Barista FIRE is an alternative Financial Independence approach. While most people are still aiming for traditional FIRE there are now a few different variations of the movement. Barista FIRE allows you to “partially retire” while working a part-time job to cover some of your expenses.
Barista FIRE is an alternative to the traditional FIRE movement. This strategy involves building a portfolio to your “Barista FIRE” number and retiring from your full-time job. This portfolio won’t be large enough to cover all of your expenses so you get a part-time job on the side to cover the difference. Using this strategy you will never reach full FIRE without cutting your expenses in full retirement.
What Is Barista FIRE?
Barista FIRE refers to a lifestyle and financial strategy where individuals achieve a level of financial independence that allows them to leave their traditional full-time jobs. However, instead of fully retiring, they take on part-time or more flexible work (often likened to a barista’s job at a coffee shop) to cover their ongoing expenses, maintain social interactions, or just get free healthcare.
With Barista FIRE you will cover a portion of your expenses with withdrawals from your portfolio while making up the shortfall with your part-time job.
In essence, Barista FIRE is a middle ground between working full-time and fully retiring, allowing people to enjoy some benefits of retirement without completely stopping work.
How Barista FIRE Works
There are two main steps to the Barista FIRE method, the accumulation phase and the semi-retirement phase.
During the Accumulation phase, you will be working full-time, saving and investing as much of your income as possible to reach your Barista FIRE number. This part of the process follows all the same principles as FIRE. You are living a frugal lifestyle to reach your goal as fast as possible.
Once you reach your Barista fire number you can leave your full-time job and start working part-time. Most people will withdraw 3-4% of their portfolio each year while supplementing the remaining income with a part-time job.
The main problem with Barista FIRE is that you will never reach full FIRE. As your portfolio is only big enough to provide you with a portion of your required income, you will always need a second source of income. The only other option is to downsize your lifestyle when you fully retire. This could be an option if you have paid off your mortgage and have no other debts.
How To Calculate Your Barista FIRE Number
Calculating your Barista FIRE number is simple. The formula is similar to the traditional FIRE calculation with a slight modification to account for your part-time work.
To calculate your traditional FIRE number you simply multiply your annual expenses by 25.
FIRE = Annual Expenses x 25
Example: £50,000 x 25 = £1,250,000 <– FIRE Number
To calculate your Barista FIRE number we take our annual expenses and deduct the salary from our part-time job. Ensure you are accurate about the salary you can expect to earn as a part-time employee.
Barista FIRE = (Annual Expenses – Part-Time Income) x 25
Example: (£50,000 – £20,000) x 25 = £750,000 <– Barista FIRE Number
In the example above you need £50,000 per year for expenses and will earn £20,000 from your part-time job. Therefore your Barista FIRE number is £30,000 x 25 which is £750,000 invested. You can safely withdraw 4% a year from your £750,000 portfolio while earning the extra £20k from your job.
If you don’t want to work out your number yourself, you can use the calculator below.
Barista FIRE Calculator
Barista FIRE Example
Let’s take a look at an example of someone who is planning to reach Barista FIRE.
Sarah is currently 30 years old and has a full-time job paying £50,000 per year. She plans to Barista FIRE at 50 years old with a job paying £20,000 per year. This means she needs to hit a portfolio value of £750,000 in the next 20 years.
To do this, she would need to invest £1450 per month over the next 20 years at 7%. As we expect a 9% return from the markets we use 7% as our return figure to account for inflation.
Earning £50,000 per year gives her a take-home salary of £3,099 per month. This means she needs to save 46% of her income over the next 20 years to reach Barista FIRE at 50.
If she starts to withdraw £30,000 per year from her portfolio it should stay at the same value however it will never grow any further meaning she will have to keep her part-time job. Once she hits retirement age in the UK she could continue to pull £30,000 per year from her portfolio while also getting the state pension which would make up some of the shortfall of quitting her job. This combined with some lifestyle cuts could make Barista FIRE feasible.
If Sarah decided to work until she was 56 and continued to invest for another 6 years she would hit her full FIRE target of £1,250,000. If she could sacrifice for just a few more years, she would have a considerably more comfortable retirement not requiring her to work at all.
Benefits Of Barista FIRE
Fast To Achieve – Barista FIRE is faster to achieve than traditional FIRE as you need a much smaller nest egg to get there. It could allow you to go into retirement at a much earlier age than you expected.
Health Insurance – While this isn’t as important in the UK as we have free healthcare, it is a huge benefit for Americans looking to pursue FIRE. Certain part-time jobs will provide them with medical benefits, making keeping a part-time job worthwhile.
Good In The Short Term – Barista FIRE can be a good method to use if you want to take a career break or take a few years off full-time employment to spend with your kids. You can withdraw 4% of your portfolio for a few years while working part-time and enjoying being a new parent. Your portfolio value won’t grow during this period but also shouldn’t go down by much either. Once you are ready to get back to work you can start saving and investing towards full FIRE again.
Benefits Of Working – Working part-time could be a great option for a lot of people. Outside of the money you earn, you will also be able to stay social, stay active and feel like you have a purpose. It gives you something to get up for in the morning. Full retirement can get boring fast if you don’t have any hobbies or projects to work on.
Drawbacks Of Barista FIRE
Never Truly Reach Financial Independence – With Barista FIRE you never really reach true financial independence. This is because you start withdrawing from your portfolio before it’s large enough to cover your expenses fully. If you want to completely retire you will have to cut back your lifestyle.
Market Fluctuations – The stock market is volatile. If you end up in a major bear market as you start to withdraw from your portfolio, your 4% safe withdrawal rate may be considerably less than you need to cover your expenses. Withdrawing more than the safe withdrawal rate could see you running out of money.
Less Flexibility Than Other FIRE Methods – In America most people, take a part-time job for medical benefits means they have to take a job that offers it. Other FIRE methods have much more flexibility, giving you the option to start your own business or even do freelance work. In the UK this is still possible as you aren’t required to find a job with healthcare.
Other Types Of FIRE
There are multiple different levels of Financially Independent Retire Early. Coast FIRE is the first level of financial independence. You then have the following levels:
Coast FIRE – Coast FIRE is when you save and invest enough early on in life, so that your portfolio will eventually reach your FIRE number by retirement. Once you reach Coast FIRE, you can stop contributing to your portfolio and let compound interest do the work for you. Once you reach Coast FIRE you can spend less time focusing on saving and investing and simply enjoy the money you earn.
Lean FIRE – Individuals or families pursuing Lean FIRE aim to retire as soon as possible, often living a minimalist lifestyle both before and after retirement. They carefully watch their expenses and typically live on a budget that’s lower than the average person. The goal is to accumulate enough savings to cover these basic living expenses for the rest of their life.
FIRE – This is the “standard” level of the movement. Those who achieve FIRE have saved and invested enough to live off their investments indefinitely without working and can maintain a comfortable (but not luxurious) lifestyle. The typical guideline for FIRE is to have saved up 25 times your annual expenses, based on the 4% safe withdrawal rate.
Fat FIRE – People who pursue Fat FIRE want to retire early but maintain a more luxurious or affluent lifestyle in retirement. They save and invest more than those aiming for traditional FIRE, allowing for higher spending in retirement. This might include more travel, fine dining, or living in a high-cost area. They have saved well beyond the 25 times annual expenses guideline.
What Is The Difference Between Barista FIRE & Coast FIRE
Barista FIRE has two stages. The accumulation stage and the Semi-retirement phase. With this method, you build a portfolio large enough to sustain you while also having a part-time job. With this method, you are unlikely to ever reach your Full FIRE number and will be required to work part-time forever or cut back on your lifestyle.
Coast FIRE has three stages. In the first stage, you accumulate until your portfolio is large enough to grow by itself. In stage two you can stop contributing to your portfolio but you still work enough to cover all of your expenses. In the meantime, your portfolio is growing in the background as you are not touching it. Once your portfolio reaches your FIRE number, usually at traditional retirement age with Coast FIRE you can completely retire while still maintaining your lifestyle.
With Coast FIRE you will eventually reach full FIRE. With Barista FIRE you are unlikely to ever reach it. In my opinion, it’s much better to adopt a Coast FIRE mindset or aim for Full FIRE if you can. Usually, it will only take an extra 5-10 years to reach full FIRE after hitting Barista FIRE.
If you are in the United States, Barista FIRE can be a great option due to its medicinal benefits. However, in the UK I’m not a huge fan of this plan as you never actually reach a full retirement portfolio. If you have to stop working completely, you will be left with a portfolio that won’t fully cover your expenses. I would try to aim for Coast FIRE and keep your full-time job or aim for Lean/FullFIRE if possible. These options give you a much better retirement.
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