Money matters: Part 2
How to make your money work for you as a grad student
If you’ve read part one of this blog post, you know how to use a budget to help manage your money. What can we do with what we save, and how can we make what we spend really count? Beyond budgeting, there are some more advanced moves that we can make with our money, even as busy, and sometimes financially strapped, grad students. Here are some of the ways that I make my modest stipend work for me as much as possible:
1. Credit cards
Credit cards can be a valuable resource in your financial toolbox if used responsibly. This means paying off your balances in full at the end of every month so that you do not accrue interest, and not buying anything that you could not pay for without credit. Depending on what you spend the most money on and what kinds of rewards you value most, you can likely find a credit card that will reward you for the spending that you are already doing. Some cards offer cash back on all purchases, with extra cash back in certain categories (e.g., groceries, dining). The Bilt card even provides travel points on rent payments. If you are not experienced or comfortable with credit cards, there are also basic starter cards that you can use to get familiar and build your credit. Credit, like all things finance, is very personal, and you should always do your own research, or consult an expert if needed. Note that opening credit cards can temporarily lower your credit score, missed payments can lead to late fees, and carrying a balance will result in interest accrual. I personally use the Capital One Savor and Bilt cards (which I pay off in full monthly) to get rewards on my biggest spending categories: rent, food, and travel.
2. Savings vehicles
If you have refined your budget and are saving money from each paycheck, you may wonder what you should be doing with those savings. Most traditional savings and checking accounts pay very little interest to you on your deposits. Alternatively, high-yield savings accounts have many of the same benefits as the traditional accounts (easy access and liquidity) but pay interest at rates up to 5%. However, these banks tend to be online-only. If you can do without brick-and-mortar storefronts, switching from a traditional to a high-yield savings account is an easy way to make a higher return on your savings every month.
Once you have more than enough liquid savings to cover emergencies and unexpected circumstances, you may start thinking about saving for longer-term goals, especially retirement. As grad students, we do not have the employer-sponsored retirement benefits that many other jobs offer (e.g. 401k). However, we do have access to another tax-advantaged retirement investment vehicle: the individual retirement account (IRA). Unlike savings accounts, IRAs are not liquid, and there are a few different types, each best suited for a different financial situation. As always, it is important to do your research here. A Roth IRA tends to be favorable to people who make less income now than they expect to make at retirement age (like many graduate students). By budgeting and leveraging the other tools described in this post, I have been able to contribute the maximum allowed amount to a Roth IRA for all three years that I have been in grad school, getting a strong and early start on my retirement savings. You can invest your IRA contributions after some research into investment strategies that align with your goals. It is not imperative to save for retirement during grad school, but the earlier you begin investing for retirement, the longer the money has to grow. Non-tax advantaged brokerage accounts can be used to invest money for long-term savings for purposes other than retirement.
3. Side hustles
Aside from saving, you can improve your financial situation by making more income. Grad school is usually more than a full-time job, but there are some opportunities to make extra money with low time and effort commitments. There are several on-campus jobs that meet these criteria. You can grade assignments along with other students for a class that you have taken for an hourly rate. One student in my department is paid to DJ at a few department events every year. I serve as a mentor to first-year graduate students for my department for about an hour per week, for which I am paid a small additional stipend. I also tutor high school students via Zoom for an hour per week at an hourly rate. As busy as I am with being a graduate student, I find that these small commitments and the bit of extra guilt-free spending money that they help me stick to my budget, which ultimately lets me keep saving money sustainably.
In addition to active budgeting, judicious use of credit cards, thoughtful employment of various savings vehicles, and low-commitment engagement in side hustles has helped me feel financially secure and work toward long-term financial goals on a grad student stipend. These strategies are not a prescription, nor a complete list of ways to optimize your financial situation, but have hopefully provoked some thought about how you may better manage your money. The Office of Graduate Education is a great resource for learning about the topics discussed here and more.
Note: The statements in this blog post represent the views of the author and are not an endorsement of specific services or products by either the Office of Graduate Education or MIT.
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