To many recent college grads, the often repeated financial advice is to continue to live like a college student. It makes sense, since a recent college grad is generally used to living a more frugal life. If you continue to live without inflating your lifestyle, you’ll save a good amount of money. However, even back when I was in college, many college students weren’t living like college students. Many took extra student loans and used credit cards to buy nice clothes, go drinking, go on spring break vacations and even buy fancy expensive cars. Apparently, they figured that once they graduated and received a steady paycheck, they would easily be able to pay off that debt. Unfortunately, most realize that once in the real world, with living expenses and lifestyle inflation, the debt just accumulates.
So rather than advising new grads to continue to live like a college student, let’s just tell them to live frugally. Billionaire Mark Cuban recently gave that exact advice to those in their 20s. He told them to live cheaply, and to use their 20s to pay off student-loan debt, avoid credit-card debt, and build savings. He explains that the cheaper you can live, the greater options you will have, whether you are building your own business or building a foundation for a successful career. He says that paying off debt and establishing a nest egg is far more important than buying a fancy house, car, and clothes. This is great advice, and your future self will thank you for following it.
Going from being a college student to a full-time worker, some lifestyle inflation is inevitable and understandable. You’re probably making much more than you’ve made in your life, though probably working more hours also. Spending that money might be awfully tempting if you don’t have a plan and financial goals. So what expenses do many new grads get caught up in?
Housing: This is probably the biggest expense in most people’s budgets. Sure, you might feel like you’ve had enough of living with roommates, and want your own apartment, but it’s much more affordable when you split the rent. Going back home to live with mom and dad may be an option for some and shouldn’t be discounted. I think after the 2008 recession, the stigma of living home with the ‘rents has subsided, though I’m not sure there ever should have been such a stigma.
Car: If you live in a city that has reliable public transportation, there may not be a need to even purchase a car. If you have a car from college, don’t rush to upgrade. I was driving my car from college 8 years after I had graduated. I had a friend from college ask me incredulously why I was still driving my car from college when he saw me years after we graduated. That didn’t bother me, though, as the car still ran fine and I didn’t have any car payments to make. Having a fancy car just wasn’t as important as not having any monthly payments to make.
Food: Eating like a college student doesn’t mean you should continue to subsist on Ramen and TV dinners. As a matter of fact, if you haven’t learned to cook by now, it’s probably a great time to learn. If I can learn to cook, you most certainly can as well. Cooking at home is much more affordable and healthier as well. To save on groceries, read my post with tips on that. And for tips to save money when eating out, read this.
Entertainment: You’re in your 20s, who I am to cramp your style and tell you to live like a hermit. You’re young. Have fun and enjoy life! Just make sure not to go overboard. There are plenty of things that you can do that won’t wreck your budget. Honestly, my best memories from my 20s are experiences hanging out with friends and family. More often than not, it didn’t matter what we were doing. And also remember that “shopping” should not be a form of entertainment. By getting rid of the consumer mindset early in life, you’ll save yourself a lot of stress and money.
By not taking on debt and having a healthy savings rate, you give yourself options and set yourself up for a financially bright future. Money, or the lack of it is often a hindrance when making decisions or when facing obstacles that life tends to throw at you. Having no debt and a good amount of savings gives you choices. Taking risks in your career or in your personal life is much easier at this point in your life, but not having money will be a huge impediment. Have a great idea for a start-up and want to quit your job to fulfill this dream? Not happening without some savings. Stuck in a rut and suffering from wanderlust? You can’t travel the world if you’re broke. Hate your job and want to take a risk by jumping into a different career track? It’s a lot less risky if you have an emergency fund.
Did you continue to live like a college student after you graduated?