What the heck is YOLO? Is that a typo for Yo-Yo?
No.
It’s what the kids say these days: You Only Live Once.
True enough kids.
But what does that mean when it comes to saving for tomorrow?
What is the appropriate balancing act between living for today and having money in the future?
Does it differ from person to person or is there a rule of thumb most of us should aspire to?
I/we know our answers. Do you?
YOLO
I suspect you visit this site because you want to learn more about saving and investing for your financial future, you’re curious about my financial path, you’re looking for some entertainment or maybe a combination of all three. You don’t visit this site to learn how to spend money frivolously, carelessly and run deeper into debt. You won’t find that here – YOLO doesn’t live here.
The premise behind YOLO if you don’t already know is to enjoy life now, to the fullest, even if that means taking on more debt to do it.
Most of my generation prefers experiences over stuff – I know we feel that way in our house. This however does not mean we’re willing to dive into more debt to travel or entertain ourselves. Maybe this is where we draw the line that others can’t or won’t. If we have to dip into our line of credit for a vacation, we don’t take it. Borrowing money for a vacation means we can’t afford a vacation.
So where does this leave me on this subject? We live for today but it’s only after paying ourselves first. This means we put a higher premium on tomorrow’s plans than today.
What plans? How far ahead?
That could mean a long weekend or week-long trip. We put a little bit of money away as savings every month so don’t need to worry about expenses for the trip when it happens.
We also have an emergency fund because we know $hit happens every now and then.
Finally we save for our future selves – retirement or semi-retirement.
Saving for Tomorrow
In the last few years, my wife and I have recognized we value our time more and more. Time to travel, volunteer more, work on demand, keep up existing hobbies, try new hobbies and so forth. Our time is limited with full-time work. We hope to change that within the next 10 years.
This is why we put a premium on saving and investing for today so our investments effectively buy us options with our time in the future.
A previous post on my site reiterated we tend to pay ourselves first using savings accounts, and mainly RRSPs and TFSAs before we live for today. This makes our savings rate north of 25% most months. We figure that’s pretty darn good. I wouldn’t want it any less than 15%. I suspect 50% or more would be too high for us and we’d feel trapped. This is our happy balance – saving 25% of our net income. I think most folks should aspire to 15% if they can. I know that’s a bundle but you’ll need at least 10%. I would be interested to know your savings rate and why…
Back to the theme, we tend to plan our work then work the plan. Planning ahead, whether that’s a few days, a few weeks, a few months, or even a few years out has allowed my wife and I to attend festivals, dine out, take international trips, or buy new clothes at leisure and debt-free.
Summary
I get living for today is fun. I mean, you can’t take it with you. We splurge on nice food and drinks often (maybe too often). But with some forethought you can almost live a YOLO lifestyle. It is just money after all but like other scarce resources you should try and use it wisely.
Our approach is to do a little bit of everything, financially, and not dwell on trying to be perfect or be like others. Only you can decide what your balancing act is and the lifestyle you want.
Are you a fan of YOLO, planning or both? How do you achieve your financial balance?
“What’s wrong with looking at pensions as an expense rather than savings?”
Because it’s not an expense. Pension contributions are only an expense to your employer.
It might be construed as an expense only in that it affects your RRSP contribution room.
Neither is it akin to taxation — you aren’t getting those taxes back.
Just because you believe you have “no control” over your contributions (you do), doesn’t mean they are non-accountable. Once you allocate your net income, you also have no control over that money. Obviously I don’t agree with a lot of the PF ‘feel good’ accounting.
So would you look at CPP payroll deductions or EI deductions as an expense? I would. 🙂
I have little control over my pension contributions, now that I’m in the plan, they are rather mandatory so I’m not sure what you mean when you say I have little or no control over that money. How do I have lots of control over something I can’t access or touch until age 55?
re: “I find it interesting that you don’t calculate your pension contributions into your savings rate at all.”
Ditto. I am forced to contribute ~8% of my gross income into a pension fund. If I didn’t count this money, that basically means I’m “earning” 8% less each and every pay cheque than I actually am; I might as well quit and go work somewhere without a forced contribution plan. If you don’t count work pension contributions, and discount all future value of said pension to zero*, then you are, in a sense, ripping yourself off and requiring yourself to save more than necessary = less YOLO.
*(My pension funding ratio over the last 15 years (and all the different market conditions) has oscillated between 95-105%. I can’t forecast out 40-50 years to know if it’ll still be viable to pay for my adult diapers, but everyone’s public market money is in the same boat, so I’m not going to worry too much about it. I can also take a lump sum pay out, thus negating any future risk.)
Why? Sure, I guess you can include it but I’m looking at what I have direct control over – my net income. I’m forced to contribute the same 8% or so into my pension. This is money I make but don’t see. Same with taxes. This is money I make but don’t see. I consider my pension a present day tax so I can enjoy the future. What’s wrong with looking at pensions as an expense rather than savings?
Nothing.
“If you don’t count work pension contributions, and discount all future value of said pension to zero*, then you are, in a sense, ripping yourself off and requiring yourself to save more than necessary = less YOLO.”
After we fund the RRSPs, TFSAs and pay down the mortgage every month – we spend everything else. I don’t think that’s a bad thing. The “everything else” bucket includes new(er) cars every 15 years and international trips every 2 years. I would argue most people across the world would be very thankful for those things. We are.
What difference does it make if one counts pension contributions in their savings rate or not as long as they are clear about what their savings rate includes? Whether I try to save 10% of net or 5% of gross is not really relevant as long as I’m clear as to what my target is. I don’t see the issue.
This is what I don’t understand. I consider my savings rate my net income – put towards any emergency fund, any general savings, and any retirement funding. My target for those things is 25% per month, every month.
What SST’s plans are might be different than mine, which is OK. I’ve defined what it means to me and trying to stick to that plan.
I enjoy your blog Mark. Keep up the good work!
Our savings rate is just under 30% (as a % of net income , excl pension contributions). Once the DC pension contributions are added it would be just over 40%. However we’ve only starting meeting these targets in the last few years once we paid off our mortgage.
We also value travel and save the extra amount off our cheques every pay period (once the CPP and EI deductions are maxed out). Once this account has enough funds for our desired trip, we book the vacation. This way there is no guilt and you don’t really notice the money being saved.
There is definitely a fine balance between living for today and saving for our future. I’m not sure we’ve got that one figured out yet…
That’s impressive, 30%.
“We also value travel and save the extra amount off our cheques every pay period (once the CPP and EI deductions are maxed out). Once this account has enough funds for our desired trip, we book the vacation.”
I like your no guilt process. Well done.
I find it interesting that you don’t calculate your pension contributions into your savings rate at all. For me, I find that saving 25% of my gross off the top, both hampers my ability to save much, but also greatly lowers my need too.
If I saved another 25% on top of that, I’d be forcing myself to live an extremely frugal life now, and then all of the sudden have excess money in retirement.
Why? I don’t mind not counting the pension. I consider it today’s expense for my future self.
Saving another 25% for us, closer to 50% of our net income could be done but it would not be fun; far too frugal and personally, boring.
We are fully into YOLO as long as it falls in our monthly splurging budget. That is the balancing act we make.
That sounds about right Amber Tree. You sound like you have your financial act together.
Yes, we know where we stand on this.
In our earlier years both my wife and I were strong savers and believed in delayed gratification, building up funds for vehicles, trips, and always paying cash for these and other major expenditures. We were fortunate to be have incomes that allowed general and retirement savings, quick mortgage pay down and also a good lifestyle, but always lived below our means-meaning we didn’t go into debt, we spent carefully, and chose balance between the present and the future in our lifestyle. My belief has always been if you can’t afford to pay cash you can’t afford it- other than our initial home and even that had a large down payment.
Now that we have retired we are moving slightly towards YOLO (but are still far from that belief); that is we’re enjoying more of the fruits of our labour and savings as younger retirees in good health by spending a comparatively bigger percentage of income on discretionary purchases like travel. However we’re still fairly frugal and conservative with our spending which is likely something ingrained in both me and my wife.
There is much academic research to indicate those people who are able to exercise restraint even in early childhood, curb impulsiveness, and use logic, reason and critical thinking will generally do much better in their lives financially and otherwise. I don’t know how/if this pertains exactly to YOLO believers but expect there is a strong correlation.
I think I know where you stand.
(I owe you an email….)
We are fortunate to have good jobs, but you never know, which is why saving for tomorrow and living for today are important for us. I think always living below your means is smart, but I know some folks don’t see it that way. It’s too conservative for them…
“Now that we have retired we are moving slightly towards YOLO” – you’ve earned it!
I agree with the academic research and correlation. Thanks for the comment as always.
“It is just money after all but like other scarce resources you should try and use it wisely.”
Erm….money is NOT scarce. In fact, it’s the exact opposite: increasingly abundant.
http://cdn.tradingeconomics.com/charts/canada-money-supply-m0@2x.png?s=canadamonsupm0&v=201607201817n&d1=19160101&d2=20161231
It’s just that money is continually concentrated in the hands of a few, making it scarce for the remaining 95% of money users.
YOLO comes down to one actual scarce resource: Time — the great equalizer.
(Experience with death/near-death often makes us realize Time is vastly superior to money.)
Time has more to do with mastering your mind than your bank account. If I want for nothing, then I have very little need for money and am drowning in a wealth of time (i.e. “…my wife and I have recognized we value our time more and more…our time is limited with full-time work”).
The conundrum is that money is an easy tool, it can get things done, but you must trade your time for it; you are trading Now Time for money with the hopes of gaining more Future Time. Humans are so odd. 🙂 They are also lazy (choosing to use the “easy tool” instead of utilizing more thinking: e.g. one red paperclip). Mastering the mind is a very hard and daunting task, we believe mastering the bank account to be much easier.
I always use myself as an example: I’ve designed my life so there is not an urgent need for more money. I reduce my hours worked by an equivalent amount of every raise I receive (I’ve been with the provincial gov’t for a decade with ~8% annual raises). Unfortunately, I am now ‘minned out’ (opposite of ‘maxed out’), I can’t reduce my hours any further (30-hrs/week; every raise now gives me more money). Most other people would keep working the same 40-hours and celebrating their new money in various ways (e.g. buying stuff, paying down debt, etc.). I keep the same level of money and celebrate my new time in any fashion I choose. It’s a fairly glorious lifestyle which I never take for granted.
The thing with YOLO is that those who proclaimed it often lack the wisdom to really make it count.
Money is scarce from the individual perspective in that most people only have so much; it’s difficult to earn in abundance; it’s not readily accessible without consequences such as debt or long-term debt, like bankruptcy.
I’m not talking about general money supply or money in circulation.
Time is also a scarce commodity. Far more scarce than money.
This makes mastering time, to your point, far more valuable than money. We’re working on it 🙂
“I’m not talking about general money supply or money in circulation.”
It’s the same thing. With corporate profits at all-time highs, that money is derived almost exclusively from consumers, that is, the wage earner.
“Money is scarce from the individual perspective in that most people only have so much; it’s difficult to earn in abundance;
Again, corporate profits are at all-time highs, wages are not, thus the money of the world is not flowing to wage earners. Why? Because the wage earner is doing nothing different. Why would a business pay a worker more today for doing the same job they did yesterday?
“…it’s not readily accessible without consequences such as debt or long-term debt, like bankruptcy.”
Disagree. And this is where entrepreneurship takes the lead. As a wage earner, of course very little money is readily available to me, simply because I’m doing the same job. My access to money isn’t going to change if I don’t change my action of income. An entrepreneur can gradually grow their access to money without taking excessive risk.
As stated in my previous comment, I have a “stagnant” income level but more time than my co-workers. The thing with that situation is that my co-workers are deriving their money from a single source, doing the same daily actions. I can utilize my extra time (~10 hours/week) to engage in any money generating activity I see fit (I am already a partial entrepreneur with a couple side hustles, but don’t rely on them for required income nor do I employ any workers). Perhaps it’s because I work within the government that I rarely, if ever, witness anything other than safe non-divergent personalities. A change in mindset is most often the gateway to more wealth.
As well, the abundance of money is indeed “readily accessible” simply by buying stocks, giving you access to those all-time high corporate profits.
But SST, that money is not in the hands of the general population. It’s in the hands of the company or company bond holder or shareholder.
As a wage earner, there is only so much money available to you. Don’t you agree with that? This is why money is scarce. See definition:
(especially of food, money, or some other resource) insufficient for the demand. There is a high demand for money but little of it for most people, so what does the average person do? They borrow money of course. Sometimes lots of it and often!
Mark:
I found your site some time back and found the articles and comments very interesting.
As for YOLO, I’ve always preferred Everything in Moderation. One can’t have or do everything they want but that doesn’t mean one can’t enjoy what they can and can afford. Life is what one makes it (so they say).
Everything in Moderation is a good mantra. You really can’t do it all.
Ah, good old YOLO. But you only live once Mark – don’t you have a fear of missing out too?
Very interesting how societal pressures can cause us to behave in sub optimal ways.
Good luck in your journey!
DGI
Not really. My wife and I are very fortunate and we’re happy to lead the life we do.
Sorry Mark, I was being funny with the comment. I should have put the smiley face – communication is tough when you don’t have a means to show your facial expressions. Take care man!
Same to you 🙂
Just curious Mark, do you include your work pension contributions as part of your savings rate?
I never had a specified rate as a goal. We maxed out the RRSPs when we were working using overtime or second job earnings. Some years it wasn’t much due to an integrated DB plan. In these recent years we also max out the TFSAs. When we had fixed mortgages, we also used overtime earnings to accelerate payments to the max allowed. We converted the fixed mortgage to a HELOC and rode the falling interest rates whilst also using residual overtime funds to pay it down ASAP. So our “plan” was basically max any registered program, pay down debt ASAP and spend the rest. The “spend the rest” never really worked out though. Due to illness (both wife and daughter) we are not big spenders for travel anymore. Glad we did some travelling in the early years and very happy we sent the daughter on school trips to Europe a couple of times.
Great question.
Nope. No pension as part of our savings rate/plan – from net income only after taxes and any payroll deductions.
I have no idea what’s ahead for me. We’ve worked hard for good jobs and we’ve been fortunate. We spend but also save – so it’s always a balancing act for us. My RRSP is maxed and so is my TFSA. I could invest more in a non-reg. account but that would increase my tax rate so we’ve decided to put more money on our mortgage when we can.
Sorry to hear about the illnesses (your wife and daughter). Best wishes Lloyd and as always, thanks for your contributions.
We’ve been incredibly fortunate as well. I’ve never been without a job and several times stumbled into second jobs that I enjoyed doing and have also been part time farming since ’94. Dad convinced me to buy a small farm property in ’79 when I left home to work ‘up north’ so he could farm it when he retired and then sold me his farm property and equipment when he moved out to the coast in ’97. These are close to the top of the list of best moves I’ve made but they certainly weren’t goals I had planned for. More like opportunities that I stumbled into.
I enjoy reading your blog because it reminds me of me back then. Take care.
Sounds like you have been very fortunate Lloyd. Thanks for the kind words about the site.