job.
As a teacher, I make some excellent money living in Taiwan, but if I were to get my retirement savings high enough, I could live a frugal life, but I could do a side hustle like blogging or tutoring.
Is Barista FIRE right for you?
Let’s check to see some of the pros and cons we may encounter when hitting Barista FIRE.
1. Opportunities for other jobs
Barista FIRE allows us to leave a job that may cause stress, hatred towards work, and a feeling of being stuck.
It gives us a way out to find something that is maybe lower-paying, but we have the opportunity to continue to work only part-time.
2. Give us Freedom
It gives us freedom. We are finally taking that leap to retirement. So many people dream about it, but people may never achieve it until later in life.
Health insurance is another big one. In the U.S., healthcare is tied to employment. The ACA does help this out a bit, but it is always better to have some employment that gives healthcare.
If your spouse has health care tied to their job, then this can be a huge benefit as well.
4. Supplemental Work
Extra work can also help in case your investments have downtime. We do not think too often of bad market swings, but they happen.
If you are working part-time, you can continue to support yourself even when your investments are down.
5. Freedom for Projects
You are free to do what you like. As a writer on a blog, I could dedicate my time to blogging, podcasting, or even YouTubing.
There are so many opportunities that await. You can leave your job and start looking for projects that pay and excite you.
1. Not Yet Retired
At this point, you are not retired. Many people want to be fully financially independent, but being Barista FIRE, you are like 75% of the way there. You still need to work.
2. Healthcare could be an issue.
Not every side gig or part-time job may give you healthcare. So this could be an issue.
3. Financial Independence Slowed
Financial independence may be slowed down for a while. You may not be working a full-time job and therefore are not receiving more money than a “9-5 job” will bring in for your retirement. So financial freedom from a job is thwarted for a while.
Your Financial Plan to Barista FIRE
When looking for Barista FIRE, you need to have a sound financial plan. You have to be able to make these things happen.
You will need to:
- Make extra money
- Keep a reasonable savings rate
- Make sure to have some paycheck
- Have enough savings for your income stream to cover the rest.
Using these four things, you will be able to retire early, continue to work, and have some financial freedom earlier in life before you hit old age.
Some Last Thoughts:
Barista FIRE can get you started to retire earlier. Being far from retirement age, you can have the ability to keep working, but have a job you may enjoy more at a lower wage. Full retirement may be far for a lot of us, but having good financial planning will allow us to operate on our own time.
You need to have a savings plan to cover some of the cost of living you may endure in your future retirement. Every month, make sure that your sources of income can cover you for retirement. These side hustles will help give you financial security.
What do you think? Would you do Barista FIRE?
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.