Are you graduating from college with a great job waiting for you? If so, congratulations! Not all of your peers are so fortunate.
I went straight to graduate school after college and was a “poor student” for quite a while: another six years after graduating from college. I quadrupled my salary when I left to get my first real job. All of that money! It was pretty hypnotizing. I really can't imagine what I would have done with the money had I come into it in my early twenties.
But some are earning the same starting salary out of college now that I did out of grad school ten years ago. Inflation has taken its toll, but not a whole lot. $63k/year is quite a chunk of change. It's likely far beyond what that person had earned prior. So why not enjoy the wealth a little bit? Certainly a $500/month car payment when it's within budget isn't out of line? It is for a BMW 328i, and it is even used!
“Younger self, this is your older self, and I have something to tell you”
Finances change throughout a person's life. The level of responsibility (usually) goes up: marriage, children, house, college, weddings, and so forth. It's easy to see the parts that have passed, but it's not so easy to comprehend the financial challenges that lie ahead. What appears to be a wide-open budget that can easily accommodate a $500/month car payment in addition to a hefty gas bill — the 2008 BMW 328i gets only 21 MPG combined, and filling up the tank is getting ouchier every day — won't be so wide-open after a family and all of its trappings are in the mix.
And that's the main reason why it's so important to save like crazy when you're young and relatively unencumbered with other financial responsibilities. Take it from a husband and father pushing forty: saving is a lot harder with other mouths to feed and other payments to make.
How did you live as a student? Was is so horrible? Probably not. Now there may be student loans to pay off and housing to pay for as well as some basics, but even after all of that, there's probably a relative fortune left after the end of the month. Just because it's there doesn't mean that it needs to be spent.
The other reason to sock away money now is that the power of compounding and the power of dividends have more time to work. Starting earlier with a good investment strategy for your excess cash will give you an enormous financial leverage later. Likewise, starting later will saddle you with an enormous financial handicap.
A cushy job right out of college is the opportunity of a lifetime. Take advantage of your youth to set yourself up financially!
My quality of life definitely increased after I graduated from college, but I’ve managed to be pretty conservative on the big items (kept rent low and drove a used car), so I can splurge a bit on other things and see save for retirement and the like. I’ve been out of school for 4 years, and my savings just crossed the six figures mark. I would have never gotten that far if I didn’t start saving as soon as I could.
Definitely agree, after college I started making money but still lived like a college kid. Do the math, $5,000 saved now for a few years because $10,000 or more saved later.
Hopefully by saving a lot (as percentage of earnings) will allow me to ease up later when I’ve got more responsibilities and bills to pay!
@Well Heeled: You hit six figures before I did. Nice!
@Daniel: Exactly!
That example you gave with the BMW is so true. Too many people think that if they can afford just the payments, then the car is in their budget. What they forget to take into consideration is gas (premium gas!), insurance, maintenance etc.
Great post.