List of terminologies commonly used in the FIRE community and related to the world of personal finance. Since FIRE is a movement prevalent mainly in the English-speaking world, most terms are not translated from English, but I still report a more or less literal translation into Italian.
FIRE
Financial Independence (FI)
🇮🇹: Financial Independence
You can consider yourself financially independent when you have enough passive income to cover your living expenses without the need to rely on a salary.
If you quit your job tomorrow, your investments will provide you with sufficient income to cover your expenses indefinitely? If it is so, then you have achieved financial independence.
Retire Early (RE) / Early Retirement
🇮🇹: Early retirement
The goal for many FIRE followers is to be able to leave their jobs and live off their investments. This is a subsequent step after the FI (which does not necessarily involve abandoning the job) and often linked to the desire to have more free time to dedicate to one's passions, to your family, or more generally to personal development.
Lean FIRE
🇮🇹: FIRE “Skinny”
Il Lean FIRE focuses on drastically cutting expenses by living frugally and aiming to minimize living costs. Lowering expenses, you are able to invest the extra money to achieve financial freedom.
Con Lean FIRE, how much you earn is not as important as eliminating unnecessary expenses from your life. It's about identifying what's important to you, figure out what really matters and get rid of the rest. It's about looking for life hacks and opportunities to live a more thrifty life in the pursuit of FIRE.
Fat FIRE
🇮🇹: FIRE “Grosso”
Il Fat Fire provides a level of financial independence that covers your expected annual expenses, with plenty of room for additional indulgences and extra comfort. In other words it would allow you to live a comfortable life, well above your means – for which a very high amount of passive income is required.
To reach Fat FIRE it is necessary to have very high income during the accumulation phase of FIRE, given that to have a high income with the rule of 4% several millions are needed.
Coast FIRE
🇮🇹: FIRE “Accosted”
This variant consists of setting aside a certain sum of money intended for FIRE at a young age and then letting one's funds "mature" over the years, to possibly reach FI at an advanced age, without having to continually invest in the financial market.
A certain investment threshold has practically been reached, you put FIRE “aside” and continue to live your life without touching your actions for many years, after which your portfolio is expected to have reached your target FI.
In the meantime, your salary is enough to cover your daily living expenses, which guarantees that you are looking for a more fulfilling job even if it is less profitable, or to reduce working hours.
Barista FIRE
🇮🇹: FIRE “Barista”
A predominantly American variant of Coast FIRE, which consists of moving from a more tiring job with better pay to a less stressful even if less profitable one (like that of a bartender) while waiting for your investments to grow.
The main reason why the idea of Barista FIRE has spread in America is to have a job there (even from minimum wage) it can bring extreme advantages from the point of view of insurance coverage, given that we do not have a national health service like in Italy.
Flamingo FIRE
🇮🇹: FIRE “Flamingo”
Flamingo FIRE is a variation of Coast FIRE that promotes the idea of “enjoying life” as soon as possible once you have reached half of your financial goals for early retirement.
Allows you to move into a semi-retirement phase, where working hours can be reduced, accept a less remunerative but more rewarding job or dedicate yourself to new projects without the constant financial pressure.
This strategy gets its name from the fact that you stop saving and investing once you reach half the money needed to reach early retirement, like standing “on one leg” like a flamingo.
Investments
4% Rule
🇮🇹: Rule of 4%
The four percent rule is the result of an analysis conducted on historical data from the US financial market which shows how a balanced investment portfolio can beat inflation and guarantee a passive income for 30 years if you withdraw no more than 4% every year – and this at worst.
This rule is the basis of FIRE: predicts that once you reach your investment target on a balanced portfolio (containing a mix of stocks and bonds with average annual growth of 10%), then you can withdraw until 4% every year and don't end up short of capital for at least 30 years.
Let's say you have €1,000,000 set aside, this would allow you to have a passive income of 4% of €1,000,000 = €40,000 per year.
25x Rule
🇮🇹: Rule of 25
The rule of 25 it's simply an alternative way of thinking about that of 4%: if it is possible to live on an income with 4% of your investment capital, then to achieve your FIRE goal you will have to invest 25 times your annual return target.
Let's assume that your target, once you reach FIRE, is to have €40,000 a year available, then you will have to be able to put it aside 25 x 40.000€ = 1.000.000€
Compound Interest
🇮🇹: Compound interest
L’compound interest it is the phenomenon that allows the two previous rules to be implemented: it is the ability of investment capital to generate interest, once reinvested, generate other interests. In simple terms, the more money you have invested, the more these investments generate earnings, which in turn become investments that generate further earnings.
That's the kind of passive income which allows you to achieve financial independence and continue to increase your income over time. And it is also the reason why investing when young guarantees higher returns over the years: the longer an investment remains in the stock market, the greater the chances of growth.
Passive Income
🇮🇹: Passive income
Il passive income it is a type of monetary income that does not require any type of work action. In the field of investments, passive income is that obtained through dividends and interest. Then there are various types of semi-passive income such as that which can be obtained through rentals in the real estate market, creating content on the web, royalties obtained from intellectual property, etc.
Asset Allocation
🇮🇹: Allocation of assets
L’asset allocation it is the strategy you adopt to invest in a diversified portfolio. Generally, FIRE investment strategies include a high percentage of stocks (about ETFs) mixed with bonds, but others asset Real estate is popular, cryptocurrencies, as commodities (ad is. gold and oil).
Your asset allocation also determines your risk tolerance (a portfolio containing 100% of stocks is more exposed to risk than one containing stocks and bonds).
Lifestyle
Lifestyle Creep
🇮🇹: “The advancement of lifestyle”
Lifestyle creep it is not easily translatable into Italian, the verb creeping has the meaning of "crawling" or "climbing" forward and nowadays it is used as a synonym for the verb stalking.
In the etymology of FIRE, lifestyle creep is the phenomenon whereby over the years the individual lifestyle tends to become more expensive, especially following a salary increase: Most people automatically start spending more when they start earning more, and it is very difficult to return to a more frugal lifestyle once you are used to spending.
This is the phenomenon of lifestyle creep, considered by many to be FIRE's number one enemy.
Geographic Arbitrage / Location Independence
🇮🇹: Geo Arbitrage
These are two concepts linked to each other and which are becoming particularly relevant following the advent of smart working. The concept of location independence consists in not being tied to a place of work, that is, being able to decide where to work from.
Geo arbitrage uses this to its advantage: if you can choose where to work from, you can decide to go to a place that allows you to enjoy a better lifestyle, better job opportunities, higher salaries, less oppressive tax regimes, and/or a lower cost of living.
Geo arbitrage is particularly useful as a strategy for achieving FIRE and especially for the Italian community which is scattered all over the world.
Digital Nomad
🇮🇹: Digital Nomad
The digital nomad is a type of lifestyle that is increasingly fashionable and linked to the concepts of geo arbitrage and location independence. It consists of not having a fixed home and moving from one place to another more or less continuously, while working online.
The FIRE movement and the digital nomad movement are slowly getting closer, although many digital nomads have low to medium incomes, they can use geo arbitrage to their advantage, living in places with a very low cost of living, such as Southeast Asia and Eastern Europe.
The Italian community of the FIRE movement (Financial Independence, Retire Early) to stop working and retire young.