In 2021, at age 36, I quit my high-stakes corporate job to free up time for all my interests and passions.
At the time, I didn’t know for sure if my career break was going to be a temporary or permanent thing. (Or, maybe I knew it to be inevitable in my heart, but that I needed to ease into the idea!)
Now, at 38 ½, as I embark on year three of semi-retirement… I’m putting it out to the universe: I am not going to work full-time again!
(Unless, of course, I want to… but who would after the sweet taste of this freedom?!)
What I did with my money before my sabbatical
I’ve spoken in-depth in earlier blogs about what I did in the years prior to selling my house and achieving financial stability…
- Lived beneath my means and cut down on shopping and subscriptions
- Side-hustled for extra income, and welcomed short-term roommates
- Refinanced my house to reduce my monthly mortgage payment, drop PMI, and free up money for investing
- Maxed out all my retirement investment vehicles to the yearly max: my Roth IRA and my 401K; putting the leftover in cash reserves and brokerage
…but I haven’t talked much about what I am doing about money whilst in semi-retirement, Barista FIRE-style — living part-time in Mexico, traveling around the world, and working part-time as a travel coach, content creator, blogger, and group trip organizer (want to travel with me!?)!
(It’s a question I get A LOT, so why not spell it out for people?!)
Enjoy, dear reader… here’s a look into my pocketbook and money management strategy.
Yes, there’s a name for that… Barista FIRE
To understand Barista FIRE, one must first understand FIRE, the Financial Independence Retire Early movement, which focuses on achieving financial independence and retiring early.
The goal of FIRE is to accumulate enough savings and investments to cover living expenses, allowing individuals to have the freedom to retire or pursue other interests younger than the traditional retirement age.
While traditional FIRE is to achieve complete financial independence and retire early, the concept of “Barista FIRE” takes a more moderate approach. In Barista FIRE, individuals aim to accumulate enough savings and investments to partially cover their living expenses, allowing them to shift to part-time or lower-stress work, hence the term “barista” — or in my case, blogger-creator-coach-consultant-whatever I feel like!
The goal of Barista FIRE is to achieve a level of financial independence that provides more flexibility and the ability to pursue a less demanding or more enjoyable career, even if it doesn’t completely cover all living expenses. This approach allows individuals like myself to strike a balance between financial freedom and engage in endeavors that contribute to the workforce and/or earn money.
In other words, my current expenses are covered by income I earned in years past (plus its compounded interest and dividends), in addition to income I earn now by a variety of different sources.
Other FIRE bloggers practice Lean FIRE, Fat FIRE, Coast FIRE, a few others, or a blend of several approaches — all based on their personal preferences, circumstances, or the time period they’re at in their lives. What they all have in common is this ultimate goal: to achieve financial independence and have more control over one’s time and life choices.
How I spend and manage my money in semi-retirement
Not all semi-retirements, career breaks, and sabbaticals are created equal — mine, now in year three, has gone through several different financial evolutions, which I’ll call phases.
Phase one: Months 1-14
Earning: Nada*
Budgeting: $75/day
Spending source: Cash reserves
Early on in my semi-retirement, I traveled across Mexico and central Europe, living on less than $75 a day. I was not actively earning any money (except for *interest and dividends), I was watching my budget and practicing lots of money-saving techniques, and I was spending down my cash reserve of $30,000.
On month 13, I put out an eBook, “Money and Mindset: How to Take a Sabbatical,” and started collecting royalties on its sale. I also fielded some affiliate/collaboration requests, which I took on very thoughtfully. I spent a total of $27,000 during my first year of semi-retirement.
Phase two: Months 15-19
Earning: Supplemental income
Budgeting: $85/day
Spending source: The last bit of my cash reserves + income
I spent months 15-19 of semi-retirement back in Mexico, this time as a temporary resident. Due to a variety of factors (which I outline in this blog), I increased my budget. I also ran out of my cash reserves, and started selling stock and withdrawing from my brokerage account (for the first time — eek!), while collecting a humble paycheck from several ongoing or one-off affiliations/sponsorships and my work as a travel coach.
Phase three: Months 20-current
Earning: Supplemental income
Budgeting: $91++/day
Spending source: Income + brokerage accounts
Months 20 and beyond saw my budget increasing even more, as I decided to explore more far-flung locales (South America, Antarctica, and other upcoming soon-to-be adventures!) and invest more in new places and experiences… and in 2024, I’ve decided to more or less throw away my budget!
That’s for a few reasons: I’m expecting to earn more in 2024, I don’t want to feel guilt from going over budget, nor do I want to feel pigeonholed into saying no to epic opportunities that don’t necessarily fit within said budget.
Let’s break that down!
How I’m handling spending, withdrawing, and earning in 2024… the nitty gritty
As I mentioned, I’m prioritizing experiences and exploring far-flung places, which will (often) come at a higher cost than my previous budget-centric travels… so, if this Barista FIRE’e wants to increase her spending, she will need to 1) increase her earnings or 2) increase withdrawals.
Firstly, let me introduce you to the 4% rule, a guideline used in the FIRE movement. Its basic premise is this: according to the 4% rule, retirees can withdraw 4% of their retirement portfolio’s initial value annually, adjusting the amount for inflation each subsequent year. If retirees withdraw 4% or less from their portfolio each year, funds should last throughout the retiree’s lifetime, even during market downturns.
Audy-whaty?
Bear with me. The math does math!
The withdrawing…
The 4% withdrawal rate assumes that the rest of your capital continues to accumulate interest and grow over time, so that you never run out… the key is whether you can live off of your 4%. (Where budgeting or anticipated spending more-or-less comes in!!)
So, working backwards, I know already that I will require additional income, like other Barista FIRE retirees — because the budget I require to pay for my expenses and have a fulfilling life is more than 4% of my investments. And so, to supplement that, I can decide to take on as many clients, collaborations, and affiliations I need to, to cover the remainder of my expected spending.
What this means logistically: I will periodically sell off stock in phase three (perhaps monthly or quarterly), park it in a high-yield money market ready for when my bills to come due, then monitor and adjust accordingly as my unpredictable income comes in.
If this sounds like a work-in-progress… it is. My travel and nomad life expenses are highly variable — mix that with income that’s not regular, and I’ll require some strong attention to detail!
…and the earning
Am I going to be making six figures in 2024? Nope, and I don’t want to — nor need to! The question for me is not “How much money can I make?” but “How much is ENOUGH — how little do I need to work to enable a fulfilling lifestyle?”
And obviously, “Do I enjoy doing what also earns me an income?”
You can always make more money, but you can’t make more time — it’s something I’ve said for years, and a mantra I will continue to embody, even as opportunities land on my doorstep more and more often. In 2024 and beyond, I am prioritizing my time and enjoyment, not chasing the paycheck, the prestige, or all those things that money could buy. (I am also consciously keeping my income low, to reduce my tax burden.)
I bought my ransom once, why would I willingly imprison myself with lifestyle creep, debt, or materialism?
Caveat/I’m-not-a-financial planner disclaimer: While the 4% rule provides a data-driven starting point for retirement planning, monitor your own portfolio, adjust your withdrawal strategies based on market conditions, and consider any unique circumstances when planning for your retirement.
Summary — thinking differently about earning and spending
While most people are spending nearly the entirety of their paychecks every two weeks, imagine spending years living beneath your means, saving 40-50% of your income, being able to completely cut ties with the demands of an employer, and cutting the golden handcuffs of a regular paycheck…
What would you do with your time if you didn’t have to spend 40+ hours a week working?
I didn’t get handed any more money than anybody else — I’m simply spending some of my earnings at a different time than when I did the work, while living beneath my means.
What if we asked ourselves, not “how much can I make (and spend),” but “how much is enough — to enable a fulfilling lifestyle?” #FIRE
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Hi!
My wife and I want to do what you do…be free from the confines of a 9-5 and travel, more or less. We have a Roth IRA (one between the two of us), an emergency fund, and a few thousand in savings. We have $20k student loans each, a car worth $20k, and rent an apartment.
…what should we do to get started? Do you “The first 10 steps of going BaristaFIRE” somewhere? We are looking for the SIMPLEST, most hands off approach and we would love (LOVE!) your take on it. 🙂
-A fellow Julie
Hi Julie, welcome! I think my eBook, “Money and Mindset: How to Take a Sabbatical” would be a good starting point. The financial lessons and strategies in it could just as easily be translated into a FIRE goal, vs. that of a temporary career break! I also have a lot of blogs in my “Money” section, in case you want to go down the rabbit hole.
Or, perhaps after a review of your finances, you can do something temporary now while making long term plans for a more permanent future. FIRE is definitely a balancing act between sacrificing now to achieve an earlier later (but not falling into the trap of lifestyle creep and deferring to the traditional age of retirement). In my eBook, I suggest some radical changes that induce radical results, which are changes I think many Americans don’t necessarily think of (myself originally included), like taking the bus or carpooling to work — instead of owning a car, which costs us car payment, registration, gas, parking costs, maintenance, AND insurance each year… thousands of dollars wasted that could go towards financial freedom. Maybe we do that just for a year, but it has huge repercussions for us financially. We can do anything if we think of it short-term!
Hi Julie! With the 4% rule do you still pay the penalty for being younger than 59 1/2?
Hey Sarah! It depends from which account you are taking. There is no penalty for taking money out of your brokerage account, this was already pre-taxed. If withdrawing from a Roth, which is also already pre-taxed, you can take out what you contributed without any early withdrawal penalty or tax. If your primary account is not a Roth or a brokerage but a 401K or rollover IRA, then you’ll want to look into laddering. With a Roth conversion ladder, you convert tax-deferred money into your Roth over a period of years. Since this triggers a tax event, you’ll want to do it only when you are low-income so that you’ll have the lowest tax burden. Hope this helps!