LeanFIRE, FatFIRE and BaristaFIRE: How to Choose the Right FIRE Option for You

I have a friend who, at 39, you'd definitely consider part of the FIRE movement. He checks his investments daily and then heads off to the pool with his kids for the rest of the day. His situation sounds exactly what you might think of when you think of the Financial Independence, Retire Early (FIRE) movement. It's all about napping and reading on a hammock six hours per day, right?

However, that can be a major misconception. You may not realize that within the FIRE movement, FIRE can morph into several different forms — LeanFIRE, FatFIRE and BaristaFIRE. But first, let's discuss the definition of the FIRE movement, then examine how you might want to take part in it.

What is the FIRE Movement?

The core component of FIRE involves using FIRE principles in order to retire decades earlier than expected. 

Highly motivated people can use a simple formula that looks like this to achieve financial independence and retire early:

Save 50% to 70% of your income + frugal living + invest in low-cost index funds = FIRE 

FIRE participants use their investment earnings to pay for their expenses. Index funds offer investors ownership of multiple stocks, greater diversification and lower risk at a low cost. Many Warren Buffett fanatics in particular look to cheap index funds instead of individual stocks.

A FIRE scenario might look like this: 

Jessica earns $100,000 per year as a software engineer. She saves a whopping $60,000 of her after-tax income and lives off the rest in a low-cost lifestyle. 

For the first few years, she lives in her parents' basement and pays them just $150 per month for groceries — no rent. She doesn't spend a lot of money on extra things, and she gets to wear jeans to work — no fancy clothes needed. 

She invests all of her extra money into the very popular Vanguard S&P 500 ETF (VOO) with its ultra-low expense ratio of 0.03%. The average rate of return on VOO is around 13%. 

If Jessica starts with $0 when she graduates from college and saves $60,000 per year over the course of ten years, with an average rate of return of 13%, she'll have $1,248,858.99. 

Jessica figures she can quit her day job once her savings reaches about 30 times her annual expenses. Her goal involves paying for her living expenses by taking 3% to 4% savings and investments withdrawals, and then when she's eligible, tapping into the money in her 401(k).

Other FIRE Options

Does Jessica's jam just not interest you at all? Fortunately, you can tap into a few other FIRE options. Who says you have to follow the crowd? The FIRE crowd actually marches quite a bit to its own beat, so look to see whether these options fit you best: LeanFIRE, FatFIRE or BaristaFire. 

What is LeanFIRE?

Like in Jessica's situation, LeanFIRE focuses on living lean to an extreme. You sacrifice everyday frills and luxuries and focus on a more "bare minimum" lifestyle so you can save up enough money to retire early. It involves a mantra of saving and more saving and you'd also live more conservatively in retirement. Okay with a smaller income in retirement? You could get to FIRE earlier. 

What is FatFIRE? 

FatFIRE means you allow yourself to have a more indulgent lifestyle compared to LeanFIRE. You don't make quite as many spending sacrifices as you would with LeanFIRE so you need to save more money instead of eating peanut butter and jelly sandwiches for lunch every day. You'll likely need a higher income to make FatFIRE work and it might take you more time to get to financial independence. 

What is BaristaFIRE?

BaristaFIRE allows you to retire from your main job early. However, you don't stay completely hands-off from the working world. Just like it sounds, BaristaFIRE allows you to take advantage of your already-squirreled away money so you can work part-time, take on jobs in the gig economy or work on a dream startup you've always wanted to create. It gives you the choice of working for pleasure rather than working to survive or fund your lifestyle.

How to Choose the Right Option for You

Which FIRE scenario works best for you? Take a look at a few steps you can take to determine the best course of action for you.

Step 1: Consider your current income.

How much do you make? That can determine a lot. Remember, at its core, the FIRE movement involves individuals who make a lot of money in the beginning of your career. My friend who participates in the FIRE movement lived off of just his wife's income and invested all of his income as a software developer for over 15 years.

Trying to achieve FIRE on a lower salary might take you longer than trying to achieve FIRE on a higher salary or the combination of two salaries.

Step 2: Take your timeline into consideration.

How soon do you want to achieve FIRE? For example, if you want to achieve it in eight years versus 15 years, you might have to compound your efforts in that shorter amount of time. How well does your timeline mesh with your aspirations and ability to save?

Step 3: Consider your lifestyle preferences.

Can you really stand driving around a 1992 Cutlass Supreme for 10 years, living on off-brand cereal for three meals per day? Now, your situation might not look as serious as this, but you want to consider whether you're really cut out for LeanFIRE or not. If you like a few more luxuries, you may want to consider FatFIRE instead.

Step 4: Do you want to work?

How much would you like to work when you've retired? Do you want to go the BaristaFIRE approach and spend time launching the business you've always wanted to get off the ground? BaristaFIRE might make the most sense if you have a passion for something else and want to use your initial career as the jumping-off point to save lots of money.

Make a Final Decision

Does one of these options jump out at you? No matter what, all three will require you to save a lot of money. The FIRE movement works well for many people, as long as you identify which method will work best for you ahead of time.