YOLO vs FIRE — How To Find Balance Between Saving and Spending in the New Year

Is better money management one of your New Year’s resolutions? You’re not alone. Many people struggle with the best way to enjoy life while planning for the future.

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The fiscal responsibility spectrum has two ends: YOLO, or ‘You Only Live Once,’ and FIRE, or ‘Financial Independence, Retire Early.’

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You Only Live Once

Those who subscribe to the YOLO theory of financial management – or lack of it – believe that spending your money to enjoy life is the way to go, because the future isn’t guaranteed. This philosophy says it’s best to spend what you earn on things that give you joy and let the future take care of itself.

The drawback here should be pretty obvious – if you don’t save ‘for a rainy day,’ you could get pretty wet. With pensions going the way of the dinosaur and social security replacing only about 40% of your pre-retirement income, retirement for the true YOLO believers will be a struggle.

Financial Independence, Retire Early

Believers in the FIRE money management theory live as frugally as they can retire early. They plan to live off their savings beginning long before traditional retirement age by saving a large percentage of their paychecks in their early earning years.

The drawback to this philosophy is that to save enough to fund very early retirement, you have to forgo a lot of discretionary spending. The FIRE crowd rarely, if ever, travels or goes out to eat, and may live in a home significantly smaller than what they could, by most people’s measure, afford. Some, however, would rather do that than work until they are 65.

How To Strike a Balance Between YOLO and FIRE

Both philosophies are somewhat extreme – either you’re blowing every penny or living as frugally as possible – so it’s best to strike a balance between them. This requires some soul-searching to determine what is most important to you.

1. Consider Your Motivation

The first question to ask yourself is, “What is important about money to me?” It might be that money allows you to travel, spoil yourself and your loved ones with lavish gifts, or live wherever you want. Or, money might allow you to spend time with your loved ones, enjoying nature and each other’s company, without going into an office every weekday. Or it might be somewhere in the middle.

2. Identify Your Must-Haves

Make a list of those things you really want to have in your life. Maybe it’s important to you to have children and for one parent to be able to stay home while they’re young. Or maybe you want to be sure you live in a town that has really good schools, or you want to send your kids to an Ivy League college. On the other hand, you may want to live off the grid in a tiny house in the woods with no neighbors.

Everything else is optional once you have decided what you cannot live without.

3. Figure Out How Work Factors In

By determining what you must have, you can estimate how much it will all cost. Then you can decide whether you want to – or can – take a job that will provide you with a big enough salary that you can pay for those things with enough left over to save for that early retirement. If you have the education, training and experience to get a job that pays you enough that you can pay for the things you want and still save enough to fund your early retirement, you’ve balanced the YOLO and FIRE philosophies perfectly.

If not, identify what you have to do to make that happen. Maybe it’s more schooling or training to get a higher-paying job or taking a lower-paying job and pushing retirement back a few years.

Regardless of whether you lean more YOLO or more FIRE, making a plan will help you live the life you want and retire when you choose.

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This article originally appeared on GOBankingRates.com: YOLO vs FIRE — How To Find Balance Between Saving and Spending in the New Year