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Attention: If you are a Millennial who believes in a YOLO lifestyle, then this post is for you. If you haven’t heard of the term YOLO, but you make impulsive and sometimes questionable financial decisions, then this post is also for you.
The acronym YOLO (“You Only Live Once”), which arose from Drake in 2011, comes from the Latin term “Capre Diem," which means seize the day, and don’t worry about the future. While I agree we all should seize the day, and live life to the fullest, both YOLO and Capre Diem embrace impulsive, and sometimes risky behavior, since you are not thinking about your future. But I get it, I too like to live in the moment and be spontaneous even if sometimes it isn't the best decision in the long run. But sometimes living in the now and living the YOLO lifestyle can be very expensive and cost us more than we may realize. We need a compromise; a way to YOLO and also make smart financial decisions. I called it YOLO Responsibly.
The goal of this post, is the turn you into a responsible decision maker, while still enjoying the “now." Like all of my other tips and advice, the process of becoming financially responsible and staying on track is simple. Below I show you how to YOLO Responsibly.
Step 1: Create a “YOLO Savings Account” or what my mother calls “Mad Money”
Step 2: THINK & TAKE A DEEP BREATH (Obvious, but most people forget this)
Step 3: Act
Step 4: Follow-Up
Step 1 (Mad Money Account): If you take anything away from this post, please remember this; create a Mad Money account, which will be used towards your YOLO spending. Of course, there is no such thing as an actual YOLO Savings or Mad Money account at a bank, but this is what you will refer to it as. Use this money every time you have a YOLO or even FOMO (“Fear of Missing Out”) moment. It’s important to be spontaneous and enjoy every minute of your life, especially your youth but we need to be responsible as well. It's important to budget your Mad Money properly and be disciplined. If you run out, just start saving again, but never divert monies from savings or retirement to fund your Mad Money. You must never spend more on a YOLO moment, then what you have saved in your Mad Money Account. I understand this many be difficult for you, but its critical you follow this step.
There are several different funding methods you can choose from, but my personal favorite is the “Round-Ups” feature from Acorn, which we spoke about in “Opening A Brokerage Account." A Round-Up uses the spare change captured from rounding up every transaction you make to the nearest dollar. All you need to do is link your credit and or debit card to your Acorn account. For example, if I purchase a cup of coffee for $3.50, Acorn will charge me an additional $0.50 and add $0.50 to my Acorn account. Once I build up $5.00, Acorn will automatically invest the $5.00 for me. You will be surprised how quickly the pennies add up to real dollars. If this method is too slow, then I would encourage you to use another feature from Acorn, called "Recurring Investments." Acorn automatically takes a specified amount from your checking or savings account each day, week or month and invests it for you. You can also save the old fashion way, by putting money away each week into an envelope or jar. I’m not a huge fan of this because you may “forget” to add money to it each week, and the money won’t be invested, so you are missing out on potential earnings through investing.
Becoming financially responsible is all about learning how to balance life. While saving for retirement and paying off student loans is important, we all need to have a little fun in life. When building your budget, I would recommend building in a Mad Money line item into the “Your Wants” section of your budget. It doesn’t matter if you make $30,000 or $300,000 a year, we all can and should have Mad Money savings, so we can be spontaneous and have fun, while not going broke.
Step 2 (Think): Although Step 2 may seem like the logical thing to do, many of us don’t think before spending our hard earned money, and then later come to regret that decision. When a fun, exciting opportunity is presented to us, we sometimes act irrationally and spend way too much without even realizing it. Spending money is super simple, retailers and others make it so easy. For example, if you want to purchase an item on Amazon or an app from your I-Phone, you can do so with one click. In today's online retail market there is no need to type in your credit card number or mailing address because it is already stored. We need to take a deep breath a not rush to buy things impulsively. Generally, an impulsive buy isn't something you actually need because if it were, you would have it already or would already be savings towards it.
Before making a YOLO purchase, you need to think about the following:
1) Do I actually need this?
2) What will happen if I don't buy/participate in this event/experience?
3) How much money do I have in my Mad Money account?
4) What are the pros/cons of buying versus not-buying?
5) Is there a less expensive alternative?
After reviewing these questions in your head, you will make a much smarter decision. It does not matter if you buy it or not, it just matters that you think about what you are doing, and have the least amount of regret. Usually, I find after I think it over for a day or two, the correct decision becomes very clear to me.
Step 3 (Act): The easiest step of them all. Now that you clearly thought out your decision go ahead and either buy or do not buy the item or experience you want.
Step 4 (Follow-Up): Most of us including me, never do this. But I found it helps me make smarter financial decisions in the future. We all make mistakes and throw away money from time to time. But it is essential to use these mistakes as learning opportunities, so we do not repeat them. As we (being millennial’s) begin to earn more and more money, our financial mistakes will only grow larger, if we have not learned from our previous errors. So it's critical to realize when you mess up, figure out why you messed up, and try your hardest not to repeat the same mistake again. And sometimes the opposite is true, where you should have spent your money on that new coat, or once in a lifetime trip with your friends. But don't worry because those once in a lifetime events, will happen again.
I hope you will take these tips to heart and try your hardest to YOLO Responsible. Now go have some fun and always remember to YOLO Responsible :)