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Financial Planning for Scientists

One thing I noticed missing from my grad school education was some sort of financial plan. It seems that most of us spend a lot of time building our intellectual capital--learning new theories, new techniques, and new ways of thinking--but we spend almost no time building our financial capital. It's almost as if there's a stigma attached to it--you can't possibly be a hard-core scientist if you're worrying about your stock portfolio or if you're using the lab's Mac to day trade.

And who has money for it, anyway? With the rising tuition at most schools for undergraduate education, the increasing length of time spent in grad school, and the meager postdoc salaries people are getting for two, three, even four postdocs, it's a wonder anyone has money for a beer, much less for a retirement plan. These days, it's even a challenge to retire with all your student loans paid off

So, you may ask, why is Next Wave even bothering with this series on personal finance?

Well, it's simple. The earlier you start planning for your retirement, the earlier you'll be able to retire. Or the better off you'll be when you retire. A simple example illustrates this point. Tom starts saving at 25 years of age, whereas Bill waits till his second postdoc is finished--at age 32. They both save $100 a month until they're 65. Finally, let's suppose that they both have investments that are earning them 8% a year, compounded monthly. At age 65, Tom will have almost $350,000, but poor Bill will have less than $200,000 to his name. In order to come up with the same amount that Tom has, Bill would have to keep working until he was 72. Or, he'd have to invest about $180 a month from 32 to 65 years of age in order to catch up with Bill. That's almost double the cash! Scary, eh! But that's compound interest for you!

But financial planning is about more than just retirement and that lump sum at the end of a long and hard life. It's about building up a "buffer" of capital. When you're making stock solutions in the lab, you try to make more than you need so that you don't need to make the solution every single time you want to run the experiment. Financial planning is about having a financial buffer. So that you can afford to wait for something perfect and not take the first job that comes by. So you can take a week off and go to Cancun. Or so you can go back to school, if that's what tickles your fancy. I had a professor who referred to this buffer as "f**k you" money--you keep it around so that you have the power to say those words to your boss when you don't want to work for him or her anymore. And so that you are never handcuffed to a job in order to pay your bills.

In this series we'll learn all about financial planning. We'll start with some tips on how to save more money than you do right now. That article will be followed by a look at building a set of financial goals. Once we've got some money to play with and some goals to move toward, we'll start looking at where to place the money. We'll learn about various investment options and their risks and rewards. We'll learn about how to pick a stock and how to balance a stock portfolio. We'll talk about stock indexes, mutual funds, bonds, and foreign exchange. We'll even evaluate riskier investments like derivatives: options, warrants, short positions, real estate income trusts, commodities, and futures. As part of the series, we'll evaluate whether renting or buying a home makes more sense for you. Finally, we'll put it all together and help you plan your own personal portfolio.

So stay tuned! No matter what career option you plan to pursue, this series is sure to be helpful.