When it comes to the different sub-genres of FIRE, my favorite is probably what has been coined Barista FIRE.
I wrote about Barista FIRE several years ago in a post I titled The Dream of Barista FIRE. In that post, I thought about some of my favorite jobs I had back when I was in college. These were low-paying jobs that you couldn’t make a full-time living with, but that for whatever reason, I found really fun to do. The concept of Barista FIRE was a way to think about how these types of jobs could fit into a FIRE framework.
It seems like financial independence is often viewed as a sort of binary state – you’re either financially independent or you’re not. While this might be true from a strict reading of the term, I personally think financial independence is more nuanced than that.
For example, someone who needs to earn $100,000 per year in order to cover their living expenses is in a very different position compared to someone who only needs to earn $1,000 per year. Even though both people have to earn money, you can probably agree that the person who needs to earn way less to cover their expenses is at least going to have an easier time doing so than the person who has to earn a full-time income.
I think this is why I’ve thought of financial independence as something that’s more on a spectrum. The person that has to earn $100,000 per year doesn’t have many options for things they can do to generate that type of income. But the person who needs to earn $1,000 per year can do almost anything they want.
Which brings me back to Barista FIRE. The concept behind Barista FIRE is an interesting one – something that’s not quite FIRE, but pretty darn close to it in my view.
In this post, I want to take a look at what Barista FIRE is all about and what makes it so interesting.
What Is Barista FIRE?
Depending on who you ask, Barista FIRE seems to have two definitions. The first definition I sometimes see for Barista FIRE is that it’s a way to get health insurance when you’re financially independent and no longer working at a traditional job.
The way this works is that some jobs offer health insurance benefits even if you’re working part-time (think Starbucks, Barnes & Noble, etc). Because health insurance is likely to be a major expense for many of us, this method of Barista FIRE essentially trades as little of your time as possible in order to cover an expense that you otherwise wouldn’t be able to afford with your savings (i.e. you work the minimum number of hours at a job in order to get health insurance benefits). The money that you earn from the job is largely irrelevant – it’s the health insurance that matters.
The second (and better) definition of Barista FIRE is that it’s a sort of quasi-FIRE status – not exactly FIRE, but maybe a rung below it. If you’re pursuing Barista FIRE, you need to first build a nest egg that you can use to cover most of your expenses. Once you’ve done that, you only need to do some sort of work to earn a small amount of income each year to cover your remaining expenses.
For example, let’s say you need $40,000 per year in order to cover your living expenses. Under traditional FIRE principles, you’d need $1 million in your portfolio in order to generate $40,000 per year. This comes from the commonly used 4% Rule, which says that you can take out 4% of your portfolio each year and have it realistically last you forever.
But what if you had $750,000 saved up instead of $1 million? In that case, your $750,000 would be able to generate $30,000 per year of income. If you’re pursuing traditional FIRE, you’d need to save up another $250,000 in order to fully fund your living expenses. But if you’re pursuing Barista FIRE, you could make up the difference by earning $10,000 per year of income doing anything you can. Ideally, you’d earn this extra income doing something you want to do.
The Math Behind Barista FIRE
What’s remarkable about Barista FIRE is how much value earning fairly small amounts of income can have towards the portfolio you need in order to be financially independent (or at least somewhat financially independent).
Here’s what I mean. The 4% Rule is also sometimes called the 25x Rule. That is, take the income that you need per year to cover your expenses, multiply it by 25, and you’ll get the amount you need to have invested in order to generate that income. $40,000 per year times 25 means we need $1 million in order to generate $40,000 per year from our investments.
What the 25x Rule tells us is that if you can figure out ways to earn pretty small amounts of income per year, you can dramatically reduce the amount you need to have in your portfolio. Indeed, every $1,000 of income you can earn in a year is the equivalent of having $25,000 in your nest egg.
Here’s a table showing how much earning small amounts of income per year can be worth to your overall portfolio.
|Side Hustle Income Per Year||Value To Your Nest Egg|
It’s pretty incredible when you look at this chart because you wouldn’t immediately think that small amounts are worth that much. Take a look, for example, at what $5,000 per year of income means. To generate $5,000 per year of income from your investments, you’d need to put away $125,000. Or you could generate that $5,000 simply by finding something that you enjoy doing that makes $5,000 per year.
When you think about it, what’s likely easier? Saving $125,000? Or earning $5,000 per year (that’s $416.66 per month, $96.15 per week, or $13.69 per day). It’s such a small sum that you can do almost anything and earn that much money in a year.
What Barista FIRE does, then, is allow you to make the leap towards financial independence far earlier than what you might have planned. It can take a long time to get to the full amount you need so that you never have to work for money again. But putting yourself in a position where you have to earn a few thousand dollars per year isn’t a bad position to be in either. Indeed, I think it’s rare for most smart, driven people to never earn money ever again in some manner. You might not earn a huge amount, but a few thousand dollars per year of income is not a difficult or unrealistic thing to do.
To me, the goal number for Barista FIRE is where you need to generate $10,000 to $12,000 of income per year. Aiming for this number puts you in a position where you only have to earn between $800 and $1,000 per month. It’s an amount that’s small enough that you can earn that type of yearly income doing basically anything.
And if you opt to pursue Barista FIRE in this way, you can have $250,000 to $300,000 less in your portfolio. That’s a ton of money that you might not have to save if you opt for the Barista FIRE path.
How Can You Pursue Barista FIRE?
Barista FIRE is best suited for someone who enjoys doing certain types of work that aren’t particularly stressful but also aren’t necessarily high paying.
Think back to the jobs you’ve had the most fun at. For me, it was my old golf course job, where I sat in the pro shop, surfed the internet, talked with customers every once in a while, and played golf whenever I wanted. It wasn’t a job that I could ever make a full-time living with, but as part of a Barista FIRE strategy, it’s one I could have probably done forever.
The most important thing is that whatever you’re doing to earn this remaining income has to be fun for you. If this is a path you want to do, you have to go into it knowing that you have to generate a small amount of income for a long time.
So what are some of the interesting things you can do to pursue a Barista FIRE strategy? Here are some potential options that make sense to me:
- Gig Economy. I think gig economy apps are tailor-made for anyone thinking about Barista FIRE. These gig economy apps are super flexible, can usually be done anywhere (which means you can combine them with travel), and when used properly, can be lucrative. If you do it right, you can often fit these gig economy apps into your day-to-day life, allowing you to monetize the things you may already be doing. Check out my Ultimate List of Gig Economy Apps if you’re looking for gig economy ideas.
- Seasonal Jobs. Seasonal jobs are often a good option for Barista FIRE because they allow you to work hard for a few months of the year, then take an extended break while you do your own thing. Importantly, most seasonal jobs (at least in my experience) tend to be pretty fun and give you benefits in the form of getting to do some activity for free. I’m thinking of things like skiing or golf, which are seasonable jobs where you can earn a little bit of money and save a lot of money on activities you might like to do. One of the reasons I worked at golf courses throughout college was because it let me play golf for free. I saved thousands of dollars by working at those golf courses.
- Scalable Businesses. Barista FIRE lends itself pretty well to people interested in entrepreneurship. Doing things like starting a blog or a YouTube channel can generate enough income to cover your expenses in a Barista FIRE situation. There’s no guarantee these things will do generate much income, but if you only need to make a little bit from a business to cover your expenses, opting to go with the entrepreneur route is not a ridiculous thing to do. The beauty of doing something that can scale is that if you do it long enough, there’s a good chance it can keep growing and cover your expenses without you having to constantly grind at it.
Barista FIRE isn’t going to be for everyone. For some people, having any stress at all to earn an income is going to make them uncomfortable.
But I know there are a lot of people out there that have fun jobs that they simply like doing but can’t do because they don’t pay enough. If you’re pursuing Barista FIRE and only need a small amount to live, those jobs can actually work.
For me, the idea that I’d only have to earn $10,000 or so in a year to cover the gap in my expenses makes me feel pretty good. I know myself well enough that I can make that much income from doing pretty much anything. My guess is that most of you reading would probably be in a good position too if that’s all you had to earn in a year.
No, Barista FIRE doesn’t mean you’re completely financially independent. It doesn’t mean you’ll never have to work again for money again. But if you only have to earn $1,000 or less per month, I’d say you’re in a pretty good spot.