Earn Like an Adult, Spend Like a Kid: Invest Big Increases in Your Income

When I started working after college, I went from earning a few thousand dollars a year as a college student, mostly doing crazy side hustles, to earning $60,000 a year as a software engineer in the defense industry.

It was a fortune. (it still is!)

I was earning a full-time salary but I still had a college mentality.

Just a few weeks before starting, I was living in a fraternity house sharing a 15'x15′ room with my best friend. Our room was constructed in a way that our beds were built into the walls as a semi-permanent bunk bed. It created the impression that you had our own little half rooms, we called them “lofts,” and some privacy. But you didn't. And it was fine.

An apartment felt enormous.

floor plan of my 1st apartment
My first apartment – 1,000 sq. ft. of luxury!
By any standards, it was modest. Maybe a thousand square feet. Two bedrooms though, which meant I was sleeping in my own room, but I was used to living in a much smaller place. The rent was reasonable and we split the roughly $1200 a month, which even included utilities.

One day I was in a loft, the next I had my own (shared) apartment.

My eyes saw “luxury” but my brain hadn't caught up yet.

And that's the lesson I want to impart today: When you make these major transitions, delay transitioning your spending.

Earn like an adult and spend like a (college) kid for as long as possible.

Slow down the hedonic treadmill

The hedonic treadmill, or hedonic adaptation, is the idea that we always return to our relatively stable set point for happiness. As we experience positive and negative things, we slowly shift back to our set point.

We adapt.

As we enjoy nicer things, we need nicer and nicer things to maintain happiness. We get used to them.

What was special is now routine… which takes away the “specialness.”

And nicer things are more expensive.

After living in a house, I couldn't imagine going back to an apartment. But my 23-year-old self was in awe of a 1,000 square foot apartment with two bedrooms and a single bathroom. (though part of me wouldn't mind having the responsibilities of an apartment!)

This also welcomes another idea, known as the Diderot effect. It's a classic story of a French philosopher who got a really nice scarlet gown as a gift. But the hidden dangers of the gown, and it's niceness, was that it made all his other things look not as nice in comparison. So he upgraded those to match the gown. This expanded to things in his house unrelated to his clothing, like his writing table and prints. He spiraled into debt to pay for all this and we know this now as the Diderot Effect.

This happens all the time with people who move to a new house. Not only do you have to fill it, but you have to fill it with “things that look right!” If you just spend a few hundred thousand on a house, would you fill it with second-hand furniture you bought from a Craigslist? Probably not.

If you were just moving into an apartment and expected to stay for a year, a second-hand couch off Craigslist isn't so bad! (we still have a bureau we picked up for free from Craigslist, it now is used as storage in our basement)

The lesson here is to slow down the treadmill as best as you can. Fight the urge of the Diderot Effect. Avoid those temptations.

But how do you do this?

Keep the “poor college kid” mentality

My first year or two, I lived like a college student.

I knew I wasn't going to be staying in the same apartment after the yearlong lease was up, so I didn't get nice furniture. We picked up some stuff on Craigslist, went to our local Goodwill, and bought relatively cheap furniture that was in decent condition.

When we did move, we simply donated it back to the Goodwill! (no furniture to move!)

I didn't restrict myself from doing anything fun. I still hung out with friends, went out on the weekends, and went on trips. But I always kept that poor college kid mentality in the back of my mind whenever I spent money. When going on vacations, we took road trips to Ocean City and stayed four people in a room.

By keeping my spending as lean as possible, I was able to save a lot of money.

Since I was starting from zero (well, negative if you count student loans), I needed to build up my war chest and that was the tradeoff off I was thinking about.

Invest the savings aggressively

We know that time is your best friend when it comes to investing.

I took all of my savings and plowed it into my company's 401(k) plan. I was maxing out my annual contributions, almost catching the bottom of the S&P 500 at the end of 2003 and start of 2003, and rode that wave ever since. There was Great Recession in 2008 but the S&P 500 was 995 in June 2003 (my first month of work) and now sits at around 2,800 in March of 2019.

My contributions in those early years gave me a huge head start, even with the Great Recession, and that's what motivated me to save money. I wasn't making a blind tradeoff, I was deciding not to spend a lot on a car or an apartment so I could save it for retirement.

I didn't have “early retirement” or FIRE in mind but I knew I wanted to retire comfortably. That meant saving money.

The key to this strategy is to use these savings for long term investing. Jump start your investing portfolio now, when expenses are low and you can live like a poor college kid, and you can reduce your investment contributions later on and STILL come out ahead.

This is a prime case of how smart work beats hard work. Investing early is the smart work.

Let's illustrate this with two extreme cases… Early Ellie and Late Larry.

Both start working at 20 and both want to “retire” at 60. The market returns 7% a year, compounded monthly.

  • Early Ellie diligently invests $100 a month for ten years. She stops contributing when she turns 30 but leaves the money in the market for the next thirty years until she's 60.
  • Late Larry waits ten years before he starts investing $100 a month into the stock market for the next thirty years until he is also 60.

Who ends up with more money? Ellie who has personally contributed $12,000 or Larry who has personally contributed $36,000?

  • Ellie – $141,303.76
  • Larry – $122,708.75

Ellie wins by $42,595.01 — She had an additional $18,595.01 of gains and contributed $24,000 less.

Give yourself an edge.

“Starve & Stack”

This idea is very similar to one I first saw in a guest post on Budgets Are Sexy, one of my favorite blogs and oldest blogging friends.

Nick Vail
Nick Vail, Integrity Wealth Advisors
Written by Nick Vail of RemoveTheGuesswork.com, Starve and Stack is a strategy that is described as for newlyweds but really applies to anyone. The gist is that once you are married, try to spend the first 18-24 months living completely off one income while saving the other. This may not be feasible based on a variety of factors but try to push yourself. Then take the savings and invest it.

Cut back on what you can (“starve”) and put the rest in investments (“stack”).

If you ever read about companies merging, they often talk about “synergies” and “cost savings” as reasons for merging. When you get married, you often get the same. Your costs won't be cut in half but if you weren't living together, living together will reduce your rent or mortgage costs. You will share a lot of fixed costs, like cable TV and utilities, that you otherwise were paying individually.

The strategy suggests that you try to take those cost savings and invest them now. But the brilliance of the approach is to suggest you only do it for a limited time – 18 to 24 months. If you can make it to 18 months, chances are the habit will stick for much longer.

When I asked Nick about this, he said that “Many have maintained the savings but in a different way. Starve and Stack is meant to save for retirement ONLY. So normally, now that good habits are established, clients will keep saving aggressively but for a downpayment, bigger rainy day fund, etc.”

But even if you don't stick with it, you'll still have a huge lead in retirement savings. And it applies to any time you get a boost in household income!

Nick also added that “… starve and stack doesn't HAVE to be 50% of your household income. If that isn’t doable for a family, try saving 25-40%. It’s all going to be greatly beneficial in the long run, don’t let semantics stop you.”

Don't let perfect be the enemy of the good – save as much as you can because it will help you get a jump start.

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About Jim Wang

Jim Wang is a forty-something father of four who is a frequent contributor to Forbes and Vanguard's Blog. He has also been fortunate to have appeared in the New York Times, Baltimore Sun, Entrepreneur, and Marketplace Money.

Jim has a B.S. in Computer Science and Economics from Carnegie Mellon University, an M.S. in Information Technology - Software Engineering from Carnegie Mellon University, as well as a Masters in Business Administration from Johns Hopkins University. His approach to personal finance is that of an engineer, breaking down complex subjects into bite-sized easily understood concepts that you can use in your daily life.

One of his favorite tools (here's my treasure chest of tools,, everything I use) is Personal Capital, which enables him to manage his finances in just 15-minutes each month. They also offer financial planning, such as a Retirement Planning Tool that can tell you if you're on track to retire when you want. It's free.

He is also diversifying his investment portfolio by adding a little bit of real estate. But not rental homes, because he doesn't want a second job, it's diversified small investments in a few commercial properties and farms in Illinois, Louisiana, and California through AcreTrader.

Recently, he's invested in a few pieces of art on Masterworks too.

>> Read more articles by Jim

Opinions expressed here are the author's alone, not those of any bank or financial institution. This content has not been reviewed, approved or otherwise endorsed by any of these entities.

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  1. Little Seeds of Wealth says

    I love living like a college kid in the early years after graduation. Besides a head start in investing, it’s just less headache. I didn’t stay home very much beyond the weekends. All the work and costs associated with living in a large place would just drive me crazy.

  2. Tex Ginsburg says

    Very wise advice Jim. This is similar to what I said to a younger friend who just entered the workforce. I just hope he listens.

  3. Jim @ Route To Retire says

    Awesome post, Jim! I was just explaining this concept to my daughter yesterday. I think it’s tough to understand when you’re younger because you tend to focus on the present instead of the future. A combination of not seeing lifestyle inflation and understanding compound interest can be a killer.

    — Jim

    • Jim Wang says

      Thanks Jim! I think kids have the capacity to understand more than we give them credit for. Whether they can implement it is another thing because they control so little – it’s not like she has a job, is renting her own place, buying her own furniture, etc. So they may “understand” lifestyle inflation but it will be hard to keep it under control when she’s older and has 23049823049 different things to take care of. Just have to keep reminding, you know?

  4. Jason Lazarski says

    Great post. My kids are just entering high school so they may not get it yet but that won’t stop me from trying to explain the concepts. I thank you for the great ideas.

  5. A Journey to FI says

    Great post Jim. My approach is to save regardless what happens to our income. We usually receive a bonus at end of Q1 but we have always invested it and continue to live our lives the same way. Lifestyle inflation is the real deal and the temptation is there. Thanks and I will definitely be sharing this one with friends that would benefit from this message.

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