4 Steps to Personal Finance for Grad Students

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).
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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.

1. BUDGET

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: 

• Are you spending more than you make each month?
• Are you adding enough to your savings to afford the summer/the month students don’t get paid?
• Are you surprised by how much you’re spending on takeout/alcohol/clothes? Do your spending habits reflect your values? 
• Do you find yourself making lots of little purchases that could be cheaper if bought in bulk? (one I found in my budget: paper plates and plastic utensils for potlucks/parties)
• Do your subscriptions add up to a higher number than you expected?

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! ​