If you daydream of spending your time working at a job you love deeply, while not having to worry about money, Barista FIRE was created for you.
Barista FIRE is a subset of the bigger Financial Independence movement. Financial independence is when you have enough money in assets and passive income that you no longer need to work full-time. There are a lot of versions of FI (the nickname for financial independence) because people come to money from many different places and want different kinds of lifestyles for themselves.
Barista FIRE is a very popular version because it doesn’t include leaving work *if you don’t want to* and usually means you don’t have to save as aggressively as traditional FI. You save aggressively for retirement and then you let that money compound while possibly withdrawing a small amount and working a part-time job to cover your day-to-day expenses.
This allows people to leave high-stress jobs, or jobs they dislike, while still protecting their financial future. It’s kind of a best-of-both-worlds situation for people who want to work, just work differently.
Let’s explore Barista FIRE and talk about how you can reach it!
Defining Barista FIRE
This version of financial independence has two major characteristics:
Hitting your retirement number and then no longer *needing* to invest any income
Working part-time to cover your basic living expenses until you hit retirement age and begin to withdraw money from your investments
Barista FIRE gets its name from point two. In the US, major coffee chain Starbucks gives its part-time barista’s health insurance. So you can potentially work part-time to both cover your health insurance costs and earn enough to pay your bills until full retirement age.
Of course, in your version of Barista FI, you don’t have to work at Starbucks. Maybe you want to be a substitute teacher or a park ranger. Maybe you want to simply cut back on your hours at work but do the same job. That’s the beauty of FI! You can personalize it to your own life and desires.
So, how can you reach Barista FIRE? What steps do you need to take to make it happen for yourself?
Want to learn about Coast FIRE as well? Check out this post.
Step 1: Calculate Your Traditional Retirement Number
This is step one for pretty much every version of financial independence. You have to know how much money you need to retire at the traditional retirement age.
In the US, most Americans retire between 65-67 years old. I think it’s best to use age 65 for your calculations.
A simple way to calculate your traditional retirement number is to add up what you believe your annual retirement costs will be and then multiply that by 25.
I know it’s hard to nail down details of life 10, 20, or 30 years from now but the big picture spending is largely the same as what you’re doing now! You’ll need a place to live, food to eat, a way to get around, health insurance, and money for fun.
Common retirement costs are: property taxes, utilities, transportation costs (car registration and gas, subway passes), food, travel costs, gifts for family, and community costs (country club fees, or local class registrations.)
Add that up and multiply it by 25. This assumes you’ll be retired for 25 years.
So, if you think in retirement you’ll need $50,000 a year for spending, then your retirement number is $1,250,000.
Step 2: Calculate Your Barista Fire Income Number
Now that we have our overarching traditional retirement number, we need to figure out how much income you need to stop working full-time and start working part-time.
Basically, once you have your $1.25 million in the bank, how much will you spend annually until you start withdrawing from that number?
For example, if right now you’re 30 and you just bought a house and have a child in daycare, your expenses are higher than they will be in a few years when your kid goes to school. And after you pay off your house, you won’t have a monthly mortgage payment anymore.
So looking down the road to when you hit Barista FI, you won’t have those high costs. But you’ll still have costs.
What we want to do is to eliminate some short-term costs from your Barista FIRE budget. Costs like childcare, or specific beauty or health treatments. Basically, things that are “for now” costs, not “forever” costs.
Step 3: Open a High Yield Saving Account to Store Your Cash
Now that we have our goal number, we need a place to put the cash you’re earning. Leaving money in your checking account or a low-yield savings account is robbing you of reaching financial independence.
First, build up your emergency fund. This should be between 4 and 12 months of living expenses. Keep this in a high-yield savings account and earn money in interest.
I like the environmentally friendly HYSA from Atmos, and I like Wealthfront as well. Both are great places to keep your cash savings!
Try not to keep more than 12 months of living expenses in cash. It’s simply not the most advantageous place for your money at that point. Based on data, you will earn more interest in the long term by investing your money.
So next, we need investment accounts!
Step 4: Open an IRA to Start Saving for Retirement
An IRA is my most beloved type of retirement account. IRA stands for Individual Retirement Account, and it’s available to any US citizen or legal resident.
Unlike a workplace retirement account, like a 401k or a 403b, an IRA is tied to you as an individual. A workplace plan is tied to your workplace; if you leave that job, you can no longer contribute and need to rollover that account to keep access to it.
I recommend opening an IRA at Vanguard. They are one of the biggest brokerages in the US and are NOT owned by shareholders. Instead, it’s owned by people who invest in Vanguard funds- that means YOU! It’s definitely a capitalistic company but I appreciate this detail around ownership.
Step 5: Budget Smarter to Be Able to Invest More
Once you have the accounts open, the real focus is to put as much money into them as possible.
For your emergency fund, we know that 12 months of living expenses is your goal and limit. But for your IRA or your workplace plan, there really is no limit! The more money you have in investments, the better chance you have for a higher investment return.
Your retirement number is your ultimate goal, but you *can* invest beyond that. We always start our financial independence planning by coming up with that number because we need a starting point. As your life changes or as you get closer to your retirement number, you may want to change your goal.
For example, my original retirement goal was $1.5 million. Then I was diagnosed with Crohn’s disease, and I had to account for higher healthcare costs in my current and future life. So I change my FI number as a person with a chronic illness
Budgeting is life! A lot of people avoid budgeting, but this is the cornerstone to reaching all your financial goals. Budgeting will help you see where you are overspending. Budgeting will help you see where can you re-direct money to be able to reach your financial goals faster.
To reach Barista FIRE, you’ll need a strong budget that you enjoy using. I’m not asking you to give up everything you love to reach FI. You want to enjoy the journey as well as the destination! Our values-based budget workbook comes with an 8-chapter workbook that will help you determine your spending values, your spending triggers, and get clarity on your financial goals. It also comes with two spreadsheets to help you start budgeting!
Step 6: Build a Financial Community as You Build Wealth
All too often people think of reaching financial independence as a solo activity. Nothing could be further from the truth!
As we build our financial health, we also want to build financial community. This might be people you can talk about money and strategy with, or people you share financial values with. In my financial community, I have neighbors that I share tools and food with, so we each spend less overall and can save more money in the long term!
A lot of people who get very focused on FIRE end up lamenting that they didn’t spend more time on people when they reach FI, or that they worked at a job they hated to reach their financial goals.
These are the first six steps to take in your journey to Barista FIRE! As your life and money change, come back to your FI plan and make adjustments. Money, just like life, is very flexible and can change at any moment.
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