Even if you don’t agree with the frugality of the FIRE movement, it’s a great launchpad to help you figure out the math behind investing enough to quit your day job.
According to FIRE, in order to quit your day job, you need to have 25 times your annual expenses in investments, where you only withdraw 4% of the total each year. While you take out your living expenses, the investments are also replenishing that money through compound interest or growing in value or dividends.
Lean FIRE focuses on the bare minimum lifestyle to live conservatively, where Fat FIRE requires investing more money to live an indulgent lifestyle.Instead of thinking of Fat FIRE, Lean FIRE and Barista FIRE as separate approaches, I viewed them as levels of achievement and settled on reaching Barista FIRE first.
This gave me a motivational boost because it brought my 25x number down from $1.2 million to around $900,000. If I could get to this number in investments, I then could make up the difference in more discretionary expenses with work that was fun rather than obligatory.A lot of my financial education students get overwhelmed when trying to optimize their investment strategy versus investing enough money to even determine how to withdraw it later.
So, once you figure out your Barista FIRE number for your basic lifestyle, focus your energy more on increasing your income and keep your investing strategy simple.
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