It isn’t easy to live in the modern Western World and not succumb to the consumerist/materialistic mindset. This is especially true for the years immediately following your graduation from post-secondary education. I’ve seen several students graduate and justify “treating” themselves to several high cost items that they feel they deserve after scrimping and saving for several years to pay for their education (and hopefully having minimal-to-no debt to show for their efforts).
I understand this temptation, but your first couple years of paycheques are so important for your financial future it is important to look at them as essential building blocks and not only as the means to purchase some gratification that you’ve had to delay for a little while. The most popular candidates for this, “Treat yo-self” period (shout out to Parks and Recreation fans) are:
1) The Backpacking Trip to Find Yourself – Who doesn’t love a vacation? Shouldn’t everyone see the world? I have to travel while I’m young and I’m going to be staying in hostels anyway right? I find myself on the opposite end of the spectrum from many of my friends on this one. While I understand the allure of seeing Paris, Australia, or South East Asia, the reality is that the Eiffel Tower, Sydney Opera House and the world’s best sushi aren’t going anywhere any time soon. You don’t have to travel when you’re just getting your feet under you, instead just make up your mind to stay young forever!
2) A Shiny New Ride – Car dealers love new post-secondary graduates. They rarely have any experience in buying vehicles, they can get credit thanks to their new jobs, and they are desperate to spend money on a status symbol with wheels after taking a beater or public transit to school for years. There are already 1001 articles concerning buying vehicles on the personal finance blogosphere so I won’t go into detail here except to say that this is a major expense for a new grad and one that will see its value depreciate in a hurry.
Related: Canadian Graduate Rebate Programs
3) Big Screen/Surround Sound/New Furniture – No more cardboard boxes and grandparents’ old couches in this guy’s living room! Who doesn’t want a great living area to watch HBO on? If you budget these luxury items a little at a time as you start getting a full-time paycheque you’ll probably be ok, but please please don’t go into consumer debt for them!
4) A Nicer Place – Whether it’s being in a hurry to buy a starter home or deciding that your old place with your three crazy roommates just isn’t going to cut it anymore a lot of people take a look at their monthly income after graduation and decide that they need to upgrade their living space considerably. For some this means a better location, for others it’s square footage. I’m not saying that no one should ever move after locking in a job after school, but I am saying that it is a major financial commitment (either renting or buying) and should be looked into thoroughly before coming to a conclusion. Those roommates are actually pretty cool people anyway right?
The Light at the End of the Tunnel Isn’t That Bright
There are several more items that I see new graduates decide to treat themselves to as well, but these four are common black holes of money. There is unquestionably a tug-of-war for a young graduate’s dollars, but it is important to realize money invested when you are young has a massive effect on your future. Investments made when you are young have time to compound and allow you to gain on someone else’s money.
Related: Compound Interest Magic
If you go into debt while you treat yo-self you are basically paying money to borrow from your future earnings. This is the reverse of watching your investments compound over time! If you are able to put all those frugal lessons that you were forced to learn as a student to good use for even a couple of years after you graduate most people can easily lay a strong financial foundation for the rest of their life. Discount beer and KD anyone?
This isn’t likely what you want to read as you slog through the third or fourth years of your program and think about the relatively low wage you’re making at your part-time job, but it’s important to plan for nonetheless. Treating yourself for a job well done is something we should probably all do to some degree, but it shouldn’t be stimulus that causes all sorts of rash financial decisions that can lock a new graduate up in debt for years to come.