There are three general approaches to finance that you will hear often mentioned.
1. Dave Ramsey
2. FIRE (Financial Independence Retire Early)
3. FI (Financial Independence)
In this article, I will break down and explain those three terms so you can understand the similarities and differences between them. frum.finance recommends the FI approach. While I have linked many references below, here are some other overviews you might also be interested in (1) ChooseFI’s FIRE vs Ramsey (2) FI, not FIRE
FI = FIRE
One thing we need to first clarify is the difference between the FI vs FIRE terminology. For a brief history of the FIRE movement, if you’d like to know how we got here, you can check this out.
The reason I believe this terminology distinction developed is that the RE part of FIRE began to develop a bad reputation. Many people responded with “But I don’t want to retire early” or “I don’t want a 70% savings rate to retire at 35 if I will be unhappy for 15 years.” You can hear Brad on ChooseFI many times trying to dispel this misconception.
Whether you look at the first book on Financial Independence in 1992 or the blog that turned it into a movement in 2011, you can see that the main idea is about being intentional. The pattern holds until today with ChooseFI and The Simple Path To Wealth. Not working because you have to, but because you want to. Not letting life “happen” to you, but rather, being well informed and making decisions for yourself. Related reads like The Tail End or Die With Zero pushed the community forward to this idea of living life the way you want to live it. The way to achieve that is by going against the grain and having a non-traditionally higher savings rate and investing. The takeaway from this is that whether you decide on a 70% savings rate and retire at 35 or a 30% savings rate aiming to retire at 70, as long as you are optimizing for your situation, you are reaching for FI/FIRE.
It appears to me that this misconception came from the community members and not the pioneers themselves. People took RE too literally and I have seen for myself in FIRE forums the divisiveness that came from a race-to-the-bottom style competition of who can live off the least. For many communities and families, this is not a healthy perspective. Even in December 2022, you can see a popular blogger, MoneyWithKatie, pushing for enjoying today instead of over-saving as she metaphorically pushes away FI, but I hope you can see that she is exactly embodying the tenets of FI! As you can see by Brad’s response to MoneyWithKatie’s article here:
Being intentional about not over-saving so that you can enjoy today more while making sure to still save enough to reach your new updated milestones and timelines, is exactly what FIRE is advocating for; you can see that theme all over the Mr. Money Mostache blog, even from the very beginning.
At the end of the day, FI and FIRE are the same. The terms can be used interchangeably and it refers to the same movement. Thus, even though I use the term FI, I am also intending to mean FIRE. Nevertheless, I hope we can rethink FIRE to stand for “Financial Independence Recreational Employment” instead so we can fix the blemish that the acronym has unfortunately developed.
One more clarification
Lean FI vs Fat FI / Lean FIRE vs Fat FIRE – This refers to how much you have proportionate to your FI number. This isn’t referring to your savings rate. It simply refers to milestones of FI. See more here.
- Lean FI is when your investments can pay for your necessities with no discretionary spending.
- FI is when your investments pay for your annual spending (25x your annual retirement spending)
- Fat FI is living like a king which is the “closest thing to a sure thing” you can get in life (typically 30x your annual retirement spending)
Similarities
First, to see how similar these approaches are, here is where they agree.
- Stock Market Investing is critical
- Life insurance is essential
- Debt that carries an interest rate larger than the value it provides to you is negative and unhealthy
- You should be investing on a regular cadence, most often monthly
- Single stock picking is risky and not recommended
Differences
The sources for the information in the chart comes from are linked in the text in the cells. Footnotes show articles that either elaborate more or contradict the advice.
| Topic | FI/FIRE | Ramsey |
|---|---|---|
| Credit Cards | If paid off monthly and used responsibly, credit card benefits can be worth it and help with growing wealth via cashback or traveling with your family with travel rewards. | “A life without credit cards is a life of freedom.“ “It’s pretty clear that choosing debit over credit is the smartest choice“ |
| Debt | “Debt can be a tool that when used appropriately can accelerate one’s path to Financial Independence, but when used recklessly can hinder it.“ | “THERE’S NO SUCH THING AS GOOD DEBT.“2 |
| Retire Early? | You can aim to reach FI at any time. Take your time and set your savings rate keeping in mind your goals. Include the impact of being happy today by considering your family, marriage, and mental health. “You should fear wasting your life more than running out of money.” “Forget Retiring Early–Go For A Fully Funded Lifestyle Change Instead!“ | Be sure you are ready if you want to retire early. To determine that, sign up for his investment service. |
| Investment Recommendations | Use low-cost index funds that track the entire US stock market. Additionally, educate yourself to see if other allocations suit your risk tolerance and beliefs better. The community mostly uses VTI/VTSAX but there are tons of resources for more investment options. | Actively managed Mutual Funds.1 For specifics, you need to sign up for Ramsey’s professional investment advisors1 Mutual Funds > ETFs2 |
| Estimated Stock Market Returns | 8-10%3 | 12%3 |
| Withdrawal Rate | ~4% | 8% |
| Debt Payoff Strategy | Debt Snowball or avalanche are both good methods. A person should see which is best for them | “The quickest way to make your debt-free dream a reality is to use the debt snowball method.“4 |
2. 4 Things Dave Ramsey is Dead Wrong About
3. Dave Ramsey’s Plan For 12% Returns Is Not Achievable
Why Dave Ramsey’s 12% Return Isn’t Reality
Why You Won’t Achieve 12 Percent Returns
Did your broker mislead you?
4. Debt Snowball Method
