What is Barista FIRE? The complete guide to unlocking early financial freedom

What is Barista FIRE?

Put simply, Barista FIRE is where the returns from your invested assets cover most, but not all of your living expenses, and you do work that you find enjoyable to make up for the difference and fund the rest of your lifestyle.

The big idea behind Barista FIRE is that by generating a relatively small amount of income on the side doing work you find enjoyable, you can dramatically reduce the net worth that you need to quit your full-time job and exit the rate race. This allows you to gain financial freedom much sooner than if you waited to reach your traditional Financial Independence / Retire Early (FIRE) milestone.

Don't let the name fool you. While the term "Barista FIRE" comes from the friendly coffee-making profession, the ways you can make "fun money" go well beyond working as a barista. For example, you could consult part-time in your old field, become an Airbnb host, teach sailing lessons, work at a ski resort, or become a sports referee. Whatever you enjoy doing, there is probably a way to make a little side income doing it. When you remove the walls of a 9 to 5 career, the options are endless!

I built this Barista FIRE Calculator to help you visualize and plan your Barista FIRE journey.

Barista FIRE Example

To help understand the appeal of this "Barista" flavor of FIRE, let's consider an example scenario using a guy named Barry, a 25-year-old who lives in California and makes $100,000 annual salary before tax. He plans to spend $40,000 per year in retirement by moving to a lower cost-of-living area later in life.

Using the WalletBurst FIRE Calculator, if Barry lives on $40,000 per year and invests the rest, then it will take him 17 years to reach his full FIRE number of $1,000,000. However, if Barry is able to earn just $1,500 per month in retirement through side-hustles or part-time work that he enjoys, then he could live on $22,000 of investment income per year, requiring a FIRE number of just $550,000, nearly half of his full FIRE number. He could reach this number in just 11 years, shaving 6 years off of his full FIRE path.

How does this work? The math behind Barista FIRE

If we assume that you withdraw 4% of your assets per year after hitting FI (the common 4% Safe Withdrawal Rate or SWR), then for every $1,000 in annual spending in retirement, you need to have $25,000 in net worth, since $25,000 * 0.04 = $1000. So if you are able to generate $1,000 in income each month (or $12,000 annually), then this would effectively reduce your required net worth to retire by $300,000 ($25,000 * 12). If you plan to spend $4,000 per month in retirement but are able to make $1,000 per month in side income, then you just reduced your FIRE number from $1.2M to $900,000. Barista FIRE is all about using a little bit of side income to have a huge impact in speeding up your journey to financial freedom.

Barista FIRE vs Coast FIRE

Looking at the personal wealth spectrum below, Barista FIRE falls squarely between Coast FIRE and Lean FIRE. These two approaches to FIRE are very similar, with Barista FIRE being the more laid-back version of the two. Coast FIRE is when you have enough in your retirement accounts that without any additional contributions, your net worth will grow to support retirement at a traditional retirement age. With Coast FIRE, you still need to earn enough income each month to cover your entire monthly expenses. Barista FIRE is the next step up from Coast FIRE, where your net worth is high enough that the returns from your investments will cover some of your living expenses, and you just have to work to cover your remaining expenses.

Things to consider

Barista FIRE sure sounds nice, but there are definitely some things you should consider before you quit your white collar office job for a new life as an artisanal coffee maker:

• If you want to reach full Financial Independence (FIRE) at some point, then you will need to reduce your withdrawal rate of your investments so that they are able to actually grow. If you are taking an "aggressive" Barista FIRE approach where you withdraw 4% of your investments annually and supplement this with side income, then the math relies on you earning some income to cover part of your investments indefinitely. For example, if you would like to reach full FIRE at age 50 but only work part time starting at age 40, then you will need to decrease your withdrawal rate to allow your investments to compound and grow without you constantly pulling out the gains to fund your expenses.
• Will you actually find Barista FIRE jobs more enjoyable than your "rat race" job? After a stressful day at the office, its easy to fantasize about downshifting to a chill job with less responsibility where you can leave work at work. However a day in the life of many part-time jobs is often tiring and thankless, and dealing with impatient customers all day might be a poor fit for a smart person who was able to amass a $500k net worth early in life. I don't mean to dismiss Barista FIRE entirely, I just mean that you should look beyond entry-level part-time jobs and perhaps instead focus on creative, high-value work that fits your lifestyle in Barista FIRE.
• Regular FIRE might only require a few more years of working your "rat race" job compared to Barista FIRE. Depending on your planned spending in retirement and how much money you are able to save in your current job, sticking it out a few more years at your full time job might make be better than having a part-time job for the next 20 years. This is especially true for high income earners with low spending in retirement. For example, someone taking home $100k and spending $40k per year would reach Barista FIRE ($1,000 per month side income) in 9 years, but it would take them only 3 more years of working their high-paying job to reach full FIRE ($1M net worth). If those three extra years are palatable, then it sure does seem like they are worth it.

Conclusion

In conclusion, Barista FIRE is all about using the power of "fun income" in retirement to reduce the net worth that you require to be confident in quitting your job, allowing you to exit the rat race sooner than regular FIRE. The key to unlocking the full potential of Barista FIRE is figuring out your side income source before you quit your day job. Perhaps this means becoming a landlord while working your 9 to 5, building a profitable website on nights after work, or starting your side-hustle on the weekends to make sure that it is really an improvement over your day job. When planned correctly, Barista FIRE can be the perfect way to transition to full FIRE and a life of complete financial freedom.