A Low Income Is a Blessing in Disguise

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Believe it or not, the time you spend in graduate school earning a stipend – the very challenge that can make this period so infuriating – might very well become, in retrospect, one of most valuable times in your financial life. The value will not primarily be in the money you earn but rather the financial lessons you learn through the struggle.

(I am not calling an insufficient income – an income that doesn’t pay your basic expenses – a blessing in disguise. While it may teach you some valuable lessons, the bad certainly outweighs the good when you can’t buy food or clothing or you are racking up debt. In this post I am referring to low but sufficient stipends that are more or less living wages.)

In some cases, grad school can be a monetarily fruitful time, such as if you use your stipend to increase your net worth. But even without setting intentional financial goals, every grad student who is challenged by her stipend will learn financial lessons. These hard-won skills can be carried forward into your post-grad school life to benefit you immensely – whether or not you experience a big jump in income.

1) Budgeting

Every grad student with a low income develops a budget mindset, whether it is explicit or implicit. There is no out-earning poor spending decisions in grad school as there might be with a higher professional income. Many grad students become quite skillful with creating and sticking to an official budget, which is a wonderful habit. Even those grad students who don’t have written-down budgets naturally learn the limits of their income and how to stay within them.

2) Frugality

Living well on a stipend almost certainly involves a degree of frugality, whether or not the student knows that’s what he’s practicing. Frugality doesn’t have to look like extreme couponing or hypermiling or living in a van or any one particular strategy. It can be as simple as employing a couple easy tricks in one area to facilitate spending in another. Your limited stipend gives you the motivation to explore what frugal tactics work well for you and the time to make them habits. You won’t lose those habits when you move on to your first post-grad school job; you can choose which ones to continue with and which to conclude.

3) Discover the Fine Line Between Wants and Needs

Budget-ers usually think of needs as food, housing, transportation, utilities, clothing, etc. But those of us living on limited stipends discover that each of those types of expenditures likely involves both “need” and “want” components, i.e., some of your spending fulfills the basic need and some of it exceeds it. When you’re looking for ways to cut your spending, you become start putting expenses previously thought of as necessities on the chopping block. This is really tough to do at first, but just being aware of spending areas that you don’t truly need is immensely helpful if you ever return to a time when you have to cut back, such as during an emergency.

4) Combat Lifestyle Inflation

I think that “live like a grad student” is much better advice than “live like a college student.” I’m sure I’m not the only person to experience lifestyle deflation during graduate school. Many of our peers who went straight from college to a real job put themselves immediately on a treadmill of lifestyle inflation: every year as their income increases, their living expenses increase commensurately, so that their potential for growing their wealth or putting their money into their values is squandered or hampered. Those of us who are spending many years living on a (likely static) stipend experience a solidly deflated or non-inflating lifestyle. It’s difficult to live through, but intimately discovering this deflated lifestyle is incredibly powerful once your income increases post-graduate school. You will have an internal check against mindlessly inflate your lifestyle year after year. If you continue with your deflated lifestyle to any degree when your income is higher, you can make quick progress in building your wealth.

Further reading: Is “Live Like a College Student” Good Advice?; Earning More Does Not Cure All

The theme among all these advantages is that they confer lessons and skills over a period of time that is long enough to deeply learn but not indefinite. Of course, if your income remains low, you’ll need to keep using them. If your income jumps post-graduation and you employ the skills, however, you can gain much more satisfaction from your money than someone who doesn’t have the skills. You have the option of keeping your baseline expenses low while using the rest of your money in ways that are of high value to you.

One thought on “A Low Income Is a Blessing in Disguise”

  1. Love your point about combating lifestyle inflation! Assuming a higher income after graduation, if a PhD continues the same basic baseline standard of living, s/he can make quick progress on paying down student debt and investing. My post graduation goals have been to pay off my highest interest loans quickly and max out my IRA. Great advice here.

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