Monday, August 7, 2017

97. It steals your future.

Billionaire Warren Buffet has said that his wealth came from “a combination of living in America, some lucky genes, and compound interest.” With savings and time, anyone can benefit from compound interest. Its effects are extraordinary. As investor JL Collins puts it, “you’ll wind up rich—not just in money” if you simply spend less than you earn, invest the surplus, and avoid debt. Of course, money saved when you are young has more time to grow than money saved later. That is why it's important to start saving money as soon as possible, especially now that pensions have largely disappeared. (You may not be thinking about saving for retirement, but you should be.) Unfortunately, graduate students are much more likely to go into debt than save money. This brings us back to Reason 1.

There is an adage: “He who understands compound interest will earn it; he who does not will pay it.” If you borrow money in the form of a student loan, you must pay back everything that you have borrowed, plus interest. Even if you manage to stay out of debt, in graduate school you’re not earning a proper salary at a time in your life when saving money could do you tremendous good. Worse, you are entering a profession (see Reason 29) for which there is a long period of apprenticeship (see Reason 4), in which jobs are scarce (see Reason 8), and in which highly trained people do extremely low-paying work (see Reason 14). Your wise friends outside of academe will have built up a nest egg before your academic career has even started (see Reason 63). There is a perception that graduate school leads to a better life (see Reason 73), but working, saving, and building wealth while you are young is a much more reliable route to success. Just remember to spend less than you earn.