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Or “definitions for a community that prides itself on not being defined.”

The irony is thick that a community that refuses to accept traditional definitions (retirement begins at 65 then you quit, travel, and grow old on a beach) attempts to add clarity to FIRE by creating definitions for the various ways you can approach it. By the very principle, financial independence means freedom. This includes the freedom to not be forced into a box that strictly defines you. Financial independence gives you the freedom to choose your own path. But for the sake of education, conversation, and goal setting, here are some of the main definitions broadly tossed about in the financial independence community. It’s good for helping you have something to aim for in your pursuit of financial independence, because

“If you aim at nothing, you’ll hit it every time.” 

Zig Ziglar

First, let’s loosely define financial independence as

a state in which an individual or household has sufficient wealth to live on without having to depend on income from some form of employment

wiki (source)

With that starting point, I’ll share some of the sub-variants of FI tossed about in the community:

LeanFI – Having just enough to support your current lifestyle

LeanFI means having just enough in your retirement savings that you can live off of it indefinitely and cover your basic living expenses. To me, this means that you’re living a tight ship, like if you were getting out of debt or saving for early retirement, but that intensity never lets up. You maintain that lean monthly budget, and your savings covers it completely, but there’s no room for extras. No trips to the Bahamas, shiny things at Target, etc.

I’m not saying it’s not a 100% satisfying, simple, minimalist lifestyle, but I know that I like to dream of a someday when the dining out budget is a little more relaxed and travel is more affordable.

Some FIRE bloggers set a number and say that <$40k per year annual budget puts you in LeanFI (that equates to having $1M saved, which is a nice round number to throw around), but I know that there are some places where you can live with way more than just the basics for $40k; so I don’t think setting one particular number is fair.

LeanFI to me just means that you’ve made it. You have just enough. The math works, barely, but if you desire more or think you may in the future, you may want to consider continuing to work and save. Of course, we have a definition for that too.

FatFI – Having just enough to support your current lifestyle plus discretionary spending

If LeanFI is having just enough, FatFI is making sure you have plenty. Again, some in the blogger community attempt a number; some say this is >$40k per year. To me, that’s far too much resolution to draw a line between lean and fat. If we’re calling it fat, let’s double our current annual budget. Let’s spend $80k per year, having $2M saved. Wouldn’t that be a little, well, fatter?

Again, I don’t necessarily agree with the assignment of putting numbers to this. I prefer to define FatFI as “having more than you need.” This speaks about abundance to me. I also like the idea of having “discretionary spending.” The idea that every dollar that will come out of your accounts after financial independence isn’t already spoken for to cover your life’s expenses. There’s extra at the end of the month/year to enjoy.

It should be noted that if you’ve made it to FatFI, you’ve passed through the checkpoint of LeanFI and chose to keep going.

“Shoot for the moon. Even if you miss, you’ll land among the stars.”

Norman Vincent Peale

To me, I don’t think you need to set out on your journey to FI and at the beginning sort this whole thing out and decide exactly where you’re going to end up. If you aim for FatFI and end up at Lean or somewhere in between, I think you’re doing alright.

Again, financial independence is about independence first and foremost. This means the independence to choose whether, at that checkpoint, you are done showing up to your eight-to-five job and can live on a budget, or if you want to continue on to save a little (or lot) more. Or maybe there’s some middle ground.

CoastFI or BaristaFI – Getting a part time, fun, or fulfilling job while you wait for your investments to grow

Although some try to separate these two into different categories, to me they really are the same thing. The idea is that you have saved up some money. You’re well on the path to FI. That money will grow (or coast) at roughly 8% per year, as long as you don’t withdraw the nest egg. If you can find a way to fund your monthly lifestyle budget without touching your retirement accounts, you will “coast” to your FI number.

Whether you coast to a lean or fat or medium number is entirely up to you. But how do you live without withdrawing from your accounts while you’re coasting? Enter BaristaFI. BaristaFI suggests that you escape the rat race and work a part time, fun, and/or fulfilling job to afford your monthly budget while you’re coasting. The job may or may not have healthcare coverage to further help you along as you’re coasting.

So there you have it.  Lean, Fat, Coast/Barista defined (sort of). To summarize these popular sub-variants of FI:

• LeanFI – Having just enough to support your current lifestyle.
• FatFI – Having enough to support your current lifestyle plus discretionary spending.
• CoastFI or BaristaFI – Getting a part time, fun, or fulfilling job while you wait for your investments to grow.

What Path Are We On?

So which path is onFIREfamily going to choose?

I’d like to call it our GoldilocksFI plan. It’s our “just right” balance between quitting too early and living too lean and working too long to land firmly in FatFI but have lost the years to enjoy life as a family. It’s a willingness to work while we coast. Maybe a little, maybe a lot, maybe for a short amount of time, maybe for longer. Our plan has elements of Lean, Fat, Barista, and Coast. And that’s okay! (You didn’t think you were going to get a simple answer out of us, did you?)

What do you think? Which definition best suits your plans?

Financially Independent vs. Independently Wealthy

While we’re at it, let’s take this one on as well.

“Financially Independent” (having achieved financial independence) and “Independently Wealthy” are two terms often thrown around a lot, sometimes interchangeably. Although I can find no formal resources to tell me so, I think the connotation is different between these two ideas. 

Independently wealthy, at least as I’ve been exposed to its use, means that through no effort of your own (independent of you), you are somehow wealthy. Maybe this is due to family wealth from an inheritance or some other means. This is in contrast to financial independence, which implies that you once had a day job that was providing for your living expenses and that your passive income and/or investments are now covering.

When you wake up in either case, your day may look the same. How you got there, in my view, is what makes the difference.

Do you agree?