The idea of achieving financial independence has always intrigued me, and a few years ago I stumbled upon a twist on the traditional FIRE movement that really caught my attention: Barista FIRE. This approach combines the best of both worlds - working part-time in a job you enjoy while still enjoying the benefits of early retirement.
One of the first steps in achieving Barista FIRE is figuring out your numbers! The BARISTA FIRE Calculator is a great tool to start planning your journey to financial independence and retire early. Use this calculator to calculate your Barista FI number and the total years it will take for you to reach it.
BARISTA FIRE Calculator
What is Barista FIRE?
Barista FIRE is a unique subset of the FIRE (Financial Independence, Retire Early) movement that involves switching to an easy and low-stress job with lots of free time while waiting for full retirement.
It's all about having enough money saved up to "retire early", but still working a part-time job to cover additional expenses and possibly getting health insurance benefits. This way, you can fund the rest of your lifestyle and fully enjoy the journey toward financial independence without feeling overwhelmed or restricted by an all-or-nothing approach.
The term "Barista" refers to the idea that you can work a job that you enjoy, such as being a barista at a coffee shop, to supplement your income while living off your investment returns. The goal of Barista FIRE is to achieve financial independence and retire early, but with the added flexibility of being able to work a part-time job that you enjoy.
I've found that BARISTA Fire offers more flexibility and balance compared to the strict savings and frugality required by Lean FIRE or the massive accumulation of wealth needed for Fat FIRE . It's a fascinating concept that might just be the perfect fit for you if you're looking to achieve financial freedom without giving up the joy of working in a field you're passionate about. Or maybe you want to dramatically reduce your hours, go freelance in order to maintain a standard of living that's aligned to your values. Barista FIRE gives you that flexibility on your path to financial independence.
To calculate your Barista FIRE number, you need to determine how much supplemental income you need to cover your living expenses. You can do this by subtracting your yearly expenses from your estimated salary from a part-time job. Once you have your supplemental income needed, you can multiply it by 25 to get your Barista FIRE number.
Barista FIRE is not for everyone, but it can be a great option for those who want to achieve financial independence and retire early, but also want the flexibility to work a job that they enjoy. By working a low-stress job that you enjoy, you can reduce your stress levels and enjoy your life more while still working towards your financial goals.
How to calculate your Barista FIRE number
Current Total Investments
This is the total amount of your net worth. Net worth represents the sum of your financial holdings, including cash, retirement account investments, investment portfolio, and property. Deducting any liabilities, such as car loans, student loans, and credit card debt, from your assets determines your net worth. Your net worth is basically your starting point for where you are currently at with your Barista financial independence number
Current Monthly Expenses
Now let's dive into your spending habits, shall we? When I say "Current Monthly Expenses," I'm talking about the grand total of what you're shelling out each month. This covers all the essentials, like eating out, paying rent or mortgage, and keeping the lights on. You also want to include those extra splurges like entertainment and other fun stuff you enjoy. Oh, and don't forget about those sneaky non-monthly costs—things like travel, insurance, and car maintenance that pop up from time to time.
Monthly Total Savings Contribution
This is the total savings contribution that you calculated from the savings rate calculator . It includes your monthly savings from your after tax income but also includes any savings contributions to retirement, HSAs and other savings vehicles that are deducted directly from your paycheck.
BARISTA FIRE Monthly Income
This is the after tax monthly take home pay that you're earning from your barista fire job. So whether you're working part time, doing some consulting, or are freelancing, you want to include the average monthly income you're earning from that job during your barista fire stage.
Annual Interest Rate (%)
This is the expected growth rate at which your investments are expected to grow. On average, the stock market has historically provided an average growth rate of 8%, which has been adjusted for inflation. While this rate is historically reliable, it is important to note that there are no guarantees and that the growth rate of return can vary depending on the type of investments you make. Additionally, it is important to remember that this 8% rate of return is an average, and that there may be times when you can expect to see higher returns, or there may be times when you experience a lower rate of return.
Withdrawal Rate in Retirement
This is the percentage of your financial independence savings that you withdraw each year to cover your living expenses. This is also referred to a lot in the FIRE movement as the "safe withdrawal rate". It is a critical component to consider when planning for retirement or financial independence, as it is important to determine the rate that will ensure that your nest egg will last for the duration of your FIRE life aka retirement.
The 4% default rate is based on the well-referenced Trinity Study , which examined the past 50 years and concluded that withdrawing 4% from liquid assets for 30+ years would not lead to running out of money. This assumes that assets are invested in the stock market and the stock market grows at an average annual return of roughly 7% after inflation.
The Barista FIRE Calculator Results
BARISTA FIRE Number:
This is the amount you'll need saved in order to BARISTA FIRE and live off of your investments & Barista FIRE Income. You'll use the monthly income from your barista fire job plus the income from withdrawing 4% a year from this number to cover your expenses.
Years to BARISTA FIRE
This is how long it'll take you to reach your BARISTA FIRE number based on how much you have saved already, your expenses, your monthly savings and how much you'll be earning in your BARISTA fire job. You should compare this time to the traditional retirement age and think about adjusting your numbers in the calculator accordingly if your years to barista fire is still close to the traditional retirement age.
Traditional FIRE Number:
This is the amount you'll need saved in order to FIRE fully and live off of your investments. This is assuming you never choose to pursue Barista fire and you just work towards the traditional financial independence retire early.
Financially Independent Age If You COAST FIRE Today
This is the age you’ll become BARISTA financially independent and can live off of your investments & your BARISTA FIRE income.
Understanding Barista Fire
Barista Fire is an approach to financial freedom that has gained traction within the FIRE (Financial Independence Retire Early) movement. Unlike the traditional FIRE approach, Barista Fire allows you to leave your full-time job and achieve a degree of financial independence without having to cover all of your living expenses solely through your investments. The term "Barista" comes from the idea that you could work a part-time job, potentially at a coffee shop, to make up for the difference in living expenses that your investments don't cover. Ultimately, it's about finding work that you enjoy to supplement your income and maintain your desired lifestyle.
Barista Fire vs Traditional Fire
Unlike Traditional FIRE, where the goal is to save and invest enough to cover 100% of your living expenses in early retirement, Barista Fire aims for covering most of your living expenses with your investments, while the rest is covered by a part-time job, contract work or starting your own business. This means that you don't need to accumulate as much wealth before transitioning to early retirement, and can enjoy the benefits of financial freedom sooner.
Traditional FIRE:
- Requires higher savings and investment rates
- Covers all living expenses with investments
- Completely leave the workforce and live off your investments
- Never have to work again technically
- Need to figure out health insurance
Barista Fire:
- Requires lower savings and investment rates
- Can "retire" from a 9-5 much sooner than traditional retirement or traditional FIRE
- Investments cover most living expenses but not all
- Part-time job for supplementary income and potentially to cover health benefits
Barista Fire Vs Coast FIRE
Similar to Barista Fire, Coast FIRE is another flavor of FIRE within the early retirement community. While both Barista Fire and Coast FIRE allow for an early escape from full-time employment, they differ in how investments and income are managed during early retirement.
Coast FIRE is achieved when you have saved and invested enough that, without further contributions, your investments will grow to cover your living expenses by the time you reach your desired retirement age or your early retirement age. In this case, you can reduce or pause your investment contributions and work just enough to cover your living expenses until you reach full financial independence.
In contrast, Barista Fire requires you to pull some of your investments early before reaching traditional FIRE as you're relying on some of that income to live. You could say COAST FIRE is a more risk-averse approach to early retirement as you're not touching your nest egg at all before reaching traditional FIRE. Whereas, in barista fire, you're required to pull some of those investments out in order to live.
In summary, Barista Fire is a strategy that allows you to partially achieve financial freedom by replacing part of your full-time income with enjoyable part-time work. It differs from Traditional FIRE and Coast FIRE in terms of the balance between investments and income during early retirement. By understanding these different approaches, you can tailor your path to financial freedom based on your goals, timelines, and risk tolerance.
Barista FIRE Example
Let's take a family of 4 who have annual spending of $60k. Let's assume both parents are 40 and dutifully saved in their retirement and investment accounts for the past 20 years. Now they have a net worth of $600,000.
Now one of them wants to quit their full time job while the other continues to work. So right now they are making 60k/yr income but it'll be going down to $36k during BARISTA FIRE. So they need to subtract that work from their yearly expenses:
$60,000 (yearly expenses) - $36,000 (part-time salary) = $24,000 (supplemental income needed)
Now, they need to calculate their Barista FIRE number using the 4% rule, which suggests that they can withdraw 4% annually from investments without running out of money. To do this, you multiply your supplemental income needed by 25 (the inverse of 4%). In their case:
$24,000 (supplemental income needed) x 25 = $600,000 (Barista FIRE number)
So, according to these calculations, they would need $600,000 in investments to achieve Barista FIRE and cover their remaining expenses after accounting for their one income. And luckily for them, they have $600k in their net worth so they have officially reached BARISTA FIRE!
Keep in mind that these numbers are just an example and will vary based on individual circumstances, expected expenses, and part-time job income. It's essential to tailor the calculations to your own financial goals, lifestyle, and risk.
