Finance + new profs: a comment on an old post

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?


15 Responses to “Finance + new profs: a comment on an old post”

  1. Sandy L Says:

    My MO was to keep living like a college student until my student loan debt was paid off.

    I had roommates the first few years out of school and it made a tremendous difference in how quickly I was able to pay things off.

    I also think it’s easier to keep living at a lifestyle that you’re used to than it is to living a much more extravagant existence and trying to go back to a more modest lifestyle later.

    • nicoleandmaggie Says:

      It is definitely easier to increase spending than to cut it. Little increases feel great. Cutting hurts.

      Another thing that I think is important that we didn’t realize… many of us are moving from expensive big cities to cheap more rural areas. Just because your rent was 1700/month in the city doesn’t mean you should anchor on that and get something really posh in the more rural area. It’s ok to get something just a little bit nicer than what you were living in in the city, even if it’s only $600/month. It is amazing what we’ll put up with in a Boston apartment that we wouldn’t dream of living with in an area with nicer affordable housing stock. (We could have paid off a perfectly acceptable house by now if we hadn’t been anchoring our mortgage payments on our city rent.)

  2. Everyday Tips Says:

    I would recommend they immediately contribute to their 401k with that very first paycheck so the income is never missed.

    However, I think for many it is hard to not be excited and not go crazy with the first paychecks. Many have scrimped and saved to go to school, and when they finally get a decent check, it is hard to have self-control. That impulse needs to be fought, especially when there is a lot of debt. Sure, I recommend rewarding yourself some, but there has to be limits.

    • nicoleandmaggie Says:

      That’s a really good point, especially when cash reserves are generally at their limit with moving expenses. Celebrate with a pizza, not a $1K Amish chair. (In our defense, we saved up cash for that chair.)

  3. Bardiac Says:

    If you’re paid on a nine months contract, you need to save at least one third of each check for summer. So if you’re figuring that housing can be a max of one third of your take home, you should figure it’s one third of two thirds of your take home, or two ninths of your take home.

    And to second Everyday Tips, if you have stuff taken out automatically (retirement, especially), then it’s easier to not mentally count that as disposable income.

    • nicoleandmaggie Says:

      A third gives you 3 full paychecks in the summer, so one full paycheck per month,… but since you’re used to living on less than a full paycheck during the other 9 months, don’t you need less? (Though obviously more savings is generally better than less and you don’t want to cut things too tight no matter what.) I’m getting that it’s a quarter that needs to be saved to equalize income across the 12 months?

      When interest rates are higher, CDs are a good vehicle for doing those savings– you can’t touch the money until you need it in summer.

      I don’t do the saving based on income, but on spending, but I can do that because our enough is smaller than what we earn. That won’t be as feasible in some situations.

  4. Molly On Money Says:

    Thirds here to Every Day Tips. Set it up in the beginning. I had a job where they started contributing to my 401K after I was there one year. The moment the year hit I was signed up.
    One of my mantras is ‘stop spending on my future self’. My future self is greedy and never seems to remember how much I spent on her!

  5. frugalscholar Says:

    After the rough humanities job market, we didn’t trust our luck, and so saved a lot–by continuing to live like students. The money we saved turned into a down payment a few years later!

    Now, in my state, even tenured people are quaking in their boots. It’s never a mistake to save.

    • nicoleandmaggie Says:

      I love having a cushion of extra security, especially pre-tenure. It gives us a lot more options. Even if nothing horrible happens, we can take advantage of opportunities like sabbaticals that we wouldn’t be able to otherwise.

  6. Roshawn @ Watson Inc Says:

    Personally, I did Sandy’s suggestion “keep living like a student until the debt was paid off.” It by far was the best advice for us. My lifestyle didn’t increase too much until after the debt were gone (which was hard sometimes watching my contemporaries do things that I wanted to do), and my stressed decreased because the debt was gone. Now, I’m free follow my own pursuits without those lingering financial constraints.

    • nicoleandmaggie Says:

      We lived like students the year I had a post-doc and DH was finishing up. That allowed us to save a downpayment for a house! (We’d actually already saved quite a bit when we were working as RAs and not paying rent, but it was nice putting that money in Roth IRAs.)

      Sometimes I wonder if we’d have been better off if we’d saved less and had to buy a smaller house. The stars just seemed aligned with the downpayment saved matching the recommended house size for my salary and finding the perfect house right at the top of our price range. (Of course, nothing is really perfect, and we underestimated both closing costs and the date of our first paychecks… but we did ok going to the laundromat until we could afford a w/d.)

  7. Funny about Money Says:

    Best advice going: Don’t even think about buying a house until you’re tenured!

    I’d add to that, until you’re full, continue to live, in most respects, as though you weren’t tenured. These days, academic institutions can’t be trusted. Live like a student until the debts are paid off and you’ve accrued enough savings to support you for at least one full, 12-month year. This could take until you’re associate, especially if you’re pretty ambitious on the job.

    Once those financial goals accomplished, however long it takes, it’s probably safe to start spending the equivalent of assistant-prof pay.

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