You will be able to calculate a smaller number for a life where part-time income covers part of your spending.
Think of the people you know who left a corporate job and did not stop working. One teaches yoga three mornings a week. Another does freelance bookkeeping for a few small firms. A third works weekends at a friend's cafe because she likes the people. None of them is fully retired, and none of them needs a full salary. Their portfolios cover part of their spending, and the work covers the rest.
That arrangement has a name in financial independence circles, and it can bring the finish line a long way closer. Lesson 5.1, Coast FI: when you can stop adding, was about stopping new saving. This lesson is about stopping full-time work.
You reach barista FI when your portfolio can cover part of your spending at your chosen withdrawal rate, and part-time or project work reliably covers the rest. The name comes from the idea of working a few shifts in a coffee shop, though the work can be anything: consulting, tutoring, a small business, a lower-pressure version of your current job.
It sits between coast FI and full FI. At coast FI you still work full time, or close to it, to pay today's bills. At barista FI you have stopped full-time work but still earn some income. At full FI you need no work income at all.
The arithmetic follows from lesson 2.1, Where the 4% rule came from. Your number is your yearly spending times a multiple, and the multiple is one divided by your withdrawal rate. Part-time income reduces the spending your portfolio has to carry, so each dollar of yearly income lowers the number by the same multiple.
At a 3.5% rate, the multiple is about 28.6. Using Priya's made-up spending base of S$44,000, her single-figure number at 3.5% is about S$1,257,000. Suppose she earns S$1,500 a month, or S$18,000 a year, from part-time work. Her portfolio now carries S$26,000 a year instead of S$44,000, so the number becomes S$26,000 divided by 0.035, about S$743,000. The S$18,000 of income has lowered her number by about S$514,000.
That is the power of even modest income. A few days of work a month can be worth hundreds of thousands of dollars of portfolio.
The two-part number from lesson 3.4 needs a little more care, because part-time work usually does not last for life. Say Priya plans to work part time from 50 until her CPF LIFE payouts begin at 65 in this example, and then stop completely.
The part-time income then reduces only the bridge. Her bridge spending from the portfolio falls from S$44,000 to S$26,000 a year. Over fifteen years that is S$390,000 instead of S$660,000. The long-term figure after 65 stays at about S$777,000, because by then she no longer works. Her barista number is about S$1,167,000, compared with about S$1,437,000 for full FI. The part-time work is worth S$270,000 to her plan.
If she kept some work going after 65, the long-term figure would shrink too. Most plans are safer not assuming that.
Part-time work can bring things a portfolio cannot. If you are employed, even part time, your employer and you may pay CPF contributions on your wages, depending on how much you earn. Those contributions go on building your CPF accounts, including MediSave, which matters for module 7. Check the wage levels at which contributions apply on the CPF Board website.
Some part-time roles also come with group insurance or other benefits, which can reduce what you pay privately. And as lesson 8.1 will show, work brings structure, colleagues and a sense of being useful, which many people miss more than the salary.
The weakness of barista FI is that it depends on work you may not always be able to find or do. Industries change. Health changes. The friend's studio closes. The demand for freelance bookkeepers falls. A plan that assumes S$18,000 a year for fifteen years is making a fifteen-year bet on the job market and your own body.
So plan a fallback before you rely on the income. Ask what you would do if the work stopped in the third year. You might cut flexible spending, using the split from lesson 1.2, Essential and flexible spending. You might draw a little more from the portfolio for a while, or return to fuller work. Write down which one you would choose and roughly how long it could last.
A barista plan with no fallback has swapped one dependency, a full-time employer, for a less reliable one.
Before you start the activity, think about the part-time work you could realistically get and keep. Not the most you could earn on a good year, but an amount you would be fairly confident of earning, year after year.
Pick a realistic part-time income and calculate how much it lowers your number at your chosen withdrawal rate.
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