I am privileged to have started grad school debt-free and am now earning money as part of the program.

I have saved enough money to cover my expenses for a month and a half in a fairly high-cost-of-living area. Dave says I should keep adding to this fund until I can support myself for 3-6 months. However, by the time I have that much money I will have practically graduated and my entire financial situation will change. (I am basically assured a job after graduation.)

Aside from this I have $1000, slowly growing each month, that I don't want to spend but also don't know how to allocate. I figure my options are:

  • Keep adding to my emergency fund
  • Save for retirement (which I haven't started)
  • Invest in something cheap and low-risk, like a mutual fund

What do I do with free cash from a very secure, but relatively small source of income?

2 Answers 2


My graduate stipend was wage income so I could make Roth IRA contributions. Don't lose the year; you can withdraw nominal contributions if needed. What you choose is less important than making the contribution.


Congrats on making it this far debt free. It is rare, but nice to be in the situation that you are in.

The important thing here is that you want to remain debt free. That's really what the emergency fund is all about: it keeps you from needing to go into debt should something unexpected happen.

You've got 1.5 months worth of expenses saved up, and that's great. If you don't have a family or other responsibilities, that might be enough, but think about this: how are you paying for school, and what would happen if those funds stopped coming in? If you are paying for school out of your own income, what happens if you lose your job? If someone else, perhaps your parents, is paying for school, what happens if they are suddenly no longer able to do so? While you have extra cash, you want to be saving it up for situations like this.

If I were you, I would build up that emergency fund until it got to the point where it could pay all your expenses and tuition until graduation. Hopefully, you won't need to touch it, but it will be there if you need it.

Since you need to be able to access your money quickly, it is generally recommended to park this money in a savings account, where it is very safe. Mutual funds are a great way to invest, but they are not safe in the short term.

Don't stress out about not being able to start retirement investing just yet. Making sure you can finish school debt free is the best investment you can make right now. After you graduate and land a job, you can start investing aggressively.

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