i think this is a topic that grad students really should pay more attention to. i’ve blogged in the past about grads who do some really short-sighted things and greatly increase their post-graduation financial burden. this adds a lot of stress to anyone who’s paying the least bit of attention to the state of their finances. finding a job in today’s economy is not a guaranteed thing, but the loan payments will come back to bite you regardless. and compound interest can be a powerful foe or a powerful ally, depending on which side of the fence you’re on.
the grad stipend is really not much money to live on. and when you don’t have much of something, what do you do? if you’re smart, you prioritize, choose what’s worth using some of this limited resource to have, and then you learn to make it stretch to meet your needs. i am trying to get this principle across to my youngest sister, but she’s still in that mistake-making phase of her young life.
for context, rent for a little one-bedroom apartment costs 45% of my take-home income on its own. i recommend that single grad students try to find a room mate to share living expenses, because this isn’t an easy amount to manage. figure in electric, internet, etc and this adds up quickly. i refuse to live near campus due to the local crime, and the only safe places to live in that area are out of my price range.
the next biggest expense for the typical local grad is often transportation. the best car for a grad student is something that doesn’t tie you down with car payments. we have no car payments, and are very grateful for the feeling of freedom. i know several students who purchased a brand new vehicle, financed it, then took out student loans to make the monthly payments. let’s think about how wise this is:
say you buy a $20,000 car at 5% interest with a 6 year loan term. you end up paying a total of about $23,200 for the car and the interest when all is said and done. however, this entire $23,200 is paid for with other borrowed funds.
say you then borrow $4000 in federal unsubsidized loans per year for the car payments and car related expenses. (we are not eligible for subsidized loans for the first few years in my program.) the interest rate is 6.8% fixed. you defer these loans for 6 years while you are in graduate school, and pay them off over a standard repayment term of 10 years. this total loan amount of $24,000 costs you $9143 in interest for a total repayment amount of $33,143.
congratulations, that $20,000 car will have cost you $33,143 and will be 16 years old before it is really paid off. bad, bad move all around. find a cheap thing that will get you from a to b for 6 years and stick a couple bucks in it for the occasional repair. you will be far better off, even if your car isn’t as fancy as the ones your fellow students with poor decisionmaking skills drive. one thing you need to learn as a grad student is to NEVER judge yourself based upon what others are doing. (this applies to science and personal lives!) this is the quickest way to completely undermine yourself.
we have given up a LOT of entertainment for purposes of keeping the finances from going negative. no going out drinking (and it’s not that i don’t like a good long island or 3 with friends, but that they are expensive!), we only see 1-2 movies a year in the theater, i prepare food at home rather than going out, we rent a cheap movie here and there when we’ve got a quiet night to hang out. we don’t have cable, but we find tv shows we like on the internet. we play board games, cards, whatever we have laying around. i invite friends over for conversation and games, or potluck dinners.
finally, minimize everywhere else you can. keep your living space at a moderate temperature. buy real food and bring it to work, instead of buying power bars and snack cookies from the vending machines downstairs. drive conservatively. you don’t need an iphone when a 99 cent cheap phone will still get you in touch with your friends and family. now is probably not the time to be buying lots of new electronics you won’t have time to play with anyway- avoid the big screen tv and surround sound system until you have more free time. we all know what everyone else makes every month- there is no point in showing off what you can’t really afford to buy, to try to impress us. check out books from the library instead of buying them. get free food at seminars whenever possible.
adjust your expectations. you do not need to have the same standard of living as your parents, who are decades older than you and have established careers and work history. you may have grown up in a huge house if you’re from a well-off family, but when starting off on your own, you have far smaller needs. i have the opposite problem- my family thinks i’m the really well-off one! and maybe i am, in my family. it doesn’t make it much easier to make ends meet.
these are just a few ideas that i use on a daily basis, and spouse and i are pretty satisfied with our lives. we don’t have much, i admit. but we don’t really need much. we have what we need and don’t have what we don’t need. and if you don’t have something to work for, something that you want but can’t yet have (aside from the damned phd, we all want that!) then what are you doing to motivate yourself?
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October 11, 2009 at 11:09 am
Steven
I just recently decided that I want to go to grad school after I am done with my undergrad and I think that all of these suggestions are relevent to any student, not just grad students. While we are in school, we should be living as cheaply as possible in order to minimize our liabilities once we are out of school. By doing so we are able to be more selective about the jobs we take instead of feeling the pressure to take anything that comes our way, even if it isn’t a good fit.
Good article! I’m excited about getting into grad school (fingers crossed) & living like a broke college student for a little while longer, I actually enjoy it!
October 11, 2009 at 11:34 am
dr leigh
good luck, Steven!
by the time i finished grad school, i started finding that i placed increasing value on my time. what this ended up meaning is that i would consider time saved vs money saved- and if there was a reasonable time savings for the money, i’d spend instead. it’s hard enough to balance work and life in my field, i need all the time i can get for both while also balancing value in my use of money.
the thing that’s different about grad school is that in certain disciplines, one gets paid (albeit not much) to do it. this is a jump in living standard from undergrad, and your peers tend to start spending every extra penny. it’s a long haul, a phd takes on average well over 5 years to complete in the US. people can lose sight of the financial long term when in school for 9-10 years or longer.
also, grad school is HARD. it gets easy to justify buying a big reward for yourself for getting through a major committee meeting or whatever. the natural rewards in grad school are few and far between. it’s tempting to start supplementing those natural rewards with ones of your own choosing.
in short, i think it’s much easier to get yourself in trouble as a grad student than as an undergrad.