The Daily Bones

TAG | Money Saving



Investing in a Flexible Future

Making the decision to live within your means is like a pre-nuptial agreement with your job.  Failure to do so could leave you in a bad financial position if things don’t work out.

This jumped out at me while reading two posts loosely related on the surface: one that analyzes why so many Ivy League graduates join Wall St firms upon graduation (link) and the other discussing the burden of consumer debt (link).  With all of the job dissatisfaction that I encounter, the advice in this post is required knowledge.

I highly suggest reading both articles in their entirety, but if you’re looking for enough to get through my post, see the footnotes here and here.

These articles work incredibly well in tandem, as debt (especially of the consumer variety) becomes an increasingly large hurdle to change your life as you age and encounter fiscally intensive life milestones.  It’s quite difficult to alter your career path if you need to support a family, and consumer debt provides that last mountain you may not be able to climb, effectively limiting you to your current situation.

Smart financial decisions are an investment necessary to provide future flexibility, plain and simple. Consider the following two scenarios. In both cases, the individuals put aside some money, but treat income increases differently.

Scenario 1: John graduates college and starts working for a major consulting firm.  He embraces the life style that his salary affords, buys the best new car he can afford and spends his weekend nights draining $12 whiskey drinks in the city.  He finances deals on his apartment furniture, has an iPhone, but still manages to save 5-6% for his 401k or other investments.  After 3 years, equally increasing his expenses with salary, John meets a girl and within 2 years he’s married.

Scenario 2: Jane graduates from the same school and John and works for the same consulting firm.  She realizes this job (and salary) may not last forever, and wants to remain flexible if life doesn’t go as planned.  She buys a used car; nice, but not extravagant.  She keeps tabs on her expenses, maintaining discipline even as she sees her annual income increase.  She also ends up with a spouse after 4 years, but has considerable savings because of her lifestyle choices.

Of the two, obviously Jane is in a better spot to take a risk and move from her high paying, big firm job to go back to school, or start a company, while still living relatively comfortably.  She can risk some time without a stable salary to pursue other opportunities.  John, on the other hand, has grown accustomed to his lifestyle.  Monthly payments and growing family aspirations require him to be risk averse.  His fiscal mistakes early on, which have now compounded, have left him for more cemented into his current employment situation.

I’d much rather be in Jane’s situation, obviously.  I may indulge in unnecessary expenses and I have my fun, but I absolutely avoid burdening consumer debt that will compound and limit my options in the future.  I treat income bumps as a savings opportunity to invest in my future, not as a means to scoring the best apartment I can afford in SoHo.

It’s all a matter of discipline and resisting the temptation of co-workers like John.  Naturally, it’s much easier said than done.


1) “Why do Harvard Kids Head to Wall St?” by James Kwak discusses the various methods firms employ to attract Ivy League graduates to investment and management consulting firms, namely selling the opportunity for future overachievement, large salaries, and lavish headquarter offices. To someone who has been a success their entire life, feels the pressure to live up to their potential and is potentially strapped with debt, these firms are an attractive alternative to difficult to find positions at smaller firms or seeking out that “dream job”.

2) “Consumer Debt is not Your Friend” by marketing god Seth Godin describes the overwhelming burden of consumer debt and the intense use of it as a marketing tool.  He warns that taking on debt for anything that decreases in value is a worrisome mistake, while deferring payment on expenses that increase in value (like education) is worthwhile.

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