Reaching Financial Independence: FI/RE Movement 101

Let's talk about the different types of FI/RE!!

Author

Michela Allocca
February 18, 2025

❄️ Welcome back to my newsletter! We took a few weeks off to figure out my new email platform, and I ended up choosing Beehiiv! Woo! Flodesk has just not been working and apparently my emails were sitting in spam. So if it’s been a while since you’ve heard from me… hello!!

🚨 Friendly reminder that I recently launched a brand new budgeting template, the Basic Budget Template! If you are ready to start your financial journey, check it out here!

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MONEY
Financial Independence, Retire Early: What It Is and How It Works

I recently crossed a net worth milestone and it has me deep in thought about my financial strategy and what my long-term goals actually are.

I had heard of FI/RE in the past (Financial Independence, Retire Early), but I had never really considered it as a “goal” of mine because I didn’t realize how many variations there were!

That being said, I do think that figuring out your FI/RE numbers is a very helpful exercise to work through when you are thinking about your broader financial goals.

I am working on a spreadsheet to do this - more to come ASAP. My goal is to have it finished this week and ready for early March. So in the meantime, we’re going to talk about some important FI/RE concepts and types.

The core principles of FI/RE include:

  1. Maximizing your savings rate: Strict adherents aim for 50-70% savings rate, which often involves living well below your means. The goal here in BYB-land is to save as much as you can.

  2. Reducing expenses: The idea is to embrace minimalism and frugality to cut unnecessary costs. I like this but I don’t love when it gets too extreme.

  3. Investment strategy: Follow a low-cost index fund investing strategy and use the 4% rule (withdrawing 4% of investments annually) to determine a target retirement number.

Honestly all of these topics could use their own email breakdown and analysis, which I am going to do in the coming weeks. But for now, focus on the high-level concepts and we’ll dig into the details one by one.

Now that you know the basics, let’s talk about the 3 main “types” of FI/RE that are important to know. The spreadsheet I am working on will calculate all 3 of these. They get progressively more complex as we go but I am hoping to simplify it as much as possible.

1️⃣  Traditional FI/RE

This is the standard benchmark - having enough invested so that you can live solely off your investment returns.

This is based off the 4% rule, which means that you can withdraw 4% of your portfolio annually (adjusted for inflation) and it has a high probability of lasting 30+ years.

You can calculate your traditional FI/RE number (an estimate) by taking your annual expenses you plan to spend in retirement (I use $100K) and divide it by 4%.

This would mean the calculation is $100,000/.04 = $2,500,000. This is my “FI/RE Number.” It is already adjusted for inflation but again the nuance of that is for another time because I find it gets (unnecessarily) complicated quick.

2️⃣ Coast FI/RE

You reach Coast FI/RE when you have enough invested in the stock market that compound growth alone (without further contributions) will fund your retirement.

TLDR: You invested enough where if you added nothing to it for the next X years (depending on your timeline) it would grow enough for you to retire on.

This requires some backwards math, but I did some for you already. My goal is to have $2.5M by retirement age (65) and I turn 30 this year.

Assuming a 7% annual growth rate (already adjusted for inflation), I would need $250,000 invested today for it to grow to $2.5M by the time I turn 65 (in 35 years) without any further contributions.

3️⃣ Barista FI/RE

This is a hybrid approach to FI/RE where investments cover PART of your expenses but not all. You cover your remaining annual expenses with part-time, low(er) pressure work, like being a Barista! Or whatever floats your boat.

It’s calculated by assuming your investments need to cover 40-50% of your expenses but depends on your situation and desires.

This is popular amongst people who want to leave high-stress careers but maintain some income. Barista FI/RE is my goal!

STAY TUNED FOR MORE FI/RE CONTENT!!! And please please please reply back to this if you have specific questions you want me to answer or deep dive on about any of it!

WEEKLY RECOMMENDATION
The 5 Types of Wealth with Sahil Bloom

I recently listened to this episode of the Skinny Confidential Podcast with Sahil Bloom and it was fantastic. I’ve seen some of Sahil’s content floating around on LinkedIn, but this was the first time I really paid attention. He has a great story and some super tactical tips for building a fulfilling wealthy life.

RESOURCES
What’s Happening This Week at Break Your Budget

Stay up in the loop!

  • This week on Don’t Depend on Daddy: I’m sharing 10 money & life lessons that will change the way you think! Just a friendly reminder you can also watch these episodes on YouTube!

  • Things I No Longer Spend Money On: This week on Youtube I am deep diving on things I no longer buy as a financially successful person! Everyone has different spending values, but these are the things I’ve identified as not a great use of my money.

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xoxo,

Michela