Establishing an Emergency Fund for Grad School or Changing Careers
Developing a back-up plan has been a recurring theme on Post Academic. Thanks to the shrinking job market, both grad students and even full-fledged professors must continue to build new skills over time. That way, “post academics” can make a graceful transition into a new profession.
Part of making that graceful transition, however, is having enough money during that scary “in-between jobs” phase. An emergency savings fund can help you breathe easy and make the right job decisions. A career change is scary enough without worrying about how you’re going to put food on the table. But how do you build an emergency fund when you are an underfunded academic?
Figure out how long your emergency fund should cover. Financial experts can’t seem to agree on how many months of unemployment you should cover. Some say three, some say six. In this economy, set a base goal of three, especially if you are on grad student wages, but try to aim for six before you either graduate or leave your program.
Determine how much you spend a month. Tracking spending and budgeting can be overwhelming, especially if you read the tips on decluttering and unhoarding. Yet knowing your monthly needs is also empowering because, if you don’t get that postdoc, you can look at your bank account and know exactly how long your money is going to last. Then multiply how much you spend a month by the number of months your emergency fund should cover, and you have your target amount.
More after the jump! Image by ADwarf, public domain, Wikimedia Commons.
Open a savings account. Instead of letting your money get moldy in a checking account, open up a savings account. Online savings accounts, like the ING Orange account tend to have higher rates. Rates are measly at the moment, but the point of a savings account is liquidity, not return. A CD may offer a slightly higher rate of return, but if you want that higher rate of return, choose a short-term CD. If you get the urge to invest after seeing the low rates on a savings account, repeat this mantra: “A job and an emergency fund first, stock market second.”
Set up automatic deductions for the savings account. In this scenario, the university direct-deposits your paycheck, and you can tell your bank to shift X number of dollars a month from your checking to your savings account. By setting up automatic deductions, the money is gone before your hot little hands can touch it. Otherwise, you’ll just forget to move the money to a spot where it can earn a little interest.