Financial Literacy for PhD Students: Understanding the Rule of 72 and Maximizing the Return on Your PhD

In academia, financial literacy often takes a backseat. However, as a PhD student, understanding the financial implications of your decisions can be as crucial as your research. One such financial concept that every PhD student should be familiar with is the Rule of 72. This simple rule can help you understand your finances better and make informed decisions. In this article, we will explore the Rule of 72, discuss the return on investment (ROI) of a PhD, and provide strategies to maximize this return.

(Read this post about personal finance during your PhD if you find this one useful)

Understanding the Rule of 72

The Rule of 72 is a financial concept used to estimate the number of years required to double an investment at a given annual rate of return. Simply divide 72 by the annual rate of return, and you get the approximate number of years it will take for your investment to double. For example, if you have an investment that earns an annual interest rate of 6%, it would take approximately 12 years for your investment to double (72 ÷ 6 = 12).

This rule is particularly useful in understanding the power of compound interest. Compound interest is the interest calculated on the initial principal and the accumulated interest from previous periods. It’s often referred to as “interest on interest” and can significantly increase your savings or investment over time.

Here are a few more examples of how the Rule of 72 can be applied:

Example 1: Savings Account

Let’s say you have $10,000 in a savings account that earns an annual interest rate of 3%. Using the Rule of 72, you can estimate that it would take approximately 24 years for your savings to double to $20,000 (72 ÷ 3 = 24).

Example 2: Investment Portfolio

Suppose you have an investment portfolio that earns an average annual return of 8%. Using the Rule of 72, you can estimate that it would take approximately 9 years for your investment to double (72 ÷ 8 = 9).

Example 3: Inflation

The Rule of 72 can also be used to estimate how long it will take for inflation to erode the purchasing power of your money. If the annual inflation rate is 2%, it would take approximately 36 years for the purchasing power of your money to be halved (72 ÷ 2 = 36).

As a PhD student, the Rule of 72 can be applied to various aspects of your personal finance management. For instance, if you’re saving for retirement or paying off student loans, this rule can help you estimate how long it will take for your savings to double or for your debt to double if left unpaid, given a certain interest rate.

The Return on Investment of a PhD

The return on investment (ROI) of a PhD is a multifaceted concept that goes beyond mere financial gains. It encompasses both tangible and intangible returns that can significantly influence your personal and professional life. Let’s explore these aspects in more detail.


  • Field of Study: Some fields of study may offer higher financial returns than others. For instance, PhDs in fields like engineering, computer science, or business often lead to high-paying jobs in both academia and industry.
  • Country: The country in which you work post-PhD can significantly influence your earnings. Countries with strong economies often offer higher salaries for PhD holders.
  • University: The reputation of the university from which you earn your PhD can also impact your earning potential. Graduates from prestigious universities may have access to a wider range of high-paying job opportunities.
  • Career Path: Your individual career path post-PhD can greatly affect your financial ROI. For instance, a career in academia might offer different financial returns compared to a career in industry or entrepreneurship.

The financial ROI of a PhD is often the first thing that comes to mind when considering this degree. It’s typically calculated as the increase in earnings potential over a lifetime compared to the cost of obtaining the degree. However, this can vary widely depending on several factors:

Non-Financial ROI

While the financial ROI is important, the non-financial returns of a PhD are equally valuable. These include:

  • Intellectual Satisfaction: A PhD allows you to delve deeply into a topic you are passionate about. The intellectual satisfaction derived from contributing new knowledge to your field can be a significant return on your investment.
  • Skills Development: During your PhD, you’ll develop a range of transferable skills, such as critical thinking, project management, and communication skills. These can be beneficial in a variety of career paths.
  • Personal Growth: The journey to earning a PhD can lead to substantial personal growth. The process of overcoming challenges and achieving your goals can boost your confidence and resilience.
  • Contribution to Society: As a PhD holder, you have the opportunity to contribute to society through your research, teaching, and service. This can provide a sense of purpose and fulfillment that goes beyond financial gain.

Calculating the ROI of a PhD

Calculating the ROI of a PhD involves considering both the financial and non-financial aspects. Here’s a step-by-step guide on how you can do this:

Step 1: Calculate the Total Cost of Your PhD

The first step in calculating the ROI of a PhD is to determine the total cost. This includes tuition fees, living expenses, and any potential income lost during the years spent studying instead of working full-time. Don’t forget to factor in any student loans that need to be repaid.

Step 2: Estimate Your Increased Earnings

Next, estimate the increase in your lifetime earnings that can be attributed to obtaining a PhD. This can be challenging as it varies greatly depending on your field of study, career path, and geographical location. However, you can use salary surveys and statistics to get a rough idea.

Step 3: Calculate the Financial ROI

To calculate the financial ROI, subtract the total cost of the PhD from the increased earnings, then divide by the total cost. Multiply the result by 100 to get a percentage. A positive ROI means that the increased earnings outweigh the cost of the PhD, while a negative ROI indicates the opposite.

Step 4: Consider the Non-Financial ROI

As mentioned earlier, the ROI of a PhD is not just about money. Consider the non-financial benefits such as personal satisfaction, intellectual growth, and the opportunity to contribute to your field. While these benefits are hard to quantify, they are important factors to consider when calculating the overall ROI of a PhD. You can weight your calculation based on what you believe you will subjectively get out of your PhD.

Step 5: Make an Informed Decision

Once you’ve calculated both the financial and non-financial ROI of a PhD, you can make an informed decision about whether or not to pursue this path. Remember, a PhD is a significant investment of time and energy, so it’s important to consider all aspects before making your decision.

Check out this post if you want to learn more about whether PhDs are worth it.

Strategies to Improve the ROI of a PhD

Improving the ROI of a PhD involves maximizing the potential returns and minimizing the costs. Here are some strategies:

  1. Choose Your Field of Study Wisely: Some fields of study may offer higher financial returns than others. Research job market trends and salary data in your field of interest before making a decision. Check out the PhD Program Rankings. Also, here is a comprehensive list of PhD Programs.
  2. Seek Funding: Look for programs, scholarships, grants, and assistantships to help cover the costs of your PhD. A good PhD Program will often be fully funded. This can significantly reduce your financial burden and improve your ROI.
  3. Gain Relevant Research Experience: Look for opportunities to gain relevant research experience during your PhD. This can enhance your skills, broaden your knowledge, and increase your employability after graduation.
  4. Network: Build a strong professional network during your PhD. This can open up opportunities for collaborations, job offers, and other career advancements.
  5. Plan for Your Career Early: Start planning for your career early in your PhD. Identify your career goals and develop a plan to achieve them. This can help you make the most of your PhD and increase your ROI.

The Rule of 72 and Your PhD: A Practical Example

To illustrate how the Rule of 72 can be applied to your PhD journey, let’s consider a practical example. Suppose you have a student loan with an annual interest rate of 6%. Using the Rule of 72, you can estimate that it would take approximately 12 years for your loan to double if left unpaid (72 ÷ 6 = 12).

This calculation can be a wake-up call, highlighting the importance of paying off your student loans as quickly as possible. It also underscores the significance of seeking funding opportunities to reduce your financial burden during your PhD.


Financial literacy is an essential skill for PhD students. Understanding financial concepts like the Rule of 72 can help you make informed decisions about your finances. Additionally, being aware of the potential return on investment of your PhD and employing strategies to maximize this return can significantly improve your financial situation. Remember, the journey to a PhD is not just about academic achievement; it’s also about making smart financial decisions that will benefit you in the long run.

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