In today’s post, Jordan Frey and I discuss the struggle to find that perfect balance between FIRE-style saving and YOLO spending on the path to financial independence.
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This post by PhREI Network partner Jordan Frey really piqued my interest. In it, he discusses the battle between the rational desire to save and the impulsive desire to spend. He goes into the origin of these warring impulses, and his own recommendations on how to find peace.
In my own personal life, I see this battle play out on a weekly basis. It usually comes to the forefront on our Sunday date nights. Inevitably, we have an argument over what type of restaurant to visit. The Dr-ess values the experience of a nice Italian restaurant and bottle of wine, while I’ll sometimes argue for a visit to a middle eastern sandwich shop.
Admittedly, she usually wins these battles and we both have an amazing time. But as we pay the check, my mind automatically does the calculations of how much more we’d be able to save if we’d gone to the sandwich shop instead. Next, I remind myself that some experiences are worth the money, even if it delays us reaching moFIRE.
So Jordan, I hear you! Take it away and enlighten us with your wisdom!
The post first appeared on the Prudent Plastic Surgeon.
Before I begin, please let me be the first to say that I have not found the perfect balance between FIRE and YOLO.
I’m still working on it. But honestly, I think I do have a pretty good grip on it. I’m at least toying around near the right intersection between the two philosophies.
What I am very confident in, however, is that finding this balance between FIRE and YOLO is super, super important.
First, some background
My guess is that most of you are aware of these seemingly opposite personal finance philosophies of YOLO and FIRE. But, let’s just spell them out so we are all on the same page.
FIRE is the Financial Independence Retire Early philosophy. Basically it is the group of people working to reach that point where they don’t have to work anymore. There is a ton of debate about the Retire Early portion of this moniker. But I don’t really get hung up on that. I seek FIRE to follow my passions as a plastic surgeon on my terms because I want to, not because I have to.
YOLO is a bit of the antithesis. You Only Live Once. You can’t take money with you when you die. So buy the Tesla even though you have over $400K in student debt. Get the huge house. Basically, just YOLO.
The problem with the extremes
Like most things in life, both of these philosophies have some merit.
But the merit is found somewhere in the middle, not at the extremes. Let’s examine.
Take FIRE to the extreme
Save 75% of your doctor income, which averages around $200-250K in the United States. Live in a meager apartment. Eat Ramen noodles every night. At age 37, you can retire and live this lifestyle on your nest egg alone. Congrats, you FIRE’ed!
But, is this really the goal? I say no. We also have to splurge and treat yo’ self sometimes.
Now let’s take a peek at the flip side…YOLO lyfe
Your income is in the top 1-2% of everyone in the world.
Live. it. up. Buy the huge house for $1.5 million. Don’t save up for retirement, there’s time for that when you’re older…or dead. Just like paying back loans…that’s a future you problem. Sushi every night baby. That’s the motto.
Ughhhh…wait a second. Now you’re 60. You’re tired of your job. But you still have a ton of debt. And you need to keep making mortgage payments. And payments on the jet ski…even though you live in Cleveland. Welp, you can’t retire. You can either significant reduce your lifestyle or you can keep working til you die.
I don’t like either of those options.
Where is the balance with FIRE & YOLO?
I hope at this point I’ve successfully demonstrated why one or the other of these philosophies is no bueno.
So the next logical question is, “Where is the balance?”
It’s not a simple question. And it will differ a bit for every person.
But I would say that the balance for the average person is for you and your family to enjoy life intentionally while taking action to be secure in a future that you control.
Yep. That’s a bunch of word salad. Means nothing.
Let’s get practical and find a FIRE balance
Ok, average physician. What’s the FIRE/YOLO balance.
Here it is:
- Save 20% of your income
- Invest that 20% according to your financial plan
- I recommend low cost broadly diversified index fund and/or cash flowing rental real estate
- Use the remaining 80% to enjoy your life with intention
- This means that you should buy things when the joy you receive from them are equal to or greater than the sticker price. You also need to be able to buy these things without debt and within the confines of your financial plan/goals.
The 7 Step Basic Formula for Wealth as a Physician
In that sense, it is really not that difficult at all.
Tailor it to your goals
Now, everyone is going to be unique and different. That’s why it’s important to set your financial goals as a first step in determining your financial plan.
That’s what Selenid and I did.
We created our financial goals. Then we set our budget and savings rate. Then we came up with our investment strategy. This comprises our financial plan. You can find the whole thing using the link below.
We know that we will reach our goals if we follow our plan. So we have no guilt or worry about spending the money that we have ear marked to spend. We buy things intentionally and enjoy the heck out of them.
That’s a big reason why we felt so confident buying our first home instead of renting, which is the more generalizable advice that I usually give.
It’s a spectrum
Some of you may want to save more and reach financial independence sooner. Fine, your balance will be a bit more along the FIRE side of the spectrum.
Some of you may want to enjoy the finer things a bit more up front and are okay with the prospect of working longer or having to save more later. Cool. You will be more along the YOLO side of the spectrum.
It’s all gucci as long as you know you are meeting your goals.
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