The 5 Levels of Financial Freedom

August 11, 2023

I found the FIRE movement 6 years ago.

For those of you who don’t know, FIRE stands for Financial Independence Retire Early.

The strategy is simple (but not at all easy) = maintain an aggressively high savings rate so you can retire as soon as possible.

I thought I loved the movement. I bought into the belief system, the extreme savings, and even started looking at Toyota Corollas (everyone in this movement owns a Corolla).

Turns out I didn’t love FIRE, I just hated my job.

Today, I love what I do. The idea of early retirement does not excite me.

I still have a healthy savings rate for the future, but I've thrown out most of the principles in FIRE.

That being said, the FIRE movement did create some fun things.

They have different “levels” of FIRE, which are like different degrees of freedom.

I recently learned that I had achieved Coast FIRE (I'll tell you what that means later on).

So I want to walk through them today, so if you'd like you can track your different levels of freedom.

Because for most of us financial freedom feels so far away, it can be hard to stay motivated.

Before we start, you need to know about the "Rule of 25".

This is a rule of thumb used to determine what the value of your portfolio needs to be in order for you to retire.

The formula is simple 25 x annual spending = Value of your portfolio.

So, if you need $80,000 in income, your portfolio needs to be 25 x $80,000 = $2 million.

When you have $2 million, you should be able to fully retire.

Remember this is a rule of thumb, and although it's been tested with high accuracy. It's no guarantee.

Now that you understand the Rule of 25, let's dive in:

The 5 Levels of Financial Freedom

Coast FIRE

This is the easiest level of FIRE to achieve.

It means you have saved and invested enough to never have to save another dollar but you do need to keep working to cover your yearly expenses.

You've done the heavy lifting with saving the principal, now your earnings should take you the rest of the way.

Using the above example where you need $2 million to retire because you want to spend $80,000/year:

We’ll also assume you are 30, you want to retire at 65, an 8% return, and you have $200,000 invested today.

In this example, you have hit CoastFIRE.

By 65, your portfolio should grow to almost $3 million without saving another penny.

Of course, with 35 years to go, you might not want to bank on this result. Your expenses could increase, 8% could be an inaccurate return, you might need to access the money, taxes, etc.

Some people use CoastFIRE to move to a lower-paying job to just cover yearly expenses.

Barista FIRE

The second easiest FIRE to achieve.

At this point, you have enough to partially retire but still need a part-time job to supplement your income and/or pay for the cost of health insurance.

BaristaFIRE got its name because Starbucks offers health insurance to part-time workers.

If you need $80,000 in income and have a portfolio of $1 million, you could partially retire and have your portfolio cover $40,000 of your expenses and get a part-time job that pays $40,000.

Again, this is typically for people with demanding jobs who would prefer to work for less to have more time off work.


This method is the fastest way to fully retire.

But as the name implies, you will be retiring on a lean budget.

Picture a minimalist lifestyle where maybe you live in a van full time or with family.

To me, this version of FIRE is unattractive because it limits your freedom.

This budget is so strict you will likely never be able to afford children, maybe not even pets, be forced to always live in a low-cost-of-living area, and cross your fingers that you don't have a large unexpected expense.

With the above example, to achieve LeanFIRE quickly you’d likely have to cut living expenses to $30 or $40k, which means a large reduction in lifestyle.

This way instead of $2 million, you’d be able to retire as soon as you hit $1 million.

The fastest way to retirement requires the most sacrifice.

Traditional FIRE

Traditional FIRE is simple. It’s the point at which your portfolio hits 25 x annual expenses.

With the above example, as soon as you hit $2 million, you’ve achieved Traditional FIRE.

You can now afford to live off your portfolio at the spending amount you wish: $80,000.


This strategy is used when you want to retire in luxury (or just want room for error).

You may need $80k to live off of but you want $120k to afford high-class travel or just want more flexibility.

Instead of $2 million, you need $3 million.

My freedom number is based on this strategy.

I don’t want to ever have to worry about money (and have the option to go on expensive trips and have children), but most importantly I value the wiggle room.

I want to leave room for error.

This one gives you the most flexibility and the highest standard of living and as a result, will take the most time to achieve.

Important Note

This is all assuming very basic rules of thumb: 4% withdrawal rate, 25 x Rule, an assumed return on your investments.

We know that although these rules of thumb are tested, they aren’t perfect and there is no guarantee they will stand up.

(This is one reason I believe in what I do so much because there is danger in relying on rules of thumb.)

You should always customize any strategy to your unique situation.