At least during the accumulation (pre-FIRE) phase, I would not normally count investment returns of any kind in calculation of savings rate. I define savings as the input to the investment process, and investment returns as the output.
I can see it getting gray if you start counting/thinking of your investment returns as passive income (e.g., why would you treat passive different than active), or if you are actually spending so much that you're eating into your investment returns. It would also be more gray if you own investment real estate as part/all of your income, since that's sort of in between active and passive.
In the context of achieving FIRE I think a clean division makes sense. Savings rate is how much you're feeding that passive income engine, and once it reaches critical mass then you switch over to living off that passive income. The YMOYL style graph illustrates this pretty well I think--dividing total income into passive vs. active sources, and when passive exceeds expenses, you are at FIRE.
In the end the bottom line is all the same though--your net worth would rise as the sum of savings and investment returns minus debt repayment. If you prefer to lump it all together you can.
A few other reasons to keep them separate:
- I believe most of the FIRE and retirement calculators out on the net separate contributions from returns, so your results would not match theirs.
- Separating them makes it easier to do what-if analysis on things like different expectations of investment return % vs. different savings (contribution) rates.
- Investment returns are often unpredictable, much more than income and expenses for most people (entrepreneurs/self-employed are a different story). You can *plan* your savings rate better if you aren't counting variable investment returns. You can't reliably "budget" for investment returns.
- You might lose motivation and actually save less by glomming them together. In a good investment year, you might say oh I don't need to save as much because my investments covered it. In a bad year though, you might not be able to cut back enough to make up for the deficit.