Basic FIRE Terminology
I’ve had some new readers ask me to explain some terms that seasoned FIRE members probably take for granted. So, I thought this would be a good point to back up a bit and explain what we mean by “FI” and “FIRE”, give a brief history, cover where things stand today, and explain some of the different flavors.
What are FI and FIRE?
FI stands for Financial Independence. In this community, it’s considered to be the point where you have enough savings to live on for the rest of your life without working. By far, the gold standard for gauging this is the 4% Rule. You can read about it in detail here: 007 | FIRE Starter: Introduction to the 4% Rule. The 4% rule states, briefly, with a 50% stock / 50% bond savings portfolio, when 4% of your savings portfolio covers your annual expenses, you’re safe to retire with a 30-year or less timeline.
Savings Portfolio x 4% >= Annual Expenses
Another way of saying this is when you have 25 x your annual expenses saved, you can retire:
Savings Portfolio >= Annual Expenses x 25
FIRE stands for Financial Independence Retire Early. It adds the goal of reaching FI (the ability to Retire) Early in life. “Early” isn’t a fixed time, it’s just earlier than you normally would. Some people have pulled it off as early as their 30s, others may be into their 60s or beyond. FIRE is often used as a verb to refer to the act of quitting work and retiring. Example: “Jenny decided to FIRE 6 months after hitting her FI number.”
Despite having different connotations, the terms FI and FIRE are often used interchangeably when referring to this community. e.g. “FI community” or “FIRE community”.
When Did FIRE Start?
A lot of us were pursuing FIRE long before the term FIRE or the movement existed. For me, personally, it started after reading some financial self-help books in the early 1990s. Many believe the roots of the FIRE movement started with the book “Your Money or Your Life” by Vicki Robin and Joe Dominguez in 1992. But, it was really 2007 when the first blogs began to appear and later 2014-2016 before the term FIRE was coined.
What Is Going On With FIRE Now?
The FIRE movement has exploded. It is stronger than ever with podcasts, videos, books, conferences, camps, websites, Facebook groups, and local meetups. What started as a focus on just acquiring enough wealth to retire has blown up into an entire ecosystem. FIRE topics include: saving, investing, tax arbitrage, real estate, vacationing, education, quality of life, children, travel hacking, retirement planning, happiness, and more. FIRE has become as personalized and unique as the individual people making up the community. It’s a cult-like group of super-friendly people eager to share their methods of success with others.
What Are the Different Flavors of FIRE?
As FIRE has expanded, different flavors of FIRE have emerged. There are 4 major flavors of FIRE, although you may hear variations of these from time to time.
- Lean FIRE – Focuses on a more frugal lifestyle that accelerates savings rate and lowers your FI number (25 x annual expenses). Frugality is maintained in retirement as time freedom is prioritized over luxuries.
- Fat FIRE – Focuses on a more comfortable, lavish, and/or secure retirement. Because annual expenses in retirement will be higher, more savings must be accumulated. There is no hard set number, but $5 million+ is often considered Fat FIRE.
- Coast FIRE – Focuses on living frugally and investing aggressively early in life to accumulate just enough savings to guarantee the desired retirement at a future date. At this point the power of compounding will take over to reach the retirement you desire with no further contributions. You can then spend all your earnings until your determined retirement date. This flavor balances “living life” in the middle years while still retiring comfortably.
- Barista FIRE – Focuses more on the journey of life than the destination of retirement. Once your savings reach a certain amount, you leave your high-stress career and take a much simpler, lower-paying career, like a Barista, for example. This lower-paying, part-time job provides your essentials like health insurance.
There are a few other flavors worth mentioning, although I wouldn’t consider them mainstream.
- Slow FIRE – I’d consider this just “living life” with an eye towards achieving financial freedom some time in the future. It’s about enjoying life all along the way while saving enough to ensure a comfortable retirement. If you’re working a good job, investing 10-15% annually, and plan on retiring in your 60s or later, this is probably you.
- Fast FIRE – extreme frugality, earning, and investing with the goal of reaching FI and FIRE-ing as soon as possible. Critics of the FIRE movement often point at these people when arguing against FIRE. These individuals often take extreme measures like eating rice & beans, living with parents, pursuing side hustles, and so on to reach their goal. This is 100% fine if you want to do this, but I’d argue it represents only a small percentage of the FIRE community.
- FIRE or Standard FIRE – there’s not really a term for this, but I’d describe it as smack between Lean FIRE and Fat FIRE. This is what most people pursue. An accelerated path to save 25 x Annual Expenses for a comfortable but not lavish retirement.
- Chubby FIRE – somewhere between FIRE and Fat FIRE. At this point, we’re getting pretty granular. This is the last flavor I’ll mention. You now understand enough to infer the meaning of any FIRE flavor.
What Flavor of FIRE Should You Pursue?
That, my friend, is a question only you can answer. It depends on your age, where you live, how much you have saved, your risk tolerance level, how much you earn, your current debt level, marital status, children, what you’re willing to give up, how much you enjoy your career, and many, many other factors. The best advice I can give you is to start thinking about it NOW. Every moment you delay narrows your future choices. See my post The Urgency of Now for steps to get started and the power of compounding.
Check out our FIRE Calculator to determine your FI number, FI Date, Coast FI date, and to model your retirement expenditures. By inputting your numbers, and playing with different scenarios, this will help you determine the flavor of FIRE that suits your unique situation and goals. Thanks for reading, friend. If you like this blog or find it useful, please share with friends & family and follow us on Facebook.