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Basic and Stretch Financial Goals for Graduate School

May 1, 2017 by Emily

A version of this article originally appeared on GradHacker.

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:

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).
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.
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.
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.
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.
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.

[* This is an affiliate link. Thank you for supporting PF for PhDs!]

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!).

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.
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.
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?

Simultaneously Earn Extra Money and Advance Your Career

April 17, 2017 by Emily

In my final year of graduate school, I participated in a leadership program at my university. In the course of this program, all the participants worked on group projects, the subject of which was how to improve graduate student and postdoc career development. My group decided early on that we would focus on how trainees could participate in internships to gain work experience.

A version of this post was originally published on GradHacker.

Instantly, our group uncovered a culture clash: I was coming from an engineering program in which internships were fairly encouraged and some students even consulted or started their own companies. Two other group members were in the biological sciences, where the farthest you were allowed from the bench was Woods Hole, MA. The fourth group member was in a humanities program and insisted that 100% of his classmates got tenure-track teaching positions and therefore would be totally uninterested in any career development aside from teaching (a claim the rest of us found dubious).

Ultimately, we were able to agree on a project that helps students gain relevant experience outside of academia by thinking beyond internships to volunteering, part-time jobs, freelancing, launching new programs, taking courses, etc. The process of collecting testimonials on these career-developing experiences opened my eyes to the many ways grad students can advance their careers, even if their advisors or programs frown upon it.

Since I’m a money-minded person, I was particularly interested in the examples of grad students who earned money from their career-developing experiences. That really seems to be the best of all options—gaining relevant work experience and some extra cash, of course in balance with dissertation work. Internships are the most obvious way to accomplish this, since they often pay more than assistantships, but I found that many grad students had strategically chosen a variety of non-internship experiences that also fit the bill.

Below are a few examples of students who landed or created career-developing work experiences that also paid them. These examples are drawn from our Think Beyond Internships project from last spring (not specifically paid experiences, but many are) and my series on side jobs (not specifically career-developing experiences, but many are).

1) Summer intern

Alice completed a paid summer internship at a medical device company doing work related to her dissertation research, which confirmed for her that she wanted to pursue an industry career after her PhD. In addition, she gained “great contacts and references,” and “it was also really helpful to see the way PhDs were viewed at a big company … and understand the corporate mindset.”

2) Weekend consultant

Kathayoon created her own consulting practice evaluating zoos and aquariums, which was in line with her dissertation work. She found her first client through a mentor, and then more clients approached her; she traveled on weekends to complete the evaluations. Consulting helped her “build a lot of important skills … make connections to people in [her] field who acted as study subjects for [her] dissertation, and … get a job after graduation.”

3) Part-time analyst

Adam worked on a part-time, hourly basis as a research analyst for an investor relations firm, writing reports and updates. Not only was this a paid position that “made [him] realize how underpaid [he] was as a graduate student,” but he took a full-time job at the company after he finished his PhD. He said, “The best part was that I had an opportunity to try out my job before starting full-time. How else do you know if you want to launch a career in a certain field?”

4) Freelance editor

Julie and Amy freelanced for a scientific journal article editing company as contract editors. They edited articles related to their fields of study on a pay-per-assignment basis. Because of this this experience, Julie “read much more widely than [she] ever would have on [her] own and… [thought] more critically about what [she is] reading.” She also noted the networking benefits to working for her company. For Amy, “the contract job was perfect because [she] learned a lot and could do as much or as little as [she] wanted.”

5) Semester-long science policy fellow

I participated in the Christine Mirzayan Science & Technology Policy Fellowship after I finished grad school, but many of the other fellows in my class were current graduate students. We worked at the National Academy of Sciences for 12 weeks, learning about careers in science policy, gaining relevant work experience, and networking like crazy. The fellowship was designed to give graduate degree-holders a taste of science policy; they know that some of the fellows will pursue careers in science policy, but others will take their experience back to academia or into other sectors. My mentor agreed to serve as a reference for me for future positions, and many of the other fellows were able to stay on at the Academies after the fellowship or landed other science policy positions in DC. We received a stipend for participating in the fellowship.

I hope these examples have excited you about the possibility of finding paid work that also advances your desired career path. Before I conclude, I offer three tempering notes:

1) Some graduate programs explicitly disallow outside work in their assistantship or fellowship contracts, so you should check whether being paid will get you in hot water with your funding source or advisor. However, I think the spirit of this exclusion is more important than the letter. The point as far as I can tell is that your program wants you to make progress on your dissertation at a reasonable pace and not get distracted by outside commitments. But are a few hours of paid work a week really any more or less of a distraction than many other activities graduate students engage in (socializing, hobbies, self-care, raising children, etc.)? I think you should use your own judgment in how to balance your main goal of completing grad school with your side job and other pursuits and discern when you might need to refocus more or solely on your graduate work. In my own observation, some programs that state their students are not allowed outside employment will actually encourage work that is related to the student’s thesis topic.

2) All of the examples above and most in Think Beyond Internships involve students in STEM disciplines. I am hoping that is selection bias because the vast majority of my group’s contacts were STEM grad students and that students in other disciplines are also able to find paid, career-advancing work. I would love to hear from some non-STEM graduate students who have engaged in this type of work in the comments below.

3) Even if you aren’t able to find a job that combines both purposes of advancing your career and paying you, you can still achieve the goal that is more important to you (or both, through separate experiences). You can volunteer your time in such a way that advances your career (there are plenty of examples on Think Beyond Internships), or you can earn some extra money from unrelated work.

I wish you all the best in both setting yourself up for your post-grad school career and generating some extra cash flow!

Did you have paid outside work during graduate school, and if so what did you do? How strict is your department in disallowing students from working? How have you advanced your career during graduate school, aside from your dissertation work?

Fellowship Recipients Can Save for Retirement Outside an IRA

April 10, 2017 by Emily

Congratulations on your fellowship! Winning a fellowship that pays your stipend during graduate school is a great honor and achievement. A fellowship stipend may even be larger than the base stipend provided by the department, giving you additional discretionary income. While you might have an enhanced ability to save for retirement in terms of your cash flow in comparison with your peers, unfortunately you may be excluded from using a tax-advantaged retirement account like an Individual Retirement Arrangement (IRA).

The advantage that an IRA offers is tax-free growth on your investments over the several decades until you are of retirement age. This allows compound interest to have its maximum effect of growing your investment balances exponentially, unburdened by the drag of paying tax on the growth and dividends. However, only “taxable compensation” can be contributed to an IRA. As fellowships are not reported on W-2s, they are not considered taxable compensation for this purpose. If your only income in a calendar year is fellowship income, contributing to an IRA is not an option during that year.

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Save for Retirement Outside an IRA

While IRAs confer great benefits, they are not the only way to save for retirement. Instead of opening an IRA at a brokerage firm, you can open a normal taxable investment account. If you like, you can buy the same funds that you would have put inside your IRA. The important component is that you have designated that your investments are for retirement, not whether they have a tax-advantaged status tied to retirement. Your investments will be subject to the drag of taxes while in the investment account, but the burden can be made fairly light.

1) You can choose tax-efficient investments. Plenty of people have long-term investments in taxable investment accounts, so minimizing taxes is somewhat of a solved problem. Taxes on investments are not like income taxes when you have a job; they don’t occur every year like clockwork. Taxes only come into play in an investment account when there is a taxable event like selling an asset or receiving a dividend. Reducing the frequency of your taxable events reduces the frequency at which you have to pay tax. There are also two tax rates, and which one you fall into partially depends on how long you have held the investment (a longer holding period gives the lower rate). One of the best ways to minimize your tax burden is to employ a buy-and-hold strategy. The best investment strategy for graduate students (passive investing) is also a tax-efficient strategy, so you don’t have to sacrifice your returns or more of your time to minimize the tax burden in your taxable account.

2) Your low income tax bracket is currently an advantage when it comes to taxes on investments. The two investment tax rates that apply to capital gains are long-term capital gains (for investments held more than one year) and short-term capital gains. The two investment tax rates that apply to dividends are qualified dividends and non-qualified dividends. Short-term capital gains and non-qualified dividends are taxed at ordinary income levels, i.e., your marginal tax bracket. Long-term capital gains and qualified dividends are taxed at a lower rate. If you fall into the 15% marginal tax bracket or lower, as the majority of graduate students do, your federal long-term capital gains and qualified dividends tax rate is 0%. You may still have to pay state tax on your long-term capital gains and qualified dividends, but your federal tax rate is as low as it can get.

If you employ a buy-and-hold strategy, you can minimize your tax burden on your investments to the point that it is only slightly worse than it would have been inside an IRA (depending on your state tax).

How to Save for Retirement Outside of an IRA

The process for saving for retirement in a taxable brokerage account is very similar. You choose a brokerage firm, open an account (in this case, a taxable account, which is the default, instead of an IRA), and buy investments with a lump sum or ongoing contribution. If you want to make things easy on yourself, use the same brokerage firm and investments for your taxable account that you would have (or do) for your IRA. One of the advantages of saving for retirement outside of an IRA is that you are not subject to the $5,500 yearly contribution limit.

How to Transfer Your Investments into a Tax-Advantaged Vehicle

In a future year, you may have the opportunity or desire to shift the assets in your taxable brokerage firm into a tax-advantaged retirement account like an IRA, 401(k), or 403(b). While keeping your investments in a taxable brokerage account is not a bad short-term solution, over the long term it is more advantageous to keep them inside a tax-advantaged vehicle if possible, especially as you move up in tax brackets and start paying tax on your long-term capital gains and qualified dividends.

In each year that you are eligible to contribute to a tax-advantaged retirement account, determine how much money you would like to contribute from your income. Most people save a set amount or percentage from each paycheck to dollar-cost-average their investment purchases. If you have any contribution room left above this goal amount, sell that amount of your assets in your taxable account and increase your contribution to your tax-advantaged retirement account commensurately.

For example, perhaps later in graduate school you receive W-2 pay and plan to contribute 10% of your income to an IRA, which amounts to $2,500. In that year, you will have $3,000 of additional contribution room for a total of $5,500. At the beginning of the year, you can sell $3,000 of assets inside your taxable account and buy an additional $3,000 of assets inside your IRA. Then, set up an automatic withdrawal to contribute $2,500 over the course of the year.

As another example, perhaps you do not have access to a tax-advantaged retirement account until you start your first post-PhD job. If your salary is $80,000 and you plan to contribute 10% to your 401(k), you have $10,000 of contribution room remaining for your first year (for an $18,000 total contribution limit). You can maximize your contribution rate to your 401(k) and sell $10,000 of assets inside your taxable investment account to supplement your salary during your first year.

Having no taxable compensation in the course of a calendar year does not prevent you from saving for retirement. You can still save and invest in a taxable brokerage account. You will forgo the tax-advantaged status of an IRA, but that is not a big sacrifice when you are in a low tax bracket. Once you have excess contribution room in a tax-advantaged retirement account, you can ‘transfer’ some of your taxable assets into it. Don’t let the type of pay you receive dissuade you from working toward your long-term financial goals!

Further viewing: Webinar: Retirement Investing in a Taxable Investment Account

Are you saving for retirement outside of a tax-advantaged retirement account?

Break the Taboo: Talk with Your Peers about Money

April 3, 2017 by Emily

A version of this post originally appeared on GradHacker.

Traditionally, there have been certain topics that were off-limits for dinner table conversation. The prohibitions against discussing sex, politics, and religion have largely fallen away, but in many pockets of our society the money taboo persists. Over the past several years, I have fought against the money taboo among my grad school peers, and in return have experienced financial and relational benefits.

I encourage you to begin or continue discussing money with your peers for the following reasons:

1) Take advantage of your own malleability.

One major upside to discussing finances as a young person is that you don’t yet have deeply ingrained habits around money—or at least not as deep as they will be in a few decades! As you are trying to figure out your own relationship with money, you can learn from the best practices of those willing to share theirs with you. Grad students are by and large not locked in to large financial commitments (such as expensive cars and homes) and have the flexibility to change as they gain new information.

2) The information you get from your peers is the most relevant.

The internet has bountiful resources on how to manage your money well—so bountiful as to be overwhelming at times (Google “frugal tips” and find hundreds on just the first results page). When you talk with people who live in the same city, have the same employer, and have a similar lifestyle as you do, the information they impart is as relevant for your situation as it can get. This could be anything from a benefit you didn’t know you had to a tip on a discount retailer to a new-to-you money management strategy. When you discuss money with your peers, you can find mentors all around you and be a mentor yourself.

3) Expose “the Joneses.”

I hope that none of us are comparing our lifestyles to those of our college classmates who got jobs instead of going to grad school—that’s a game you just can’t win. But it may be the case that your jealousy has been kindled by some of your own peers’ apparent spending habits. When you are open to talking about money with your peers, you can find out the real story behind those shared photos, which is likely to dampen your envy.

4) Grow closer by discussing your values.

The biggest reason I like talking about money with people is that money is really a stand-in for our own individual life values. How you choose to use your money reflects your priorities. When my friends and I are open about our money with one another, we are learning what really matters most to the other person, and that spurs us to grow closer (even when we disagree).

Get the conversation started.

Money can be a difficult subject to broach for the first time with a friend. Two baby steps to take toward breaking the taboo are to share something from your own financial life and to ask for advice. Focus your icebreaker on yourself so your friend doesn’t feel as if she is under the microscope. For example, when communicating a spending decision, share your reasoning as well as the final yea or nay. Instead of just rhetorically complaining about pain points in your finances, ask your friend if she has found a good solution in her own life.

When you bring up money for the first time, be especially attuned to your friend’s facial expressions and body language. If he subtly communicates that he is offended, uncomfortable, or bored, change the topic and steer clear for a while!

We have so many superficial conversations with one another. Why not take a chance on a topic through which you may learn something really practical, improve your balance sheet, and deepen a friendship?

Do you discuss money with your peers, and if so what outcomes have you experienced? What keeps you from discussing money more openly?

Why Every Grad Student Should Have a $1,000 Emergency Fund

March 20, 2017 by Emily

If you’re not sure what financial goals you might want to set as a graduate student, look first at how your finances would handle an emergency. An emergency fund is a vital component of financial health; being a graduate student, whether funded or unfunded, does not exempt you from this basic requirement. If you don’t yet have an emergency fund, set a goal to save $1,000.

What is an emergency fund?

An emergency fund is a designated sum of money that has been set aside for use in emergencies only. The vast majority of the time, the emergency fund will appear to do nothing, but its only job is to be available to you. When an emergency occurs, you draw upon the money to pay for it. After the emergency ends, you rebuild your fund to its original level.

Emergencies are any necessary expenses that you have not anticipated in your planned spending. Depending on your insurance coverage and the level of your planning with your targeted savings accounts, an emergency might be a medical incident, a leave of absence from school, damage to your home or possessions, a theft, a car accident, etc.

Why have an emergency fund?

When an emergency occurs in your life, the last thing you want to have on your mind are your finances. It is an amazing stress-reliever to have a sum of money set aside for just these circumstances. You will actually have the ability to pay for emergencies that fall within the amount you have saved, which can help you mitigate the potential financial damage. You won’t have to weigh different pots of money or credit against one another in the midst of your trying situation.

Where should you keep an emergency fund?

Emergency funds should stay in cash-equivalents such as a checking, savings, or money market account.

According to Murphy’s Law, if you invest your emergency fund, the very moment you need to access it will be the moment that your investment drops like a rock. Similarly, you shouldn’t compound your emergency by using a line of credit as your emergency fund; this strategy will cost you stress and interest at the most inconvenient time.

You might keep your emergency fund in your checking account with your regular monthly income, in a designated savings account at the same bank as your checking account, or in a savings or money market account at another financial institution.

Funded and unfunded grad students

If you are living on your grad student stipend, you have a very limited amount of income each month. It can be quite difficult to cash flow larger expenses on your available discretionary income. Having an emergency can compound the problem of trying to cash flow the main expense as you may have no time or energy to devote to being frugal with your existing income – or you may lose the income itself. Although it is challenging, it is preferable to have the money for the emergency saved ahead of time in a designated fund.

Unfunded graduate students who are taking out student loans should also set aside a small emergency fund. It is a bit counter-intuitive to take out additional loan money, which is accumulating interest, just to set it aside, seeming to be doing nothing. But how would your finances play out in an emergency if you didn’t have some money set aside? Would you turn to a credit card, ultimately paying a much higher rate of interest on the balance? If your plan is to access additional student loans, what about the time it takes to be approved and for the paperwork to be processed? It’s preferable to keep that small cash emergency fund available.

Why is $1,000 the key number?

One thousand dollars is a fantastic initial emergency fund goal. If you haven’t yet put aside $1,000 in your emergency fund, make achieving that a top financial priority.

One thousand dollars is first and foremost a nice round number. It’s difficult to be specific about the ideal emergency fund size across a population, so a round number is as good as any to start with. It’s a great accomplishment to set aside a four-figure number in your savings.

One thousand dollars will also take care of a large percentage of emergencies. Big, catastrophic events are rare, but if you haven’t set aside $1,000 your budget can be busted just as easily by a small emergency as by a large one. One thousand dollars will cover a large array of low-level emergencies – the kind that are likely to occur over the period in which you’re in training.

What do you do after you reach $1,000?

After you’ve set aside $1,000 in your emergency fund, it’s time to turn your attention to other financial goals.

Certainly you can keep building your emergency fund above this starter level. The general advice for a full emergency fund size is 3-6 months of expenses. If that number seems daunting, work on saving $1,000 first, and then perhaps another $1,000. Working out that saving muscle means that you will achieve the next goal even faster.

But there are other worthwhile financial goals that may take precedence over bulking up your emergency fund. If you are in debt, especially moderate- or high-interest-rate debt, start whittling that down. It’s incredibly valuable as well to start investing at a young age to allow compound interest ample time to work. You could even turn your focus to building up short-term savings to handle your irregular expenses to take that burden off your emergency fund.

If you are a graduate student who does not have $1,000 in a designated emergency fund, make saving that up your top financial goal! Not only will you have peace of mind that your finances can handle a low-level emergency, but you will also put yourself on a path to financial health. The strategies you implement to save up your first $1,000 can then be applied to your next financial goal.

Do you have a $1,000 or larger emergency fund? How did/will you save up your first $1,000? Have you had any emergencies occur that $1,000 could have handled?

Your Most Important Budget Line Item in Graduate School and Why You Need to Re-Evaluate It

March 15, 2017 by Emily

The largest line item in nearly every graduate student’s budget is housing. Whether you own your home or rent, whether you live on campus or off, whether you live in an apartment/condo, townhouse, or single family home, unless someone is subsidizing it, you are almost certainly spending the biggest chunk of your income on your abode.

If your rent is $400 per month and you spend five years pursuing your PhD, over the course of your studies you will spend $24,000 on rent. If your rent is $1,000 per month and you spend six years pursuing your PhD, you will spend $72,000. These are staggering numbers, especially when you compare them to your annual stipend. Your decision of where and with whom to live is almost certainly the most financially impactful budget decision you will make during graduate school.

Housing is a very tricky expense category to budget. There is no argument that you need somewhere to lay your head. A certain fraction of your housing spending is simply a baseline that covers a necessity. (That is, unless you can get really creative, such as by living in a van.) But you can’t write off your entire housing expense as a “need,” especially if you then let yourself off the hook from evaluating its cost carefully. A fraction of your housing spending is “want” as well. Perhaps you are paying a bit more for a desirable location, an amenity, extra square footage, updated features, a parking spot, or solitude. There’s nothing wrong with wanting to upgrade from a Spartan home, but you must be honest with yourself about what aspects of your housing you could dispense with if push came to shove.

What makes housing even more special in terms of your budget is that it is a fixed expense. Once you settle on where you’ll live, your housing costs are locked in for the term of your contract. It’s difficult to change your housing costs because that involves moving or adding/subtracting a roommate. That means that you can lock in a high rate – or a low rate. Fixed expenses represent excellent opportunities for cost reduction. If you are looking for a simple, long-lasting way to reduce your spending, target a fixed expense. You have to make the decision to reduce it and put in the effort one time to carry out your decision, but after that you have the lower rate set every single month in perpetuity. And what better fixed expense to target for reduction than your largest one, housing?

The most remarkable aspect of your housing decision is that you typically have to make its first iteration before matriculating into your graduate program. If you are moving to a new city, you have to search for and secure your housing with next to no knowledge of the rental market, possibly sight unseen or after one scouting trip. Therefore, your first dwelling in graduate school may not be the most optimal for you financially. Although you should ask for advice from older graduate students when you make that initial housing decision, nothing is as informative as actually living in your city for a few months or a year.

If you haven’t yet moved once within your grad school city, take the opportunity right now to re-evaluate your current living situation. You likely have a totally new perspective on the decision compared to the last time you made it. Even if you have moved once with an intimate knowledge of the local housing market, your financial goals and budget evolve with time; perhaps you are different now and you require a new housing arrangement. It takes some patience and commitment to decide to move and then wait several months to follow through, but a significant enough reduction in housing expense makes the process worthwhile.

[The decision to purchase a home while in graduate school has an enormous financial impact. There is a great amount of financial risk associated with buying a home (both upside and downside). Buying a home is more expensive in the short term while renting is more expensive in the long term. The problem is that no one can predict whether your time in graduate school is short-term or long-term. The housing market could boom or bust during your tenure at your university. You might end up with a home that needs a lot of costly repairs. You could arrange for renters who essentially pay your mortgage for you, or end up with a landlord’s nightmare. You have to make careful calculations and considerations, but there is always a gamble involved. If you are already a homeowner, there are still a few ways for you to reduce your housing costs, such as selling and moving, taking on a roommate, or refinancing your mortgage.]

Have you re-evaluated your housing costs since you moved to graduate school? If you were able to reduce your spending on housing, what would you do with your extra cash flow?