Anon makes a great point about keeping rent <20% of gross income. Exactly.
I pay 17% of my postdoc salary, which in Los Angeles (home to hundreds of astronomers), gets you half-rent on a 1 bedroom bungalow.

The situation is very different in Tucson, say, where that rent would score you a 3–4 bedroom house. This brings up the perhaps surprising fact that the nationwide astro fellowships don’t include a cost-of-living stipend adjustment. My guess is that’s no accident — departments in low cost-of-living cities get more fellows this way, which (along with the 1-fellow-per-year caps) spreads the fellowship money to more department.

It seems to me that the best financial strategy for a grad student or postdoc should mitigate the real-life problems that distract them from maximizing their scientific productivity, and thus their employment prospects. As Kelle says, a 3-6 month emergency fund is critical. You can easily lose a lot of time and productivity if you have to worry about juggling finances and getting bills paid, especially since financial crises are usually triggered by other events (like medical or family emergencies) that are also stressful. However, in most cases your spending choices are probably more important than your saving choices. If noisy neighbors keep you up and ruin your productivity during the day, then head for the quieter, more expensive parts of town. Conversely, if you need nightlife to decompress, spend a little extra and get a quality place near downtown. Don’t add an extra 30 minutes onto your commute just to save $100/month – it almost certainly isn’t worth the lost time and additional stress (unless you get your motivation from right-wing talk radio or a daily hour of Gaga).

I guess it all comes down to a different idea of investment: Invest in yourself, as you are the primary means of generating income for the next 30-40 years. In academia, a handful of critical steps (undergrad, PhD, postdoc, faculty, tenure) determine all of your future earnings. Invest wisely to maximize your odds at those steps.

Of course, I can’t overstate the short-term hedonistic benefits of this strategy either…

So by all means live modestly. I’m keeping my rent <20% of my gross income as a move to a postdoc. But I'm paying ~$100/month more than I have to so that I can live in a nice place, with a great kitchen, quiet neighbors, and reliable staff. Don't forget: you're saving up so that you won't be miserable in your old age, but it would be silly to be miserable now instead.

A related post on finances went up on the Tenured Radical website:

http://tenured-radical.blogspot.com/2010/06/how-to-afford-your-first-real-job.html

Marcos, you are forgetting that people do not expect to die shortly after they retire. As a result, all lifecycle retirement funds maintain a healthy fraction of stock at retirement. The bond fraction pays a fixed income to live on, while the stock fraction continues to (hopefully) generate growth for the next 20+ years of life after retirement. Yes, that is riskier than 100% bonds. But unless you are extremely wealthy, you need to continue growing your retirement in early retirement, or you will run out of money. That, by definition, requires you to assume some risk.

And for heaven’s sake don’t buy a house thinking it’s an investment. It’s a very bad way to build wealth even if you’ll live there 30 years, and really a crapshoot if you’re going to move out quickly. Grad students / postdocs who buy homes/condos I think are making a very questionable choice.

You save money by doing two things: increasing your earnings, and reducing your spending. And I agree wholeheartedly w/ Jane’s comment about not overpaying for housing. Our house isn’t the fanciest, and it’s not in a toney neighborhood, but it doesn’t stretch our budget.