What is Side FIRE? The Definition and Benefits of Starting the Path to Financial Freedom

Introduction: Take the First Step Toward Financial Freedom with Side FIRE
Traditional early retirement was based on the premise of securing enough assets to live on for the rest of one's life before quitting work. Therefore, it could only be achieved by those who succeeded in business or inherited a large fortune.

In contrast, FIRE (Financial Independence, Retire Early) aims to live on the returns from asset management. In other words, it is based on the premise that living expenses are covered by income generated from investments.

However, many people may feel that transitioning to "Full FIRE" is too difficult given the risk of failure.

For such people, why not start with "Side FIRE" (also known as Barista FIRE), where you make ends meet by combining investment returns with labor income?

Side FIRE is a method of "building 'Assets' by adding passive income to your current salary."

In this article, I would like to introduce the definition and benefits of "Side FIRE," a strategy I used to increase my assets while continuing to work as a company employee.

What is Side FIRE? An Overview Seen from the 4 Styles of FIRE

The FIRE theory stands for "Financial Independence, Retire Early."

It is a lifestyle that aims to build sufficient assets before retirement and cover living expenses with passive income like investments, allowing for early retirement and a free life.

Actually, there are four main styles of FIRE:

1. Fat FIRE
2. Lean FIRE
3. Coast FIRE
4. Barista FIRE (Side FIRE)

Each style differs depending on the desired quality of life and work style.

Among these four styles, "Barista FIRE" corresponds to "Side FIRE," which is the theme of this article. Below is an overview of all four styles.

1. Fat FIRE

A style of living a rich life with ample assets. Since you can maintain a luxurious lifestyle solely on asset income, a significant amount of capital is required.

The goal is to retire completely while maintaining a high standard of living.

2. Lean FIRE

A style where you live solely on asset income but lead a very frugal life.

By cutting waste and managing with minimum living expenses, you can achieve early retirement with fewer assets.

3. Coast FIRE

A style where basic living expenses are covered by asset income, but you continue to work in hobbies or jobs of interest. You can enjoy a leisurely life while maintaining a connection with society.

4. Barista FIRE (Side FIRE)

A style where you continue part-time or light work in addition to asset income. Although complete retirement is difficult, you can reduce working hours and increase free time. This is what we call Side FIRE.

The Benefits of Side FIRE

Side FIRE has the advantage of requiring less savings (assets) to prepare compared to Full FIRE. It is also a useful method for those who want to transition to Full FIRE in the future.

In this chapter, I will explain the merits of Side FIRE.

Side FIRE Reduces the Required Savings (Assets)

In the FIRE theory originating from the US, the "4% Rule" is a basic premise: "Invest your assets at a 4% annual return and live by withdrawing only that 4% increase."

Calculating backward, this means you need a principal of "25 times your annual living expenses" to achieve FIRE.

For example, a person with annual expenses of 4 million yen (approx. $27,000 USD) needs 100 million yen (approx. $670,000 USD) for Full FIRE. If you prepare 100 million yen and invest it at 4%, you get 4 million yen.

If you keep your living expenses within that amount, your principal asset will not decrease.

However, in the case of "Side FIRE," the goal is to live on "Asset Income (Passive Income) + Labor Income," so continuing to work as an employee (or part-time) is assumed.

Since you can continue to expect labor income, you can significantly reduce the savings (assets) you need to prepare. Although there are individual differences, you likely won't need to reach the milestone of 100 million yen.

(Note: FIRE is a US-born concept, and the 4% rule is based on the premise of a 7% US stock market growth rate and a 3% inflation rate. Please consider it as a rough guide for asset preparation.)

Acquiring Investment Methods that Generate Cash Flow

FIRE aims for a lifestyle where you live freely without depending on a company salary. This means you need to acquire investment methods that generate Cash Flow.

"Unrealized gains" (paper profits) may contribute to future asset expansion, but you cannot use them to pay for daily life. There are several options for investment methods that generate actual cash flow:

1. High-Dividend Stocks

Stocks of companies that pay regular dividends. By investing in these, you can obtain stable dividend income.

Risk: Companies may reduce or suspend dividends due to poor performance or economic changes.

2. Bonds

Investing in government or corporate bonds to earn regular interest income.

Risk: Although relatively low risk, there is a risk of default by the issuer (government or company).

3. Real Estate

A method of obtaining rental income by leasing out owned properties. Purchasing apartments or condos can provide stable cash flow, but it generally requires a certain amount of capital.

By combining these methods, you can obtain stable cash flow while dispersing risk. Of course, each has risks, so a process of establishing your own "winning pattern" is necessary.

If you can cover even a part of your living expenses with this cash flow from assets (passive income), you graduate from "100% dependence on the company." You can take the first step toward financial freedom.

(Reference: How to increase disposable income in the era of inflation)

Building wealth solely as a company employee is difficult! How to increase your take-home pay in an era of inflation – Julius inc.

Benefits for Seniors and Working Generations

If Side FIRE is achieved, there are benefits for both the senior generation and the current working generation.

I would like to explain the advantages of each generation below.

Benefits for the Senior Generation

You can plan your post-retirement funds more easily by combining passive income with the pension you are scheduled to receive in the future.

Even if your salary decreases due to re-employment, passive income will cover the gap, allowing for a financially comfortable life after retirement.

Benefits for the Working Generation

Having passive income creates financial leeway, which may allow you to enjoy your company work more.

It can also remove some of the anxiety when making decisions to change your living environment, such as changing jobs, lowering the hurdle for achieving goals and life plans.

Summary

Side FIRE, which has a lower hurdle to start compared to Full FIRE, is a method with benefits for both the working generation and the senior generation.

Because I myself started with Side FIRE while being a company employee and then transitioned to Full FIRE, I was able to proceed while taking time to study asset management methods and find my own winning patterns.

For those who are interested in FIRE but cannot make up their mind due to financial aspects or risks, why not start with Side FIRE and take the first step toward economic freedom? (Text by Julius)

About the Author Kenji Kamioka

CEO, Julius Inc. / FIRE Practitioner

Kenji Kamioka is a former IT executive who spent 30 years in the corporate world, with over 10 years working across Asia. His life changed when he read Rich Dad Poor Dad.
Realizing the trap of the "rat race," he started building assets in real estate and stocks while still working. It took him 10 years, but he successfully achieved Financial Freedom and graduated from the salaryman life.
He established his own asset management company to optimize tax efficiency and now dedicates his time to teaching others how to escape the corporate cage.
His advice is not theoretical but based on the gritty reality of achieving FIRE.

Credentials: AFP (Affiliated Financial Planner), Certified Real Estate Transaction Agent.

❶『令和のサラリーマンの為のFIREのススメ』(Amazon電子書籍）

❷『FIRE Recommendation for Office Employee』(Amazon Kindle）