Gen Zers have taken a different approach to saving for the future than previous generations. A recent trend called “soft saving” prioritizes YOLO (you only live once) mindsets over long-term savings. In fact, 73% of Gen Zers say they would rather have a better quality of life than put aside extra money in their savings and retirement accounts.

While the “soft saving” trend prioritizes enjoying the now, planning for the future is still important, especially when the recommended amount to sustain a comfortable lifestyle is 80% of your pre-retirement income.

Here are some things to consider when it comes to money management for future goals.

Don’t Underestimate Compound Interest

Compound interest happens when the earnings on your money are reinvested to earn even more. Simply put, your money is making money just by sitting in a high interest-bearing account, like a 401K, mutual fund, time deposit, or liquid savings account. Over time, compounding interest can add value and growth to your income. This is one of the reasons why it is so important to start saving and investing early on. By failing to do so, you risk not having enough resources to enjoy retirement. According to Forbes, the average retirement age in the U.S. is 63. If you plan on retiring earlier, compound interest is one helpful tool to get there.

Consider The FIRE Method

FIRE stands for Financial Independence, Retire Early. It prioritizes extreme saving and investing in stocks, bonds and/or exchange-traded funds (ETFs) as well as tax-advantaged accounts (e.g., 401K, IRAs).

In short, the FIRE method suggest you use the “rule of 25” (or 25 times your annual expenses) to determine how much you need to retire early. For example, if your expenses are $5,000 a month, you would multiply that by 12 to get your annual expense number ($5,000 x 12 = $60,000), and then multiply your annual expense number by 25 ($60,000 x 25 = $1.5 million) to get your FIRE number. In this case, $1.5 million would be what you need to retire. Some individuals save/invest over half of their income to retire early or reach their FIRE number, so it might not be reasonable for everyone.  

That said, there are three types of FIRE strategies for various spending habits and income:

1. Lean FIRE—is for individuals who live a minimalist lifestyle and can spend the bare minimum week to week to achieve financial independence faster.

2. Fat FIRE—is for individuals who save a large amount of money now to live comfortably later.

3. Barista FIRE—is for individuals who aren’t necessarily trying to escape work and retire early. They focus on saving enough to retire but work part-time after retirement.

Can You Save Money Through Soft Saving?

Not all budgets have to be restrictive to be effective. Some budgeting hacks will allow you to save money while enjoying the present. Consider other alternatives, such as the 50-30-20 rule and cash stuffing.

• The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. This rule is helpful because it allocates funds for spending and having fun without being too restrictive.
• Cash stuffing, alternatively, recommends that people take out cash, and separate their money into different envelopes for bills, spending, and savings. Cash stuffing is a great budgeting tool for many people because it prevents them from mindlessly swiping their credit cards and exceeding their budget.

There is a way to strike the right balance between saving responsibly and enjoying the present, all while planning for the future. Take the time to choose a realistic budget to set you up for long-term financial success. Discover new ways to save at efirstbankblog.com. 

“This page may contain links to external websites. These links are displayed for your convenience. FirstBank does not manage these sites and assumes no responsibility for the content, links, privacy policy, or security policy.”

*This article is for informational use only. FirstBank is not providing financial advice. Please consult a financial planner or tax advisor.