The general assumption of diminishing marginal utility of income and wealth, combined with the assumption that age corresponds positively with income, leads to the conclusion that in order to maximize lifetime value, students and young adults should make debts that they then pay back later in their life.

Do you agree with this theory? Did anyone regret not spending enough in their 20s/30s?

My current situation is the following: I am in my late 20s, have reasonable savings from playing poker, and just started my first real job after graduation. I still live on a student budget, and save about ~60% of my income. I still live in a shared flat, and am considering moving out into my first own apartment. Good apartments are super expensive though where I live, and my saving rate would go down to about ~30% (I would then spend about ~35% of my income on the apartment). Any advice regarding my situation?

It is more complicated than your first paragraph implies.

I overspent and undersaved.

If you like your roommates and living in a shared space isn't screwing with your sex life I would stay. Keep living cheaply until you have a good reason to change, not just because you can.

It is not just about the % of your income that you save. It is also about (perhaps more so) about the success rate of your saving. For instance a savings account versus investing.

If you are making smart decisions saving at either end of your spectrum should be fine. Maybe save a little less, invest in yourself more, and learn what to do with money once you have it.

Life is about balance, the truth is that you will have to find your own.

You also have to factor in that as you improve you living standard, it's difficult to go back, so if you incorrectly estimate you consumption level too high early in life and have to take a hit later...that's not going to go well.

You also have to factor in the cost of debt vs. income you'll receive by having positive net worth.

Another way to look at it, most people don't look at the money they have later in life and think, man, I wish I blew more money early in life so that I'd have less of it now. If you do get to that point, you must have earned/saved more than all but a small % of Americans (like <1%).

This is spot on and often not discussed. Like, when your 55, you're not going to be saying to yourself "man I wish I would have bought more overpriced organic food and bought my ex gf/wife more presents". You're going to be thinking to yourself "sh*t, I should have just ate ramen and not wasted $ on a fancy car, etc."

The point is, the older you get, the more NOT having money sux ballz for you in every conceivable way. Yes, it's better to be young and have a ton of money and things going for you. But, it's a disaster if you're in your 50's, get laid off, and don't have enough money to invest in anything other than begging for a job because you don't have any working capital.

A lot of personal finance advice and conventional wisdom does suggest being overly frugal. That doesn't mean you should spend yourself into debt for the sake of spending. Make intelligent spending decisions in spots where it will improve your life and invest what you save very aggressively.

I can't fault the logic of this, but I do believe it's wrong.
Still in that age bracket, but I've never regretted paying for a nice apartment or villa. Living somewhere beautiful is a big part of mood/quality of life, at least for me.

That said, I don't mind flatshare at all. You can have a nicer apartment sharing than you can on your own. It's just a bit of working finding the right people. There are a lot of things you can do if you want a different flat share situation other than sharing with people your age: sharing with older people, housesitting (you can get some lovely places once you build up a reputation), etc
If you have substantial savings, why not try it for a year? It shouldn't make too much of a dent. If you like it, then continue; if you can't justify the cost, then move back into sharing. Or get someone in that you like/can screen. Fly in/fly out workers, people that go on the road a lot, super busy professionals can be like having an apartment to yourself.

So my advice: try stuff. Get creative.

Having a buffer can save you a lot of trouble and time. Time that can be used to increase your life time earnings.

Also having some extra capital to invest if some opportunity arises can be very high EV.

Also imo there are some really big technological changes happening, it can be good to be have some upside if these happens and hedge a bit that the current market totally changes.

Other than that imo spend as much as you want now, but do it wisely. Don't get that watch or car, but get all that healthy food and coaching you think you would benefit from. In the long run they will probably save you money.

interesting topic... i wouldn't spend because you can, that's for sure.

a few thoughts:

it is much much worse to be poor and old than poor and young.

if you save more, you can retire earlier which is huge.

no guarantee that you'll keep making good money... so saving does lead to alot of people having lots of $$$ upon death, but you certainly don't want to be caught short in old years.

no one ever thought on their deathbed "i wish i'd spent more when i was young"

having said that, i would only spend more $$$$ on better housing, travel and hobbies... but that's just me.

some here would advocate restaurants but i think it's a waste. alcohol, cars, clothes, jewelry are a complete waste imo too. unfortunately i speak from experience on the alcohol as collasal waste. waste of $$$$ and wasting your life.

i hate the whole "imagine if you saved that $5 you spend on frappacino's every day"

fair idea so far but then when i say, "what about the $$$ you spend on your cottage, trips to vegas, golf etc.", people invariably say "but i like those things"

so lots of people obviously like going to starbucks.

basically don't go overly frugal on day-to-day life. i think it's a road to unhappiness.

Hedge against dying earlier than you plan by spending money on things you enjoy while you're still alive to enjoy them.

I get more enjoyment out of money in the bank than spending lavishly. The power to do whatever I want, whenever I want is amazing, and makes an otherwise normal/responsible/mundane life all work out. You don't have that kind of peace of mind/happiness when you're poor or living paycheck to paycheck with expensive responsibilities.

Got a week off? Take a trip to a remote island and go canyoning. Throw in a helicopter ride for fun. Tired of work? Quit your job and go live in Europe for a year and do absolutely nothing except enjoy yourself.

Need a change of scene? Get a $1000/night penthouse in Vegas and go see some shows/eat at the best restaurants/go sand buggying for a week.

Sick of the city? Go rent a mansion in the Colorado mountains and go mountain biking for a week.

This is **** you can't do comfortably when you don't have tons of money saved.

And that's without counting the other benefits of saving. Got a great idea for a business? You can start it comfortably and take your shot. Want to quit work and study/train up for a more profitable field? Easy. Market crashes and stocks are super cheap? Shove some money in.

The power of money in the bank is amazing and well worth a few years of hardship.

Consumption smoothing makes more sense the more certain your future is. I would guess peoples general tendency though is to underestimate the risks and be overly optimistic about their future earnings resulting in people chronically overspending.

Health/safety though is probably the one thing you don't want to cheap out on. On the other hand I don't think anyone looks back with regret over having gotten a reasonably priced sedan.

There are experiences that you are likely to only have when you are young. Don't pass them up to save money.

Don't spend too much on stupid stuff so that you can't afford those experiences.

To the OP's question, would I borrow money when I'm younger to pay back when I'm older and presumably making more money, in order to fund those experiences? I'm older now, so I have the benefit of hindsight. My answer would be no, I would not. I would save to fund those experiences, but I would be more willing to spend some of that money, not on objects, but on doing things. I wish I had traveled more when I was younger.

What that guy said.

Don't over-spend when you're young & dumb (which pretty much means anyone under 30) on stupid **** you don't need to impress stupid people who don't even care about you. Fancy apartments, cars, jewelry, clothing, etc. all fall into this category. However, don't pass on the opportunity to enjoy "experiences" that you're unlikely to do later in life (spend a summer backpacking around Europe, take a month-long surf trip to Costa Rica, take guitar lessons, etc). Focus less on things and more on experiences.

My last year in college I took a class taught by a rich retired guy called "Life 101" or something along those lines. Each class was devoted to some practical aspect of money & life that everyone should know, but isn't taught in most high schools & colleges, things like whole life insurance versus term life, the rule of 72, etc.. Below is a quote that he ended nearly every class with:

"The definition of financial maturity is the willingness to give up current wants and desires for greater future rewards."

Diddo that,
as I approach my 60's I look at what will I need to keep my current lifestyle.
what can I cut back on.
I have money and saving's, property, working capital etc...
But I still look back and say did I really need all those
5k weekends in vegas springing for booze, lap dances and hookers for me and my buddies. Had I banked that dough 30 yrs ago it would add up to a beachfront condo in Florida today.

Obviously you can get the same enjoyment for free by improving your social skills. Paying for women or bottle service is the nut low. If you can't enjoy yourself without (paid) lap dances and expensive bottle service, that's something you can work on.

Do you live in a big city? Would you be able to find a new job if you lost this one?

I would pass on renting a posh apartment. Rates are low and will stay that way for a while (despite proposed 3 fed hikes 2017) and the housing market could run for another 3-5 years depending on where you are, you could see 15-25% growth before a correction. You could look at it from a perspective of value added analysis.

I wouldnt sacrifice standard of living or make it rain but find a balance and some middle ground.

Id definitely be investing in stocks, bonds, munis, commodities, treasuries etc. at your age and would approach it with a dollar cost averaging strategy. If youre smart enough to be a winning player, you can figure out investing. Learn how to read a balance sheet & manage your own account. Dont listen to advisors who urge you to be more aggressive just because youre young and can make it back.

2c

Going into debt has negative implications on long term earning capability. It's stress inducing and can limit your ability to explore opportunities. Even when young, some minimum amount of savings is probably utility maximizing.

For example, having 5k stashed away to go to a friend's baller wedding in London on a moment's notice is probably utility maximizing. In effect, in NYC metro area, this means, to basically have 5-20k stashed away, on a typical 60k salary of college grad, you'd be living in an apartment with 1000~1500/month rent instead of 2000~2500/month.

There is also the issue that in a lot of careers, having that additional 8 years of super hard work can dramatically increase your income in later years. Bankers and lawyers for example have a lot of people who are absolutely miserable for pretty much their entire 20s but they just totally ball away for the rest of their lives with their exit jobs.

All I am saying is it's too simplistic to think you can borrow against your future earnings. In the real world, people have to think about how to maximize future earnings as well (so they could borrow against it, usually in a socially acceptable way like buying a house.) Unfortunately, saving money is often one of the ways to maximize future earnings.