A Little Savings Goes a Long Way
As a graduate student I did not have much disposable income. My friends in graduate school were also struggling to make ends meet, sometimes saving for three years for a trip to Europe. So when one puts the word "savings" and "graduate school" in the same sentence it usually raises eyebrows. How many days a week can you eat peanut butter sandwiches for dinner?
The surprising thing about finances is that the struggles do not end when you get your diploma. If you buy a house and a car (or two) your new paycheck might already be accounted for. Add to that the cost of raising children, and possibly the loss of income if one parent stays at home, and you might find yourself in debt again. The idea of saving for retirement is far from the minds of many graduate students and young professionals.
So, why am I writing about saving money? While many graduate students are on a budget, it is possible to set aside $25, $50 or even a $100 a month from most stipends. While these amounts seem negligible, time is on your side. Saving $25 a month (invested at a 7% annual rate in a mutual fund) compounds to over $30,000 in 30 years. Saving $50 or $100 will double or quadruple this amount.
While the idea of a retirement account in graduate school can seem foreign, Roth IRA's are a great way to start saving. Your money grows tax free, so essentially you get free money from the government. Of course, once you get a job and your employers matches your pre-tax dollars you will be getting free money from both sides. Let's say you set aside $500 pre-tax a month which your employer matches. At a 7% annual return rate, you will collect over $1.2 million in 30 years, and have saved over $ 45,000 in taxes (assuming you are in the 25% bracket). Ever thought about getting a boat once you retire?
As you can see, a little budgeting can go a very long way. Whether you watch Netflix or rent a DVD instead of going to the movies, or cook instead of eating out, the monthly savings can literally be in the hundreds of dollars. Clearly, you don't want to give up all fun and the list of money saving tips is endless. Other graduate students are usually the best resource for learning about student specials at restaurants, supermarkets, theaters and travel agencies. In a few years you will not remember whether you saw a movie at home or in the theaters, or if you spent the extra money for an ocean-view room during your vacation. But it will surely be nice to have a little nest-egg for your first home purchase. Your parents (and possibly children) will thank you too.
Wishing you the best,
Dora Farkas, PhD, Founder, PhDNet
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