Barista FIRE Explained (Bonus: Free Barista FI Calculator)

Barista FIRE is an alternative Financial Independence approach. While traditional FIRE is still the main goal for most members of the FIRE movement, alternative methods are becoming more popular. Barista FIRE is particularly popular in the US because of the health insurance benefits this approach offers. Barista FI consists of two phases – the accumulation phase and the perpetual semi-retirement phase. In this article, we’ll discuss:

  • The definition of Barista FIRE
  • How to calculate your Barista FI number
  • Who should consider Barista FIRE
  • The benefits and disadvantages of this approach
  • The crucial difference between Barista FIRE and Coast FIRE

We’ll also discuss why Barista FI might not be the best strategy for you.

Let’s get started!

What is Barista FIRE?

Barista FIRE is a Financial Independence strategy where your living expenses are covered by a combination of passive investment income and part-time work.

With Barista FI, you don’t save and invest until you reach your FIRE number. Instead, once your portfolio has reached a certain size, you draw some passive income from your investments and cover the shortfall you need for your ongoing expenses by working (usually in a low-stress and/or part-time job).

The significant benefit of Barista FIRE is that it doesn’t take that long to get there (because the nest egg required is smaller). You get to slow down sooner than with most other FIRE strategies.

With Barista FIRE, you work full-time for a relatively short time before you semi-retire and work part-time long-term:

Chart that shows the earned income over time during full-time work and semi-retirement for people pursuing Barista FI.
With Barista FIRE, you work full-time for a relatively short amount of time before you semi-retire and work part-time long-term.

However, this means that you will likely have to continue working part-time indefinitely. In that sense, Barista FI is more of a perpetual semi-retirement strategy rather than an early retirement strategy. That is why I don’t see Barista FIRE as a “true” type of Financial Independence – because with this strategy, you will most likely never lead to true financial freedom.

Who Should Consider Barista FIRE?

To figure out who should consider Barista FI, we need first to explore the roots of this approach.

The Barista FI concept originated in the US, where there is no universal healthcare like in Australia and most parts of Europe. Self-funded retirees have to find a way to either fund their medical costs or pay for health insurance after they leave their jobs (and this can cost over US$20,000 per year for a family!) Health insurance is costly in the USA, and many articles by US finance bloggers focus on this topic.

Many jobs, even part-time minimum wage jobs (like a barista – hence the name) come with some sort of health insurance. So from this perspective, Barista FIRE looks like an attractive option – especially for FIRE enthusiasts in the US. The additional job income also means that to Barista FIRE, you don’t need as much money in your portfolio as with most other FIRE strategies.

The obvious problem with this approach is that one will probably never reach full FIRE because

  • the health insurance issue does not go away – once you leave your day job, you have to find a way to cover the cost yourself
  • your nest egg doesn’t get a chance to compound properly as you are drawing an income from it

I am personally not a big fan of the Barista FI concept because it does not properly secure one’s financial future (especially in old age when working becomes harder / impossible). Barista FIRE just doesn’t offer the same financial security as other concepts (like traditional FIRE, Flamingo FIRE and Coast FIRE).

However, the Barista FI concept is useful (even outside the US) because we can combine it with other strategies – especially Coast FI. More on these below.

So, who should consider Barista FI? The quick answer: anyone who wants to move to semi-retire asap, is happy to work part-time indefinitely AND is ok with the fact that they might never become financially independent.

How How to Calculate your Barista FIRE number

Calculating your Barista FI number is pretty simple. The Barista FI formula is based on the “standard” FIRE formula.

The Barista FIRE Formula

To calculate our traditional FIRE number, we simply multiply our annual living expenses by 25 (if using the 4% rule).

Example: $65,000 (annual expenses) x 25 = $1,625,000. That’s your FIRE number. Simple.

To calculate your Barista FIRE number, you need to first figure out how much you will earn from your Barista FIRE job long-term. Then you deduct this number from your annual living expenses.

Example: $65,000 (annual expenses) – $30,000 (Barista FI job income) = $35,000

You then calculate your FIRE number based on this lower amount.

Barista FIRE number = (annual expenses – annual job income) x 25

So in our example case, the calculation looks like this:

$35,000 x 25 = $875,000

The Barista FIRE Calculator

I’ve created a simple calculator that allows you to quickly calculate your Barista FIRE number based on different living expense and job income numbers. This way, you can play around with various figures and see how different income levels change the required Barista FI portfolio size. The calculator also shows the age at which you will reach Barista FI.

The Barista FI calculator

You can download the Barista FI calculator here:

Benefits of Barista FIRE

We’ve already covered the most significant benefit of Barista FI (for our American friends, anyway): health insurance (and possibly other employer benefits).

Another positive aspect is that Barista FI is more achievable than standard FIRE – it takes less money and time to get there.

Barista FI is also one of the only strategies that allow you to draw an income from your portfolio in semi-retirement.

Working (even if it is just on a part-time basis) has many benefits. These benefits are not exclusive to Barista FI, but they are worth mentioning. Work keeps you active, gives you a reason to get out of bed in the morning and fosters social connections. It also gives you the flexibility to scale your income up or down. Working can give us a sense of purpose and comes with many practical advantages. Check out The Ultimate Guide to Semi-Retirement for a full rundown.

Disadvantages and Risks of Barista FIRE

As discussed above, the major drawback of Barista FIRE is that it is unlikely you will ever reach full FIRE and have the ability to retire early (or retire at all) with this approach.

Depending on how the market performs, your portfolio might grow somewhat, but your annual withdrawals will hinder the growth.

One way to make up for this significant disadvantage is to draw down the entire portfolio once you are ready to fully retire (around the traditional retirement age), drawing down a larger percentage (upwards of 5-6%) each year. You risk running out of money eventually with this strategy, so you might need to rely on social security / the age pension as a fallback.

Another disadvantage is that with Barista FI, you are less flexible regarding the type of work you want to do in semi-retirement. With all other FIRE approaches, you could take a job, start a business, work as a freelancer, work on a seasonal basis, you name it. If you pursue Barista FI for the health insurance benefits, you will need to find a job that offers it. This doesn’t apply if insurance is not your primary motivation or you are not in the US, of course.

One other way to avoid some of the disadvantages of Barista FI is to withdraw less than 4% of your portfolio each year. You could, for instance, just withdraw 2% and work more to make up the difference. This is similar to the “Partial Drawdown Strategy” described in our semi-retirement guide.

Barista FIRE vs Coast FIRE

What is the difference between Coast FIRE and Barista FIRE? Aren’t they just different names for the same strategy? No, Coast FI is not the same as Barista FI. Coast FIRE is a three-stage strategy (accumulation, semi-retirement, full retirement). Barista FI, in contrast, only has two phases: accumulation and semi-retirement.

The three phases of Coast FI vs the two phases of Barista FI

With Coast FI, you will reach Financial Independence at some point in the future. To achieve this, you cannot touch your retirement nest egg until you get there. With Barista FI, you draw passive income from your nest egg long before reaching Financial Freedom. I have written in more detail about the differences between these strategies here.

Barista FIRE vs Lean FIRE

Many people like Barista FIRE simply because the required portfolio size is a lot less intimidating than with other types of Financial Independence. Surprisingly, many people’s Lean FIRE number is just a little bit higher than their Barista FI number.

Lean FIRE is Financial Independence on a lean budget, basically the bare-bones version of FIRE and the opposite of Fat FIRE (FI on a luxurious budget). Lean FIRE doesn’t factor in any “extras” but does cover the basics – food, shelter, essential clothing etc.

So it might be worth saving just a little longer to get to Lean FI as this at least secures one’s basic living expenses indefinitely, which is so important – especially in old age.

Advanced and Combined Barista FI Strategies

I don’t believe that the basic version of Barista FI is the best strategy for most people. However, we can use Barista FI principles as a tool as part of a strategy. Here are some examples:

  • Combine Barista FI with Coast FI to draw an income in semi-retirement AND become financially independent at the traditional retirement age. Part of your nest egg would provide an income, while the other part will compound in the background. I have written about this combo strategy here.
  • Short-term Barista FIRE: This would suit anyone who wants a supplemental income for a short amount of time. I recently worked with a new mum who wanted to take another two years off work after her maternity leave ran out. She and her partner had already accumulated a decent nest egg (but were nowhere near FIRE). The solution she chose was to withdraw 4% per year for the two years and then go back to work and continue saving towards FIRE.

Barista FIRE in Australia

When you create a FIRE plan, you should always consider the specific rules around retirement, social security, etc. We have universal healthcare (Medicare) and affordable private health insurance in Australia. So the central argument for Barista FI (health insurance) is not relevant in Australia.

We also have a forced retirement savings plan (superannuation), which secures our traditional retirement (in conjunction with the age pension). Their super is equivalent to their Coast FI nest egg for most people.

I believe that Coast FIRE should (and is) the baseline for most Australians. Coast FI leads to financial freedom at age 60/65. To bring this date forward and have the ability to retire early, “standard” FIRE, Flamingo FI or a combined Barista FI plan seem like much better options for FI enthusiasts in Australia.

Summary

Barista FIRE is not a genuine type of Financial Independence because you will have to cover part of your living expenses with Barista FIRE is not a genuine type of Financial Independence because you will have to cover part of your living expenses with paid work indefinitely. However, it is an interesting concept, especially for people in countries without universal healthcare like the US. Lean FI and Coast FIRE are alternatives to Barista FI worth considering. We can also use Barista FIRE principles in conjunction with other FI strategies.

If you consider Barista FIRE, you should ask yourself this question: Do I want to become financially independent at some point in the future? If the answer is yes, Barista FI (on its own) is probably not the best strategy for you.

Would you consider Barista FIRE? What is your ideal Barista FI job?

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