What the heck is FI?

FI – short for Financial Independence – is movement, a community, a goal.

It’s an evolution of FIRE (Financially Independent, Retired Early or Financial Independence, Retire Early). It’s a movement that started in the 90’s and really gained momentum (or caught fire if you’re into puns) in the early 2000’s.

Basically, it’s the idea that a person doesn’t have to work for 40-60 years of their life just to retire to a sad pension and social security plan with only a few years left to enjoy. It’s the idea that money is a tool that can propel you into a position of freedom, rather than being chained to a job that sucks them dry just to try to make ends meet.

The FIRE community has evolved over time – in the early years, the focus of the FIRE community was to live insanely frugal and saving as much money as possible until there was enough money to live off for the rest of your life (assuming you spent the rest of your life living nearly as frugally). Naturally, this turned a lot of people off.

So, what does FIRE mean now? It still means financial independence. Some have rebranded it as “Financial Independence, Recreational Employment.” It’s a movement that hopes to embrace freedom to live life on our own terms – and not be stuck to a job you hate.

How do you achieve FI?

Step 1: You need to know your FI Number – the amount of money you need invested to live off the income from these investments and never run out of money.

To find your FI Number, you need to know how much money you need to live annually. Let’s say, for easy math, that you need $50,000 a year to cover all your expenses. Using the 4% rule (the theory that you can safely withdraw 4% of your investments annually and never run out of money), your FI Number would be $1,250,000 or $1.25 million. So, as soon as you had $1.25 million squirreled away, you can retire and never work again.

This is more than just a fluffy concept; there have been many studies over the years to support this theory. You can see the math here.

These days, there are levels of FI.

Coast FI:

This is less a destination, and more of a point along the journey. You’ve reached Coast FI When you have invested enough money that, if you never invested another dollar in your retirement / brokerage accounts you would have enough money at traditional retirement age to live off. This employs the benefit of time. Assuming you’ve invested in the stock market, and it has performed as it has historically*, you can mathematically determine how much money you need invested to reach your FI Number by traditional retirement age. An example from the table below, which uses an inflation-adjusted rate of return of 7% (assumes an annual rate of return of 10% while also accounting for an average inflation rate of 3%), if you wanted $50,000 annually once you retire and you have 30 years left until you retire, you would need $164,209 invested. Take some time with the table below to see how much you need invested, based on when you want to retire and how much money you need in retirement, to be considered “Coast FI.”

Find your goal FI number along the top, then move down the column to see how much you need invested at various milestones until retirement to be reasonably assured of reaching your FI number without continuing contributions.

Example 2: If your FI number is $2 million and you want to reach Coast FI 15 years before you retire, you’ll need $4724,892 invested at that time.

Example 3: You have $400,000 invested right now. If you never add another dollar to your investment account, you should be able to retire in 25 years with over $2 million, or in 20 years with over $1.5 million – without continuing to contribute to your investments.

Coast FI example numbers

Maybe you like the idea of FI, but it’s the “Retire Early” part that really excites you. Unfortunately, you just aren’t convinced you’ll be able to reach your FI number early. Check this out: There are flexible levels of FIRE. You can choose any number you want as your FI number – choose a number that reflects their current or desired level of spending. Depending on what you choose, this will place you in one of the following categories (loosely defined).

Barista FI:

This means that you can partially live off your investments, but you will still need supplemental income. The beauty of Barista FIRE is that you can leave a job that crushes your soul and find something part time or at a lower wage than your previous job. It gives you flexibility. So, still using the $50,000/year in income, let’s say you only have $750,000 in your brokerage account. Using the 4% rule, you can safely withdraw $30,000/year. That means your supplemental income only needs to bring in $20,000/year!

Want some ideas for supplemental income? Here’s a short list of side hustles I’ve tried, along with my feedback on if I would do I again.

Lean FI:

Your Lean FI number is the amount you need invested to fund your frugal lifestyle. It covers the essentials, but there aren’t any vacations budgeted into this one. This portfolio will fund things like housing and food. It may or may not include gas money and car insurance, that will depend on where you live. If you’re in a place where public transportation is prevalent, you can forego that car and associated insurance. If you live in a place where you must drive just to get to a grocery store, you’ll need to account for it. You can still live on this and this is likely very much achievable in a relatively short amount of time, but the focus is on extreme frugality rather than comfort. This number could be anywhere from $600k to $1.25 million.

Traditional FI:

This is the FI number we discussed earlier. This will fund your middle-class lifestyle. For most median income earners, this can be realistically in about 10 years. Most people in the FI community consider a Traditional FI number to be in the $1.25 million to $3 million range (or living on anywhere from $50k/year to $120k/year.

Fat FI:

Fat FIRE is the number that affords you a luxurious lifestyle - think living on $300k+ a year. You’ll need $6 million or more to be in this category, and you’ll probably need a high income (think top 1%) to achieve this.

In the end, the movement is about using money and investments to give yourself freedom.

FI is financial independence. It is freedom to live your life on your terms because money no longer controls you. Love the idea of it but feel like you’re behind? Not sure how you could ever reach your FI number? I promise, you can. Stick around to learn more (free), sign up for newsletters (free), or contact me to ask about coaching (free discovery call).

Want some ideas for supplemental income to once you hit Barista FI or to propel you closer to traditional FI? Here’s what I did.