The largest line item in nearly every graduate student’s budget is housing. Whether you own your home or rent, whether you live on campus or off, whether you live in an apartment/condo, townhouse, or single family home, unless someone is subsidizing it, you are almost certainly spending the biggest chunk of your income on your abode.
If your rent is $400 per month and you spend five years pursuing your PhD, over the course of your studies you will spend $24,000 on rent. If your rent is $1,000 per month and you spend six years pursuing your PhD, you will spend $72,000. These are staggering numbers, especially when you compare them to your annual stipend. Your decision of where and with whom to live is almost certainly the most financially impactful budget decision you will make during graduate school.
Housing is a very tricky expense category to budget. There is no argument that you need somewhere to lay your head. A certain fraction of your housing spending is simply a baseline that covers a necessity. (That is, unless you can get really creative, such as by living in a van.) But you can’t write off your entire housing expense as a “need,” especially if you then let yourself off the hook from evaluating its cost carefully. A fraction of your housing spending is “want” as well. Perhaps you are paying a bit more for a desirable location, an amenity, extra square footage, updated features, a parking spot, or solitude. There’s nothing wrong with wanting to upgrade from a Spartan home, but you must be honest with yourself about what aspects of your housing you could dispense with if push came to shove.
What makes housing even more special in terms of your budget is that it is a fixed expense. Once you settle on where you’ll live, your housing costs are locked in for the term of your contract. It’s difficult to change your housing costs because that involves moving or adding/subtracting a roommate. That means that you can lock in a high rate – or a low rate. Fixed expenses represent excellent opportunities for cost reduction. If you are looking for a simple, long-lasting way to reduce your spending, target a fixed expense. You have to make the decision to reduce it and put in the effort one time to carry out your decision, but after that you have the lower rate set every single month in perpetuity. And what better fixed expense to target for reduction than your largest one, housing?
The most remarkable aspect of your housing decision is that you typically have to make its first iteration before matriculating into your graduate program. If you are moving to a new city, you have to search for and secure your housing with next to no knowledge of the rental market, possibly sight unseen or after one scouting trip. Therefore, your first dwelling in graduate school may not be the most optimal for you financially. Although you should ask for advice from older graduate students when you make that initial housing decision, nothing is as informative as actually living in your city for a few months or a year.
If you haven’t yet moved once within your grad school city, take the opportunity right now to re-evaluate your current living situation. You likely have a totally new perspective on the decision compared to the last time you made it. Even if you have moved once with an intimate knowledge of the local housing market, your financial goals and budget evolve with time; perhaps you are different now and you require a new housing arrangement. It takes some patience and commitment to decide to move and then wait several months to follow through, but a significant enough reduction in housing expense makes the process worthwhile.
[The decision to purchase a home while in graduate school has an enormous financial impact. There is a great amount of financial risk associated with buying a home (both upside and downside). Buying a home is more expensive in the short term while renting is more expensive in the long term. The problem is that no one can predict whether your time in graduate school is short-term or long-term. The housing market could boom or bust during your tenure at your university. You might end up with a home that needs a lot of costly repairs. You could arrange for renters who essentially pay your mortgage for you, or end up with a landlord’s nightmare. You have to make careful calculations and considerations, but there is always a gamble involved. If you are already a homeowner, there are still a few ways for you to reduce your housing costs, such as selling and moving, taking on a roommate, or refinancing your mortgage.]
Have you re-evaluated your housing costs since you moved to graduate school? If you were able to reduce your spending on housing, what would you do with your extra cash flow?