In this episode, Emily conducts an initial financial coaching session with Elana Gloger, a PhD student at the University of Kentucky and the host of the Dear Grad Student podcast. Emily and Elana talk through Elana’s balance sheet and identify several strategies she can implement to pay off her credit card balance and stop needing to time her bills to her biweekly paychecks. They also go over the first few steps in Emily’s Financial Framework, from saving a starter emergency fund to investing for retirement, as the recommended sequence of financial goals for Elana to accomplish prior to finishing grad school. Once you finish this episode, head over to the Dear Grad Student podcast to listen to Emily’s interview with another guest on individual and institutional financial matters in grad school!
Links Mentioned in this Episode
- Find Elana Gloger online on Twitter
- Find Dear Grad Student on their website, on Twitter, and on Instagram
- Dear Grad Student Podcast, Episode 27: Grad School Finances: Assistantships, Negotiating, & Challenging Institutional Financial Barriers
- Related Episodes
- The Academic Society: Grad School Prep
- Personal Finance for PhDs: Coaching
- Personal Finance for PhDs: Tax Workshop
- Personal Finance for PhDs: Community
- Personal Finance for PhDs: Podcast Hub
- Personal Finance for PhDs: Subscribe to the mailing list
00:00 Elana: And I think so many other students are in my position of: “Where do I start? How do I do this? It’s not possible with my stipend.” And, you know, we’re all in different levels of privilege in terms of finances, but there are little things that all of us can do and certainly steps that we can start with. And I think that this is going to be great for anybody at those beginner steps or living similar to me, which is just on that cycle of the clock of a paycheck and rent and paycheck and rent, and credit card and all of that.
00:29 Emily: Welcome to the Personal Finance for PhDs podcast, higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season eight, episode nine, and today my guest is Elana Gloger, a PhD student at the University of Kentucky and the host of the Dear Grad Student podcast. Elana is just starting out with handling her finances intentionally. So we decided to conduct an on-air financial coaching session. This was a really enjoyable episode for me to record, and I think you’ll get nearly as much out of it as Elana did. We talk through Elana’s balance sheet and identify several strategies she can implement to pay off her credit card balance and stop needing to time her bills to her bi-weekly paychecks. We also go over the first few steps in my financial framework — from saving a starter emergency fund to investing for retirement — as the recommended sequence of financial goals for Alana to accomplish prior to finishing grad school.
01:26 Emily: Once you finish listening to this episode, head over to the Dear Grad Student podcast, to listen to a three-way discussion between me Elana and Tyler Hallmark, a grad student who advocates for financial policy change at his university. We discuss what institutions can do to better financially support their graduate students. You may be surprised by the number of solutions we identified to help graduate students out of tough financial spots at both the personal and institutional levels. It was a fantastic conversation that I learned a lot from.
01:58 Emily: If you haven’t listened to Dear Grad Student, before you are in for a treat. I’ve been so impressed with what Elana has built in just the past half year, and it’s been wonderful to collaborate with her on these two episodes. Hit subscribe to dear grad student while you’re there. And for any Dear Grad Student listeners who have come to hear Elana’s coaching session, welcome, I’m glad you’re joining us. Please hit subscribe to Personal Finance for PhDs and let us know on Twitter what you think of this episode. I challenged Elana at the end of our session to follow through with a few specific steps by the time the episode publishes, so let’s give her the accountability she wanted.
02:37 Emily: Now it’s time for the book giveaway contest. In March, 2021. I’m giving away one copy of, I will teach you to be rich by Ramit Sethi, which is the Personal Finance for PhDs Community book club selection for May, 2021. Everyone who enters the contest during March will have a chance to win a copy of this book. If you would like to enter the giveaway contest, please rate and review this podcast on Apple podcasts, take a screenshot of your review and email it to me firstname.lastname@example.org. I’ll choose a winner at the end of February, from all the entries you can find full instructions at pfforphds.com/podcast.
03:19 Emily: The podcast received or review this week titled “Informative and Inspiring”. The review reads: “I love this show and this is the podcast that got me interested in personal finance. Thank you, Emily, for letting me know that even graduate students can start our journey to build wealth. Great podcast!”
03:36 Emily: Thank you so much to the reviewer for this wonderful comment! I’m so glad the podcast has served as a gateway to building wealth earlier in life than you expected. Without further ado, here’s my coaching session with Elana Gloger of Dear Grad Student.
Will You Please Introduce Yourself Further?
03:57 Emily: I have joining me on the podcast today Elana Gloger who is the host of the Dear Grad Student podcast, and a current graduate student at the University of Kentucky. And we’re doing a really special episode today. Actually, we’re doing a swap, so after you listen to this episode, go over to Dear Grad Student, listen to an interview that I did with Elana and another guest on finances and graduate schools. Okay, so listen to both the episodes, but in this episode we’re doing something that I’ve never tried before, and I’m really excited for it, which is to start off a coaching session. So the podcast is only supposed to be about half an hour long. Usually my coaching sessions are an hour, but Elana thought it would be a good idea to kind of show people what coaching with me would be like, and of course get some coaching herself. So Elana, I’m really excited to try this out and thank you so much for suggesting this format for the episode. And will you please introduce yourself to the audience?
04:50 Elana: Absolutely. Yeah. Thank you so much for having me. I had just listened to your episode about financial shame and I thought, no shame here, let’s go for it. Let’s talk about finances and make this happen. So yes. Hi, I’m Elana host and dare I say, producer of the Dear Grad Student podcast. I’m a fourth year PhD student at the university of Kentucky and I’m getting my PhD in health psychology. I do research with psychology and the immune system. So right at that intersection of psych and biology, and I’m super happy to be here today and happy to show people a little bit about grad school finances and what it feels like to have some negative net worth, but we’ll get to that in a second.
What is Money Coaching
05:31 Emily: Yes, we will. So I want to say a couple of preliminary remarks about kind of what the coaching relationship is. As a financial coach, as a money coach, well, one, I’m not a certified financial planner or anything similar to that. So we’re not talking specific investment advice, we’re not talking specific tax advice. This is kind of about budgeting and saving and cash flow and debt and things on kind of that level of finances. That’s one part of it.
05:56 Emily: Another is that as the coach, I’m not in charge of your financial life. These decisions are entirely up to you. I’m here as a resource. I’m here as an educator. I’m here as someone who can maybe prompt you into thinking about things a new way, and maybe help you strategically think through some decisions, but ultimately for the client, everything is up to you and I’m not managing anything for you. There are a couple of notes about that, that relationship.
06:22 Emily: As a preliminary exercise with you, as I do with all my clients, I asked you to fill out a balance sheet and a balance sheet is basically just a record of all of your assets. That’s every dollar in your checking account. That’s any property that you have that has value. Those are on the asset side of the equation and also all of your liabilities, which is all of your debts — credit card, debt, student loans, medical debt, all these kinds of things, and the spreadsheet breaks all that out.
Let’s Talk About Net Worth
06:50 Emily: So Elana the first thing I always ask my clients when we start a session, open up that net worth spreadsheet, the calculation that you did — by the way the net worth is the assets minus liabilities — is how did this exercise go for you? Did you learn anything? Did anything strike you in a new way?
07:08 Elana: I think the first thing, so I filled out assets first and so that’s going to be my checking account, my savings account, the $100 I have in a Roth IRA because I started that after listening to your podcast. But I looked at that and I kind of laughed at what my positive net worth was before putting in loans, because it’s just so small. I mean, just thinking about what that could buy in real life just felt like nothing. It’s interesting because I do regularly use things like credit karma, so I had a general sense of exactly what my debt looked like, but putting it all together and seeing that large negative number as my net worth, mostly I just laughed. But it was helpful to put this all in one place and also to learn that there are lots of different ways that I could have assets. Like there are three different kinds of investment accounts you have listed. And I’m like, I don’t know the difference between any of them. It was also informational, because it definitely gets me thinking there are areas that I have to grow and learn about my finances, above and beyond just knowing like what I literally have or don’t have at this point.
08:18 Emily: Yeah, thank you for saying that. For your spreadsheet, which I’m looking at, you have I would say a relatively simple financial life. There’s not a lot of different kinds of accounts going on. There’s not a lot of different categories of things. The spreadsheet itself is very catch-all, like let’s think of everything we could possibly put in here and throw it down on the sheet, but you — I don’t know how old you are — you’re a grad student and you have a simple financial life as of now. So that is perfectly in line with what I would kind of expect of someone who’s in your position.
08:49 Elana: Yeah, and I’m 25, turned 25 last June, so I’ve only been an undergrad and then a grad student I’ve never dare I say, held a real job. So there’s not a lot of complexities to have gained, I guess, at this point.
Managing Cash Flow
09:06 Emily: If you don’t mind, let’s talk through, we don’t have to use the specific numbers, but let’s talk through kind of the categories that you have filled in here and just make sure that I understand everything that’s going on. It looks like you have what I call cash equivalent — so balances in checking accounts, balances in savings accounts, money market accounts. You have some cash on hand, but you shared with me just before we started, how you sort of operate your cash flow. How does that work on a monthly or whatever paycheck frequency you have; your cash flow, that is?
09:38 Elana: Great question. I have my paycheck for my university as a graduate student, come into my checking account. I’m paid bi-weekly by my university and I am paid year round at the same rate and then taxes change over the summer or if I am not enrolled in full-time classes for a certain period of time. When that money comes in, I essentially have dates in a spreadsheet somewhere deep in my computer of when I am charged for my car payment, my phone payment, different things like that. And I have that all coming out of my checking account because what I don’t want to do is accidentally rack up a credit card debt because that is a little bit too easy for me to do. So when I have cash flow coming in from my paycheck, I have bills pulled out from my checking account and then depending on the timing of the month, I’m either throwing whatever is left over onto my credit card to pay that down, or I’m putting it towards rent. And I do split rent half and half with my partner or just about half and half. My credit card is where I do my spending — grocery trips, Chipotle runs, whatever it might be, that’s done on my credit card. I do that mostly for points and cashback and to build credit because again, 25, don’t own a house, will not own a house for many years. That’s kind of what my cash flow looks like. What we’re both looking at essentially is I keep my checking under about $100 at a time, because otherwise I’m throwing it into credit cards, or $50 a paycheck or so into savings.
11:09 Emily: Okay, got it. And I think what you just described there is like super common for Americans. That’s not to say that I love the system, so I’m going to make a suggestion here for how you can shift that. Let’s talk about the other side of the cash equivalents, which is the credit card balance. What I’m looking at is a credit card balance that exceeds the amount that’s in your checking account right now. Tell me if this is true, but what this says to me is that you are sort of using credit cards to give yourself a little bit of an advance on your next paycheck, is that right? Will you pay off this credit card entirely after your next paycheck arrives?
11:45 Elana: No.
11:46 Emily: Okay, so this is a true credit card balance that you carry at least sometimes at some points out of the year.
11:52 Elana: Yeah, it is usually little bit lower than this. What you’re seeing is I recently bought a domain for my podcast and website services, so it was a little bit higher than normal. It’s usually kept, I would say under about $500, in terms of regularly. And I will say too, as an aside, my stimulus check never arrived, so I was also kind of expecting that. This is also part of what you’re seeing, but I guess I’ll find wherever that is eventually.
12:17 Emily: Yes. And for those of you listening, I think many people are in the same scenario. This is the second round of stimulus you’re talking about, right?
12:24 Elana: Yeah, I got my first one right on time, but not the second.
12:27 Emily: Yeah. The same thing happened to me actually. So we’re recording this in February, 2021. I also was direct deposited my first stimulus check. So totally smooth. That was great. The second one, for whatever reason, the IRS chose to mail the cards, if you’ve heard about those like debit cards, whenever there. They chose to mail the debit cards, but I moved in 2020, so they went to my old address, went back to the IRS, then they had to send them to new address. So anyway, it took a little bit while longer. But if you never received the stimulus check and if anyone listening, never received the second one or the first one, and you believe that you were supposed to, you can claim it on your tax return. So you’ll add it into your tax return. It’s what’s called the recovery rebate credit, and then you’ll get it as an addition on the tax refund, if any, that you would have already received. So it’s just going to be straight added to the money that you receive as a refund from the IRS. So the sooner you file your tax return, the sooner presumably you will get access to that money. And actually we happened to be recording on February 12th, which is the first day that the IRS is accepting returns. So by the time the listener hears this, returns will already be being processed by the IRS.
13:37 Emily: Okay. That was an aside. Ideally, in an ideal world, here’s how I would love to see your cash flow functioning. And the way to get from where you are right now to this ideal world is it’s a little bit confusing because of how you and many other people use credit cards, but it’s very simply saving. You just very simply have to save more money and it’s not going to even look like you’re saving money because your checking account balance is not necessarily going to get bigger for a little while, or your savings account balance, but the debt balance on the credit card will get lower and lower and lower.
Treat Your Credit Card Like a Debit Card
14:14 Emily: The first issue I’m seeing here is just that you are using your credit card, like I said earlier, as an advance. You’re paying for things that you would not be able to pay for it with a debit card. The very, very first step is use your credit card as a debit card or stop using the credit card. And the most extreme response to being in the situation that you are in right now is to stop using the credit card. Even though it gains you points, even though it’s a boon for your finances, but to stop using the credit card until you can kind of train yourself to only use debit. And I want to know what your reaction is to this, because I’m thinking that you might be thinking, “that sounds great, Emily, but I’m living on a grad student stipend, where’s the savings going to come from?” What do you think?
15:00 Elana: I mean, part of me thinks that, except a couple of years ago, I started just automatically shoving money into my savings account every month. And I don’t even notice it. I don’t even feel it. So part of me recognizes that this is possible. I think the other part of me is thinking a lot about, there’s not much going towards a credit score right now. And not that I necessarily need — I bought a car about two years ago, so I’m not about to make a big purchase. I’m not about to get a mortgage. But other than paying off my car loans, my student loans right now are deferred as I’m a graduate student. That is kind of a thing that I think about — what happens to my credit score when there’s nothing contributing to it, except this credit card and that car loan essentially?
15:41 Emily: That’s a really, really good question. You said you use credit karma earlier, so you do have access to your credit score on it. Is your credit score — maybe I’ll just ask you like the range, is it like 740 and up?
15:57 Elana: Yes.
15:57 Emily: Okay, so that is in the great range. Credit scores can go up to 850, but like it’s very rare even to get that higher, even over 800 is like, “Whoa, you’re really trying here.” Your credit is already in a great range and that is because you have the student loans, even though they’re deferred, they still contribute in some capacity to the credit score. The car loan especially contributes to the credit score because that’s an installment loan, so you’re making the exact same payment, or at least what the payment that’s required is the exact same, every month or whatever it is over time.
16:28 Emily: The revolving debt on the credit card, that is to say credit cards are a revolving kind of debt. There are different kinds of debts. They do contribute to your credit score, but you do not have to carry a balance to do that. And even if I’m telling you, “Hey, why don’t you stop using your credit card or at least tries you for a few months”, taking that kind of a small break, maybe even up to six months. I really don’t think it’s going to have any impact on your credit score, but if you did see your credit score drop or something you were concerned about, you could do something like put one recurring charge on the credit card, $20 or less, something like that, and know that that’s part of your budget and build that in and just pay that every single month, but not use it for any of the other variable kinds of expenses.
17:13 Elana: Yeah. That makes sense. I think I could do that. I think my podcast hosting, different things with the podcast are put on my credit card, but real life, I don’t know why I don’t put the podcast in real life, but real life bills are coming from my checking account. That’s really interesting to think about that maybe I already have recurring payments that are going to keep up that credit card use at a low rate, which I also know contributes to higher credit score anyways, that maybe I just need to stop making excuses.
17:41 Emily: I mean, what you just pointed out is another really, really good point is that having a utilization ratio on your credit card, which is the amount of credit, it’s the balance at whatever point in the month the credit bureau is choosing to check. So it’s not like on your statement ending date, it’s not another date you pay. It’s just whatever point in the month they try to check, the balance versus the total amount of credit that’s been offered to you. And so that percentage is your utilization ratio. 30% or less is good, 10% or less is ideal. I don’t know what your credit limit is on that card, but carrying any kind of balance is going to contribute to that utilization ratio being a little bit higher. So yeah, paying it down. Good idea.
18:27 Emily: Now, when you mentioned earlier that some years ago you started, I call the strategy paying yourself first, you, you took money from checking into savings automatically, you never missed it. Do you think that if you stopped using your credit card, you would be able to get by okay? Is there room to naturally adjust your spending down or is this like, Oh no, we need to put together an intentional plan because no, my spending will not naturally reduce, like I need this credit card right now?
18:58 Elana: Yeah. I think I could probably be more intentional. When I think about what I’m really paying my partner every month, I think what I come up against is more timing of when I’m paid versus when bills are due. Part of my issue is that I get paid the same every paycheck, but the first half of the month, almost all of my bills are due, so I am usually coming up against that kind of wall. But I’ve also put myself in that corner because what will happen is, is that all those bills are being paid, so I use my credit card and then I’m paying off my credit card, so then I don’t have money and all the bills are being paid. I’ve kind of gotten myself stuck in this cycle where if I could wean myself down a little bit, I do think that I could manage it. I do think the credit card gives me a little bit of wiggle room to say, I don’t need to check this every day, which I know is a big no-no. It gives me a little wiggle room to say, I don’t need to be typing in to the cent or the dollar amount exactly what I’m spending, because I’m fine. But I think that that’s just financial avoidance, so I think I could probably be more intentional, a little bit more type A, but it’s hard because it’s technically worked out fine so far. I mean, I’m not drowning, so it’s hard to motivate myself a little bit when it’s been fine.
20:19 Emily: Again, I think that sentiment is super, super common. Now, so you do carry at least at some points, a balance on the credit card, so you are being charged, whatever, probably 20% interest on it. It’s crazy high, I’m sure. That is damaging you financially.
20:35 Elana: Yeah, that’s true.
20:38 Emily: But there’s another category person and this is also where you may fall at some points in the year when you don’t have a balance on the credit card, which is “I use my credit card, but I always pay off the balance in full, how is this damaging to me that I’m taking an advance on my next paycheck,” because it is not literally financially damaging you when you’re not paying interest, but I still think it’s a dangerous practice because perhaps this has happened to you is very easy to slip from, “I will get my next paycheck and I will pay off the credit card” to “Oh, no. Something else came up” and hopefully it’s not your income being lost, but maybe it’s just some large expense that was unexpected and “Oh yes. Now I’m not able to pay off their credit card in full.” And it’s such a thin line between those two like scenarios and then you are starting to be charged.
Stopping the Paycheck-to-Paycheck Cycle
21:25 Emily: I’m really glad that you brought up the timing of the paychecks and the timing of your bills, because that was the other thing I’m going to talk about. Because once again, this is like the way I’m pretty sure that most Americans live is timing their bill payment based on their paycheck. And like you, many Americans are paid biweekly. I think that’s probably the most common for proper employees, or maybe they’re paid bi-monthly. But being paid monthly, for example, which is how I was paying in graduate school, is pretty uncommon, and actually people get kind of sensitive about it. Yes, like you’re making a face right now, for the listeners.
21:56 Elana: That sounds very stressful.
21:57 Emily: Okay, but here’s the thing — my like future vision for you and your cash flow is to operate on a monthly basis instead of on a bi-weekly basis. And once again, the solution here is to save up. Basically what I would love for you to have is going into day one of the month, you have a full month’s worth of pay available to spend throughout that next month. You need to get basically two weeks back from where you are now. Essentially what I’m asking you to do is save up one paycheck and have that available in your checking account. Then that second paycheck hits and you’re going into the next month, the next budgeting period, fully funded, fully flush. There’s two stages of this: there’s completely paying off the credit card and not using it for advancing on next paycheck. And then having the discipline to operate on this monthly system instead of on the bi-weekly system. That way you will never worry about the timing of your bills. You always have the money for the entire month in advance available. How does this strike you?
23:00 Elana: Well, first I love that you have a vision for my finances at all, someone needs to. But I think the other thing, when you say that, I’m like, yeah, that sounds amazing because it felt kind of like a weight lifted off. And then I started thinking about the logistics of, okay, well, what cycles are already in motion that I need to start kind of not backpedaling on, but sort of unwinding? So paying that credit card down, I know that also probably means maybe trying to find the stimulus check even before getting the tax return, if possible and then going from there. And I know that the solution is paying from my checking account. Like even when I’m paying off my credit card, I’m like, I wouldn’t have to do this if. It sounds good and I think it just will come down to me planning it out, in terms of what I need to do month to month over two or three months maybe, to officially make that happen, in addition to paying down my credit card. But I think it’s a good strategy.
23:56 Emily: Yeah. So the amount of money that we’re talking about, essentially for you to “find”, to somehow save up and again, it won’t go into your savings account, so it’s not going to feel like savings, but it’s going to feel like your checking account being a little bit bigger and it’s going to feel like your credit card balance being completely eliminated. This is effectively the current balance on your credit card, plus one paycheck. That’s the amount of money that we’re talking about to completely unwind the situation. And it may take months and it may take a year to get this done, maybe faster once you find the stimulus check. But that’s the level of money we’re talking about. So it’s not massive, massive, it’s the credit card balance and one paycheck. But when you have gotten into this situation that you are in right now of timing the bills and of paying off the credit card, I know that it’s not trivial to find that kind of money.
24:48 Emily: I think, I’m not sure we’ll have time for it during the session, but I would love to talk with you about a plan for how to find that money either, maybe it’s some short-term fasts in your spending. To just say, this is not forever, but until I get this under control, I’m no longer going to spend on this or I’m going to reduce this by this amount, and/or increasing your income, which is kind of a whole other conversation, very difficult to do as a graduate student, but would be another solution. If the expense side is too tight and too difficult already, then we can turn to the increasing income side of the equation. I know how hard you work on your podcast and I’m so like I’m cringing even saying like, “you need to do some more work Elana and make more money,” because I know that you’re working so hard on that already, but I think that you should keep in mind that financial relief that you felt when I like express that vision and know that it’s not going to take forever to do this. It’s a limited term project, to find the money in one way or another.
25:45 Elana: Yeah. I think that that’s absolutely true. And you know, you and I have talked, you know, off the record a little bit about podcasting and how that goes, and I think it was a newer concept to me that I could make money off this and how that felt weird, then I got over that really quick. But I think that it really comes down to, you know, I don’t really spend money on clothes that often anymore, there’s already things as a grad student, I’ve had to cut back on, but in doing so I was totally fine. And I know that there are things that I can cut back on and be totally fine.
26:15 Elana: When I think about my life as well, my partner is about to finish up nursing school. He graduates in April God-willing and will have a real person job that will also mean that the little things like a date night or what have you that I don’t mind whatsoever picking up, I also know won’t necessarily come out of my spending or might be a little bit more half and half when he’s not making zero income. I do also know there’s a light at the end of that tunnel in terms of eventually he and I will get married as well. Little things like that, I know that this is possible, but wow, what would it be great to go into him having money and us getting married, with a little bit of a better sense on finances, especially as we talk about, and I know your podcast talks about really building wealth.
26:59 Elana: I want to be able to have investments and know what the heck I’m doing with them and as grad students likely know, I’m not contributing to a 401k. For right now, at least any wealth or investments or retirement, anything is on me to contribute and build up to, and the first step of that is everything that you’re saying. I totally recognize how important it is and it’s just one of those, I hate to say, I’m having a quarter-life crisis this whole year being 25, but it’s just one of those things that I’m like, it’s just time and it’s hard and no one taught me this and that’s okay. I just need to kind of kick my button gear and be like, it’s just time man, stop buying Chipotle three times a week. You can do it.
27:43 Emily: I think the other thing that will come out of this focus for a few months on cash flow, is not only hopefully the zero credit card balance and the flush, going into the month with all of your money in place already. But also as you were just saying some habits and some practices that are going to serve you super well throughout the rest of your life. Because again, most Americans live this way. If you continue in the same pattern and the paychecks get bigger after grad school, but the expenses also get bigger, sometimes the problems can get bigger too, and the trouble that you can get yourself into, if you’re not, as I was saying earlier, disciplined, and strict about the cash flow issue. I think having the best practices in place right now, when things are, as we said earlier, simple, the cash flow amounts are smaller, it’s going to serve you really, really well once you get to those later stages too. And then you won’t have to be like, okay, my entire first paycheck is going to my mortgage payment and maybe even more than that, that whole game. I just want you to not play that game. I don’t like timing games, no more timing games.
28:47 Elana: I don’t want to play this game. I just kind of fell into it and I’m like, okay, this is fine, but it’s not fine. And I don’t want this problem with bigger or more zeros after. Right now, what we’re looking at at my savings account, you and I, that’s really the amount we’re talking about essentially. And my laptop is six years old, so that’s going towards a laptop. It can’t go towards what we’re talking about cash-flow-wise, because it’s truly unbelievable that this thing is still running. But it’s an amount of money that I can manage, and it’s an amount of money that I much rather be saving up this much and not twice as much or three or four times as much because I don’t get it together until I’m 35 or 40 or however old. So yeah, I know you’re right. And it’s also good guidance because I think it’s exactly what your financial framework talked about, about like, it’s okay that you don’t know this and it’s just taking those little steps along the way.
29:43 Emily: Exactly.
29:48 Emily: Emily here for a brief interlude. This announcement is for prospective and first year graduate students. My colleague, Dr. Toyin Alli of The Academic Society offers a fantastic course just for you called Grad School Prep. The course teaches you Toyin’s four step Grad Boss method, which is to uncover grad school secrets, transform your mindset, up-level your productivity, and master time management. I contributed a very comprehensive webinar to the course titled “Set yourself up for financial success in graduate school”. It explores the financial norms of grad school and the financial secrets of grad school. I also give you a plan for what to focus on in your finances each season of the year that you apply to and into your first year of grad school. If this all sounds great to you, please register theacademicsociety.com/Emily for Toyin’s free masterclass on what to expect in your first semester of grad school and the three big mistakes that keep grad students stuck in a cycle of anxiety, overwhelm, and procrastination. You’ll also learn more about how to join grad school prep, if you’d like to go a step further again, that’s theacademicsociety.com/Emily for my affiliate link for the course. Now back to our interview.
Going over the Financial Framework
31:15 Emily: I’d actually like to spend our last few minutes talking about the financial framework, which is what I use with my coaching clients, if they want to, it’s not like super dogmatic, but if they want some suggestions from me on where to go with the finances I use the framework, which I sent to you in advance, so you know a little bit more about it than a typical client would going into a conversation, but just for the listener, we’ll kind of talk through at least the first couple of steps and kind of figure out where you are here.
Step 0: Cash Flow
31:41 Emily: Now, I know where you are because we already identified the cash flow is an issue. That’s actually step zero on the framework, is to get on time with the cash flow and to get, as I said earlier on a monthly basis for budgeting, instead of on this like paycheck by paycheck basis. That’s really the step that you’re on, but I’m wondering, we can talk through this, do you have, sometimes people have other assets that they can throw towards, for instance, credit card debt that they just haven’t been, for some reason. We can talk about the reasons behind that. Let’s just walk through that at least the first few steps and kind of figure out if you’re doing any steps now that you should be waiting on or that kind of thing.
Step 1: Starter Emergency Fund
32:16 Emily: I have just a simple graphic here of the eight steps of my framework, so we’ll just talk through this. Step zero, as I said, is like the cash flow, are we on time with the cash flow? Step one is to save a starter emergency fund. And I think that you do not have an emergency fund right now, right?
32:36 Elana: So my savings that is going to be going towards a purchase of a laptop, I think can be prioritized to an emergency fund if need be. And I’m still contributing money to that. My goal is to be over the cost of the laptop, so I’m not going down to zero when I buy it. I know that that will be possible based on when I’m planning to purchase. However, it will not be a thousand dollars over. So yes, right now; six months from now, no.
33:06 Emily: Yeah. And by the way, you’ve mentioned the savings account for the laptop, and this is a perfect expression of what step three of my framework is, but I’m really glad you’re doing it already. It’s totally okay to do it before step three, which we’ll get to in a moment. But this is very, very great strategy for graduate students to be using, to save up for large purchases like this in advance, because really in your case, the alternative is if you didn’t save up, it’s going to go on the credit card, 20% interest. This is a really great strategy that you’re using.
33:34 Emily: Okay, so you have maybe some cash savings. We’ll see how much once the laptop purchase goes through, but it’s not up to a thousand dollars, which is the bare minimum that I recommend for the starter emergency fund. And you could go anywhere up to two months of expenses. And I kind of say, this depends on how large your financial footprint is. If you’re a renter, you don’t need as large of emergency fund as a homeowner does. If you’re a non-car owner, you don’t need as much as a car owner does. If you don’t have dependents, smaller than if you had dependents. Where do you feel like you fall? Once you’re ready to start on that goal, once the laptop purchase goes through and so forth, where do you want to be? Do you think a thousand dollars is enough? Do you want to go a little bit higher than that in the starter emergency fund.
34:15 Elana: That’s a really great question. I am not a home owner and I do own my car, but I bought it new and I don’t have any dependents. When I think about all of those pieces and the fact that I live with a partner who, by the time the laptop purchase will go out, we’ll be making a decent job pay as a nurse, I do think a thousand is probably comfortable, maybe $1,500 just for any additional wiggle room. I know I’m not spending $1,000 a month, and even including rent most likely, or I’m like right at a thousand, so yeah, maybe $1500.
34:51 Emily: Okay, so one month’s expenses or so. Yeah, that sounds good. Whatever feels comfortable for you because you know, the car thing, I’m glad that you haven’t had any issues with the car so far, but you never know. You could be in an accident. You could pay a deductible on your car insurance. You could pay for a windshield crack, this kind of stuff.
Step 2: Pay Off High Priority Debt
35:09 Emily: Okay, that’s the starter emergency fund, that’s step one. Step two is to pay off all high priority debt. In your case, I would definitely include the credit card. Getting on time/paying off the credit card — getting on time is step zero, paying off the credit card completely is step two. That is to say, if you stopped using the credit card, like you stopped adding new charges to it, that might be your first step towards getting on time, but then you’ll have this balance sitting there/growing a little bit, and then it’s time to pay it down in step two. I see that you have two other types of debt listed here, the car loan and student loans. Does either one of those fall into the high priority debt category. Generally this is debt that’s somewhere between 6-8% interest and higher, not including student loans that are in deferment.
35:53 Elana: Yes. I’ll say two things. First, my student loans are in deferment and they’re all subsidized, so they never gathered interest and are still not gathering interest. My car loan is at 6.6% only because that financing, let me get money off of the car when I purchased it. Now, I am outside the window of how long I have to hold onto that before refinancing, so the smart thing to do would be refinance it at a lower interest rate. I think I can get somewhere like 2.99%, again, my credit score is pretty good, and then just continue paying at the rate that I’m at. I haven’t, because right when I hit that leeway or that grace period, COVID hit and I just was not prioritizing that, but that is sort of my next step. I think I got a 72 month loan at 6.6% because I was going to be in grad school the whole time, the timing made sense, and it was totally fine to get the money off that I did. That is certainly next step in terms of refinance at a lower interest rate and then just keep paying the same amount to make that happen quicker.
36:53 Emily: Okay, I love that you came up with that solution. Great idea! Do you know —
36:55 Elana: My boyfriend came up with that solution, I’m not going to lie.
36:59 Emily: Do you know if the refinancing will cost any money upfront or is it completely rolled into the cost of the loan?
37:07 Elana: Good question. I financed with the car dealership. So I have a Hyundai and I financed with Hyundai financial or whatever it is, and I was planning to refinance with my savings account holder, which is Ally Bank. I don’t know if it costs money to refinance, mostly because I just haven’t taken that next step. But when I did purchase the car, that was a conversation I had. I just had to have the loan for four months and after that, from what they told me, a young female in a car dealership, that it shouldn’t be an issue. So I guess we will see if that is true as I sort of take more steps towards that and look into it more.
37:45 Emily: Yeah. I would say just double check with them, make sure. I think what they’re saying is it will be an issue is that if you try to do it earlier, they would charge you some kind of fee, an early account closure fee or something like that. This actually happened to me when I took out a car loan. Anyway, so just make sure that that won’t happen and then go ahead and refinance, but the thing you just mentioned, keep paying at the same higher rate, that’s actually not what I would suggest that you do, because what you’re going to do is take that debt from being step two high priority debt and bring it down to step five medium priority, or even maybe step eight low priority. Taking that step, the credit card debt is still in that high priority category. And then there are some other steps before we get to five. Are you expressing that you are maybe a bit more debt averse than I, who created the framework is? Is this something you would like to have off your balance sheet?
38:37 Elana: You know, I think when I looked at the numbers, it was something like over a five-year period, I would only save $600 total, if I paid at the rate of the loan and the lower interest rate. For me, rather than paying for the same amount of time and in total saving $600, I guess my thought was, I would rather just have it paid off earlier. I don’t know what the savings comparison is if I paid at the same rate, with the lower interest rate in terms of just that interest differential, but it was just $600, just felt trivial over five years, but maybe that’s not trivial, but it just felt so small that I was like, well, I can just keep paying what I’m doing and that’s fine, but I don’t know.
39:21 Emily: I see this primarily as a cash flow, a boon to have this lower interest rate right now because this is really the first step you should take. Make sure it’s okay, but give this refinance to go through it because whatever you’re going to lower that payment to that’s money, you can get into your checking account that you can get onto the credit card balance. Your money can basically work harder for you in these other areas of your finances, and pretty soon, we’ll get there in a step or two, but pretty soon you’re going to be investing. That definitely, well, I shouldn’t say definitely because the stock market is quite volatile, but over the long-term we can very confidently say, you’re going to earn more in the stock market than you will paying that car loan down.
40:03 Emily: Now your balance is not so egregiously high that I think you need to take however much you refinance for, like another five years or something. I don’t think you need to take that full time, but I’d love to see you getting started with some of these other areas before you return your attention to the car loan. Maybe that’s going to be a step five medium priority debt for you, so you can get it cleared, but I would love to get the investing going first.
40:27 Elana: Yeah. Yeah.
40:29 Emily: Okay. So basically you just made a really big leap, I mean, once you carry out the step, but refinancing is going to be a big leap towards the cash flow issue that we talked about earlier. That is awesome! And really it’s just an interest rate change.
40:42 Emily: Then the other type of debt you have on here is student loans. You mentioned that they’re kind of double subsidized. They’re subsidized student loans, plus we have a federal pause at the moment on interest, so that is at 0% interest and that makes it step eight low priority debt. Just for my own curiosity, do you have any particular plans for how you’re going to repay that once you’re done with grad school. For instance, do you think you’ll use an income driven repayment plan or just straight pay them off? Or what are you thinking?
41:11 Elana: You know, I have not put a single thought to it and I’ll be honest about why. Once my friends started to do that, I was already in grad school and I knew that being enrolled in grad school for six plus years meant that they were automatically deferred and they weren’t collecting interest. It was actually a thought of mine that, Oh, do I start paying that down now, because it won’t make a difference now versus when I’m a postdoc making what maybe, $10,000 or $15,000 more years. Is that really going to feel like anything? I think it’s going to depend on once my partner and I are married, what that financial situation looks like, and if I’m being really honest, I think it’ll be interesting through this presidency to see how much debt I have left after that, because we just really don’t know if and what kind of debt canceling they may or may not do. For now, I don’t have a plan just because it’s really hard to predict. What am I going to make? Will I be married? What will he be making? Will we own a house? It’s just really far in advance and I feel it to be low priority and just helping my credit score with the length of account open kind of thing.
42:13 Emily: Yes. I’m in total agreement. I think that you should not really consider paying anything down in these loans while they’re in deferment while they’re subsidized. Wait until you know what that next job is going to be, the paycheck. Whether or not you’re working for a nonprofit and might be eligible for PSLF or not. And as you said, what your family situation and family income is at that point, there’s just so many unknowns right now. And it said 0% interest. And your balance, we won’t say what it is, but I’m looking at it and it’s small enough that you will be able to take care of this, I think pretty easily, once you have that post-graduate school kind of job. It would be very difficult to handle it right now, during grad school, but later on, it won’t be a snap, but you’ll get it paid off pretty quickly, if you want to. Or if you want to stretch it out and take 10 years or whatever, if that makes sense, you could do that too.
43:03 Elana: Yeah. I qualified for a Pell grant as an undergrad, so I basically was just having it paid off at undergrad that is with Pell grants and then a couple thousand every couple of years that I had to take as well, just as the buffer to cover anything that Pell grant didn’t. Right now this is about what I make in a year, but in a little bit, a couple of years, hopefully it’s a quarter of what I make in a year.
43:28 Emily: Yeah. And that’s the rule of thumb for the amount of — who follows this? — but the amount of debt you’re supposed to not take out any more than for at least for an undergraduate degree is one year’s worth of post degree salary. You actually manage that for even your grad student stipend, which is great, but certainly once you have that post PhD income, it’s going to be a smaller fraction of that one year’s worth of salary. Not a concern right now, I’m in total agreement with you.
43:54 Emily: Okay. So we talked about the credit cards, w talked about the student loans, we talked about the car loans. Was there any other debt that you saw on your balance sheet?
44:02 Elana: No. I don’t have a mortgage. No medical debt. I hope I don’t have IRS debt, but I don’t think so. They haven’t told me about it, so I’ll say not.
44:10 Emily: I think they would tell you. One thing I did notice that you did not include the value of your car on the assets side of the balance sheet. That could be because you don’t know the value of your car, because it’s a hard thing to know, but your net worth would look a little bit rosier if you did include that on the asset side.
44:29 Elana: I actually do because Credit Karma tells you what your car is worth. Part of the reason I didn’t put it, there is because every month it goes down by a little bit as your car gets older, but I have no problem. My car is worth about $13,000 per Credit Karma’s estimation, so that helps with the net worth a bit. I guess I’m not leasing it, so I guess it is truly an asset of mine since I financed it and I own it.
44:53 Emily: Yeah. And because the value of your car, at least supposed value is pretty significantly greater than the amount that you owe. If you were in a situation where you needed to free up some money, you could sell that car, pay off the loan and have a balance leftover to do what you wanted with it. So it is truly an asset, yes. If you want to include that there, your net worth will look quite a bit better doing that.
Step 3: Saving Up for Short Term Expenses
45:16 Emily: Okay, so we’ve talked about the step two, high priority debt. Step three, we don’t have to go into a lot of detail about, but it is saving up for short term expenses, which as I said, you’re already doing in case of this laptop purchase, which is so smart. Recently I published a whole podcast episode on targeted savings, which is what I suggest, especially for grad students that you start doing in step three, so we’ll link to that in the show notes. But I’m just wondering, have there been any other large irregular, which is to say less frequently than monthly expenses that have kind of plagued you in the past that have maybe contributed to the credit card balance that you, as we’re getting this cash flow situation under control, once you’re in step three, that you would start thinking about to prepare for?
45:58 Elana: Yeah. That’s a really great question. I think about the podcast when you say that. Not so much that there are big expenses coming up. I have the seven year old mic I’m working with, my zoom account is with my university, so I’m doing a lot of things to mitigate that, but I definitely think as things get more exciting with the podcast, and I don’t know, people have talked about merch or what have you, a lot of that comes from me first, even if I end up getting sort of reimbursed by people, paying for things or whatever. think about that kind of growth, but in terms of, you know, I bought a car two years ago, my laptop situation getting figured out, I do live a pretty simple life. I have like pet insurance for my cats in case anything comes up there. I feel like I’m being pretty safe with things. And I will say, in an emergency situation, I did get in a car accident a couple years ago, and that was a situation where family was able to help out and then I was able to pay them back. There is a little bit of that if it was going to run me bankrupt, or if it was truly something that I could not help. Like I said, I qualified for a Pell Grant, so it’s not like I have this big buffer, but I definitely have people around me that if need be in an emergency situation, I would be okay, if that makes sense. So not any big purchases, and emergencies seemed mostly covered.
47:23 Emily: That to me, relying on family as a potential backstop or at least partial backstop for a larger emergency is a reason why you could feel comfortable holding a maybe slightly smaller starter emergency fund and not getting to the full emergency fund until step six in my framework, which is where it falls. But I still think it’s a great idea to prepare for any irregular expenses that you may have. It sounds like there’s maybe not a lot, but anything related to your university, or just your graduate progress, like for instance conferences, anything that has to come out of your pocket for fees?
47:58 Elana: This is a great question. My university actually provides grad students with a thousand dollars a year for travel fund, and we do it off the university credit card. I actually don’t even need to worry about reimbursement. It’s a huge plus of my program. I’m extremely grateful. The one thing is that every semester we are charged a $250 fee. Despite the fact that they pay for our health insurance, we have to pay a student health fee because we’re students and we have to pay a fee for the university gym that I’ve never stepped foot in and they will not prorate it, so they won’t just fold it into my monthly or bi-weekly spending. And it is very annoying because that is a very large chunk of what I am paid bi-weekly. That is the, three weeks into the semester, getting the emails of please pay this fee, that I continuously come up again. There’s that. I hate it. I hate this fee, Emily. I hate it.
48:55 Emily: Yeah. So while you are working to somehow get this fee eliminated or reduced or whatever, for your own personal finances side of things, it’s something you can prepare for in step three. You’ve already mastered one aspect of step three, which is saving for large purchases that are upcoming, but the other part is saving for these recurring expenses. Another one that’s really common for car owners is car insurance. Do you pay that monthly right now?
49:21 Emily: Yes I do.
49:22 Elana: Yeah. Once you get to step three, this could be something you could consider paying for in advance, if it will give you a significant rate reduction. This is one of those ways that “frugality is expensive”. Great frugal ideas, like buying in bulk or paying for stuff in advance for a lower rate — yeah, it’s possible if you have the cash for it, but then it compounds upon itself. You had the cash to make the investment, then you get a return on that investment in lower expenses or whatever it is going forward, and then it just cycles and cycles. Somehow we need to step onto this treadmill of getting some of those kinds of deals. That would be one possible area if it seems like it’s a significant rate reduction. For now, for the cash flow problems and stuff, paying for it monthly is a great idea for you for the moment. But once you get to step three, that could be something to reconsider. In step three, you might not have a whole lot of different kinds of expenses, but there may be one or two that you want to prepare for. Maybe your cell phone, for example, another thing that people finance, but they don’t necessarily have to.
Step 4: Starting to Invest for Retirement
50:21 Emily: Step four is where I get really excited because that’s when we start to invest for retirement. And I noticed that you do have an IRA listed on your balance sheet. Can you tell us about that?
50:33 Elana: Absolutely. I listened to your podcast right before you, and I sort of reached out to each other to make this happen and the episode coming out on my podcast happen, and it was an episode where you had asked, or I should say it was an episode where you answered a Q&A question where someone talked about how do I invest when I make pennies? And you just had this really great advice about who to invest with in terms of like Vanguard versus Fidelity. And you talked a lot about just opening the IRA and putting in a little bit. And things like mutual funds and just being able to just throw something at it, build over time. It just really spoke to me. I threw $100 in there. I think I’m throwing in like $50 bucks additionally a month. I’m just sitting here in grad school and I think about the money I was able to save in that savings account over about two years. I could do that with an investment account that even if it’s just building a couple of dollars here and there, that by the time I’m out of grad school, I might have a decent sum that I can truly then contribute to, and then, hey, I can start investing right off the bat and actually maybe making a little bit more. Or just solidifying my wealth as a person, which I think it just brings down the anxiety a little bit. It kind of helps set me in this world of like, I can be functioning and I can have a little bit of money. And once again, I qualified for Pell Grant and that’s just not a situation I want my kids to be in. It’s nice that I can start that now and make a difference and kind of frustrating that universities don’t provide retirement accounts for grad students, but we don’t have to get into that now.
52:07 Emily: Yeah. I would listen to the partner podcast, the swap podcast on Dear Grad Student for, I think a little bit more about that. As much as it pains me to say, I think you should pause on the retirement contributions. Don’t reverse them, but pause in the contributions because this is step four, right? We still need to get through step zero. Step one, step two, step three. If this is motivating for you, if the investment piece is motivating for you, hold that out as the carrot, the step four carrot, once you get through those first few steps to get back to it, because I too just like am chomping at the bit to get started investing. I was in grad school. I want that for the people in my audience, but you need to do it from a position of strength. And you’re just not quite there yet.
52:52 Emily: I can see that you are going to be there. You’re going to be there very soon, a few months, a year, maybe, but you’re just not quite there yet. What I really don’t want to happen is for you to again, have some kind of emergency occur. And again, you don’t currently have that much in emergency savings. Maybe you don’t want to turn your family or your family helps you to degree and then can’t anymore and you come to a situation where you have to withdraw what you’ve already contributed, just to get that little bit more cash on hand. And that’s, that’s a really painful situation to be in.
53:19 Elana: What I want you to do is keep the money that’s in there, let it grow hopefully, or maybe it will decrease in value over the long term, grow, and work on the other cash flow stuff and work on the steps and hold that out as like, I really want to get started investing, so I’m going to power through these next few months of doing X, Y, and Z things that are a little bit uncomfortable because you really want to get to that step. I hate saying it, but it is the way I think things should go.
53:45 Elana: You’re so right. I think it’s a theme for me. I get so excited for the next step that I’m already moving that far forward and it’s super beneficial in grad school, don’t get me wrong, beneficial for the podcast, but I think you’re absolutely right. If I can come at it at a place of I’m feeling strong and I’m not doing out of anxiety, like, “Oh, I need to start doing this because I’m a grad student living on pennies”, but rather, “Oh, look, you know, my credit card has paid down, my car loan is getting paid on at a lower interest rate, I have some cashflow in my checking account and wow, it’s fun to throw this into my IRA because I’m solid.” Not because I’m on thin ice and nervous for the future and scared. That there’s a much better place and much better way to be throwing money at an IRA or anything.
54:30 Emily: And I think by the time you returned to this in a little while, you’re going to be able to contribute much more than $50 per month, because you’re going to have adjusted things about your cashflow. Either, you’ll have found some long-term ways to reduce your spending, or maybe you’ll have found some long-term ways to increase your income. You won’t be paying interest on the credit card anymore. Maybe you’ve refinanced the car. All the things that we’ve been talking about. It won’t be $50 a month at that point, maybe it’ll be $200 a month. Maybe you’ll be able to get up to the, so I recommend a 10% a minimum. Basically that’s just to say start wherever you are, but on step four, work up to 10% before you move on to starting to repay other debt in step five. So maybe you’ll be able to get to that 10% level before the end of graduate school. And again, that’s a real position of strength to be in, as you were saying earlier for having that wind at your back in terms of the investments compounding on themselves.
Next Steps and Things to Work On
55:19 Emily: I think we need to stop here because we’ve basically gone for pretty much a full coaching session length, a little bit longer than we expected, but I’m glad we got through what we did. Do you have any, first of all, any thoughts or reactions, anything you haven’t brought up yet regarding this conversation?
55:35 Elana: No, nothing. I feel like we were really thorough and I kept it as concise as possible. I know I’m a talker, I’m a podcast host. But I think this is super helpful and I think so many other students are in my position of where do I start? How do I do this? It’s not possible with my stipend. And we’re all in different levels of privilege in terms of finances, but there are little things that all of us can do and certainly steps that we can start with. And I think that this is going to be great for anybody at those beginner steps or living similar to me, which is just on that cycle of the clock of paycheck and rent and paycheck and rent and credit card and all of that. This was incredibly helpful. I hope it was helpful for everyone listening as well.
56:11 Emily: Yes, absolutely. I agree. If anybody wants to have your own coaching session with me, the way you do that as well, you can just email me and we can get the conversation started that way email@example.com. Or you go to my website, pfforphds.com and there’s a “Work with Me” tab at the top. Go to the individual section, click on coaching, and you can read a little bit more about the coaching process. You can book a call with me through there. Whatever way you want to get in touch is awesome.
56:37 Emily: Elana, okay, we’re recording this, as I said on February 12th, it’s coming out on March 1st. What step are you going to take between now and March 1st that we can tweet you about?
56:50 Elana: Oh my goodness. I love this. Yes, please come back at me with receipts. I think the first thing that I need to do is look at my monthly spending, see what is extra and what I can cut back on to start paying down the credit card. And I’ll add on the stimulus check. I need to find that because then paying down that credit card is going to be easy to do in a paycheck. So stimulus check and seeing what expenses I can start cutting down on and throwing that money at the credit card instead.
57:21 Emily: Okay. Great idea. So are you thinking that you have a physical check somewhere in your home that you have missed?
57:27 Elana: No. We don’t check the mail every day because our mailbox is really far. So I’m like, maybe it’s there. Maybe I just need to go to that one website online to see where it’s at, who knows. I need to probably do some investigating into it.
57:39 Emily: Okay. If you aren’t able to find it, as we mentioned earlier, the recovery rebate is the solution there. Since you’re on my podcast, we’ll mention — I have a tax workshop, you are an affiliate for that tax workshop, and so if there’s a grad student in the audience who is saying to themselves, “I need to get that stimulus check, I need to get that recovery rebate credit, but oh no, I have no idea how to handle my fellowship income and my qualified education expenses.” Why don’t you share your affiliate link for that course and that that’s where they can go and sign up.
58:08 Elana: Yeah. So you’re going to go to pfforphds.com/dgsreturns. That’s Dear Grad Student, D-G-S return. And you can go ahead and sign up for Emily’s tax return workshop, or just tax workshop, I should say. I don’t know anything about taxes. Emily and I talked about this. My mom works for like a legal firm that does taxes, so she will do my taxes, but I think this year will be the first year I’m going to do them, Emily. I’m going to do them. I will. My mom says thank you in advance.
58:39 Emily: And hopefully if you do need to claim the recovery rate credit, you’ll see that nice fat return that’s going to come your way. Last, last note, I totally agree with reevaluating cash flow. I totally agree with finding the stimulus check and/or just filing your taxes as quickly as you can, but the third thing, you don’t have to take the action on it, but I want you to look into the refinancing on the car loan, because I think that’s going to make a bigger impact than you may be thinking right now, to have that big 5%, no, it was like 3% or so interest rate reduction.
59:09 Elana: Yeah. I’m at 6.6% now. And I think with my credit score, I qualify for 2.99%, so pretty decent.
59:15 Emily: Yeah. So DGS listeners, those of you following along with us, let’s check with Elana and see how far she’s gotten on this. That’s three homework pieces, so that’s a lot, but they could all make a big impact. Thank you so much for volunteering for this different kind of episode.
Best Financial Advice for Early Career PhDs
59:31 Emily: Very, very last question is one ask of all my guests, which is what is your best financial advice for another early career PhD?
59:38 Elana: Great question. My best financial advice is to listen to the Personal Finance for PhD podcast. No, but truly I think my best advice is don’t avoid your finances. Just because it’s working for you month to month and things are fine, so hey, I’m not going to check, look at your finances. Don’t be afraid of your own spending and don’t be afraid of the changes you need to make financially, even if it’s a little bit scary and it’s such an unknown. There are so many resources out there, certainly, you know, Emily’s podcasts and Emily’s website. But there’s also other students who have likely done it before been through it, so reach out to that community of students, whether it’s online or wherever, but don’t be afraid of your finances.
01:00:16 Emily: Yes. Thank you so much. And I also appreciate your work on the Dear Grad Student podcast, making finances a topic that is on the table, okay to talk about. Once again, I’m on the podcast today, March 1st, so go ahead and listen to that episode with another guest and we’re talking about all things grad school related to finances. So that should be really interesting conversation. Elana, thank you once again, so much for joining me.
01:00:40 Elana: Thank you so much for having me. This was a blast, so happy to have been here and thanks to all your listeners for listening.
Listener Q&A: Making-Up for Low Income in Grad School
01:00:44 Emily: Now on to the listener question and answer segment. Today’s question actually comes from a survey I sent out in advance of one of my university webinars this spring, so it is anonymous.
01:01:02 Emily: Here is the question: “How do I make up for years of making little money as a grad student?”
01:01:10 Emily: Thank you so much for this question. I actually have a five-part answer, so I’m going to move really quickly through the different points and refer you to a few other episodes for further listening.
01:01:21 Elana: First of all, if you are able to, to any extent, start working on your finances during grad school, because it’s not about how much money you make, it’s about how much money you keep. Of course, what you keep depends on how much you make, so for some people, it is completely out of the question to do any saving, investing, or debt repayment during grad school. But don’t let just the simple fact that you are a graduate student, keep you from considering how you might be able to save, invest and repay debt. If you spend the bulk of your twenties as a low paid graduate student, as I did, but you’re able to save and invest a small percentage of that as you go along, as I did, you are financially better off at the end of that than someone who made a much higher salary, but saved, invested none of it. So keep that perspective. It’s not about what you make. It’s about what you.
01:02:19 Emily: Two, work really, really hard on getting a well-paid job right after your PhD. I’m not saying you have to abandon your career plans or change them in any way, but just really research what the salaries are in the career track that you’re going for. Apply widely, understand the market that you’re going into. And of course negotiate that starting salary and benefits. What I’m saying is stick with your career path, passion, but get paid as much as you can within that track. To the extent that your subsequent salaries are based on that first salary, which they very well might be,iIf you stay at the same company, it’s so worth it to do this legwork and get into that highest salary band that you can, because this will compound over time, as you receive raises.
01:03:13 Emily: Point three, once you have that well-paying job, don’t inflate your lifestyle. You are accustomed to living on a small amount of money as a graduate student. I absolutely expect that you will spend more on your lifestyle once you have a post PhD job. But what I’m saying is don’t let your spending mindlessly increase to the level of your new salary. Intentionally choose certain types of expenses, levels of expenses that you will increase your spending to, because you know that you’re going to receive a lot of value from that type of spending. So don’t inflate spending across the board, intentionally increase it in the areas that mean the most to you.
01:03:55 Emily: Point four, manage your debt intelligently. I’m particularly speaking about federal student loan debt here, so if you do have federal student loans from earlier degrees, I highly recommend you listen to season seven, episode 13 with Meghan Landress, who is an expert on federal student loan repayment, and really make the best decision that you’re able to on whether you’re going to go for an income driven repayment plan to lower your payments and extend them out over a longer term. Maybe combine that with public service loan forgiveness to have them forgiven after 10 years of on-time payments. Or pay them off just, you know, more quickly than that. Each of those valid approach for a person in a slightly different financial situation, but try not to pick the wrong one, try not to pick the wrong path. And that’s what I mean by managing debt intelligently. Really look at the numbers. Don’t just try to lower your payments as much as you can, or don’t just you say to yourself, “Oh, I hate being in debt. I have to get out of debt so quickly” because in either case your money might be working harder for you doing something else. So be really strategic about that federal student loan debt. If you have other types of debt, be really strategic about that too. Look very carefully at the interest rate, at about what type of debt it is, who the lender is and so forth and decide whether you’re going to make it a priority to pay off that debt or whether you’re going to put it on the back burner while you work on some other things.
01:05:21 Emily: Lastly, five here is the real key. Invest. Once your finances are ready for that, once you have some savings in place, once you have the high priority debt paid off, invest, especially for retirement, but perhaps for some other goals as well. Put as much money away into your workplace-based retirement account as you can. Definitely meet the match if you have a match, but consider maxing out that is a reasonable possibility, if you’re making much more money post PhD than you did during graduate school, if you haven’t inflated your lifestyle. Also use an IRA, if you can, to get a little bit more contribution room. Investing is how you really make your money work for you and grow your wealth quickly. Now, if you are starting to invest a little bit later, like after graduate school, instead of during graduate school, it’s very hard to make up for that lost time, so you are going to have to do that by having a slightly higher savings rate than if you had started earlier.
01:06:21 Emily: But I want to give you some hope that this is very well possible. Dr. Sean Sanders gave me a wonderful interview in season six, episode eight. This is exactly his story of really through grad school and his post-doc not making much money, not being able to save at all, or invest for retirement. And finally, once he got that post PhD job, being able to save at that point, invest at that point, and he invested not only in stocks and bonds, like I mostly talk about, but also in real estate. And he just talks about how over the last one to two decades, his wealth has grown so much and he’s actually on track to retire in his fifties, so a little bit early. And it’s just such an inspiring story that even with a late start, the moves are possible. You can still retire early, if that’s your goal. You can still accomplish these other wonderful things with your finances.
01:07:11 Emily: Another episode to listen to is season two, episode seven, with Dr. Brandon Renfro. We talk about some of the strategies I just mentioned, like about how to kind of make up for lost time if you aren’t able to start investing until after grad school.
01:07:24 Emily: I hope those points were helpful to you start early if you can, but it’s absolutely possible to build wealth later on, if you can’t start during graduate school. If you would like to submit a question to be answered in a future episode, please go to pfforphds.com/podcast and follow the instructions you find there. I love answering questions so please submit yours!
01:07:48 Emily: Listeners, thank you for joining me for this episode. PFforPhDs.com/podcast is the hub for the Personal Finance for PhDs podcast. On that page are links to all the episodes show notes, which include full transcripts and videos of the interviews. There is also a form to volunteer to be interviewed on the podcast and instructions for entering the book giveaway contest, and submitting a question for the Q&A segment. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple podcasts, Stitcher, or whatever platform you use. If you leave a review, be sure to send it to me. Two, share an episode you found particularly valuable on social media, with an email list serve, or as a link from your website. Three, recommend me as a speaker to your university or association. My seminars cover the personal finance topics PhDs are most interested in, like investing, debt, repayment and taxes. Four, subscribe to my mailing list at pfforphds.com/subscribe through that list. You’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode! And remember, you don’t have to have a PhD to succeed with personal finance, but it helps. Music is Stages of Awakening by Poddington Bear from the Free Music Archive and is shared under CC by NC podcast, editing and show notes creation by Lourdes Bobbio.
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