Tenured Radical on How to afford your first real job : She discusses finances for folks first taking the plunge from penurious graduate school to a real (but generally not huge) salary as a post-doc or assistant prof.
Some disorganized thoughts:
DON’T BUY A HOUSE unless you are sure you’re going to be some place at least 5 years and can put down 20% on a 30-year (or 15-year) mortgage. Are you a post-doc? Chances are you shouldn’t buy. Not even rent-to-own.
Is student loan debt good debt? It depends. What is your interest rate? How does it compare to what you can get on your own investments? Chances are, right now you’re best off paying it down if your higher interest debt is gone and you’ve got a nice emergency fund. One bad aspect (for the consumer) of student loan debt is that it never goes away (absent of forgiveness programs). You cannot discharge it during bankruptcy. It will always be there for you until you pay it off. One nice thing about student loan debt is that it is easier to go into forbearance without being harassed, but the debt amount may still increase depending on the terms of the loan.
Debt is a horrible horrible drag. It eats up your income without you getting to enjoy it. It is worth living on rice and beans for a limited amount of time to get rid of the ghoul of interest rate debt. Once you have money instead of debt, the money starts making its own money (baby monies) and everything gets a lot easier. This is true even of student loan debt, unless the student loan interest rate is less than what you could be making in a safe investment like a cd (or, if you’re risk seeking and/or clairvoyant, the stock market).
One of our best money decisions was to pare expenses to the bone (including FOOD) until we had paid off DH’s high interest private student loan debt off. I wish he had done it in college since the interest that had accrued in college alone was larger than the amount borrowed.
So what advice would I give to a newly tenure-track person or post-doc? Probably the same as anyone with a new job who gets paid 9 months out of the year (or 12 if it’s broken out that way).
Don’t spend more than you earn unless you have the savings to eat up.
Don’t buy a house unless you know you’re going to be staying at least 5 years and have 20% down and can afford the monthly payments on a 15 or 30 year mortgage. Even then check the rent to buy calculators to see if it really makes sense. And don’t buy more house than you need, even if you can afford it.
Put in at least to the match in your retirement if it is offered. If you can, put away 15% of your income. If retirement isn’t offered, do your best to max out that Roth IRA.
Pay down your debt.
Don’t buy stuff unless you can truly afford to pay it outright with cash without jeopardizing your savings goals or your future freedom.
If you’re paid 9 months, make sure you save up for the summer. It can be a doozy. Save for taxes too… who knows what direction your withholding will be off this year.
Save an emergency fund, 3-6 months on top of summer money for 9 monthers. Even though you’re usually guaranteed a year of work after they fire you for a T-T position, you never know what kind of insane your new department may be. Or what kind of reimbursements will be slow to come. Or what kind of plumbing problems destroy your apartment… etc.
What are your financial recommendations for the first year on the job?