Live a financially balanced life - no Real Job required
Everyone knows that they are supposed to save money, but not necessarily why. If you are accustomed to living paycheck-to-paycheck, you may not even realize how much peace of mind having savings can give you. In addition, investing your money properly for the long term is one of the best ways to build wealth.
The utility of accessible funds.
The power of compound interest.
Further reading: 2 Good Reasons to Start Investing Now, No Matter How Much Money You Have
Living paycheck to paycheck is truly unsustainable. If you spend all the money that comes in and never build up any savings, you are unable to adapt when life throws you a curveball and it is almost impossible to plan for the future. Eventually, you will want or need to make a purchase that you did not anticipate. The expenditure could be for a true emergency, such as a health crisis, or simply a high-value purchase than you are able to cash flow, such as a laptop.
Building up accessible funds will likely reduce the anxiety you may feel about money. You can use the savings in the case of an emergency, for planned or anticipated purchases, to achieve goals, and to build wealth over time.
Further reading: In Defense of Savings Accounts
Even though it’s doubtful that Einstein ever said that compound interest is the most powerful force in the universe, it’s indisputable that it is an incredible tool that can work for or against you.
When compound interest works in your favor, an asset that you own earns a return and increases in value. Then that increased asset earns a return and increases by even more. The growth is exponential.
As an example, see how a one-time investment of $5,500 will grow over time if invested with an average rate of return of 8%. After 30 years, the investment balance has grown to over $60,000, with over half of that growth occurring in the last 10 years.
Investing on a regular basis is how Millennials are likely to provide for their own retirements now that pensions have all but disappeared and Social Security is uncertain. If you max out a 401(k) every year for 30 years with an 8% average rate of return, over 30 years you will have contributed $524,880 but your investment balance at the end will be $2,172,944.
You can create your own projects of the effect of compound interest using Illuminations.
GSF Reader Post: My Realistic Career Earnings Expectations Push Me to Save Aggressively
Compound interest can work against you in the case of debt. When you owe a given amount at a certain interest rate, the amount you owe will also increase exponentially unless you make payments that more than keep up with the growth.
One great reason to invest that most people don’t consider is inflation risk. The average historical inflation rate is around 3-4% per year. That means that every year your money goes 3-4% less far in terms of real purchasing power and the prices will double approximately every 20 years. If you don’t invest at a rate that at least keeps pace with inflation, the value of your money decreases with time. To build wealth through investing, you must earn a return that exceeds the average rate of inflation.
Some young people can find themselves spending tens or hundreds of dollars on entertainment on a regular monthly basis, yet it is a truly discretionary expense. Your entertainment budget is therefore one you can rather easily expand or contract based on your values and your other expenses. Use these frugal practices to get the best of both worlds – lots of entertainment for free or low cost.
Further reading: Give Yourself a Raise: Find Inexpensive Entertainment on or near Campus
Most cities host free or low-cost events throughout the year, and with a higher density of events in the summer. These events include concerts, outdoor movies, festivals, theater, sports, etc. Find a comprehensive calendar of events for your city and check it regularly for new additions. You can also ask other grad students what their favorite yearly free public events are.
[userstory post=”225″]
One of the benefits of being a grad student is that your university and department provide free or subsidized entertainment options throughout the school year. From sports to theater to concerts to celebrations to happy hours to movies, you should be able to find something to do just about every week on campus if you like.
Graduate student organizations on campus also may host social events off-campus and subsidize the cost to attendees.
Check for student discounts and free days at movie theaters, museums, performing arts centers, and other local establishments.
Millennials are forgoing cable TV at an unprecedented rate in favor of alternative video delivery. If you do want to watch television, only buy as much as you’re really going to use and reevaluate frequently as new options come available.
Further Reading: How to Cancel Your Cable When You’re Addicted to a Show; Our Best (Pain-Free) Money-Saving Moves
As a graduate student, you should have access to both your university library and your local public library. These days, you can check out a lot more than books from libraries. Instead of paying for Redbox or Netflix, you can get movies and TV shows for free from the library.
Further Reading: Why Are We Spending $155.76 with Netflix When Our Queue Is Available for Free?; 10 Library Freebies You Might Not have Known (or Forgot) About
To reduce your spending on eating out, you can either eat out less frequently or choose less expensive foods when you do. You choose the approach that is most consistent with your values.
Further Reading: How to Cut Your Food Spending – Scaling Back on Eating Out
If you are in the habit of eating out alone for convenience, it is simple to replace those meals with ones you prepare at home. On campus, you can still eat with your peers even if you brown bag your lunch. You could try to replace social eating out with hanging out with your friends in less expensive venues from time to time, or skip dinner and join them for the next activity.
Further Reading: Get Rich With: The Secret Food ‘Stash
When you have influence over where you eat out, choose less expensive restaurants. When ordering, pay attention to prices and consider ordering less expensive entrees or replacing an entree with an appetizer, soup, or salad. Skip or order fewer appetizers, drinks, and desserts. Take your leftovers home to replace a second meal. You could also choose to frequent restaurants that offer student discounts or accept coupons or discount gift certificates.
Further Reading: Sometimes I Don’t Eat. Is that Rude?; 10 Ways to Save Money Eating Out at Restaurants
Often, grad students are inexperienced with cooking and think that they don’t have time for it. The student who eats out frequently for convenience and buys prepared foods from the grocery store has great potential to reduce his spending on food by starting to cook and prepare his own foods. Students already experienced with cooking but looking to take it to the next level may find additional savings with batch cooking and meal planning.
Further reading: Give Yourself a Raise: Prepare Your Own Food Even with a Busy Schedule
As a beginner cook, you should start slowly with learning various techniques and recipes so as not to become overwhelmed. Try to master only one recipe at a time and choose simple recipes that involve a small number of ingredients and no difficult techniques. Cooking doesn’t always have to involve elaborate dishes or adding heat. To make this process seem less intimidating, think of it as food preparation or food assembly rather than cooking, e.g., salads, sandwiches. You also don’t have to eat something different for every meal out of the week. Having a few recipes that you rotate through for each of breakfast, lunch, and dinner, can take the pressure off of masting new recipes while still giving you some variety.
Further reading: 5 Tips for Saving Money on Weekday Lunches; 5 Ingredient Recipes; 39 Beginner Cooking Tips for Kitchen Scaredy Cats, Bargain Breakfasts
Batch cooking can be a major time-saver for busy students. Batch cooking is when you cook more than one meal at a time, which enables you to eat leftovers on subsequent days and spend a comparatively small amount of time reheating the food. You will likely have to be amenable to eating the same or similar meals multiple days in a row if you are cooking just for yourself. Freezer cooking is a form of batch cooking in which you freeze the meals you have prepared to be eaten weeks later. Batch cooking is also a frugal choice because you can spend less money on food by buying in bulk and using the ingredients you buy fully, and you will be less tempted to eat out for convenience if you have food already made.
Further reading: Eliminate Eating Out for Convenience with Batch Cooking; Best List of Easy and Delicious Freezer Meals
Meal planning can be valuable for reducing impulse purchases and waste. To meal plan, you simply decide what you will eat for each meal during a week or month, assemble a shopping list with only the food you need for the plan, and buy and eat that food. When you meal plan, you can make sure that you are buying exactly the right amounts and types of foods so that extra ingredients neither build up nor go to waste. Meal planning and batch cooking work very well in concert.
Further reading: Meal Planning: The Definitive Guide to Planning Your Meals Stress-Free;
I'll send you my 2,500-word "Five Ways to Improve Your Finances TODAY as a Graduate Student or Postdoc."