Finances in gradschool

A thought experiment in time travel

Mina Kmiecik, The Cove, 2023, acrylic on canvas.

With all this #altac discourse on social media, I often find myself thinking about graduate school and whether I approached it the correct way. I know that there isn’t much to gain by dwelling on the past, but there are definitely some things that I would have done differently knowing what I know now. In particular, I wish I had a better handle on my finances during my PhD program.

In my final weeks of graduate school, I went to lunch with a few close friends to celebrate and say goodbye. At this point I was 28 years old and headed for a postdoc with no savings, my student loan re-payments would be resuming soon, and I had zero understanding of how retirement accounts worked. I had a vague idea what stocks and bonds were, but couldn’t even tell you how to purchase them. At this lunch, one of my friends gifted me The Total Money Makeover by Dave Ramsey. I didn’t know it at the time, but this would be one of the most important books of my life. Not because of its teachings—some of them I actually disagree with—but rather because it jumpstarted my interest in financial literacy. 

In the first half of 2020, I devoured several books about finance and investing (see the end of this post for some recommendations). I know I still have much more to learn, but I feel more comfortable now knowing the basics of budgeting, investments, and retirement accounts. Increasing my financial literacy also came with the realization of how poorly I handled my finances in gradschool. Below is what I would have done differently if I were to enter graduate school tomorrow.

I want to make it clear that this post is not intended to provide financial advice. I am not a financial expert and I only recently (in the last 4 years) began learning these concepts. Also, everyone’s situation is very different from each other. This post is merely my attempt to put into a coherent thought what I would have done differently in hindsight. I hope that it sparks others to also pursue greater financial literacy, just like my good friend did for me. 

Step 1. Track income/expenses and establish a detailed budget.

I wish that I would have developed a system to better track my income and expenses. A good tracking system would then have allowed me to create a budget. My strategy at the time was to put things on a credit card and hope that I would have enough in my checking account to cover the balance. Fortunately, I was quite frugal and never carried a balance (and quite lucky that no costly emergencies occurred). I also had help from my parents from time to time. However, if I tracked all my expenses/income and made a plan for how I was to spend my money, I could have improved my situation rather than just stagnating for 5 years. This would have reduced my anxiety and allowed me to plan for emergencies, and eventually, contribute to financial goals. A good place to start would be probably have been for me to allocate 50% of my monthly income towards fixed expenses, 30% towards discretionary spending, and 20% towards my goals. 

Step 2. Get a second stream of income.

There is a reason why grad students flock to a seminar with free food; they are broke—well, most of them. The stipend that PhD students receive during their program is embarrassingly low commensurate to the amount of hours expected of them. I was making ~$25k, which all things considered, was a pretty good stipend for Dallas, Texas. I’ve heard of lower stipends in more expensive cities. 

Graduate programs classify these students at part-time, when in reality they are expected to work >40 hours teaching, researching, and taking classes. Part-time also means no retirement accounts and no benefits. To make matters worse, PhD students have to sign a contract that prohibits them from outside employment while receiving the stipend (at least this was the case at my institution).

If I had to do it again, I would seek the outside employment anyways and find ways to supplement my income. I was so laser focused on my research that I didn’t even consider a side hustle; however, many of my peers did and were never “caught”. In reality, it’s almost assumed that graduate students have side jobs; I don’t think the university would even care. In fact, I was offered a paid internship one summer by another department. When it came time to pay me, my department blocked it and said that I was not allowed to receive payment outside of my teaching assistant responsibilities (I signed that contract, remember?). I didn’t get in trouble at all; but I didn’t get paid either.

I think a side hustle is important, and probably even necessary, to make it possible to contribute to financial goals in graduate school. Personally, a side hustle would have garnered additional benefits for me, like forcing me to take breaks from research and prevent burnout, and broadening my network for future jobs.

Step 3. Create an emergency savings.

Next, I would have opened a high-yield savings account to save for emergencies. A good starting point championed by Dave Ramsey is $1,000; however, others recommend 3-6 months of expenses (good thing I know this number due to my tracking system I developed in step 1). I would work this into my budget in the goals category.

Step 4. Continue paying student loans.

Once I had the above steps achieved, I would then work on paying my undergraduate student loans. During gradschool, my loans went into deferment (i.e., I was not required to pay) and interest did not accumulate because I had only subsidized Stafford loans. This would have been a great time to continue paying my student loans because the entirety of each payment would have went towards the principal, allowing me to make great progress. In reality, I would have not been able to contribute much, but with the help of my additional stream of income, I could have make consistent steady progress, saving me money in the long term.

Step 5. Contribute to Roth IRA.

The final step would have been to start contributing toward retirement. Knowing what I know now about compound interest, and the long time horizon that is saving for retirement in your 20s, consistently contributing a little at a time could grow into a lot in the future. Compound interest is exponential growth. Given that the human brain has a difficult time comprehending exponential growth, the cost of not saving for retirement early is difficult to comprehend but staggering when crunching the numbers. I cannot help but compare myself to others that started their careers directly out of college. Missing out on 8-10 years of retirement contributions (plus company matches) can equate to hundreds of thousands of dollars. Although the earning potential of PhDs can be much higher later in life, the long time horizon of retirement rewards those who start early.

Given my income in graduate school, it’s difficult to imagine it being possible to achieve this goal on top of paying down student loans. However, with a good tracking system, budget, and a side hustle it may have been possible!

Summary

Do I regret going to graduate school? Not at all. I had an amazing time, I had a wonderful and supportive advisor, and got to do what I loved the most; science. But looking back, I wish I had more financial literacy at a younger age to better prepare me for life after my PhD. 

Here are some of the books I read after I graduated that really helped me learn the basics of budgeting, securities, retirement, and investing: 

1. Total Money Makeover by Dave Ramsey - a quick read that provides a useful framework for starting a budget and getting out of debt

2. The Intelligent Investor by Benjamin Graham - a longer read that goes into details on how to evaluate companies and pick stocks. I highly recommend the the Revised Edition with commentary by Jason Zweig, as he puts Graham’s advice into historical context with modern explanations and summaries.

3. The Little Book of Common Sense Investing by John C. Bogle - another quick read that furthered my interest in low-cost index funds.

4. Rich Dad Poor Dad by Robert T. Kiyosaki - another quick read with an emphasis on real estate investing. The book is a little gimmicky at the beginning, but I found the mindset explained by Kiyosaki as a useful way to approach money. Note the contrast in philosophy with Dave Ramsey here. 

5. The Psychology of Money by Morgan Housel - as a cognitive neuroscientist interested in the way we think and reason, I found this book helpful in understanding the various influences on the way we think about money

6. Understanding Behavioral Bia$: A Guide to Improving Financial Decision-making by Daniel C. Krawczyk & George H. Baxter - similar to The Psychology of Money, this book covers how cognitive biases can influence our decisions about financial matters using principles from neuroscience. Think a combination of The Intelligent Investor meets Thinking, Fast and Slow (by Daniel Kahneman). This book was written by my graduate advisor, so I’m biased :)

How was your experience in graduate school? I’d love to hear from you.