I want to talk today about opportunity costs. This phrase might sound familiar if you ever took an economics course.
Put plainly, the opportunity cost represents the potential benefits of action B you miss out on when you choose action A. This gets discussed at length in personal finance circles: those $100 shoes could have gone towards a debt repayment which is still accruing interest, meaning your $100 shoes may ultimately cost you $115.
I want to talk about the opportunity cost to your career. Going to graduate school is a choice (you are CHOOSING to go, right? You aren't going because you like school and it's 'something to do'?). Every choice has obvious or hidden opportunity costs.
Consider what you could get out of the year following graduation. If you deffer a PhD for a year, you could take on a job or short-term contract. You will almost assuredly make more money in this job than you would with a grad student stipend. Say you are able to save up $2,000 from this one year of working, you throw that money into the stock market, and you don't touch it for the next 5 years as you pursue a PhD. At the end of your PhD, if your money has grown at about 6%, you'd have $2,676.45. That's $2.6k you wouldn't have otherwise!
BUT, what was the opportunity cost of taking a year off of school? Perhaps your math skills would get rusty and you'd do worse on the GRE, missing out on a merit-based scholarship. Or you want to have children after finishing school, and those plans are now pushed back a year. Maybe you're already in a cutting-edge field, and taking a year off would ruin your chances at being competitive in that research space.
Let's say that in our scenario your PhD qualified you for a job making $50,000 more a year than the job you'd have without a PhD! $2.6k looks small in comparison now. IF going straight to graduate school was the momentum you needed to finish, or you work in a new field like gene editing where a single year off could leave you far behind your peers on the job market, then an economist may say you made the correct choice based on the known opportunity costs.
(An economist might also crunch the numbers on if you never went to grad school in the first place, choosing to work and build your savings, earning promotions, putting equity into a home, and so on. If you're purely money-driven, you've probably done these calculations already.)
We aren't machines, of course, and money isn't the only motivator. It's important to consider all aspects of your life when making the monuments decision to go to graduate school.
I'm not advocating for one choice over the other. I'm advocating for taking a good, long look at your life goals and take your best guess at what the opportunity costs are for your career choices.
Here's a list of considerations to get you started:
Approach Graduate School as a Career Change
You've been an undergraduate for 3 years. Before that, you were a student for 12 or so years. Sitting in a classroom, absorbing and regurgitating information, has been your full-time job for most of your life. Now you're thinking about graduate school. It has "school" in the name, but it is a radically different experience than what you've known for the better part of two decades!
Graduate students work on independent projects, manage teams of undergraduates, navigate university bureaucracy, assemble a committee of professors to advise their work, apply for grant money, teach classes, and so much more. If they take classes, they read many pages of dense literature weekly, and they're expected to speak during every class about their interpretation of that literature.
That's really different than what you're doing now, isn't it?
Because graduate school is a career decision, approach it as a job-seeker does. Gather information. Network. Weigh your wants and needs against potential sacrifices (for example, intellectual freedom and creativity at the expense of living near your family; sacrificing a steady salary now for the potential to earn more later).
You will need to learn about the informational interview. It's invaluable for job-seekers, and this technique can be used to bolster your graduate school application as well.
What is an Informational Interview?
This is a conversation you have with another person where you ask about their experiences. It's an opportunity to gain knowledge about a field, to get used to the lingo of the job, and to gain insight.
The golden rule of informational interviews is "Do not ask for a job". In our case, though, we're going to bend this rule. Presumably you're reaching out to this professor to learn about their research and graduate program because you want to apply. In addition to usual informational interview prep, you'll want to have a short pitch about your interests at the ready. You don't need a fully-formed research question for this discussion. But if you really, REALLY want to work on frogs, and this professor only studies mice, now is the time to assess that fit.
Benefits of the Academic Informational Interview
How to "Cold-Call" Professors
I have always defaulted to this email template, from The Professor is In. Note the differences in the two examples shown. The first one is instantly recognizable as an email from an undergraduate by the format alone. The second one explains why you are reaching out to a total stranger by explaining how you know of them and their work.
Do I always follow this script word-for-word? No! Once I had my Master's, I didn't feel the need to lead with my GPA. Sometimes I know of the professor through a mutual contact, or I read a popular news article about their research. I usually don't ask for a campus visit at this point - a phone call or Zoom/Skype meeting are appropriate. But the template is a solid foundation.
For more templates, and more advice about informational interviews, check out this post by Ramit Sethi. I read his blog extensively before applying to my current PhD program, and his career advice easily translates to getting a graduate school offer.
You might have picked up on this by now - networking isn't just for finding a 9-5 job. If you're going for a PhD position, that's a 4-7 year commitment, and your potential advisor is facing that too. Who do they want to train for half a decade? We all want to work with people we get along with and can talk to. Informational interviews not only help you get information. You're putting a face to a name. When your application is under review, they know who you are. You've already shown a potential supervisor that you're communicative, interested in their work, and a go-getter.
After making a series of poor money decisions in 2015, I delved into the world of personal finance books and blogs. Reading broadly helped me form a personal framework of what works for students, on a student stipend, and with the limitations placed on us. I recently had the opportunity to present an introduction to what I’ve learned to a group of Biology graduate students at my university. Today I’d like to share some of the key takeaways with you (and to read more, slides are available on my website).
This post contains referral links.
There are four main steps to taking control of your financial situation: budget, cut expenses, get out of debt, and save for retirement. The best approach is to follow these steps in this order. While there are many resources on the internet to learn how to do any of these, I’ll be sharing some pointers that graduate students in particular should keep in mind.
Think about your research. Would you form conclusions before you collected all of your data? Budgeting is simply data collection. You’re keeping track of what comes in and what goes out. Like designing research, you also have to decide how you’re going to track the numbers. In my opinion, the more you can automate this step, the better. If you only use debit accounts, the app Mint can be used to track different spending categories. In my experience, though, Mint doesn’t know what to do if you’re putting most of your expenses on credit cards (more on why I do this below). I use YNAB – You Need a Budget. There’s an app, but the desktop version is more user-friendly. Students can get a year of YNAB for free, just by emailing the creators with a copy of your student ID or transcript. Sign up here (non-referral link).
"Collect data" (budget) for a few months, then ask yourself the following:
2. CUT EXPENSES
Now that you’ve collected data, and hopefully drawn some conclusions, you can make an action plan. You’ve established a way to track your spending. Try following your plan for a couple months and see if you’re successful.
We are living on very tight margins in graduate school. There’s not much we can do to cut expenses more than we already have. I subscribe to the Big Wins philosophy: don’t cut out the small latte purchases that make you happy, instead, find areas where you can cut large amounts of money in a short time. The book I Will Teach You to Be Rich by Ramit Sethi has many great tips for this, from negotiating your credit card debt to reducing your phone bill. For graduate students, our Big Wins include getting conferences paid for, applying for fellowships or grants, and finding cheaper rent. As pointed out by Dr. Karen Kelsky, of The Professor is In, if you win a $1,000 grant that took you 3 hours to write, you effectively got paid $333/hour. Talk about a Big Win!
The hidden corollary to this step is MAKE MORE MONEY. This is very tricky in grad school. I’ve been in departments where your funding (even hourly/TA funding) can be revoked if they find out you’re making ANY money on the side. Tread carefully here. Ask veteran students in your department or your student union to see what you can get away with.
However! There are small steps you can take to help your money work for you. As I said above, I put most of my expenses on credit cards. I have one that I use for all food-related purchases because I get 3% back on dining out (including bars) and 2% back on groceries. I use a second card for all other purchases, which gets 1% cash back. Plus, some quarters the 5% cash back category is something I’ll use, like gas or online shopping. Credit cards also offer sign-up bonuses. If you anticipate attending a conference next year, and you’ll be the one footing the bill for the flight, this may be the time to look into sign-up bonuses which often take the form of “Spend $3,000 in the first 3 months and get $500 cash back”. That cash back could cover your conference housing or registration!
Another tactic I’ve used is switching to a higher interest savings account. You won’t make much, but the 2% some online banks offer is better than the 0.01% offered by the national brick-and-mortar institutions. For finding information about both credit cards and savings accounts, I’d recommend using NerdWallet.com.
Other forms of cash-back include websites like Rakuten (formerly Ebates) for online shopping and apps like Ibotta for groceries (referral link - you'll be automatically added to my Team, which boosts cash-back bonuses monthly) | nonreferral link).
3. GET OUT OF DEBT + 4. SAVE FOR RETIREMENT
You’ve collected the data on your spending habits, and you’ve adjusted accordingly. Now you have leftover money at the end of each month. That’s great! But now you face the ultimate Millennial question: should you save for retirement or pay off student loan debt?
This question is harder than it seems, and there isn’t a lot of definitive advice available online. Most personal finance gurus seem aimed at people with credit card debt or mortgage payments.
The tenuous consensus appears to be this: put your money towards whatever has a higher interest rate. If your student loans are only 3% but you expect your retirement savings to go up 6% a year, you’ll accumulate more wealth over time by investing. But, if your loans are at 6% and you expect the market to have 4% returns, it makes more sense to pay off the student loans. However, no one knows how the market will perform in the future. You can look at historical trends in returns, but no one can say if the incredible economic prosperity of 20th century America will continue in the future. If you want a visualization of what higher or lower payments mean for loan repayment, I recommend using the free tool unbury.us.
If you do decide to invest in your retirement, there are grad-student-friendly options. We don’t get employee benefits like 401k matching, so the main alternative is to open an independent retirement account (IRA). There are two types: Traditional IRAs, where the money you contribute this year isn’t taxed, but the withdrawals in retirement are considered taxable income, and Roth IRAs, where the money you contribute this year is taxed, but withdrawals are not taxed as income. With a Roth IRA, earned compound interest is never taxed. In general, Roth IRAs make the most sense if you expect your retirement income to be greater than your current income and therefore put you in a higher tax bracket in retirement. For graduate students, you are almost certainly making less now than you will in retirement. Get on r/personalfinance and read up on the most recommended brokerages for opening a Roth IRA. Get started now – you are only allowed to contribute $6,000 a year, which places a lifetime cap on how much you can benefit from this strategy.
HAVE I MISSED ANYTHING?
Is there an aspect of personal finance you’d like to see covered in more depth? What are some of the unique challenges you think graduate students face when thinking about money? I’d love to hear your comments and questions below!
My name is Hannah. After nearly 7 years in graduate school, spanning 3 graduate programs, you begin to notice the tactics of the most successful students who go on to have fulfilling careers. In this blog I'd like to share what I've learned from observation, as well as from reading about personal finance, professional development, and non-academic career options.