My daughter just graduated from undergrad and landed her first professional job. She’s excited and making enough to support herself if she lives frugally with a roommate (international relations degree living in DC). She’s asking advice regarding money and budgeting. Does anyone have good books, articles or budgeting programs? She doesn’t have any debt. She’ll invest 4% in 401K to get the company match. She wants to go to grad school. Should she consider a Roth for this? (No idea if this forum, grad school or parent cafe is where I should post this.)
Tell her to start reading Michelle Singletary’s column and weekly chat in the Washington Post. Lots of good personal financial advice there.
The difficulty with putting grad school savings (rather than retirement savings) into a Roth, is that there are restrictions on how soon, and how much, she can pull out of that account. She would be better off using a high-interest savings account for the grad school money.
Also, depending on what she needs grad school for, and the specific field of study, she might not need to pay much at all for that grad degree. Her employer might pay or she might get funding from the grad program.
The contributions to a Roth IRA can be taken out anytime, tax free and penalty free. The earnings are a different matter. 529 savings for graduate school should also be considered, but she will have less flexibility with a 529, as any distributions must be taken out as both contributions and earnings on a pro rata basis. There are lots of other considerations as well, but an online conversation is not the best way to exchange this information.
Send her to bogleheads. Really you are looking at short term small $$ right? Start off at least in an Ally savings account (2.2% interest) and consider a CD ladder, check out vanguards Roth options, but really, her best investment is finding cheap or free grad school.
She should check out evening grad school programs (if those are offered in her field) affiliated with strong grad programs at reputable Us. She can continue working and paying for her living expenses and even get a scholarship or two.
I get Michelle Singletary’s articles sent to my email through ArcaMax. The articles are titled The Color of Money She also has a facebook page. She really does give good financial advice.
It might also be good to consider where she wants to apply when she is ready to apply. Several schools offer good support for IR Master’s degrees; DD received full-support (tuition and living stipend) from one, and was offered full tuition at another, and various scholarships from state school. Yes, encourage your daughter to save, live frugally, etc, but also encourage her to pick wisely the schools she applies to, and to focus her work so that she has a compelling story to tell the admissions committee. Congratulations to your daughter for her graduation and for finding a job in her field!
I have simple budgeting idea – make sure she learns to cook, and considers eating out a wild extravagance. I work with a lot of new grads, and they mindlessly spend a ton of money on eating everywhere but their own house. They come to work with a $6 latte and a $4 breakfast whatever, nearly every day. That’s $200 a month, but they are mystified by where their money is going, and certain that “everybody” avoids the kitchen.
Agree with @greenbutton. The younger bunch at the office seems to be the ones who always run out to buy their lunches instead of bringing them. One of the problems possibly comes from shared living: it is hard to cook in a kitchen shared by a bunch of other folks, and the fridge is not always big enough for three or four “families of one” sharing an apartment (as baby kid discovered).
Have her closely check whether or not her employer subsidizes grad school. It’s not always something that is obvious. Especially at larger corporations. If the degree is approved as related to career path, my firm offers 10k per year. Probably not enough but with savings and planning it can go a long way towards helping.
If not an option, I would always suggest a young grad consider these benefits when considering a first job or two.
What kind of grad program is she interested in?
Would like to second- cook, make coffee at home, bring a lunch, clean your own place, prioritize spending on self.
She’s already going to contribute to 401k. Forget that money, it’s not for spending.
She now has to decide how she wants to save for other things. She should move the ‘grad school money’ to a separate account every payday, be it a 529 plan or a savings account. She should figure out an amount that is comfortable from her budget and again, that money is gone. She could also add ‘extra’ money to that account - bonuses, rebates, refunds, gifts. If she pays herself first, she won’t forget to put the money in there and ‘accidentally’ spend it on coffee or eating out. It might take a few months to figure out how much she needs because of quarterly or annual bills like insurance or utilities.
How much to put in can be determined by how willing she is to do the things others suggest, like cooking at home and drinking the office coffee rather than Starbucks. I think she’ll be really happy watching the accounts grow.
She wants to study International Relations with a focus on the Environmental Studies. I doubt these are fields that have funding but if so I would love suggestions. She is serious about getting her PhD but she just graduated and it’s her first week at a professional job and she’s loving it.
She’s trying to be fiscally responsible. Fill out the forms at the company properly and save for her future goals. Thanks so much for the info shared above so I can share with her.
She’s very frugal-- roasts veggies every Sunday to eat throughout the week and brings her lunch to work.
She does want to socialize more so hopes to go with a co-worker to lunch once a week. Starbucks is for social events not for grabbing a latte. She is not a name brand or big clothes shopper either.
I forgot to add that she doesn’t know yet if this company would pay for grad school costs.
A PhD should be funded, or don’t do it. Typically a student gets enough of a stipend to live on and tuition is waived. For the first 2 years or so they usually TA and take master’s classes. Then they move into the research phase of the degree. So if a PhD is her plan (and if she has a good idea what she wants to do with it), she shouldn’t be paying for it, Now going in with some savings and frugal habits is still very helpful!
The quality/ reputation/ prestige/ selectivity/ connections of the master degree is also important, not just the cost.
I think she wants to wait 5 years to pursue her PhD to save money for it. Is there a reason to pursue this sooner?
It takes 5-6 years to get all the way through a PhD program, and they pay you. So I see little benefit in waiting if she knows she wants to do it. Does she have a prof from college she could speak to about this? They can often advise on program selection, and she’ll need recommendations (2 or 3, depending on the program). She’ll need to take the GRE, too.
If she is loving her current job, she should work for awhile and enjoy it!