Last week, we talked about personal finance for underpaid junior scientists. We discussed how the astronomy career path dramatically under-pays junior astronomers during the first 10–12 years (graduate school + postdoc) of their career. That they are often ineligible for retirement accounts during the grad school and postdoc years (or at least do not vest), which puts them a decade behind in the goal of saving for retirement—a decade of lost compounded interest. (As scientists we understand the power of compounded interest—to quote my calculus prof Dr. Passmore, “Never underestimate exponential growth.”) We got a discussion going about the financial realities of a profession that over-produces PhDs, gives million-buck Cosmology prizes to its most successful few, and pays most of its practitioners only $25k/yr. And we started brainstorming institutional solutions.
I’d like to continue that discussion in that thread, while here switching focus to the steps each junior astronomer can take to manage her own finances, so that she can get out of debt and afford the non-work things she really wants (a house; a kid; a Harley.)
Last week, Ben reiterated a standard piece of financial advice: you need to start saving for retirement before your mid-30s. Exponential growth. I’ll add that many need to start assembling a 10–20% mortgage down payment. Kurtis pointed out that it’s hard to save this much, especially given that 30±5 is when lots of people start trying to have kids, and eying houses for sale. I agree that it’s hard, but I believe it’s possible.
I’d like to recommend a book, “Smart and Simple Financial Strategies for Busy People“, by Jane Bryant Quinn. This short, highly readable book is extremely helpful to a person following the the junior scientist career path—it can help you pay off your debts, establish a Roth IRA retirement account and set up automatic monthly investment, get renters’ insurance, set up auto billpay, and save up for a house down payment.
For 30 years, Ms. Quinn was a personal finance columnist for Newsweek. She is a skeptic and a pragmatist, who mistrusts complicated schemes, trusting compound interest, diversification, and investing in the entire stock market (index investing). She writes very clearly, and understands that her reader is a smart person who has specialized in something other than finance.
For me, Quinn’s most useful suggestion was to “put my finances on auto-pilot.” I followed her advice by starting a Roth IRA with Vanguard, investing in an indexed “target date fund”, which is a fund that starts out heavily in stocks (higher risk, higher growth potential), and will gradually evolve toward a higher bond fraction (safe, but slower growth) as I near retirement. Two days after my monthly stipend check arrives, my account automatically moves 15% to my retirement fund. (Much better than contributing yearly, when I remember, but only if I feel flush.) Quinn argues that if you never see the money, you won’t miss it. For me, the auto-investment forces a financial discipline that I needed.
Quinn also suggests that you set up auto-pay for all bills. (The electric company is surprisingly unsympathetic when you explain that you meant to pay the electric bill, but there was a bug in the cluster-finding algorithm which took you weeks to find, and then there were all the simulations to re-analyze, so of course your mail has piled up and you didn’t see the final notice of disconnection.) And that you make a spreadsheet to keep track of financial goals (“Harley-Davidson Forty-Eight in Vivid Black with 1200cc Engine”), your small (but growing) savings toward those goals, and how far you’ve come toward reaching those goals.
My situation has been easier because my fellowship salary is on the high end of the astro-postdoc range. However, I also live in one of the most expensive cities in the US, and my spouse took several months to find a job after we relocated. We’ve had some financial hard times. Still, on my postdoc salary, I’ve managed to save half of a mortgage down payment, while investing for retirement at the level Quinn recommends. My wife (we keep separate finances) has paid off her student loans, belatedly started a retirement account, and also saved for a house.
My final advice echoes Ben: when you get your PhD and the concomitant postdoc salary bump, try not to notice. Rent a crummy little house. I’m not kidding. The single best financial decision we made in LA was to rent a tiny 1.5 bed, 1 bath bungalow. It’s smaller than the 3 bedroom we had in grad school, but we are saving toward our long-term goals.
We don’t live completely like grad students—our ramen intake is down, and I’ve developed a taste for beer made by monks.
To recap: buy Quinn’s Book, follow her advice, and keep living like a grad student once you’re a postdoc. If you do that, I hope you can compensate for the crummy pay in graduate school, catch up on saving for retirement, and meet your long-term financial goals.
PS – I like Quinn’s longer book too, “Making the Most of Your Money Now”. It shares the same philosophy as “Smart and Simple”, but covers more topics, and is more of a reference book than a how-to manual.