The Difference Between the Fire Movement and Dave Ramsey


Have you ever wondered what the difference is between the Fire Movement and Dave Ramsey's Baby Steps? 

Today, we are going to take a look at Dave Ramsey’s Baby Steps and see how they compare to the principles of the FIRE Movement (which stands for Financial Independence Retire Early). We will examine each method and see where the Baby Steps and the 6 Financial Independence tenets diverge as well as the Pros and Cons of Each.

Both movements have very loyal followings so what we hope to show in this video is how you can take principles from both communities and apply them to your own life.

We will also discuss paying off debt, saving for retirement, the 4% rule, how to determine you FIRE number and paying off your mortgage (and more).

Lastly, we will share the 7 faulty principles we believe Dave Ramsey has wrong and why we broke up with Dave. 

You can also check out a video we did on the topic below.  

(Don't forget to "like and subscribe" if you do!)

Dave Ramsey's Baby Steps Explained

The Baby Steps are seven steps, to be completed in lock-step order, to get your finances in order.  You start at Baby Step One and once you complete it, you move on to Baby Step Two, and so on.  

Dave Ramsey's methods are generally thought of as a beginning place for people who either have little financial experience or who are in financial trouble.  It's designed to break down the process and help lay a solid financial foundation as well as not overwhelm the beginner. 

Dave Ramsey Babys Steps vs. The Fire Movement

Baby Step 1: Save a $1000 Baby Emergency Fund

Dave Ramsey suggests you save a minimum of $1000 and put it in a savings account for an initial or "baby emergency fund."  The rational is that if you have nothing saved even a smaller emergency, like a car or appliance repair, could be disastrous and put you back months, especially if you are already living paycheck to paycheck. 

Baby Step 2: Payoff All Debt Except the Mortgage

Dave Ramsey has become popular for his insistence that all debt is bad, that debt should be paid off with "gazelle intensity" and that the best way to pay off debt is via the debt snowball method. 

The debt snowball method pays off debt beginning with the smallest balance and for all others, you pay the minimum payment.  Then you throw every extra cent you have at the debt with the smallest balance.  Once that debt is paid off you repeat the process with the next smallest balance. You repeat this process until you are debt free.

Opponents of the Debt Snowball method argue that what makes the most financial sense is to, instead, employ the Debt Avalanche method.  The two are very similar, except in the Debt Avalanche Method, you attack the debt with the highest interest rate first.  Then move-on to the next highest interest rate and so-on.  The reason this makes the most financial sense is that every month your debt costs you interest and so by attacking your highest interest rate balances first, you save yourself money. 

Dave Ramsey's position is that people need early wins and by attacking smaller balances first you gain motivation and momentum. 

Dave Ramsey also believes that during this time of debt repayment you should live extremely frugally and live on "rice and beans" if necessary.  He also recommend suspending retirement contributions during this time to get ahead with your debt. 


House of FI Debt Tracker

Baby Step 3: Save Three to Six Months of Expenses in a Fully Funded Emergency Fund

Once you are debt free (except the mortgage), the third Baby Step is to save up three to six months of expenses.  This fund is also to be put in an accessible savings account so that if there is a true emergency, like loss of employment or medical events, you can get to them quickly.

You three to six months of expenses as opposed to income because at this stage your expenses should be much lower since all your debt, except the house, is paid off.  It means you have less money to save and your money goes farther. 

Baby Step 4: Contribute 15% to Retirement

As mentioned previously, if you have debt, Dave Ramsey advocates you suspend contributions to your retirement accounts so that you can funnel the extra funds towards your debt and expedite your progress. He wants you to be "gazelle intense" with your debt payoff efforts and suspending your retirement is a part of that mission.

Dave Ramsey also suggests putting your pre-tax retirement dollars into mutual funds, as opposed to ETFs, REITS, Index Funds and other investment vehicles.  This is a stark contrast from the Fire Movement, which we will discuss more in depth below. 

Baby Step 5: Payoff the Mortgage

With any extra funds you have left over in your budget after Steps 1-4, the 5th step is to put all your extra money and aggressively pay off your mortgage. 

By paying off your mortgage you will eliminate one of the biggest budget busters most people have (housing costs) leaving a lot more money to then build wealth. 

The bigger reason Dave Ramsey proposes paying off your mortgage is the security it gives to actually own your own home outright. 

Baby Step 6: Build Wealth and Give

The final Baby Step is to "build wealth and give."  Beyond that directive Dave Ramsey does not give much further advice beyond, "living like no one else."  

This leaves a very big void in your financial journey and leaves many people not knowing what to do next. 

As such, this is a good jumping off point to begin examining how the The Movement Differs from Dave Ramsey.

The FIRE Principles

Whereas the main focus of the Dave Ramsey school of thought is to pay off ALL debt as quickly as possible - THEN save money, in a lock step fashion.  There is no real deviation in the steps and not a whole lot of direction when it comes to investing. 

This contracts with the  FIRE Movement (which stands for Financial Independence Retire Early) where there is not a lock-step order in which to attain Financial Independence, rather an accumulation of ideas and principles that when added together lead to Financial Independence.  Additionally, the core focus is on wealth building via investing.  As such, there is a great deal of discussion about the various methods and vehicles to pursue.  

Debt elimination is part of the overall financial independence objective and people are encouraged to pay of debt; however, there are varying ideas of how to do that. 

The SIX Tenets of the Fire Movement

I have organized the most prominent FIRE Principles into SIX Tenets that encompass the core beliefs of most who advocate for this way of life.  

As mentioned in our video on the SIX Tenets - these are not strict rules that every person has to follow.  These are the most prominent principles and practices found in the community.  It is up to you to decide which meets your lifestyle, brings you value and helps you meet your Financial Independence objectives.

(If you think I have missed something, I am happy to chat with you and see if your suggestion falls under one of the SIX Tenets or if we need to add additional tenets!)













  • frugality
  • minimalism
  • debt payoff
  • reduced expenses
  • debt payoff
  • healthy emergency fund
  • intentional spending
  • financial independence
  • work optional
  • early retirement
  • challenging traditional retirement age
  • retiring "to" something
  • optimizing pre-tax contributions
  • implementing beneficial withdrawal strategies
  • higher percentage rate of savings that most of the population
  • maximizing investment rate of return
  • increasing income to supplement savings 
  • creating passive income
  • avoid actively managed funds.  Use low cost/no cost platforms for investing
  • generous sharing of information
  • connection with other like-minded people encouraged
  • focus on mentorship and education
  • financial literacy 
  • credit card hacking
  • travel hacking
  • geo-arbitrage
  • saying yes to life experiences
  • multiple income streams
  • sustainability

What Does Financial Independence Mean

In the simplest of terms, Financial Independence means you have saved enough money so that when you retire you can live off of the funds the rest of your life. 

In determining how much you  need to save, most in the Financial Independence community suggest the "Rule of 25" (also known by the "4% Rule").  This formula is based upon the Trinity study where researchers measured probabilities of success using the Rule of 25. What they found was an almost perfect rate of success when a 4% withdrawal rate was used.  

If you would like to further examine the Trinity Study, Four Pillar Freedom has done an excellent job of explaining it and also looking at an update of the most recent study. 

The 4% Rule

The formula for the 4% Rule (or Rule of 25) in determining how much you need to save to be financially independent is: 

Your Expected Expenses at Retirement X 25 = FI Number

As an example, of you believe you can live on $40,000 a year comfortably at retirement then the formula looks like this: 

40,000 x 25 = 1,000,000

If you are not comfortable with the number you get - it's simple, increase your savings. 

Also, it's important to know that this does not necessarily mean you have to save 1,000,000 of your own money.  Compound interest and time work to your advantage and will make up a good amount of the $1,000,000. (Depending on your rate of return and how long you have been saving.)

We track how close we are to our FI numbers by using Personal Capital's retirement calculators. 

This post may contain affiliate links, which means

I may receive a small percentage for the referral or purchase at no additional cost to you.

The 7 Things Dave Ramsey Gets Wrong

1. You Should NOT Suspend Retirement Contributions While Paying Off Debt

This is not a good idea, ESPECIALLY when you receive an employer match on your contribution.  The employer match gives you a 100% return on your investment.  In addition, when you suspend your retirement contributions you lose out on the interest for those contributions, the benefit of compound interest and time, and reduced income tax.

We believe that the better option is to do both.  Decrease your spending in other areas to create space to pay off debt. This is specially true if you are older and have a significant amount of debt.  The older your are the less time you have to save and the larger amount of debt you have, the longer it will take to pay it off. 

If you choose to follow Dave Ramsey's teaching on this principle - then I would caution ONLY suspend retirement contributions IF you can pay off your debt in a very short period of time, one to two years. 

2.  $1,000 is NOT Enough for a Baby Emergency Fund 

The recent pandemic has provided a very relevant example of why $1,000 is simply not enough.  We believe $1,000 is an insufficient amount for an emergency fund (even an initial baby emergency fund).  Save as much as you can, as quickly as you can. 

For our family we will feel most comfortable with $5,000 - $10,000 which is closer to one month's expenses. 

If you are self employed this may mean significantly more than that.

3. Your Credit Score DOES Matter

In the 21st century, your credit report is used for so much more than obtaining credit.  Dave Ramsey argues that you don't need a good credit score because you are done with debt.  This ignores the fact that credit reports are pulled for many of the following reasons: 

  • Housing
  • Employment
  • Insurance
  • Cell Phone Carriers and Utilities
  • Credit Card Rewards

4. Credit Cards are NOT Evil (if You Use Them Properly)

Credit cards, if used properly, provide some very beneficial rewards.  Many offer cash back bonuses as well as travel rewards.  The people that understand this are able to travel for free to amazing places and have experiences they might not otherwise be able to enjoy. 

If you do not have the discipline to pay off your credit cards at the end of the month, then credit cards are not for you and you should not use them, in spite of the benefits they may bring.


5. Using a Cash Envelope System is Not for Everyone

Personally, using cash for discretionary spending does not work for me.  My cash leaves my hands very quickly and it is not as convenient to track my spending.  I prefer to use my debit card so I can stay aware of my spending.  Many APPS will automatically categorize your transactions and tell you where you are in your budget for those items. 

Using debit cards is discouraged by Dave Ramsey based upon a study that found you tend to spend more money when you swipe plastic. If this is true for you, then perhaps cash IS the way to go. 

Track your spending and see where you are; then decide if a cash envelope system works better for you. 

6. Paying Off Your Mortgage Early is Not Always Best

Mathematically, paying off your mortgage may not make the most financial sense. The extra money you might funnel to pay off the principle balance on your mortgage may earn more if you were to invest it instead. 

However, paying off your mortgage may give you peace of mind and comfort knowing you have a home that is 100% yours.  If so, then paying off your mortgage early MAY be the best choice for you. 

 Only you can decide which route to go - but you should not take for granted that putting the money into investments instead of your house may expedite your financial independence in the end. 

7. Baby Step 7 - "Build Wealth and Save" is NOT Enough

That really is the extent of Dave Ramsey's guidance on what to do after you have completed the previous Baby Steps.  He also typically recommends mutual funds and has a disdain, as mentioned above, for other investment vehicles, like Index Funds and Real Estate Investing.  In the FIRE Community you will find both are the widely regarded  methods of investing. 

There are many podcast episodes, YouTube videos, blog posts and books devoted to providing further guidance on how to be more involved in your own investing decisions as well as the pros and cons of investment vehicles and strategies.  

You should do your due diligence and decide what best fits your goals and risk tolerance. 


This post may contain affiliate links, which means

I may receive a small percentage for the referral or purchase at no additional cost to you.

Have you outgrown Dave Ramsey or are you a die hard Dave Ramsey fan?  Let us know! 

We hope you have found this post helpful.  We'd love to connect with you as you journey to Financial Independence.  Come find us on Facebook and YouTube.  We are glad you were here. 

Love and Prosperity, 

Wendy and Curtis

2 thoughts on “The Difference Between the Fire Movement and Dave Ramsey’s Baby Steps”

  1. Pingback: Plutus Awards Weekly Showcase: December 11, 2020 - The Plutus Foundation

  2. Ellen Misita

    Great synopsis. Dave taught me the basics, but as a 67 year old boomer I’m amazed that he’s never evolved as many of us have to embrace new ideas and methods.

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