If you’ve been a part of the personal finance scene online you’ve probably heard various terms related to the topic. Debt freedom, Financial Freedom, FIRE (financial independence retire early), and the Dave Ramsey Plan (AKA The Baby Steps)…just to name a few. There is a lot of overlap in the terminology and it can be downright confusing to figure out what path you’re following. So today I’m shedding some light on these terms and sharing some of my personal insights with you. The first term is relatively easy to define.
Being debt-free means that you don’t owe anybody anything. Pretty simple, but there are layers to it. Consumer debt-free is to be free of debt associated with purchasing consumable goods that do not appreciate in value. Think credit card debt, financed furniture, and car payments.
Debt Free except the mortgage means that you have no existing debt other than the mortgage. This is where my husband and I are currently. We don’t have car notes or any other consumer debts. And we made the final payment on nearly 6-figures of student loan debt back in the summer of 2016! We currently have a 30-year mortgage on our single-family home where we live with our 3 kids and we have a 30-year mortgage on a rental property.
We are on track to pay off the rental property early. But as of now, we have no plans to pay off our home early. We may sell the single-family home in a few years and downsize to something smaller that we can pay for in cash. In the meantime, I’m using all of my “extra” cash to invest, cash flow travel, and other large purchases- including my next car. No more car payments for me!
Next up is ‘Completely Debt-Free’, which is exactly what it sounds like. Having absolutely no debt whatsoever (sounds unreal doesn’t it). But it is possible. Tai and Talaat McNeely from His and Her Money recently paid off their house, making them totally debt-free!
VIDEO: His and Her Money- We Paid Off Our House in 5 Years
Achieving debt freedom is awesome, but unless you have a rich uncle that’s gonna leave you some money or you win the Powerball you will still have bills and recurring monthly expenses that you’ll need to keep working to pay. And you’ll need to keep working so you can save for your eventual retirement. But, it will be a heck of a lot easier to save and invest without any other debt and/or mortgage payment.
The Baby Steps
This is a good time to give a quick overview of the Dave Ramsey Plan (AKA The Baby Steps). If you haven’t read Dave Ramsey’s Total Money Makeover, I highly recommend it. Your library probably has a copy that you can borrow for free. The Dave Ramsey Baby Steps were my first introduction to financial freedom and they are a great way for beginners to get started.
I certainly deviated from the Baby Steps here and there because no one system is one size fits all…And my main criticism of the Baby Steps is that Baby Step 7 is pretty vague so you’ll have to get more information from other sources so that you can learn exactly how to go about building wealth after you achieve debt freedom.
But I’m all for reading and learning from multiple sources so that I can decide what wealth-building tactics will work best for my family.
Check out the books and other things I recommend here
The Baby Steps are best suited for those who desire a more traditional retirement at age 62 or 65, they are not designed for those who may want to retire early.
Enter… The FIRE Movement
FIRE is an acronym for the Financial Independence Retire Early. Many might argue that FIRE is the ultimate level of financial freedom. Financial independence is not having to work actively in order to pay for your expenses.
So, essentially achieving FIRE means having enough assets or passive income to sustain your lifestyle indefinitely without actively working.
Some of the more well-known FIRE bloggers like Mr. Money Mustache, Brandon (AKA The Mad Fientist), Justin from Root of Good, Carl (Mr. 1500), Paula Pant of Afford Anything, The Frugalwoods, and Tanja and Mark from Our Next Life all reached financial independence in their 30s or early 40s.
All of these folks are absolutely amazing and inspiring! And I’ve been reading their blogs for years. But there are also a growing number of ‘other’ FIRE bloggers/content creators that don’t fit the typical mold and who you may be less familiar with like…
Julien and Kiersten from Rich and Regular
Jamila Souffrant from Journey to Launch
Liz from Chief Mom Officer (Liz does an awesome job of highlighting other women on FIRE) Check out her 6-Figure Millionaire Mom Series
FI Vloggers Our Rich Journey
Rob and Reshawn from Learn Hustle Grow
Deedra Boodram from Slay This Debt
FIRE for the Rest of Us
FIRE has had a lot of shine lately in mainstream media so more people are learning about it and starting their own journey. You may be on that path as well. But, is FIRE possible for everyone?
Well, the simple answer is NO. Not everyone has what it takes to achieve FIRE. Not everyone has a desire to achieve financial freedom or debt freedom.
It’s all about priorities. Not everyone wants to achieve FIRE. If you love your job, the ‘RE (Retire Early) part of the FIRE acronym might not appeal to you as much. Some people are happy to pay off all consumer debt and live comfortably within their means until they retire at 65.
Many minorities also have to overcome the oft overlooked and unspoken wealth gap that exists in the US, making it much more difficult to achieve FIRE.
Where do you fall on the spectrum? What is your ultimate financial goal? I ask you because I’ve been asking myself lately. I think I had an all-or-nothing mentality. Being the chronic box-checker and chronic goal-getter that I am…when I found out about FIRE it became my new obsession. It became the new thing that I was fixated on.
Check out my FI plan here
But I quickly began to realize that I would make myself (and everyone around me) miserable if I focused solely on the destination and not the journey. I plan to enjoy the view along the way to financial freedom.
Do these varying levels of financial freedom really matter? Is there a need to separate into different camps Necessary? No. Natural, yes. As humans, we will always find a way to place ourselves into different boxes with other people with similar interests. Just say NO to judging.
The different financial camps are totally ok as long as we aren’t ‘judgey’ AKA judgmental towards others with opposing viewpoints. I’ve been in Facebook groups (that shall remain nameless) where group members ostracized ‘newbies’ and even resorted to name-calling when someone asks a question that’s perceived as too basic or because someone deviated from the recommended prescribed plan.
Aren’t there a 1 million different ways to metaphorically skin a cat?? (Sorry cat lovers). Personal finance is PERSONAL. And we can take different paths and still arrive at the same destination. Thankfully, in my experience the judgmental folks are few and far between and don’t represent the majority.
There is room for everyone at the table. So, whether you want to pay off debt and keep working your 9 to 5, or you plan to retire before age 40 I wish you much success. If you’re new to this scene, take your time and figure out the financial destination that works for you.
It really doesn’t matter what you call it. Debt freedom, financial freedom, Dave Ramsey’s Baby Steps, FIRE…pick your poison. The important thing is to be on a financial journey of some sort. And don’t be afraid to pivot if the path you choose doesn’t suit you. Regardless of your destination embracing these tried and true principles will get you there faster.
Core Financial Principles
1. Pay off high-interest debts.
2. Budget consistently and track your spending.
3. Spend less than you earn.
4. Accelerate your financial goals with side hustles.
5. Make saving a priority.
6. Invest consistently. Everyday is a good day to invest.
7. Enjoy life…because it’s not all about the money.
Where are you on the financial freedom spectrum?
Right now, I’m focusing on paying off consumer debt, saving and investing. Not too concernes with FIRE right now, but definitely listen to the FI podcasts, as well as ones on your list.
Hey Melanie! Thanks for replying. The FI podcasts and blogs are super motivating. I have learned to read and listen to different voices and apply different strategies to my own unique journey.
My husband and I are paying off credit cards and other debt at the moment. (Old tax debt and the high interest credit cards..yuck) We’re also saving money for Christmas of this year and our ” Baby fund” (my job only gives 4 weeks unpaid PTO time so saving for the time I’ll be taking for maternity leave ) We are also trying to have a baby! Exciting times. I just stumbled across your page and blog. Can’t wait to watch your Youtube videos.
Hi Alina! Yes exciting times indeed! Thanks so much for stopping by and commenting. I hope you stick around!