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Stretch that Stipend

A Graduate Student’s Balanced Money Formula

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Grad students frequently wonder how much they should spend on various expenses or even how much they should be saving. The Balanced Money Formula (BMF) answers this question for the average American, but how applicable is it to a grad student’s budget?

Further reading: The Power of Percentage-Based Budgeting for a Career-Building PhD

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A version of this post originally appeared on GradHacker.

What Is the Balanced Money Formula?

The BMF, as defined in All Your Worth: The Ultimate Lifetime Money Plan by Elizabeth Warren and Amelia Warren Tyagi, is a high-level allocation of your net (after tax) pay to three areas: needs, wants, and savings. The idea is that if you conform to this ratio throughout your life, you will have a great chance of feeling satisfied with your current spending while saving enough for your future. The trap that many people fall into is letting the needs component of their spending take up too much of their income, which crowds out saving and inhibits spending your money in areas that bring you a lot of comfort and satisfaction (your wants).

The magic ratio of the BMF is 50% to needs, 30% to wants, and 20% to savings. The definitions of these three categories are a little different than what you might intuitively think. Needs are defined as all expenses that must be paid on a regular basis, such as rent/mortgage, minimum debt payments, insurance, contracts, groceries, transportation, and utilities. Wants are defined as discretionary purchases such as restaurant eating, entertainment, shopping (beyond basics), and travel. Savings is broken up into a few stages and categories. When you have debt other than for your mortgage, savings means accelerated debt repayment (the minimum payments are in the needs category). Once you are out of all debt except your mortgage, the 20% to savings becomes 10% for retirement, 5% for extra mortgage payments, and 5% for your “dream” goal.

Keep in mind that the BMF was not designed for a Millennial audience. I’m particularly concerned about the advice to save only 10% of net income for retirement (and only after you’re out of non-mortgage debt). Millennials will likely only have one-and-a-half legs of the older generations’ three-legged stool available to them – personal retirements savings and a reduced Social Security benefit (no pensions). That personal retirement savings leg is going to be doing most of the heavy lifting, and 10% of net after you’re debt-free probably isn’t going to cut it.

What I think is valuable about the BMF is the emphasis that there is a place for each of needs, wants, and savings throughout your life, the stern warning against letting the needs category inflate, and the suggested 5:3 ratio between spending on needs and wants.

Can and Should Every Graduate Student’s Financial Management Conform to the BMF?

Absolutely not.

1. The BMF may be right for a lot of people, but ultimately it is just an opinion. You can create your own BMF with a different ideal ratio among needs, wants, and savings that works best for your life. The point is to find a ratio that keeps you on track to accomplish your financial goals without feeling too restricted.

2. Even if you do agree with the BMF, All Your Worth acknowledges that an individual might not stick to the BMF during special life circumstances. Living on a low stipend for a limited period of time while you’re receiving training can qualify as special life circumstances if you need it to. You can find another ratio to keep during grad school and set up your post-grad life to fit the BMF.

Given these caveats, the BMF is still a good starting point for planning how to allocate your stipend pay.

How Can a Graduate Student Create a Balanced Money Formula for Herself?

First, categorize your spending according to the BMF’s needs/wants/savings definition and see how it compares to the suggested 50:30:20 ratio. When I did this during grad school, I was pleasantly surprised that my financial allocation aligned within 1% of the BMF (though my full 20% to savings was going into retirement savings). This told me that my gut feeling that my spending and saving was in balance and sustainable was probably correct.

The danger for graduate students is the same as for the population at large: the needs category ballooning and edging out what makes your life stable (savings) and fun (wants). Even for graduate students, the percentage of your post-tax income that is spent on needs rising above 50% should give you pause and compel you to consider ways to reduce your spending. You may not get it under 50%, but the better you do with minimizing that category the more ‘in balance’ you will probably feel.

In some high cost-of-living areas, close to 50% of a graduate student’s stipend might be spent on rent alone and of course in those cases the BMF cannot be achieved. But if you are over 50%, you should be doing as much as you reasonably can to minimize that category of expenses overall. For example, perhaps your rent is high, but you live with a roommate to get it as low as possible, and the location allows you to live car-free, which minimizes your overall needs spending. Consider capping the percentage of your pay that you are willing to spend on needs at your absolutely maximum (e.g., 70%) to trigger yourself to reduce one of your large fixed expenses, even if it requires moving, should your needs ever rise to that level.

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Some graduate students with more generous stipends and/or a manageable cost of living may spend significantly less than 50% of their stipends on needs. In the case, the best course of action is not to intentionally spend more on needs (though you have the leeway if you would like to), but rather to increase the amount you save and/or spend on wants.

If you have asked yourself if you are spending a reasonable amount of money on your wants and needs and saving enough, the BMF is a great formula to use as a starting point for your budget. However, over time you will likely want to adapt how you allocate your money to best match your values and goals.

Savings in Graduate School

If you want and are able to follow the BMF, the 20% of your money that is saved during graduate school could go toward building an emergency fund, investing for the future, and/or paying down debt. You should start with at least a baby emergency fund of $1,000, if not a few months of expenses. According to All Your Worth, your next step should be to pay off all non-mortgage debt, but if (some of) your debt is at a low interest rate and doesn’t bother you, investing for retirement is a great choice as well. Let both the math of the situation (interest rates on debt vs. expected rates of return on investments) as well as your personal disposition toward the options lead you to the correct choice in your life.

While I am a proponent of adding money each month to targeted savings accounts to help you pay for irregular expenses, I think this type of saving should come from your needs or wants categories. Saving with respect to the BMF should be only for mid- or long-term goals, whereas saving for irregular expenses is a short-term goal.

It is enormously worthwhile to start building the habit of saving during graduate school, even if you can’t reach the 20% target from the BMF. Applying compound interest in the form of investing or debt repayment to even a small percentage of your pay is amazingly powerful.

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For Stipends that Are Just Too Low

Not having room for needs, wants, and savings to some degree in your grad student budget is an indicator that your pay is too low or your spending is askew. If you are earning too little from your role as a graduate student, your options are to develop a side income or take out student loans. You must carefully weigh the consequences of your choices. Student loans will hold you back from building wealth post-grad school. A side income might benefit you if it furthers your career goals, or it might distract from your degree progress, which should be your top priority.

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What percentages of your net pay do you spend on needs, wants, and savings? Have you ever successfully reduced the amount of money you were spending on needs?

How to Prioritize Financial Goals When You Can’t Do It All

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As graduate students, we can be overwhelmed easily by everything our stipends are ‘supposed to’ accomplish for us. If you read any personal finance material (including mine!), you will see that your income should go toward saving for retirement, paying off your debt, saving an emergency fund, saving for your short-term goals… oh, and feeding, clothing, and housing you, too! It can seem impossible to make any financial progress when faced with all these demands. Instead of trying to do everything at once, prioritize the various financial goals you might set based on both the math behind them and your personal disposition toward saving, investing, and debt.

prioritize financial goals

A version of this post originally appeared on GradHacker.

In my opinion the first two goals you should accomplish with your stipend are obvious, and after that you’ll have leeway to choose among competing valid goals.

Goal 1: Pay for Your Basics

The primary purpose your stipend should serve each month is to pay for the basic expenses in your life, such as housing, utilities, food, and transportation. If that’s all your stipend can manage, it has served its purpose: providing you with enough money that you can fully devote yourself to your studies. Increasing your short- and long-term financial security will have to wait until after graduation.

However, keep in mind that it’s very possible for these basic expenses to inflate from “need” into “want” territory. “Want” aspects of these basic expenses include living alone, housing amenities (access to pool, gym, social spaces), a car/a car that’s worth a significant fraction of your yearly income, eating out, bar tabs, etc. That’s not to say that you shouldn’t spend money on those above-basic aspects of these expenses, but just be aware that you can’t justify that portion of the spending as “needs.” It’s easy for your large, fixed expenses such as housing and transportation to get away from you, so spending your stipend on the “want” aspects of your basics should be weighed against using it for your other possible financial goals (more on that later).

Goal 2: Save an Emergency Fund

Everyone should have an emergency fund, even if it’s small. An emergency fund is cash reserved only for emergencies. It’s basically money that will prevent you from going into debt when something unexpected happens. A full emergency fund is on the order of 3-6 months of expenses, but that shouldn’t necessarily be your first goal. A small emergency fund of $1,000 is a great start when you have other pressing financial goals, such as debt repayment. It’s not prudent to delay repaying high-interest-rate debt to save a larger emergency fund the purpose of which is to prevent you from going into high-interest-rate debt.

Start with a $1,000 emergency fund as your second financial goal, but after that let the math of your other choices and your gut help you decide whether to keep building the emergency fund or move on to another goal.

Accumulating Cash vs. Growing Wealth Mid/Long-Term

Cash savings has great utility. If your expenses are quite uncertain over the next year (such as when you near graduation), it makes sense to save up to be able to pay for the most costly scenario in cash. It’s also a good idea to keep cash on hand for irregular expenses, such as in a system of targeted savings accounts. As just discussed, a larger emergency fund can bring great peace of mind to certain people.

But you should limit your cash savings to the amount that you may well need in the short term (1-2 years plus any mid-term goal expenses like a house down payment or wedding). To increase your net worth in the long term and ultimately become financially independent, you need to invest for the long-term and pay off debt. As soon as you have sufficient cash on hand (by your estimation), you should start investing or paying off debt, but deciding when you have enough cash is largely about your comfort level.

It’s also fine to simultaneously invest/pay down debt and save additional cash, as long as you can accept that your progress toward each goal will be slower. For example, if you decide to save 20 percent of your income, 10 percent can go toward investing/debt repayment and 10 percent can go toward cash savings.

Investing vs. Debt Repayment

The earlier you get compound interest working in your favor, the better. You can accomplish that by investing or paying off debt. Deciding between investing and debt repayment is again a balance of math and personal disposition.

First, do the math. Put numbers on your various possible investing and debt repayment goals. Your debt repayment “rate of return” is the interest rate of the debt in question. The long-term average rate of return on your investments is estimated from your asset allocation. For example, a grad student invested 100 percent in large-capitalization US stocks could anticipate a 9-10 percent long-term average rate of return (before adjusting for inflation). Other asset allocations will have different expected long-term average rates of return. Mid-term investments should be more conservative, with a lower expected average rate of return but more muted peaks and valleys.

Compare your investing and debt repayment expected rates of return, giving a handicap to the debt repayment side of the equation because there is no risk associated with debt repayment as there is with investing. Given a certain expected rate of return for your investments, the math would argue that debt below a certain interest rate will be a lower priority. For example, if you expect an 8 percent long-term average rate of return on investing, any debt below about 5 or 6 percent might become low-priority.

Second, evaluate your personal disposition. If you feel passionate about one type of goal over another, that should have some influence on your decision. I believe that your passion for a financial goal positively correlates with the amount of effort (i.e., money) you will put toward achieving it. For example, if you hate your debt, you should pay it off, even if the math favors investing. If you are very excited to start investing, perhaps you could reduce the debt repayment handicap in your math to only 1 percent. Just don’t justify keeping high-interest-rate credit card debt because you want to start investing!

The one caveat I’ll make to allowing your personal disposition to hold sway over the math is for a very risk-averse person: you will have to start investing eventually, even conservatively, if you want to reach financial independence. You will automatically pay your installment debt off in time even if you just make the minimum payments, whereas there is no mechanism to force you to start investing. So it is acceptable to prioritize (non-mortgage) debt repayment over investing, but when you’re done paying the debt, be sure that you hold yourself accountable to take the next step to start investing.

Know that More Goals Means Slower Progress

The more financial goals or purposes for your money that you have, the slower your progress will be toward each of them. If you feel strongly about working on multiple goals at once, accept this knowing that you are making some progress in all the areas that are important to you. But if you are frustrated by slow progress to the point that you end up not devoting money to any goals, working on one or a small number of goals at a time is a better fit for you. In this case, set concrete dollar-amount goals that you can achieve within months or a small number of years and work toward them intensely. For example, set $4,000 as your goal emergency fund size, but once you achieve it, move on to something else. Paying off one debt entirely could be another concrete goal.

Living Your Life

Since our income is limited (unless we have a side income), any money that you put toward the above types of financial goals is money that won’t be used for your everyday comforts and living expenses. By no means do I suggest that you suffer through a Spartan lifestyle while you put every penny possible toward your long-term future. Everything must be in balance for you. A guideline like the Balanced Money Formula may help you work through what percentage of your income to use today and what percentage to put away for tomorrow.

My Choices During Grad School

When I was in grad school, the financial goal that most excited me was investing. Therefore, after ensuring that I could live within my means and establishing a $1,000 emergency fund, I started investing 10 percent of my gross income into my Roth IRA. Over time, I built up cash savings in my targeted savings accounts and also increased the fraction of my income that I saved for retirement. To devote more money to these goals, I reduced my living expenses by developing frugal practices. Paying off my remaining student loans was my lowest priority as they were subsidized during deferment. I’m happy with these choices given my personal disposition (not risk-averse), but if I were to do it over again I would have beefed up my emergency fund earlier, delaying increasing my investing percentage for a short time.

How to Combat Lifestyle Inflation When You Exit Grad School

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Lifestyle inflation is one of the great personal finance sins that just about everyone falls into at one point in time or another. However, as a graduate student you have the opportunity to anticipate the temptation to inflate your lifestyle that will come with your first Real Job and prepare yourself to fight it using the financial skills you’ve learned during grad school.

A version of this article originally appeared on GradHacker.

combat lifestyle inflation post-PhD

What Is Lifestyle Inflation and Why Is It Damaging

Lifestyle inflation is the mindless increase in spending as income rises. Generally speaking, people spend (virtually) all of their take-home pay (the average personal savings rate of Americans has been hovering below five percent in recent years). Even as income generally increases with career progression, expenses find a way to increase as well without the individual intending them to. This makes beginning or accelerating debt repayment or saving quite difficult, as lifestyle deflation is usually perceived as unpleasant.

My main objection to lifestyle inflation is not that it’s wrong to spend more as you earn more but rather that the spending increase is unintentional and undirected. The mission statement of my business includes encouraging PhDs(-in-training) to “make the most of their money,” which means optimizing your use of money to maximize your life satisfaction. Spending more across the board as your income increases isn’t optimized; rather, you should minimize the increase in the expenses that you care little about so that you can direct your income toward goals and spending that matter more to you.

How Graduate School Prepares You for Battle

Graduate students who live only on stipends for at least a couple years have a unique position with respect to lifestyle inflation. During graduate school, our incomes were held to a lower level than they would have been had we not pursued additional education. Therefore, our (most of the time initial) adult lifestyle was set at a low level, which forced us to budget, practice frugality, and discover the true distinction between needs and wants (all valuable skills to carry forward).

The salary jump that comes with the first post-grad school Real Job presents the opportunity for serious lifestyle inflation. After all those years of frugality, don’t we deserve to finally have nice things? Yes, we do, but keep in mind that the nicest things will come not from mindless lifestyle inflation but from intentional lifestyle increases.

How to Fight Lifestyle Inflation

How do you increase your lifestyle without inflating it?

The most common advice for the general population in combatting lifestyle inflation is to “live like a college student,” which means to keep your cost of living as low as it was during college for as long as possible. I think this was great advice for Baby Boomers, but I’m less convinced of its applicability to Millennials due to the many perks and amenities now offered on college campuses. However, I think “live like a grad student” (or the M.D. version, “live like a resident”) is generally good advice, with a caveat that you should selectively and judiciously treat yo’ self.

While you’re still in grad school, consider what aspect(s) of your lifestyle you would most like to change. Are you itching to live alone for once? Sick of “beans and rice, rice and beans?” Ready to overhaul your wardrobe? Dreaming of a vacation that doesn’t involve a conference? Identify the aspects of your lifestyle that would bring you the most satisfaction if you were able to throw more money at them.

Once you’ve landed that coveted Real Job, default to maintaining your spending as it was in graduate school across the board, but build in some spending increases in those areas that matter the most to you. From the get-go, you’ll also need to set up a serious savings rate that will go toward your savings account, retirement account, loans, etc., especially if you weren’t able to work on those financial goals during grad school.

My Experience Combating Lifestyle Inflation after Grad School

When my husband and I transitioned from Ph.D. training to Real Jobs, we decided to focus our lifestyle increases in two areas and kept all the rest of our spending as similar as possible to when we were in grad school. (Oh, and as a one-time splurge we bought a few pieces of new furniture from Ikea).

First, we moved from a medium cost-of-living city (Durham, NC) to a high cost-of-living city (Seattle, WA). This move automatically increased our spending in several areas even while we kept our perceived lifestyle constant. We made sure to find a rental that fit comfortably within our budget (we downsized), and after that didn’t worry too much about the fact that we were spending more on housing, utilities, and food.

Second, we had a baby, which of course opened up totally new spending opportunities for us.

With just those two areas of intentional increase and maintaining the saving percentage we established in graduate school, pretty much all of our income increase was spoken for. I’m very glad that we focused our lifestyle increase in the areas that mattered most to us. Inflating our lifestyle in any other areas (e.g., buying a more expensive car) would eventually have caused us to sacrifice in another area or decrease our savings rate.

What lifestyle increases would you like to implement once you have a Real Job?

Heading to a Conference? Tack on a Vacation, Too.

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The opportunity for travel is one of academia’s most attractive perks. In just about any field, you can attend conferences and establish collaborations with far-flung colleagues. Certain fields also provide opportunities for travel through field work or archive visits.

A version of this article first appeared on GradHacker.

But what’s the fun in traveling to a new city or country if you only work while you’re there? It’s natural to want to combine personal activities with the professional duties that are the primary motivation for the trip. I recently surveyed (former) grad students to find out how they combined personal travel pursuits with professional travel opportunities.

conference vacation

Adding Personal Activities to Conference Travel Is Popular

Nearly all of the respondents to my survey shared experiences of adding on personal travel to conferences.

The easiest and lowest-stakes way to accomplish this is to spend the time you’re already not at the conference, such as the evenings, however you like. Grad students reported sightseeing, attending cultural events, sampling the local cuisine, hiking, and visiting friends or family during their personal time. Ron from Duke University suggested maximizing your time: “Use the “extra” time you have – evenings out for dinner and in the city, free time the day before and after the conference if your flight is late.”

The next level up is to add days to your trip that are purely personal time. A student at Yale University who did this frequently advised: “Tack on a couple days either over a weekend or on ‘going and coming’ days to hang out.”

Jenn from Duke University attended an American Chemical Society meeting in Puerto Rico. She vacationed on the island for four days before the meeting started, timing it so that she only missed two workdays. This was a unique travel opportunity for her, as most of her other travel during grad school was obligation travel. “This was the only trip I took where I felt it was a true/real vacation (ironic that it was for a work conference). I took a trip for me to do something I loved, in an exotic location. I still talk about it to this day 8 years later. I would 100% do it again.”

It’s also possible to make it a family vacation! While at the University of Michigan, Katy Peplin (Katy Peplin Coaching) visited the Scottish Highlands with her husband before attending a conference in Glasgow. Jennifer Polk (From PhD to Life) spent a week in a villa in Italy with her parents and friends before traveling to London for a conference while she was at the University of Toronto. Mariana from the University of Brasília typically spends one month of each summer in North America vacating and attending an annual association meeting with her fiancé. They even scheduled their wedding and honeymoon to coincide with one of these trips!

Conference Selection Based on Location

Some students took their personal travel desires into consideration when applying to conferences. Diane Burgess from Simon Fraser University advised: “Give some thought to picking conferences that will combine excellent networking opportunities with the chance to travel. I try to select conferences that are in cities I’d like to visit.” Alex from Duke University concurred: “Go to legit conferences that have academic value, but in places where you can also enjoy the outside stuff. It’s usually easy to do both.”

Who Pays?

Unsurprisingly, the personal aspects of these trips were only subsidized to the degree that they overlapped with the professional itinerary and available funding. Some students paid for their professional travel entirely out of pocket, but most survey respondents received partial or full funding for the professional aspects of the travel. Extra nights of lodging, personal activities and their corresponding local transportation, meals on bonus days, and airfare for family members were always paid for by the students.

Lauren wrote, “Conferences were a great opportunity to explore new cities, and taking a few days prior to or following the conference on my own dime was totally possible. Use conference funds for the conference, and self-fund personal travel surrounding it.”

A student from UC Davis suggested ways to stretch the conference funding: “Find flights on different days that are cheaper or equal price to the flight you would normally take so that the air travel is completely covered, minimize spending during professional events, and take advantage of any provided meals so that you can use your per diem to cover meals on the extra days you are traveling.”

Should You Ask for Permission to Add on Personal Travel?

The majority of the grad students who responded to the survey did not explicitly ask for permission to add personal travel on to their professional travel. A few told their advisors that they would be taking some additional time away from work, and a couple cleared their requests for staying extra time with the person who paid for their travel. However, the advice given by some of these grad students was to just be upfront with your advisor about your plans. A student at UC Davis who visited San Diego in conjunction with a conference wrote, “It’s pretty expected to do personal travel; it’s a not a big deal to ask about.” Ron from Duke University added, “The structure of the events and hints from coworkers made it clear that I should enjoy some sightseeing.”

Beyond Conferences

Conferences are not the only professional travel opportunities that can be combined with vacation. A student at Miami University travel to Peru and Thailand for 10-day field expeditions, after which she took two weeks of vacation. She hiked to Machu Picchu, went birding, and scuba dived during these vacations. Kirstin from Baylor University traveled to Israel for excavations, adding on time to visit family and friends.

Vacationing Is Self-Care

Taking vacations during graduate school is challenging but necessary for basic self-care. Mariana from the University of Brasília lamented that “it’s virtually impossible to take vacations when you’re a grad student.” Combining vacations with personal travel rejuvenates students for a fraction of the money and time that might otherwise be spent.

A student from UMass Amherst wrote, “Adding personal travel gives you the opportunity to unwind before/after trip. Often nice way to take a break/reward oneself after a big professional accomplishment since our research/writing commitments can be so demanding at times and it can be hard to prioritize celebrating oneself.”

“Grad school is grueling, find some vacation time when you can,” implored Nicole from the University of Kansas.

Don’t Miss Out on this Opportunity

Professional travel to conferences or for research also presents an opportunity to recharge, experience something new, and visit friends and family. None of the participants in my survey reported any fallout from combining professional and personal travel, and many exhorted other grad students to follow suit. You can determine whether it’s better to leave your personal travel and activities unspoken or to ask for explicit permission, for example if you are extending your trip, as you know your advisor and field best. Piggybacking personal travel onto professional travel is a fantastic way to vacate while spending less time and money than you otherwise might. Don’t forgo this fantastic perk of academic research!

The Power of Percentage-Based Budgeting for a Career-Building PhD

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I would imagine that most workers in the US don’t experience large income jumps after they start working full-time. They will receive periodic raises and perhaps some small jumps if they change career tracks or negotiate well with a new employer, but nothing like increasing their incomes by 50 or 100% at one time. However, those types of jumps are common for PhDs. The income jump from graduate school to a postdoc is roughly 50%, and the jump from a postdoc to a career job is perhaps another 50 to 100% or even more. At least, that’s the expected track! Having that expectation, whether or not it conforms with reality, can bring about some strange attitudes towards money. However, if a PhD(-in-training) adopts percentage-based budgeting, it has the potential to keep her finances in balance even through the income jumps.

percentage budgeting PhD

What Is Percentage-Based Budgeting?

There are many versions of percentage-based budgeting in terms of how it is enacted and the appropriate percentages to assign to various budgeting categories. The foundation of all of them is that your financial goals and expenses should scale with your income according to a consistent percentage.

Retirement Savings Rate

The most common example of percentage-based budgeting is the advice to save a percentage of gross or net income for retirement. It’s not reasonable to say that everyone should max out their 401(k)s ($18,500 in 2018) every year – though I have read that advice time and again in the personal finance blogosphere – not only because not everyone has a job that offers a 401(k) but also because that would be an incredibly high savings rate for someone earning what a graduate student or postdoc does. It’s much more reasonable to assign a percentage for your retirement savings goal, e.g., 5, 10, 15, or 20%.

The big advantage for using percentages instead of absolute numbers for savings rates is that it allows you to create a positive financial habit or even becomes part of your character (“I am a saver; I contribute 10% of my gross income to my retirement account”) at a level that is possible for your income. As your income grows, your absolute contribution to your savings grows as well.

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Other Budget Applications of Percentage-Based Budgeting

Tax

I like to think of income taxes as another type of percentage-based budgeting category, even though individuals don’t have control over the tax rate. If you have income tax withholding set up, you are sending a (more or less) fixed percentage of your gross income to the IRS throughout the year. If your withholding is accurate, this percentage is your effective tax rate. Your marginal tax rate is the tax rate on the income bracket that your income tops out in (e.g., 12%), but your effective tax rate is the amount of tax you actually pay divided by your gross income (e.g. 6%).

Another type of tax, FICA (Social Security and Medicare), is also percentage-based, although students and non-wage earners are exempted and the tax phases out at higher incomes ($127,200 in 2017).

Spending Categories

One of the most well-known percentage-based budgets is the Balanced Money Formula, which is detailed in All Your Worth by Elizabeth Warren and Amelia Warren Tyagi. It is a recommendation of how much of your net income to spend in three areas: 50% on needs, 30% on wants, and 20% on savings and debt repayment. The 50% of net income to needs (defined as housing and transportation; contracted payments; and basic food, clothing, etc.) is emphasized as the category that tends to grow out of control and lead to financial stress in American households.

Further reading: A Graduate Student’s Balanced Money Formula

Dave Ramsey, a well-known get-out-of-debt financial guru, also makes budget category recommendations for his followers (after they have gotten out of non-mortgage debt). He lists percentage ranges for eight budget categories in addition to saving and giving, e.g., housing should be 25-35% of net income, food should be 10-15%, etc.

Further reading: Starter Percentages for an Every Dollar Budget

These percentage-based budget category suggestions are just that – recommendations based on what that particular expert has observed to work well for most American households. You will, of course, find your own levels of spending that feel comfortable for you. But these kinds of recommendations are great to compare with your current spending from time to time so that you can see if any category seems wildly out of line, especially if it’s a category you can adjust.

The advantage to basing your spending on percentages of your income is that, again, you spend less when you earn less and spend more when you earn more. Your lifestyle scales with your income, and you automatically live within your means.

Using Percentage-Based Budgeting on Only Part of Your Income

Percentage-based budgeting is a useful structure not only on your salary but also on any variable income you might have, such as from a side hustle. If you budget all your basic and regular monthly expenses on your salary, you can use your extra income to fund, in a percentage-based allocation, some extra splurges or savings.

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For example, for every dollar of side income money you earn, you could allocate a percentage for taxes (I use my marginal tax rate plus 15.3%, the self-employment tax rate), a percentage for saving, and the remainder for little luxuries or lifestyle upgrades. That way, you both further your financial goals and reward yourself for a job well done.

Further reading: Side Income (Category), Best Financial Practices for Your PhD Side Hustle

What Are the Pitfalls of Not Using Percentage-Based Budgeting?

For PhD trainees in particular who are anticipating income jumps, it is very tempting to tell yourself that you will work on financial goals such as saving and debt repayment once you are earning more. In fact, you might even allow yourself to live above your means and accumulate some debt in the confidence that you will pay it all off later on.

Further reading: A Low Income Is a Blessing in Disguise

If you’ve ever heard of the permanent income hypothesis, you might be tempted to add its label to the above line of thinking. However, I think rather than a strictly rational calculation, it is simply our natural procrastination and fear of financial sacrifice disguising itself as a reasonable argument. Keeping a lid on your lifestyle is difficult when your income is low. Saving and debt repayment are difficult. We imagine a brighter future when those actions won’t be so challenging, and assume we can make it Future Us’s problem.

Further reading: You Should Spend More and Save Less (Especially Grad Students)

While I certainly hope that you experience the income jumps you anticipate – and don’t forget, there’s no guarantee that they will materialize – it doesn’t really become easier to save with age the way most people think it will. As the decades pass, on average your lifestyle starts to cost more and more. You buy a house. You have some kids. You upgrade your car. You’re pressed for time, so you don’t practice frugality the way you used to. The fact is there is always a reason not to make financial sacrifice today, especially if you’re an optimist. Percentage-based budgeting keeps your lifestyle in line with your current reality and doesn’t allow you to defer accepting responsibility for your financial life.

Where Does Percentage-Based Budgeting Break Down?

Low Incomes

Percentage-based budgeting works well over a range of incomes, but there is a floor to its functionality, and it’s somewhere around the living wage for each local area. At some point, when your income is low enough, you can’t scale your basic needs down to that ideal percentage of your gross income. And unfortunately, a lot of graduate students and some PhDs are living right around that breaking point. Savings/debt repayment will be cut back or eliminated, needs will balloon out of proportion, and there will probably be little spent on wants. You may even find yourself accumulating debt. The best solution to this conundrum is to land a higher-paying position as soon as you can, following graduation if necessary. A side income may help keep you afloat in the meantime, but don’t let it slow down your progress to that better job.

Taxes

Some percentage-based budgeting formulations, like the Balanced Money Formula and Dave Ramsey’s, work off your net (after tax) income. I like to work off my gross income and think of taxes as part of my percentage-based budget, but as I said earlier, your effective tax rate is not a percentage that you as the taxpayer control. As your income increases, all else being equal, your effective tax rate will increase as well, meaning that everything else has to shift to accommodate it, so your percentages cannot stay totally fixed.

My Experience with Percentage-Based Budgeting

I implemented percentage-based budgeting early on in graduate school for my high-level financial goals that are still the same today. I paid my taxes (through quarterly estimated tax, at times!), contributed to my Roth IRA (starting at 10% of gross income, working my way up to 17% by the end of grad school, and 18% today), and tithed. Beyond that, I did check that my spending on needs and wants was more or less in line with the Balanced Money Formula. I found that a 5:3 ratio of spending on needs to wants is quite comfortable.

I’m so glad that I implemented percentage-based budgeting, at least for my high-level goals, during grad school. It has helped my husband and I keep perspective about our finances through the income increases and moves we’ve undergone. We now have one regular income (my husband’s salary) and a few variable income streams (from my business and side hustle), and we practice slightly different forms of percentage-based budgeting with each. We pay taxes (at different rates), contribute to our retirement accounts, and tithe from each income, but we budget all our expenses off my husband’s income and use mine for extra saving (usually for a house down payment).

Probably the thing I like best about percentage-based budgeting is that it’s so flexible; you can make it entirely your own based on your goals and your lifestyle preferences. Yes, there are guidelines out there for you to access if you want to, but the final decision is yours. If you find a comfortable ratio among savings, needs, and wants while your income is low and maintain it as your income grows, you can confidently enjoy the fruits of your success.

Give Yourself a Raise: Prepare Your Own Food Even with a Busy Schedule

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Grad students and postdocs typically spend a significant portion of their income on groceries and restaurant food; these budget categories are often targeted by trainees who want to cut back on their spending in favor of reaching other financial goals. Forming new habits around cooking and eating is challenging but certainly not impossible, even for busy researchers.

prepare food busy schedule

A version of this article was originally published on GradHacker.

If you are looking to “give yourself a raise” by reducing your spending on food, the go-to suggestions are to:

  • Reduce the number of meals you eat in restaurants or as take-out.
  • Prepare food from base rather than pre-processed ingredients; shop the perimeter of the grocery store.
  • Buy food in season.
  • Don’t waste food.
  • Buy in bulk.
  • Plan your menus.
  • Stick to your shopping list.
  • Patronize alternative food retailers.

Sometimes trainees justify their high food spending by citing long hours on campus and variable schedules. They tell themselves they don’t have time to plan, shop, or cook or they can’t commit to being home by dinnertime. They are often inexperienced in the kitchen, which means they rarely cook or are slow when they do.

Early on in my grad school career, I fell into some of these high spending patterns. I ate out with classmates because I wanted to bond with my peers. I wasn’t very capable in the kitchen, subsisting largely on sandwiches, fruit, salads, and canned goods. When I did cook, I picked rather involved recipes from cookbooks with several ingredients I wouldn’t use again, and making each meal took a large investment of time. I often stayed late on campus, and I ate far too many meals at Panda Express because I hadn’t planned ahead.

Over the course of my grad school career, I slowly improved both my time management and food preparation skills to the point that I was able to reduce the amount of money I spent on food while still feeling satisfied with what and with whom I was eating. My health also improved in parallel with my nutrition.

Sometimes the stumbling block in our efforts to reduce our spending is not that we don’t know how to spend less but rather that we don’t understand how to adjust our lifestyles to meet our new goals. The remainder of this post will not focus on how to spend less money, but how to make typical strategies for spending less money on food more palatable to a grad student or postdoc.

Think ‘Food Assembly’ or ‘Food Preparation’ Rather than ‘Cooking’

Novices in the kitchen may be intimidated out of preparing much of their own meals because they don’t know how to replicate, especially in a time-efficient fashion, the meals they are accustomed to eating in their parents’ homes, dining halls, or restaurants. But feeding yourself doesn’t have to involve skilled or elaborate cooking; you can reframe it as food assembly or food preparation.

Identify a few simple (components of) meals that you like that have only a single or a small number of ingredients and may or may not involve ‘cooking.’ You’re the only one you need to please with your meal, so don’t worry about whether it would be worthy to bring to a potluck.

Some of my favorite meals during grad school that involved little to no cooking were spinach salads loaded with vegetables and hardboiled eggs or ham, curry tuna salad paired with fruit, tuna mashed with avocado, a taco bowl, and a bunless cheeseburger with steamed broccoli.

Get into a Groove

Repetition is an amazing time-saver when it comes to eating out of your own kitchen. You don’t have to master every cooking technique out there; you just have to become competent at preparing a small number of meals that you like. Rotate through each meal in your wheelhouse at whatever frequency you need to keep from getting bored; add in new foods and techniques slowly so you don’t become overwhelmed.

Some personalities are more amenable to this strategy than others. My husband has eaten virtually the same breakfast and lunch nearly every weekday for years, and before we were married he only ever cooked a handful of different dinners; this amount of variety is satisfying to him and certainly has cost him very little in terms of time and money. Disabusing myself of the idea that I needed (or wanted) a different meal every day of the week was one of my big breakthroughs in committing to preparing my own food while pursuing my PhD.

Establishing patterns in your weekly or monthly meals also makes grocery shopping much easier; you don’t have to spend much time making a list or running to the store for forgotten items.

Acknowledge Your True Schedule

I didn’t have many peers in graduate school who seemed to keep a fixed work schedule, and I don’t remember any non-parents doing so. On top of the large number of hours many researchers put in each week, the nature of research often demands time flexibility. I frequently found myself staying on campus well past what my body told me was dinner hour to finish up labwork, meet up with classmates for a study session, or knock out some administrative tasks.

Early on in grad school, I didn’t plan ahead for these evening workday extensions; while I was quite consistent in bringing lunch to campus daily, I was ‘forced’ to buy dinner on campus if I wanted to stay late. Once I acknowledged that I would be eating dinner on campus from time to time, even if I didn’t know exactly on which days of the week that would occur, I started to plan for it. I prepared a few refrigerator-stable, microwavable, single-serving meals each week to keep in my office for the late nights, replenishing my supply as needed.

My favorite microwavable dinners to keep on campus were chili, split pea soup, flaxseed meal pizza, Mexican lasagna, and pasta with sauce. Full meals aren’t even needed in many cases to help you resist the convenience food available on campus; there’s really no reason to not keep some snacks around to tide you over. Easy room-temperature or refrigerator snacks to keep in your office are instant oatmeal, nuts or nut butters, yogurt, hardboiled eggs, cheese, raw vegetables, and fruit.

Don’t Allow Yourself to Get Too Hungry

‘Never go to the grocery store hungry’ is great advice; hunger can sap our willpower to stick with our eating plan, causing us to overbuy expensive, unhealthy, or unnecessary food. As a graduate student working sometimes long and late hours, I realized that allowing myself to become quite hungry caused me to make poor eating choices on campus and at home in addition to at the grocery store. It’s pretty difficult to arrive home hungry and take the time needed to prepare a meal, especially for a slow cook.

I started flipping my schedule around; nearly every weekday evening, I ate a pre-prepared dinner (or snack) right when I arrived home, and then cooked subsequent days’ meals later in the evening when my hunger was already satisfied. An alternative is to do as much food preparation as possible in advance (washing, chopping, saucing, etc.) so that finishing your meal when you arrive home takes a minimal amount of time.

Batch Cook

Acquiring a slow cooker halfway through grad school absolutely revolutionized how I prepared food; it was my introduction to batch cooking. Batch cooking is preparing multiple meals at once to freeze or refrigerate until they are consumed. Slow cookers are not the only way to batch cook, but they are an incredible tool for preparing large quantities of food at once with relatively little active work or skill needed. Batch cooking usually doesn’t take any or much more time than preparing a single meal, so it’s perfect for a busy trainee. A single person can prepare a meal of 4 or 8 servings and eat for a week off that one-time effort!

Socialize Economically

The connections you make in graduate school are very important for your career; I would not suggest that you skip chances to engage socially with your peers simply because you are trying to spend less money on food. You can, however, often socialize in a manner that limits the damage to your budget. For example:

Changing your eating habits is certainly not easy. However, by overcoming the challenges to eating out of your own kitchen while you are still a student or postdoc, you can effectively give yourself a raise both during your training and throughout the rest of your life.

How have you kept your food spending low as a graduate student or postdoc?