How does Barista FIRE work? Pros and Cons, as well as How it Works

For those who want to reach financial independence early but don’t want to build up a huge nest egg, Barista FIRE can be a great option to consider.

FIRE stands for Financial Independence / Retire Early and is used to describe people who accumulate a large enough nest egg that they can live off their portfolio entirely and don’t need to work anymore.

Barista FIRE is a modification of FIRE, and defined as when someone has enough money to retire early with the support from a part-time job for additional income.

This post will dive into exactly what Barista FIRE is, how it works, and whether it’s something worth pursuing.

What is Barista FIRE? Barista FIRE is when you retire early with a portion of your expenses being covered by the 4% withdrawal but another portion being covered by your part-time work. For a lot of people, this means that they don’t need to accumulate as large of a nest egg to comfortably retire and can push their “retirement” up many years.

How Does Barista FIRE work? Barista FIRE works by essentially replacing a portion of your “cash flow” from investments with active income. For example, if you wanted to generate $50,000 a year for your retirement, traditionally you would need to save $1.25 million. $50,000 / 4% = $1,250,000.

How Does Barista FIRE work? However, if you can find a part time job that pays $30,000 a year, you only need to save up enough money to cover you for $20,000 a year. Therefore, your target saving number would be $500,000.

How to Calculate Your Barista FIRE Number Your Barista FIRE number is the amount of money you need to save up before taking the leap into financial independence (AKA “retiring”.) The steps for figuring out your Barista FIRE number are: – Calculate your yearly expense – Subtract your projected “barista income” to get your needed cashflow – Multiply your needed cashflow by 25

Pros and Cons of Barista FIRE Like any decision in life, there are many things to consider before pursuing Barista FIRE. Here are some of the main pros and cons of Barista FIRE.

Pros: Freedom – If you currently don’t enjoy your job, Barista FIRE can provide a way for you to escape and start doing something you really care about Insurance – One of the biggest benefits of continuing to work is that you’ll have insurance.

Swipe Up to learn more

Swipe Up to learn more