The Different Types of Financial Independence

There are many ways to achieve financial independence, and each way has quite the following of hard-core believers. Each person’s take on FI is almost like a philosophy. Here are a few definitions to help you understand the different kinds of financial independence, and perhaps even find the path that is right for you.

  • Financial Independence (FI): When an individual or couple has enough income from investments that they no longer must work to pay their expenses. A rule of thumb is that investments must equal at least 25 times annual expenditures.

  • FIRE (Financial Independence/Retire Early): Achieving financial independence before normal retirement age. Those on the path to FIRE have large savings rates – at least 50% of their income – and invest their savings in stocks, real estate, and businesses. Once members of the FIRE movement achieve financial independence, they can fully retire, semi-retire, change careers, volunteer, or just generally spend their time however they want.

Lean FIRE: Those who spend less than the average American and have 25 times their annual expenditures invested.

Fat FIRE: Those who spend more than the average American (around $100k) and have 25 times their annual expenditures invested. There are other versions of Fat FIRE, like Obese FIRE, which represent different levels of expenditures and require an investment portfolio in the millions.

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  • Coast FI: An individual or couple saves enough early in their career to the point that they can stop contributing to retirement because their investments will grow enough by retirement age to support their retirement. Those that have achieved Coast FI only need to make enough money to pay their expenses until full retirement.

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  • Barista FI: This one is similar to Coast FI, just more specific. Those who have reached Barista FI saved enough early in their career to the point that they could stop contributing to retirement because their investments will grow enough by retirement age to support their retirement. They work part time at Starbucks to pay living expenses and have healthcare.

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There you have it: a handful of different philosophies towards financial independence, with different paths to get there. It’s not all about saving 70% of your income and eating beans two meals per day, although you’re more than welcome to Lean FIRE if you want to. It’s also not necessarily about working a high-paying job you don’t love so you can quit as soon as humanly possible – but you can take that path to FIRE if you want. There are many ways to FI and many versions of it, and you will only be successful if you find the one that works for you.

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