Toward FI

S1 E1: The Diverse Paths to Financial Independence: Lean FIRE, Fat FIRE, and More

• Toward FI • Season 1 • Episode 1

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Ready to revolutionize your financial future? Join us on the Toward FI podcast as we explore the intriguing world of Financial Independence, Retire Early (FIRE). Discover the power of the 4% withdrawal rule and understand how to calculate the exact savings you need to achieve financial independence. We dive into the various strategies within the FIRE movement, from the minimalist lifestyle of Lean FIRE to the luxurious goals of Fat FIRE. We also discuss Coast FIRE, where you let compounding do the heavy lifting, and Barista FIRE, which balances early retirement with part-time work.

Find out which FIRE path aligns with your personal goals and lifestyle. Whether you’re intrigued by the simplicity of Lean FIRE or the ambitious targets of Fat FIRE, we dissect each approach to help you make informed decisions. Stay tuned as we preview future episodes focused on building your financial independence portfolio and defining your personal financial goals. Embark on this journey toward a fulfilling and financially secure life with us, seeking to turn dreams into reality.

Toward FI:

Hello there and welcome to yet another episode of the Toward FI podcast. The whole concept of FIRE is quite appealing. When I started on the journey to financial independence, all I could think of was a feeling of freedom from being dependent on my job for my paycheck. Now, due to a variety of family circumstances, I've had debt. From my first paycheck. It was either a personal loan, a student loan, a mortgage, credit card debt and very often a combination of all of these. Though I knew I wanted to retire early from the beginning, it took me a bit of time to actually start to do the math on what that would actually look like and how much I needed to have in my savings and investments to actually call it quits. It was even later that I realized that there were so many different ways to achieve FIRE. Now I'm still on my journey, earning, saving and investing each day. As you Toward FI, we're focused on financial independence and not necessarily on retire early. But as I contemplate achieving financial independence, I look at it as a gradual set of steps that keep giving me the time to pursue more in life while I have the energy to do it. So today let's dive in and discuss these various forms of FIRE. Now, at the heart of the FIRE philosophy withdrawing 4% and not run out of money. Obviously, there's a lot of debate in the FIRE community on the actual withdrawal percentages. Obviously, the lower the percentage, the longer the money lasts. The percentage, the longer the money lasts. Now we're not going to go debate all of that over here, but let's focus on the idea or the principle that if you save some large multiple of expenses and withdraw a small percentage, you should be able to live for a long time. Now the question is how much is that amount? Because if you're thinking of what I was thinking when we first heard of this concept, then you're probably fixated, just as I was, on how large their number is. Now various members of the FIRE community have approached this number in unique ways and that has resulted in some generally accepted forms of financial independence and retire early.

Toward FI:

Now the first form of this FIRE approach is called Lean FIRE. Honestly, I'm not a big fan of this approach because the idea is to reduce your expenses post-retirement and make it work with an obscenely small amount of money. I have read stories of folks who have retired with about $300,000 in their account and I honestly think the community has taken this too far, because the whole point of fire is to live fulfilled lives, and by trying to constrain yourself, you're creating highly miserly lives with constraints on everything. Now, for those who can make it work, great more power to them. But personally, as I said you know, life should be lived with minimal constraints, so I'm not a big fan of this approach. But hey, like who am I to judge? To each his own right.

Toward FI:

Now the complete opposite end of the spectrum from lean fire is fat fire. The idea here is to live life with comfort. Now, to do this, you need a large number in terms of your fire number, the amount of money that you need to fire, and this can be quite daunting for those who pursue it. But I've also heard some pretty cool stories of folks who have worked in the tech sector, like in the FANG companies, making a killing with their stock options and then calling it quits. Now there are also folks who have saved diligently over a long period of time and then retired with their five to 10 million. Again, there are so many ways to. You can work towards fat fire with a large number in mind and find ways to do it.

Toward FI:

So that brings us to kind of the third form of fire, which is called coast fire, and it's a totally different form. This is really where you aggressively build a portfolio to point where the math tells you that you will get to your fire target at some point in time in the future. Basically, the idea is that you let compounding do its thing and coast away until you reach your magic date. I actually like this idea a lot and I use it as part of my fire strategy. For example, I have a college fund for my child where I have aggressively put in enough and, you know, almost am to the point where I can just let it compound and not have to worry about my child's schooling needs For some golden lives. The Coast Fire mentality is actually excellent. So that kind of rounds up.

Toward FI:

You know some of the approaches that are like not my top favorites, but let's get into two of my personal favorites in the fire philosophy. The first favorite that I have is what's called barista FIRE. The philosophy behind barista FIRE is that you find a part-time job instead of your full-time job and hence get out of the race faster. I'm personally a big fan of this approach for a variety of reasons. Now, you know we spend a lot of time in our careers building career capital and you know we need to make sure that we monetize that capital to its fullest right. We often don't need to retire completely and be out of a job. For most, we actually want to have something to do.

Toward FI:

A part-time job allows one to be active, continue to earn some money, putting that career capital to use and be relevant to the marketplace right Now. Things never go to plan and the idea of continuing to have some form of work experience, just in case you want to jump back to a full-time role, can actually give a lot of peace of mind. And I think that's the whole part of financial independence right, which is you want to have the peace of mind to live your life to the fullest. You would also do this as a coast fire approach, right, earning well and saving the corpus needed to make compounding work. Then you do a barista fire to find a part-time job and give you enough for your day-to-day expenses until your fire portfolio does its job, right. So, again, going back, the idea is that you find your corpus, that you need to make compounding work, you allow the compounding to work, but then what you do is you just find a part-time job to give you enough for your day-to-day expenses. So I think it's a cool way to approach it, just because you're mixing and matching different approaches, and then you're actually allowing yourself to enjoy life a lot more right.

Toward FI:

The other big consideration in kind of doing the barista fire is that, you know, many folks don't take into account things like health insurance, which is super critical for life, and, honestly, the best way to get access to some of these benefits is holding on to that part-time job, because then you get your health insurance, you get your benefits like your 401k. There are companies that offer a host of benefits these days, like commuter benefits and so on and so forth, which you can make use of, you know, by kind of like mixing and matching the approach. So that's why I love Barista Fire. It's, you know, kind of like you have your feet in two boats at the same time.

Toward FI:

Now the last kind of financial independent approach is honestly my biggest favorite I'm going to say the best for the last and this is what's called cash flow fi. Now, this is where you intentionally create multiple sources of income, preferably passive, and over time build enough streams of income to replace your primary job. Now, I personally love this because there's so many different facets of cash flow fi that make it so appealing. First one, of course, that you're creating multiple sources of income. So, irrespective of how the markets go or how circumstances in life might change, you have a diversified income portfolio and, no matter what happens, you have different forms of income that you're dependent on. The second part about it is that, because you're developing income streams that are essentially replacing your primary income, you get to set a target metric, for example, percentage of your primary income covered by your streams of alternative incomes.

Toward FI:

Now, I'm very much a goal-based guy. I love having a quantitative goal to go after. So your passive income could be, for example, like dividends or rental income, and you know you could definitely use these, you know metrics, to kind of look at how much is your dividend portfolio, your rental portfolio, covering your primary income, and that allows you to really understand. You know how far or how close you are to your financial independence date. How far or how close you are to your financial independence date. But I also think that diversified income also allows you to go after some passion projects. It could be writing a book or starting a YouTube channel or heck a podcast right, and I think that's why Cashflow Fi is the king of fire approaches right. It brings together best of all the above approaches without asking you to sacrifice too much, while giving you a tremendous amount of clarity. Now, it takes a while to get to the goal with cash flow FI, but in my view, it's the journey that's important, it's not the end. The journey is where you tend to have the most amount of fun. So that was quite a bit.

Toward FI:

I think that it's just for those who are in the beginning of their fire journey. It's really important to know that you have options out there, right, and so let's just quickly recap what we talked about. We have multiple forms of fire, right. We have, you know, lean fire. It's for those minimalists who can take down their expenses to ridiculous levels and achieve fire with a very small corpus. And you have fat fire. These are for folks who are willing to save for a long term and target a high enough amount that they can retire with a good enough corpus to support their current or desired lifestyles. You have coast fire, where you work to save the corpus required to let compounding do its thing and deliver you to your fire target at some target date in the future. Of course, barista fire one of my favorites where you can find a part-time job once you reach a certain amount of savings and use that to meet your living expenses while you love compounding to do its thing. And then, of course, the king of all fires, cash flow fire, where you find multiple streams of income, likely passive or preferably passive, actually to replace your primary income. Well, that was quite a bit.

Toward FI:

Again, hopefully that was enlightening to all of you who were listening, especially for those who are just getting introduced to the concept of fire.

Toward FI:

So, as you think about all of those concepts, what do you think is a good fit for you? That's really where you want to start, you know your FIRE journey at is really trying to understand how you want to organize your FIRE journey. Would you barista FIRE, you know where. You know, find a, get a good enough number, find a part-time job. And then you know, go still, you reach your fine number. Or just say, listen, I'm just going to grind it out completely because I want a big fat corpus to go the fat fire route right. So think about it. Thanks again for listening to this episode. We have a ton of fun topics coming up, including how to set up your financial independence portfolio, how do you think about you know your financial independence goals and, of course, how do you maintain focus in this long journey towards financial independence. So there's a lot more to come. Until then, let's continue to put our heads down and work towards financial independence. Cheers, guys.