It’s only natural for a person to want to upgrade their lifestyle upon receiving their first paycheck from their first “real” job. This usually happens for a person when they are still young, often times in their early twenties. After living the poor life for so long, it’s completely understandable why someone might want: a nicer car, more stylish clothes, the latest smartphone, a fancy apartment, and a countless array of other new toys.
But let’s be real here for a second. Most people just starting off in their careers are also the same people who: have accrued massive amounts of debt, have little to nothing in savings, and have no real proven work experience.
Need For Speed
It’s one thing for someone in their 40’s to be buying an expensive new automobile. Chances are, at least they have some form of savings built up, and enough job skills to land another position, should the need arise.
But for a young person just starting out? It doesn’t make any financial sense whatsoever! Even if you are fortunate enough to start off your career with no debt, it doesn’t make any logical sense to start making big purchases so early in the game. What if you get laid off? You don’t even have any real work experience yet, so how can you know for certain that you have what it takes to succeed in the corporate workplace?
Those who want to emulate their peers will quickly fall victim to this trap. Anyone who wants a quick fix, and instant gratification, will also fall prey. It’s almost too easy not give in to lifestyle inflation! If all of your friends are doing it, and all the commercials are telling you to consume, well, unless you know any better, you’ll most likely give in and join the rest of the masses.
For myself, I was a victim of over-spending and over-indulging during the first few years out of college. Like most, I was anxious to make up for lost time. This meant: a new car, nicer things, and much more frequent dining at expensive restaurants. The mainstream money magazines were all telling me to “save 10% of your net paycheck”, so since I was stashing 20% or so, I figured I was doing an awesome job of saving.
Re-Program for Wealth Building
The good news is, it doesn’t usually take a person long to realize that the path to “getting rich” doesn’t lie through consumption and spending. In fact, as soon as the lightbulb goes on, one of the first things you’ll want to alter are your spending habits. As they say in sports, “offense wins games, but defense wins championships.” It won’t matter how much money you earn if you can’t hold on to any of it.
With that said, I now like to practice what I call lifestyle deflation. Now, instead of trying to keep up with the Joneses, I’m focused on trying to run circles around my old college self. The reason why? Well, what better person to emulate than my old college self, who was one of the cheapest, most frugal person I’ve ever known. Now that I’m a total addict to building wealth, I want to challenge myself and defeat a formidable opponent! If at first I don’t succeed, you can bet I will keep trying until I do!
Spending: College vs. Now
To get a better feel on how I am doing in the present day, I will compare my current spending habits to what I was doing when I was in college. Let’s break it down by category:
College Self: I moved around a lot in college. Basically, every semester or year. The contrast between apartments was rather large as well. So, this meant in some semesters I was paying close to $1000/month, while others I was spending just under $500/month. I don’t recall the exact numbers, but I would average it out to around $800/month, with everything included.
Today’s Self: I live close to work. This is something that is non-negotiable for me, as I hate to commute. So, I’ll gladly pay more for convenience if I have to. Rent today is also around $800/month with everything included.
Verdict: As of this past August, I’m also now a landlord, renting out a place for $2090/month. After accounting for all the rental expenses, I usually net around ~$400/month. So, this will cover about half my current rent. As a result, my effective rent is now $400/month. Disregarding the rental income, I would say the rental expenses are about the same from college to now. Advantage, TIE!
College Self: I didn’t have a car. I relied on the subway, bus, and my rollerblades. If I really needed to get somewhere far, I would hitch a ride with my old roommate, who had a car. Bus access was free for all students, so I didn’t have to pay for any passes. The rollerblades were durable, and the original wheels/bearings are still holding strong to this day. I would estimate that I spent about $100/year in subway charges.
Today’s Self: I have a car. An expensive one too. This was one of the first really dumb decisions I made immediately after getting that first paycheck. Live and learn. Since the vehicle has depreciated way too much in value to allow me to recapture fair value, I am just going to hold on to it and drive it to the ground. I spend the following each year:
Net Result: -$3400/year
Verdict: I’m getting annihilated here by my much smarter college self. I could probably save on costs by biking more frequently to work. However, the office is a bit further away from home, so it’ll be a challenge for me to keep this up regularly. I need to work on my willpower! In early FI, I know for certain I will be driving a lot less. Until then, I will need to bike more to reduce costs. Advantage, College Self.
College Self: I didn’t wear fancy designer wear in college, but I sure did care about my attire! I was at the age when I was trying to look sharp, trying very hard to impress: professors, visiting professionals, and most importantly, girls! I probably spent close to $1000/year in clothing. In college, it wasn’t unusual for me to purchase: new jeans, dress shirts, and shoes every few months.
Today’s Self: I haven’t bought new clothes in over a year. Because of my many years spent accumulating nice clothes, I have enough dress shirts and slacks to last me a lifetime. These days, my job also doesn’t require me to interface with customers, or other high level executives. So, I get to finally dress down to the regular engineering dress code. What does this entail?
Well, for starters, the same rotation of seven pairs of jeans that I plan on wearing until I retire. If one pair fails, I will replace it with another pair of Levi’s, or Banana Republic (only if they are on sale!) jeans. A new pair should only cost $40, at most. I happen to really like BR jeans, so would be willing to pay $10 more than for a pair of Levi’s.
I wear a lot of sweatpants and shorts on the weekend. These items are usually pretty durable, but the shorts can fail sooner since I wear these when I exercise. I haven’t needed to purchase a new pair in quite some time, but would still venture to guess that $30/year is needed for upgrades.
When it comes to shoes, I’ve definitely stopped caring. I used to collect shoes in high school, but now I try to minimize as much as possible. I have a nice pair of hiking boots that I am hoping will last me at least 15 years. My dress shoes should last me another five years. My formal dress shoes, I’ve only worn twice, so these should last me a lifetime. Same with my bowling shoes. Running shoes are the ones I will have to upgrade most frequently. A good pair will probably last three years. I would say $30/year would do it.
For t-shirts, I wear the generic Champion brand that is found at Target. These are black t-shirts that try to imitate the fabric that is used in the more expensive Under Armour brand. I do notice a difference, and the Champion shirts do wear out a lot sooner. However, they are also about 1/4 the price, so I stick to them. Each t-shirt runs around $12, but again, I’ve accumulated enough to get me through at least the next 20 years. I wouldn’t anticipate needing to upgrade more than one shirt per year.
Next, I have enough sweaters and jackets to last me a lifetime. In fact, I still have some really nice Ralph Lauren and Express Men jackets that I bought while I was in high school. These jackets were purchased for more than $100/each, so they are high quality. I also don’t wear them much, so they look almost brand new. I don’t anticipate ever needing to buy another jacket.
Lastly, I have a lot of socks and underwear. But these tend to fail at a faster rate, so I would budget around $30/year for upgrades.
Net Result: +$858/year
Verdict: When it comes to expenses on clothing, my present day self definitely comes out of this one ahead! Advantage, Present-Day Self.
College Self: I didn’t have a smartphone in college. Well, they didn’t exist at the time. 😉 I had a basic dumbphone, which was pretty dang smart at that time. Though, I did like to indulge in technology. I was into videogames, and bought a new console basically every other year. I was also into PC games, and would pick up two or three new titles a year. I was also a fan of upgrading my PC/laptop. I usually did a new PC build every 3-4 years. I would guesstimate that I spent around $1000/year on technology (not including dumbphone).
Today’s Self: These days, I have very little time to play videogames. If I do, I usually just play my old Playstation 1 or 2 games. After 10 years or so, the experience almost feels brand new again. So, I don’t anticipate buying a new console anytime soon. In fact, I don’t own a single XBOX 360, or PS3 videogame. The last PC game I bought was Oblivion, which was in 2007 for around $20.
The PC I am using to type this entry is the same PC I built in college in 2007. I haven’t made a single upgrade since, and am still using Windows XP. My old laptop from college is still functional as well. The only computer upgrade I’ve made in the past 5 years is buying a new iPad 3. This little device is just too useful, but now that I have one, I’m anticipating it will last me at least 5 years.
And my dumbphone today is probably just slightly more capable than the one I used in college. I would call the expenses here a wash, since the phone was free, and the basic service plan is all that I am paying for. Once my contract expires, I’ll look for an even cheaper plan. Maybe, a pay as you go type of deal.
Since the iPad cost me $500, and I expect it to last 5 years (if the battery will cooperate), total expenses are $100/year (not including dumbphone).
Net Result: +$900/year
Verdict: Alright, another win for the present-day self! These days, I’m more focused on physical activities, and playing guitar for entertainment. I’m not perfect, but a lot of money can be saved when technology consumption is minimized. Advantage, Present-Day Self.
College Self: Food was definitely an expense I struggled with while in school. Let’s face it, with so much homework, studying, and, well, having fun involved with college, there was barely any free time left over for cooking. I rarely cooked, and usually just ate out. I would guess that I spent about $15/day in meals. So, let’s round this number off to $450/month, or $5400/year.
Today’s Self: This is an area where I’ve definitely improved. My breakfasts are really simple, usually just a banana, toast, or egg omelette will do.I also brown bag it for lunch. This usually consists of a simple sandwich, or some rice with a few side items. I’ll also drink some protein shakes for snacks, or between meals. Dinner is also simple, usually just rice and some sides. A 20 lb bag of rice, which costs $20, will usually last me ~80 meals or so. I tend to buy meat in bulk, so if I go to Costco, I can get a week’s worth for about $10. This will be good for about 10 meals. So, for me, a cheap dinner of chicken and rice can be had for about $1.25/meal. My monthly average for food is $315/month.
Net Result: +$1620/year
Verdict: That’s 3 victories in a row for today! It sure does “pay” to cook for yourself. The problem is, I’m not always consistent. Sometimes I’m just far too lazy, and choose to eat out instead. Overall, I’m still doing a lot better than I was just a few years ago. Advantage, Present-Day Self.
The results have been tallied up, and here is where I stand:
Transportation: College Self is VICTORIOUS!
Clothing: Present-Day Self is VICTORIOUS!
Technology: Present-Day Self is VICTORIOUS!
Food: Present-Day Self is VICTORIOUS!
Net Result: -$22/year (excluding rental income); $378/year (including rental income)
I am spending $1.83 more each month today, than I was when I was in college. Excluding the transportation costs, I’m actually doing better today in each of the other categories. Moving forward, I can see the costs of upkeeping an automobile will really make it difficult for me to deflate my lifestyle enough to where I can clearly pull away in the race to outperform my old college self. Hmm, on second thought, maybe I will eventually need to ditch the ride. I didn’t realize it was STILL costing me an arm and a leg. Alright… let’s just put this out there right now:
New Year’s Resolution: Bike to work in the Spring and Summer… let’s aim small for now 😉
How does your spending today measure up against your younger self? What have you learned along the way to help keep expenses low?