Question: I will finish my Ph.D. in June 2008 in business. Because my income over the past five years has been variable (from unpredictable teaching assistant and research work), I have not really created a "budget" per se. I'd like to avoid tracking every penny I save, but I also want to start saving for retirement and paying off my $30,000 educational debt. I've saved about $10,000 in the last year in an ING Orange Account. I wanted to put it in an index fund but need access to it in case of medical issues (I have had 7 surgeries during grad school). Also, if I get a job paying a high salary as a visiting professor, I am wondering if it would be stupid to try to pay off all my debt in one year. After all, I'd like some security if the academic job market does not go my way in 2009. Thanks. Susan

Answer: I don't think it would be stupid for you to pay off the debt. But I do agree with your concern that you could end up in a cash flow bind if the academic job market doesn't go your way or if your health deteriorates again. I would plan on spreading out debt repayments over a few years, which is still fairly aggressive.

By the way, for some reason "cash" is often looked down on as an investment. Yet in the current troubled economic environment cash is king. Plus, you only want to put money that you won't need for, say, five years or more in a broad-based equity index fund (like the Standard & Poor's 500, the Russell 3000, or the Wilshire 5000).

On the budgeting side, I wish I could write the line that budgeting is fun. But I can't. However, the chore of creating and sticking to a budget is worth it. I can emphatically state that within a relatively short period of time the result from fashioning a budget is genuinely liberating rather than constraining. For one thing, a household budget is the starting point for taking control of your finances. It's the baseline for all your saving, investing, spending, and giving decisions. For another, a budget is really where values are transformed into reality. The real payoff from budgeting is this: you spend your money where you want it to go and save for what you would like to do with it.

You don't need to spend enormous amounts of time tracking data. For a relatively small investment in time and effort upfront--usually a couple of months--a budget will become a lifetime of good financial habits. At that point, ballpark figures and estimates are fine for most people. One last point: make as much of your savings automatic as possible, from participating in a retirement savings plan at work to having a portion of your checking account automatically siphoned off into a savings account every month.

About the author

Chris Farrell is the economics editor of Marketplace Money.
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The only budget I've had any luck with is to go cash for everything but bills and gasoline. Every week my wife and I take out a chunk of money for Grocery's and we each get a chunk of money for "allowance." If we don't have the cash in our wallet, we don't spend it until the next week.

Of course there are exceptions when we really feel like we need a few things at the store a day or two before allowance day, but by sticking as much as possible to the cash economy, those little trips are easily absorbed.

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