I have a few more points about graduate school and personal finance. (Why isn't this sort of thing covered by graduate schools? I mean, you'd think it wouldn't be that hard for someone to come up with a glossy one-pager that would help out the students that are going to be populating your halls for the next 5 years...)
The taxman interfereth: An astute commenter (Anon709p) notes that, if you're being paid by a graduate student stipend (rather than a salary), you are not allowed to contribute to an IRA. (IRAs are meant for people who have taxable income.) The law around this is a little complex, but a good indication is that if you're not paying FICA taxes, you can't use those funds to fund an IRA. Doesn't mean that you can't save that money up, which brings me to my next point...
An emergency fund: Starting out in graduate school? First time that you're making your own money? You should probably save up an emergency fund of some sort. A good rule of thumb is that it should be about 2 to 3 months' worth of expenses (rent, groceries, gas, car insurance, etc.) Remember, it's an emergency fund, not a fund for quick vacations to Panama City.
Credit cards = mostly bad news: If there's anything to be learned from the last 3 years, it's that credit cards and other forms of consumer credit can be really, really harmful to your medium-term and long-term plans. I'm not saying that you should cut up your awesome American flag Discover card, I'm just saying that running a balance will cost you. But you knew that already, right?
Student loans -- what are they good for?: Should you get a student loan? That's a really tough question, balancing your long-term employability and financial goals against short-term quality of life.
If it's genuinely going to increase your quality of life (e.g. you really like your sleep, so you don't want a roommate), it might be worth it. But if you're taking a student loan so you can afford short-term consumption (dinners out, spring break in the Outer Banks, microbrew sixers instead of Natty Ice), this is a bad idea. If you get a postdoc, you will be on the hook to pay that loan back six months after you graduate -- and you know how lucrative those postdocs are. Don't forget, student loans obligation are darn near impossible to escape, even in bankruptcy. Treat them like thionyl chloride -- useful, but dangerous.
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Two additional tips. One is to get details about how your stipend or assistantship works. My university was vague about who was paying students and why, and that came back to bite me later on. Secondly, even if you have a tuition waiver, pay attention to your student status. My last semester in grad school, I lost my tuition waiver due to funding issues. (This really shouldn't have happened, but it's a long story...) I discovered that even though I had been living in the state for 5 years, I was still considered an "out of state" student. That turned my tuition expenses from a minor annoyance to a huge, expensive problem. Find out what the rules are for your state and school, just in case.
ReplyDeleteI may be wrong, but I think you can defer your loans if you postdoc at a university. If you go to a research institute (e.g. Scripps) then you're on the hook for it.
ReplyDeleteI'll say grad school is a decent short term survival mechanism, but a mediocre long term investment. Period. There might not be any more meaning or long term strategy beyond this. You just wake up every day and wing it, until ... I honestly don't think any of us really know.
ReplyDeleteI like to think of my post doc IRA fund as the money that's going toward my cancer treatments, and after which ... if I'm lucky, I get to go back to work?
Lots of great personal finance sites with information that would be helpful to grad students - Simple Dollar and Get Rich Slowly are two examples. Wish I'd known about them earlier.
ReplyDeleteI don't think using the FICA withdrawal as a guideline is a good one for determining earned income. If you receive a W-2 for your stipend you have earned income, but you still won't have FICA withheld if you are primarily a student. It's really a W-2 vs. 1099-MISC issue.
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