I am so excited to share a guest post today from the one and only BF! I hope you enjoy reading his thoughts. I know I did!
I am very excited to write this guest post. I have been encouraging Ali to invest time and energy in this blog from the very beginning. She not only has a lot to say about personal finance, but also is able to do so in a very eloquent and “relatable” way. I could not be more proud of the attention that this blog is quickly receiving.
As Ali mentioned, I am currently enrolled in a Ph.D. program in the Boston area. I personally love the student life. The income is not great, but is far from shameful. And the responsibilities are actually slim. You basically get paid to take courses and think and write what comes to your mind. Not a bad life for those with nerdy tendencies.
But continuing to live as a student after college also has its down sides. You are basically postponing going to the job market at the same time that your opportunity costs continue to grow. Not to mention the potential anxiety produced by uncertainties and eventual (unhealthy) comparisons with friends, family and significant others and their new jobs, promotions, raises etc. Existential crises are not uncommon. Let me just say that the life of a graduate student is not for everyone.
In this post, I would like to share my thoughts on two topics regarding a graduate student’s finances; topics that I find myself constantly struggling with. Disclaimer: I know close nothing about personal finance. The little I know I learned from this blog or from talking to Ali. So, what follows are my own lay thoughts. They do not express Ali’s ideas nor should they be taken as recommendations about how other graduate student should think about their own finances.
#1. Managing uncertain cash flow
One of the major difficulties in managing a graduate student’s personal finances is learning to live with an uncertain cash flow. Practically all of my income comes from my university, which pays me either in the form of stipends (free money to cover living expenses) or for teaching or research I do on a regular basis. (I am focusing here on research programs, like a Ph.D. This is very different from professional schools, like business or law schools, where you pay the school, not the other way around.)
The main difference here is that I do not get paid every month or every week as most people do. The university usually transfers money to my account once or twice in the semester. This means that all of the sudden a “large” amount of money shows up in my account. It is totally up to me to make sure that I plan my expenses so that that amount lasts at least until the next deposit or check appears (this can take a few months sometimes, in particular during the summer). This can be particularly challenging since your bank statement immediately after you get paid might give you a false sense that you have more money than you actually do.
#2. Fighting disincentives to invest long-term
I mentioned above that the life of a graduate student comes with a fair dose of uncertainty and anxiety about the future (mostly about the BIG question of whether one will get a job after graduation). This uncertainty can create a disincentive to long-term investment. How do you make a retirement savings plan if you are not sure which type of job (and, consequently, how much income income) you will have or even where you will live? Moreover, you never know whether you might need to have access to your savings in the short term. It is possible that you will have to live from your savings for a short period after graduating in order to keep pursuing you dream job. This gives one a disincentive to invest in common long-term investment options, which have heavy penalties for early withdrawal.
However, from this disincentive to long-term investment it does not follow that a graduate student should only start saving after he or she gets a job. It is true that the job most Ph.D. students dream about (a tenure-track teaching job) would come with a substantial increase in their income (3 or 4 times their student income). But it is never too early to start saving, even if very little. And it is certainly no good reason to spend money left from the last stipend merely because it would be “too little to save.” That said, I do find myself postponing thinking more seriously about “net worth” or “retirements savings plans” until I have a clearer idea of my professional and personal future. Luckily, I have Ali in my life.
How do you approach your finances as a graduate student?