How To Avoid Early Debt When You’re Young

When you’re young and new to your career, there’s a lot of temptation to spend more than you earn. You see people ahead of you in your career path making a lot of money and living an affluent lifestyle, and it’s easy to envision yourself being there in a few years. Why not spend a little more than you’re making now? You can always pay it back in a decade or two when you’re flying high in the middle of your career! This is a strategy known as lifecycle money management.

That’s a very compelling and tempting argument at the start of one’s career, but it hides a lot of flaws.

In this article

    The basics of lifecycle money management

    Lifecycle money management argues that you should spend money from a whole life perspective, suggesting that it’s OK to spend beyond your means when your income is low (usually when you’re young) because you can pay it back later when your income is much higher.

    Let’s say you’re starting off in your career as a software developer. You get your first job with an annual income of $60,000 per year, but you notice that senior software developers at your company make $150,000 a year and have a great lifestyle. You decide to spend above your means, spending an extra $20,000 a year financed by debt, with the understanding that you’ll be able to easily repay it when you’re a senior developer in 10 years.

    This is actually very similar to my own financial situation early in my career. I graduated from college into a job in a research department where I served as a research analyst. I saw people who were further along in my career path making three times as much as I was making and I felt very confident I had the skills to get there in a decade or so. Because of that, I felt a pretty strong license to spend freely.

    Things didn’t turn out exactly like I’d planned.

    The problems with lifecycle money management

    On paper, lifecycle money management sounds like a good idea, but it overlooks one big factor: It assumes that a person will stay in their career and then enjoy a very large increase in income later in their career. This is a very dangerous assumption. As the Federal Reserve points out, many careers and life journeys do not include the big increase in income that is needed to make lifecycle money management work.

    There are many reasons why this story doesn’t often pan out. You might stay in your career but not experience rapid income growth. You might grow unhappy with that career and choose a different one. You may experience personal setbacks, such as serious illness or injury. You might wind up with different personal goals, like becoming more family focused if you decide to have children. Or, everything might go exactly according to plan, but you’re still unhappy as you’re absolutely locked into your career at that point.

    In short, lifecycle money management sharply reduces your viable options for the future. If your plan does not go quite well, you wind up in a situation with incredible debt and limited options.

    Better approaches

    Minimize debt when you’re young

    At the start of your career, when your income is low, do all that you can to minimize debt. It’s very likely that you’ll have student debt on your plate, and you should have a debt repayment plan in place to get rid of that debt as efficiently as you can. What about other debt?

    In terms of auto loans, you’ll likely need something for transportation, and your first car will likely need a loan. However, you should avoid buying a high-end car for now. Get a late model, reliable entry level car with a car loan and drive it until it really needs to be replaced. When you do replace it, try to bring a large down payment with you (or pay for it in cash entirely). A nice down payment will help you secure a low-interest loan if you have to borrow for another car.

    With credit cards, use them for convenience and rewards, but pay the balance off in full each month. Avoid any situation where you are carrying a balance month to month on your credit cards. If you find that you’re slipping into that state, stop using your cards for a while.

    If you are in a bad financial situation, ask for help rather than potentially sinking your future. There are a lot of resources available that can help you recover your financial situation safely and effectively.

    Lean in on low-cost life experiences when young

    Don’t spend lots of money on luxe experiences when you’re young. Instead, take advantage of the attributes of youth — good health, good fitness, few life encumbrances — to enjoy low-cost life changing experiences.  

    You should aim to spend your 20s and perhaps your 30s enjoying a huge variety of low-cost experiences to see what clicks for you. Later on in life, health and commitments will reduce your opportunities for such variety, and that’s the time to spend more and lean in on the things that really click for you.

    Consider spending some of your 20s doing volunteer activities such as the Peace Corps, which provides an opportunity to see the world at minimal cost. Engage in very low-cost travel, using things such as hostels and focusing on low-cost local experiences at your destinations, and travel solo or with a like-minded person. Avoid things like high-priced resorts or “destinations.”

    Try lots of things where you live as well. Dig into tools like Meetup and your local community calendar and dive into free and low-cost events and groups of all kinds, just to find out what they’re about. Those groups often help immensely with the cost of dabbling in new things.

    This is actually one of the key findings of The Millionaire Next Door by Thomas Stanley and William Danko.  The authors surveyed thousands of people with net worths over $1 million and found that, particularly earlier in life, they focused on low-cost life experiences.  

    Live cheap and social with frugal hedonism

    One big secret of frugality, particularly when you’re young, is that it’s actually deeply social. Doing some super cheap or free thing on a lark with friends or with people in your community not only provides for an enjoyable and interesting experience, but a shared social one.

    This is the core idea behind frugal hedonism. The idea is that you should fill your life with a wide variety of low-cost experiences, find what’s pleasurable in them, and do them with other people. Go on hikes together. Make jam together. Forage for berries together. 

    Try doing things that you’re easily able to do in your 20s and 30s that might be harder when you’re in your 50s, such as playing a team sport in a community group or walking the Appalachian Trail with just your backpack.

    If things go well, invest aggressively

    If you use these tactics and keep your spending below what you’re earning when you’re young, you may find yourself going down your career path and seeing your income skyrocket anyway. That’s great! Since you’ve reached this point with minimal debt, you can not only afford to invest aggressively for retirement, you also have the resources to enjoy some more expensive things as you grow older.

    In this scenario, you have a ton of freedom. You can invest like crazy and retire very early, walking away from work in your 40s or even your 30s. You can stick with your career and enjoy some higher-end experiences even while saving well for retirement. You can afford to jump into a different career path if you want to while still having financial stability. You can drop out for a few years and be a stay-at-home parent if you want.

    The world is truly your oyster, because you’re not financially locked into anything. You don’t have a huge debt burden that demands that you stick with a high salary, so you can keep earning big if you like that life, or easily jump to something else if you have other goals and motivations.

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    If things don’t go well, you survive

    On the other hand, you might be part of the majority whose path doesn’t go straight to a huge salary. In that situation, you’re not pressed under a huge pile of debt that forces your decisions. Rather, you have the capacity to keep having a great, low stress life whether you stick with this career path or wind up somewhere else entirely. If you wind up somewhere unexpected or unplanned, you’re not burdened with deeply regrettable choices from earlier in your life.

    We welcome your feedback on this article. Contact us at with comments or questions.

    Trent Hamm

    Founder & Columnist

    Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.