Have you finished school but still live like a college student? That might actually be a good thing for your financial future.
Landing your first job after college is exciting because you finally have enough money to do things you couldn’t afford before. But before you start spending, consider sticking to your college lifestyle for a bit longer.
Just because you’re earning more doesn’t mean you should spend it all. Let’s say you were making $20K a year in college from various jobs and graduated with $20K in student loans. Now, you land a job paying $50K a year. You might be tempted to buy a new car, get a nicer apartment, and go out with friends every weekend.
Even if you’re good at saving during the week and manage to save $5K a year, your lifestyle inflation could hinder your financial goals. If your salary and spending both grow by 3% annually, and your investments grow by 5% per year, your net worth after 20 years would be $169K if you save 10% of your income.
But if you try to keep your expenses at college levels, even with occasional dining out and a slight car upgrade, and save $25K a year, your net worth could be over $1 million after 20 years, assuming the same growth rates.
The key difference is living like a college student. Adopting this lifestyle early in your career allows compound interest to work its magic over a more extended period.
When I was in college, I saved as much as possible for things I enjoyed, like trips and studying abroad. After college, getting my first paycheck felt amazing, and I splurged for a few months. But I soon realized I needed to cut back, so I stopped eating out regularly, visited friends less often, and reduced my grocery bill.
To save money, I lived in a small apartment with housemates, which cost me less than $300 per month, including utilities. If I had lived alone, I would have spent triple that amount. I also had a lease car, but in the Netherlands, it’s considered extra income, so I paid more taxes. I decided to stop using the car privately to save money, and now I use public transport to get to work.
If you can’t avoid having a car, consider buying a used one instead of a new one to keep costs down. Track your spending and adjust if you consistently overspend in certain areas. Budgeting shouldn’t feel restrictive; it should align with what makes you happy.
Spend money on things that bring you joy, like travel and festivals, and cut back on things you don’t care about, like eating out and cars. This way, you won’t feel like you’re missing out.
My financial habits allow me to save and invest over half my income, giving me options like taking a mini-retirement. Many of my friends, who also graduated and have stable finances, are in a similar boat. It’s tough to reduce your lifestyle once you’ve inflated it, so it’s better not to inflate it in the first place.
Start building good financial habits right after college. Focus on your financial goals, whether it’s building an emergency fund, going on a dream vacation, or achieving financial independence. If you stick to living like a college student for a few more years, you’ll set yourself up for long-term success.
Are you living like a college student?