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I'm a Grad Student soon to graduate and recently came into a good deal of money, where do I start?!

I'm 38yo female & I've come into money (over 50k) & I'm soon to receive my doctorate, I'll soon have to begin paying back student loans but will also see a significant jump in my income... I'm not sure where to start. Do I plan for retirement, pay down my loans, invest? I have no clue... any guidance is greatly appreciated.

Oct 11, 2013 by Kate from Oakland, CA in  |  Flag
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First of all... Congratulations on receiving your doctorate. The dissertation process is grueling, and it is fantastic that you managed to come through.

You will likely get different answers from different people.

The first is of course... it depends (sorry).

You have given us some information, but typically in the financial planning process we would have all of the information so we could help you make an informed decision. For example: When would you like to retire? How much do you currently have saved for retirement? Do you have children? Do you have large expenses coming up soon? Will you have pension opportunities with your job? Do you believe Social Security will be around when you retire? When do you want to retire?

Now, to sort of answer your question, I always start with the most mathematically advantageous application for the $50k. Will paying interest on the loans exceed your return on your retirement? If so, then paying the loans off makes sense. If not, placing that money in retirement makes mathematical sense.

That said, from a behavioral perspective, people typically do not want to do what is mathematically advantageous because it may not "feel" right. The rational part of our psyche does not like certain choices.

If I were you, I would look for somebody who does fee-only financial planning (if possible, find someone who specializes in folks who have doctorates - ask your cohort and professors who they use), and then see if you can get a full evaluation of your situation.

I hope that helps!

1 Comment   |  Flag   |  Oct 12, 2013 from Apex, NC

Dear Soon to be PhD. Given the limited knowledge of your situation I might suggest saving these funds in an "emergency " savings account vs. Investing or paying down debt. Hopefully the salary increase you are hoping for will come through, but if it doesnt' or worse your emloyment is not as stable as hoped these funds might come in handy. Once your salary actuall does go up and you feel secure in your new position, then I would suggest paying down studen debt or investing. (starting with your company qualified plans) But maintaining an emergency fund should always be a part of a secure financial plan in my humble opinion.

Flag |  Oct 12, 2013 near Roseville, CA

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One thing to consider, that a lot of us don't, is the establishment of an emergency fund. You say you will earn more in the future, but there is still the possibility that you may end up in a situation where you need to live without income from a job for a temporary period.

While I agree that the ultimate answer to your question is "it depends", a good place to start is to have 6-12 months worth of expenses available for the unexpected/unforeseen. Your emergency fund should be in an invested in asset that doesn't fluctuate in value. That most likely means something boring like a Money Market Account or CDs.

Congrats and good luck.


1 Comment   |  Flag   |  Oct 12, 2013 from Alexandria, VA

thank you all for the feedback, and in respo
nse to additional info requested. I don't plan to retire until I'm in my 80's god willing, I'm not to worrie
d about a safety net because I have a good nest egg already for that and I also have a sustained income to cover my basic costs & that is w/o employment. So I'm absolutely sure that any job I get will provide a substantial increase and although it's not in writing I'm confident I will have a post doc position beginning next summer taking my earnings up by 50-60k a year. Additionally, I plan to work for the government or non profit for 10 years to take advantage of the loan forgiveness programs offered so that's another reason I'm not sure if paying down the loans is the right decision. Hope this clears some of the confusion, I was limited in what I could post in the initial question. :)

Flag |  Oct 12, 2013 near Oakland, CA

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Write down your goals and prioritize. If something can be handles quickly apply all resources towards that goal. If it is long-term you may want to sprinkle resources between savings goals and debt payoffs. Make sure you keep a healthy emergency reserve and good luck!

Comment   |  Flag   |  Oct 15, 2013 from Grandville, MI

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Kate, you mentioned you already have a nest egg, and you will be earning a decent wage. Life has a way of throwing us curves, and so I would steer you more towards being pragmatic; not relying at this second on future anticipated earnings. I would not want to see you pay $50,000 of student loans, and then have nothing but anticipated earnings.

As financial advisors, we generally consider 3 – 6 months of expenses as an emergency fund. We do not really know what your expenses are, nor do we know any specifics about your expenses. If your student loans are high interest, you might want to accelerate payments some, but not just pay it off with all $50,000. If your payments are low, I would encourage you to be less anxious to pay off what might be ‘cheap money’.

Seek advice from a financial advisor in your area, preferably a CFP®. Find a financial advisor you feel comfortable with.

Comment   |  Flag   |  Oct 15, 2013 from Delray Beach, FL

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I know that to a student $50,000 sounds like a lot of money but it is not! Focus on the three most important things in your life today, one staying healthy, two completing your Doctorate education and three finding a rewarding job and career. Park ALL the money in a bank account and take no risks!! This is your emergency fund and future relocation fund! Only use these funds if you need something for school, medical related, or for other emergencies. Once you have your education completed and working at your new job, then and only then will all your retirement, tax and investment questions have meaning. Until then, park the money at a bank and keep studying!

Please contact a fee-based financial adviser when you are established and want an integrated financial plan.

Comment   |  Flag   |  Oct 14, 2013 from Milwaukee, WI

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Outside of having a loan with an astronomically high interest rate that you want to pay down, it makes the most sense to start an emergency fund with the money in my opinion.

My suggestion is to simply put the money into a bank account. I know it's not going to get a great return and it won't help you get out from the student loans that you have right now, but the first step in a successful financial plan is always making sure you have a sufficient emergency fund setup.

Think about it this way. If you were to pay down your loans with that money and then a situation came up where you absolutely needed some money right away, where would you go to get it? If your emergency fund is in place, you have the answer, if it isn't things could get much more complicated.

Comment   |  Flag   |  Oct 14, 2013 from St. Louis, MO

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