As you might have noticed, I've been thinking a lot about student debt, money, and financial responsibility in recent weeks. In particular, I've been thinking about those US News top graduate programs by student debt lists (medicine, business, etc.), and speculating that the numbers are likely misleading. I am moderately certain that the numbers do not include interest, which normally accrues on graduate student loans while the students are in school.* (With the exception of Perkins Loans, which are doled out in small amounts, US federal loans for graduate students are unsubsidized, which means that the borrower is responsible for the interest that accrues during their enrollment. For loans issued in recent years, the interest rates vary from about 6% to 8% depending on type of loan.)
The question of what responsible financial choices look like for graduate students is a difficult one. I have many regrets, mostly minor, about how I have handled my finances since graduating college. I suspect, however, that true financial responsibility is largely impossible when someone must take on significant debt to complete a graduate program they are sure about. At the end of the day, no matter how much I saved from my job before graduate school, or how much I scrimped during school, my overall net worth was going to be six figures in the negative. In circumstances like mine, there is, of course, a major question of whether one should go to graduate school at all, and it merits serious thought.**
Now that I've been getting more serious about my finances for a few months, here are some things that I personally could and should have been doing as a young adult while I was working and when I first started graduate school. These things that I wish I had done largely overlap with the "first steps" that any personal finance book for beginners would recommend to someone who is just getting started:
- Track my budget and spending habits extremely closely.
- The software You Need a Budget (YNAB) was excellent for this purpose. The Excel-savvy among us could probably make a spreadsheet that duplicates YNAB.
- I used to reliably spend all of my income or loan disbursements just in time for the next infusion. I never went into credit card debt, but I never had savings. By tracking my spending closely in real time, I've been able to start saving for an emergency fund, set aside money for future travel, earmarked money for my moving expenses in the fall, and also put some aside for an interest payment on my loans. I don't even feel particularly deprived, though I have reduced my spending significantly in some areas (mainly cosmetics).
- Admittedly, my financial gains for the last few months are still a drop in the bucket relative to my loans. Also, I did have an unusual amount of money coming in thanks to a large tax refund and a signing bonus. However, tracking my budget carefully has allowed me to use that income much more wisely than I normally would.
- Set aside a modestly sized emergency fund.
- Unexpected and expensive things happen. Laptops break down, an unexpected interview or family situation might require travel, veterinary bills come up, etc. etc. It is best to be prepared and avoid the alternative of putting surprise expenses on a credit card.
- I do realize that this goal might only be possible if you have a moderately well-paying job for some period of time while still a student or in your gap years between college and graduate school (or occasional money gifts from family).
- Most students definitely can't set aside too much, and I imagine that students might generally be more likely to suddenly need to deplete their emergency funds than working adults. Nevertheless, I think setting aside some emergency cash is still a worthwhile goal.
- Set other savings goals (including retirement savings) to the best of my ability.
- This definitely isn't extremely plausible unless one took some time off to work before graduate school. I took two years off and had the capacity to contribute modestly to retirement savings. Because one relies on retirement savings to make investment gains gradually over a long period, the earlier one starts, the better.
- On My Own Two Feet by Thakor and Keddar is one resource that I've used to learn a bit more about approaches to retirement and other savings.
- It is alright to indulge on some things, but it is best to do so after considering the other goals above.
- I probably splurge a bit too often for a graduate student in my situation, but the first year of school was extremely stressful and very high-stakes. For me, indulging a bit (whether in terms of eating out with friends or doing a bit of shopping here and there) does make a big difference in my quality of life and how well I deal with school-related stress. If it helped me cope and perform well in school, it probably was "worth it" in some sense.
- By tracking spending carefully, as I mentioned in my first bullet point, it could become easier to figure out what things are less important and could be cut in favor of indulging a little in other areas.
* I highly encourage graduate students to sit down and calculate how much interest will accrue while they're still in school,because I don't think anyone was upfront with me about how much that would add to my final loan balance. Of course I had all the information I needed to make those calculations, but I think it can be easy to forget or underestimate what it all means, especially because undergraduate loans have very different rules from graduate loans. Lenders are certainly just as capable of figuring it out upfront, but they don't tend to disclose the hard totals that readily.
** As an aside, going to school again was the right decision for me. Being debt-free requires about five years of aggressive repayment, which is possible with the corporate job that I'm taking on. I will, however, delay my repayment because of my fellowship. (The aggressive repayment I envision leaves room in the budget for decent retirement savings, building an emergency fund, and the occasional travel or fashion indulgence, but it likely will not allow for buying property.) A spreadsheet that can be found at the link, which a commenter on The Financial Diet referred me to, is an excellent tool to project how long repayment will take.