YOLO vs. FIRE: How To Balance Saving and Spending in the New Year

YOLO — You Only Live Once — and FIRE — Financial Independence, Retire Early — are competing ideas about money. One embraces spending freely and enjoying life in the moment, while the other advocates being extremely frugal and saving up to 70% of your annual income to be able to retire early.

But is there a way to save for retirement while enjoying yourself too? Here are suggestions from experts on how to balance saving and spending in the new year.

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Savings Strategies for the New Year

Here are some savings strategies for the new year to help you meet your financial goals.

Automate Your Savings

“When we talk about savings strategies in the new year, it’s crucial to embrace a philosophy of automated savings,” said Khwan Hathai, a certified financial planner and certified financial therapist and founder of Epiphany Financial Therapy. “This practice of setting aside a portion of your income as soon as it’s received, often into a high-yield savings account or diversified investment portfolio, echoes the essence of the ‘pay yourself first’ principle.”

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Understand and Reduce Your Debt

“It’s not just about the mechanics of saving but also about nurturing a mindset that values future security and financial peace,” Hathai said. “Simultaneously, addressing the aspect of debt is pivotal. The approach here is not just about numbers but understanding the psychological burden that debt can bring. Reducing high-interest debt, like credit card balances, can be both a financially savvy move and a significant step toward mental and emotional freedom.”

Separate Your Accounts Based On Purpose

“Separating your accounts based on purpose is also important,” said Brandon J. Galici, certified financial planner and founder of Galici Financial. “Instead of lumping all of your short-term savings into one bank account, I encourage you to open a separate account for your emergency fund, travel fund, etc. This helps you better organize your finances and reduces the need for mental accounting.”

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Automate Your Fixed Expenses

“Also, I encourage you to automate your fixed expenses,” said Galici. “You can open a separate checking account (be mindful of bank fees) and allocate a portion of your paycheck to be deposited there. By doing this, you know that your bills are taken care of. The remainder in your main checking account can be used for groceries, gas, entertainment, etc.”

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Spending Strategies in the New Year

Here are some ways to keep spending in check in the new year.

Engage in Conscious Spending

“Now, turning to spending approaches in 2024, it’s about striking a balance between prudence and pleasure,” said Hathai. “Conscious spending, where every dollar spent aligns with your personal values and long-term goals, plays a central role. It’s a reflective process, engaging deeply with one’s own values and aspirations. For some, this might mean investing in quality items that, although costlier upfront, offer long-term value and satisfaction. For others, it could mean prioritizing experiences over material possessions, aligning with the YOLO philosophy but in a manner that’s mindful and intentional.”

Make Sure You Have an Emergency Fund

“Furthermore, the role of emergency funds cannot be overstated,” Hathai said. “An adequately funded emergency reserve acts as a financial buffer, crucial for peace of mind and allowing for more freedom in day-to-day spending decisions.”

Use a Budgeting App

“Incorporating technology, like budgeting apps, helps in maintaining a close watch on your spending habits,” said Hathai.

Use a Spending Framework

Galici offered the following simple, yet effective, framework you can “walk through”  to help you make sure your spending is healthy and aligned with your values. Ask yourself the following questions.

• Are you spending less than you make? Be sure you aren’t taking on credit card debt and not paying it off.

• Do you have a long-term plan in place? You want to have a strategy to pay down debt, save for the future, etc.

• Does this purchase bring joy and value to you and your family? You should like the things that you buy!

The Takeaway

“Instead of worrying about budgeting every single penny,” said Galici, “I recommend that you focus on saving first. If you save between 10% and 20% of your income without carrying credit card balances, you’re doing well! This is a sign that both your spending and savings are healthy.”

“Regular financial checkups are akin to routine health checkups — necessary for diagnosing and addressing any issues early on,” said Hathai. “Balancing FIRE and YOLO in 2024 is about understanding and respecting the psychology of money. It’s recognizing that financial decisions are not just transactions but are deeply intertwined with our emotions, beliefs and life goals. Achieving this balance is an ongoing, dynamic process, requiring regular reflection and adjustment to align with one’s evolving life circumstances and priorities.”

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