Emily Roberts received a PhD in biomedical engineering from Duke University in 2014. She is the founder of the websites Grad Student Finances, PhD Stipends, and Evolving Personal Finance. Connect on Twitter with @GradFinances.
It may seem counter-intuitive, but graduate school affords you an excellent opportunity to grow financially, whether that means growing in your money management skills or growing your net worth. There is no need to wait until after you land a “real job” to put in the effort to improve your financial picture.
Basic Financial Goals
All graduate students, whether they are being supported by stipends, loans, family, savings, or some combination, have the ability to set and reach basic financial goals during graduate school. In fact, graduate students have already overcome one of the biggest hurdles that prevents people from succeeding with personal finance: they are future-focused. Graduate students are making an incredible sacrifice in the short term to invest in their future careers. Often, success in personal finances comes down to the same type of decision-making and commitment: to put the good of ‘future you’ at least on par with what is good for ‘present you.’
Here are a few examples of basic financial goals and why you should work on them during graduate school:
1. Track 100% of your spending: If you have never paid attention to how you use your money, you will be surprised by what tracking reveals. Tracking alone can actually change how you spend because of your higher level of awareness. You can track your spending manually (pen and paper, Excel, Pocket Expense, Every Dollar) or automatically (Mvelopes, You Need a Budget, Mint, GoodBudget).
2. Budget: Be the boss of your money. Tell it where it’s going to go and what it’s going to do. Exercising this kind of control over the small amount of money under your purview now will help you control larger amounts later. Furthermore, you can use your budget to help you meet other financial goals.
3. Discern the difference between needs and wants: No one is living high on the hog while in graduate school, and many students flirt with the poverty line. When your income is low, you are forced to figure out your priorities quickly. The upside to this process is that you can carry that knowledge forward into your post-grad school life and use it to avoid wasteful spending and lifestyle inflation.
4. Monitor your credit: Everyone should practice the basic financial hygiene of monitoring her credit reports at least once per year. The purpose is to ensure that all your accounts are being properly reported to the credit bureaus and to catch identity theft early on. You might also take an occasional peek at your credit score (for free), but that’s not as vital.
5. Build an emergency fund: Emergency funds are important even for people who are in debt. An emergency fund stands between something bad happening in your life and something bad happening in your life plus serious financial consequences (e.g., credit card debt). A starter emergency fund size might be just $1,000, and you can build up the size of the fund to meet your unique needs.
6. Learn about personal finance: We all should take the time to learn a bit more about such an important topic, and there are plenty of easy-to-digest resources in the form of books (e.g., Get a Financial Life: Personal Finance in Your Twenties and Thirties), websites (e.g., Get Rich Slowly), podcasts (e.g., Stacking Benjamins), etc. Learning more can both motivate you to set other goals and show you how to reach them.
Two of the basic financial goals I set during graduate school were tracking and budgeting. When I was single, I budgeted and manually tracked my spending using Excel. After I got married, I switched to using my husband’s preferred automatic tracking and budgeting platform, Mint, which really aided our communication and coordination around our finances. These practices helped us to align our spending with our values and gain peace of mind, which maximized the satisfaction we gained from the use of our money during grad school.
Stretch Financial Goals
Some graduate students may desire to go beyond these basic financial goals to set ‘stretch’ goals for themselves during graduate school. If achieved, stretch goals positively impact your net worth. (It is also likely that some of the basic goals will improve your net worth, but that is not their primary intent.) Whether one will set stretch financial goals during graduate school is a personal decision, but a student who understands the power of compound interest is likely to strive to preserve or increase her net worth as much as is reasonable during graduate school (i.e., don’t sacrifice your degree progress!).
1. A stretch financial goal for a graduate student taking out loans for his education may simply be to minimize the amount of debt he is taking out. This could be achieved by reducing his living expenses, finding an on-campus job that provides tuition benefits, or working part-time.
2. A stretch financial goal for a student living on a stipend plus loans or familial support may be to forgo taking out debt by living within what her stipend provides or making up the difference between her stipend and living expenses with additional paid work.
3. A stretch goal for a grad student receiving a livable stipend may be to more aggressively save/invest or pay down debt.
This type of goal lends itself very well to the SMART description of goal setting: Specific, Measurable, Attainable, Relevant, and Time-bound. Money itself is easily measured, and it is straightforward to set specific and time-bound goals, e.g., save $3,000 into an emergency fund by August 2016. The aspects of SMART goal setting that will take more consideration are making the goals relevant and attainable.
The goals you set must be relevant to what you really want out of life. It will bring you no satisfaction to set and achieve a financial goal that you don’t care about and that doesn’t impact your well being in the short- or long-term. Give yourself some time to consider what you want money to do for you during and after graduate school, and then translate those ideals into SMART financial goals.
To avoid burnout, the financial goals you set must also be attainable. You will just become frustrated if you set a goal that requires you to have an amount of cash flow available that is impossible or unlikely in your current situation, so you should select challenging but achievable goal numbers for your life.
Stretch financial goals boil down to ones that improve your balance sheet (assets minus liabilities). On the ‘increasing assets’ side, you can set a short-, mid-, or long-term savings goal and choose appropriate investment options for your time horizon and risk tolerance. On the ‘decreasing liabilities’ side, you can set a goal to pay off your debt ahead of schedule, perhaps using the debt snowball or avalanche method. To achieve these goals or to reduce your living expenses overall, you may set a variety of other SMART goals, like reducing your spending within a given category through budgeting, tracking, and frugality.
One of the ‘stretch’ financial goals I set during graduate school was to save for retirement consistently. I started out saving 10% of my gross income into my Roth IRA, but over time wanted to do even more. Eventually, my stretch goal became to max out my Roth IRA every 12 months. I did not achieve this goal during graduate school, but I did end with a 17.5% savings rate, which definitely aligned better with my values than not saving at all or sticking with 10%.
Grad students shouldn’t treat this period as an exception from their overall financial lives. Even if you are taking on debt or have a lower income than you had before or expect to have after grad school, you have the ability to set and achieve basic financial goals that will help you develop positive financial habits and even stretch financial goals that will help you grow your wealth.
What is a basic or stretch financial goal you are currently working on or would like to set for yourself during grad school?
[Image by Paula Naugle and used under Creative Commons Licensing.]