Monday, September 14, 2009

Wait for five years.

I see college graduates get their first job, and the first thing that they do is go and buy something (like a vehicle, a house, etc) and inevitably ratchet up their spending habits.

My philosophy on this is that you need to build up a buffer. Take about 5-7 years of delayed gratification, and save and invest your money.

A good rule of thumb is: budget as if you were living 5-7 years ago, or live as if you were living in your earlier life stage. This will prevent you from going nuts when you see a jump in salary.

Thus... a university student coming fresh out of university and having their first job should live like a student. Someone who just received a promotion should live as if they didn't get that promotion (i.e. their prior state) and save the difference. A good example is in the medical field. A medical student should live like a graduate or undergraduate student. A resident should budget as if they were a medical student. A staff physician should budget as if they were living on a resident's salary.

Any extra is therefore saved. After 5-7 years, you would have developed a nice little habit of living below your means.

This was one of the best tidbits of advice that we were ever given - thanks Amenla!

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