Monday, August 25, 2008

Living Below Your Means

Graduate students do not get paid very much. However, a grad student's stipend is more than enough money to go out all the time and buy a lot of nice stuff. My friend argues that there is no reason to save any money during grad school because once we have "real" jobs, the money we have in grad school will be a trivial amount. While this may be true, the psychological consequences of spending every cent available to you may severe. Many people seem to spend all of their money (and maybe even more) no matter how much money they make. If your goal is to start a business after school, you may want to get a job first to get some start up capital. If you are someone who will end up spending all of your money, then you won't have any start up capital and you will likely not have enough guts to quit your job. Your place in the rat race will now be secure.

Let's consider the grad student who lives below his means on purpose. It really is possible to live, even in an expensive place like Southern California, on less than $15000 a year. This gives the average graduate student perhaps $5000 per year to spend on whatever they want, whether it is good food or lots of alcohol or lots of electronics. Now, $5000 likely will be trivial if you get a job making say $80000 a year, but figuring out how to live and enjoy your life on less than 1/5 of that amount is extremely valuable life experience. Let's think amount the minimal subset of luxury items that a spicy lifestyler would want to have a fulfilling life. My list would probably look something like this:

1. Computer
2. Camera Equipment
3. Cell Phone
4. Book or two to read

These items are in addition to standard things such as a bed, desk, clothes, food, internet access, etc. Think carefully about what your minimal subset of items is and if it has more than 5 or 10 items, it is likely too big. While it may not be entirely necessary to make your possessions as small as your minimal subset list, it is worth knowing how much you require to maintain or have an awesome lifestyle. Try to convince yourself that no matter what happens, you will never starve, and you will have an awesome life no matter what. Internalizing this notion will probably make you feel more free than you have ever felt before.

I think the benefits of living a simple lifestyle far outweigh the cost of living slightly less comfortably and having fewer possessions to show off. Having fewer possessions will allow you to be more mobile should you choose to move to a different location, will provide less stress because more possessions usually just make people worry more, and also will give you more money for doing things which will really lead to long term life quality maximization.

1 comment:

cspice said...

I agree. I used to think that it was a bad idea to save money during grad school, but that was under the assumption that you would definitely be getting a much higher paying job afterwards. Now I don't think this is a very safe assumption because what happens if you realize that the high paying job you had in mind is too painful to endure? My new upper limit on saving is to save just enough to ensure financial freedom, where financial freedom is defined to be a state where you either don't have to work or you enjoy your work enough that you would choose to do it for the rest of your life. This means that there isn't really an upper limit to saving prior to attaining financial freedom. But after you attain financial freedom, it makes sense to spend or invest as much as you can afford without jeopardizing your financial freedom.