Personal Finance for PhDs

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fellowship recipient

This NDSEG Fellow Prioritizes Housing and Saving for Mid- and Long-Term Goals

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In this episode, Emily interviews Lourdes Bobbio, a graduate student in materials science at Penn State and NDSEG fellow. Lourdes breaks down the top five expenses in her budget: housing, food, taxes, utilities, and subscription services. She explains the financials systems she has put in place to reach financial success during her PhD: targeted savings, automated transfers, quarterly estimated tax, high-yield savings accounts, and taxable retirement investments with a roboadvisor. Lourdes has decided to prioritize her housing within her budget, but still balances that expense with plenty of saving for her future wedding and retirement.

Links mentioned in episode

NDSEG fellow budget goals

Teaser

Lourdes (00:00): Being able to pull some money from my fun fund instead of from my budget for the month is kind of nice because I can still have a nice experience but not have to worry about that taking away from like going out to dinner with my friends or going on a date night with my boyfriend or something like that.

Introduction

Emily (00:20): Welcome to the personal finance for PhDs podcast, a Higher Education in Personal Finance. I’m your host, Emily Roberts. This is season three, episode 11, and today my guest is Lourdes Bobbio, a graduate student in material science at Penn State and NDSEG fellow. In this budget breakdown, Lourdes lists her top five expenses, details her financial goals and their underlying systems, and gives her best financial advice for her peers. She shares with us how she has successfully navigated the challenges of quarterly estimated tax, irregular expenses, and her lack of IRA access. You won’t want to miss her concluding insight into the psychological benefits of budgeting. Without further ado, here’s my interview with Lourdes Bobbio.

Please Introduce Yourself

Emily (01:07): Thank you for joining me on the podcast today. My guest is Lourdes Bobbio, who is a grad student at Penn State University, and I’m just delighted to hear her budget breakdown today. So we’re gonna dive into that right now. Uh, Lourdes, would you please introduce yourself a little bit further to the audience?

Lourdes (01:24): Sure. Uh, thanks again for having me, Emily. I’m really excited to talk with you about my finances as a grad student. Um, so like you mentioned, I am currently a fourth year grad student at Penn State University, which is located in State College, Pennsylvania. Um, and I am in the material science and engineering department at Penn State.

Emily (01:45): Yeah. Excellent. Are you single? Your household is just you?

Lourdes (01:48): Yes, I currently live alone by myself, so.

What is your income?

Emily (01:51): Okay, excellent. Just wanna get that structure upfront there. Um, so with the budget breakdown episode, I’m basically gonna ask three super high level questions and we’re just gonna dive into those and see where it takes us. And the first one is, what is your income?

Lourdes (02:08): Um, so I am currently on the National Defense Science and Engineering graduate Fellowship, so I make $38,400 a year, which breaks down to $3,200 a month. Um, so yeah.

Emily (02:23): Yeah, very nice income for our grad student and congratulations on winning that, winning that fellowship. That’s excellent, okay, so that’s your income. Um, I imagine it goes pretty far in state college.

Lourdes (02:35): Yes, it does.

What are your five largest expenses each month?

Emily (02:37): So yeah. So tell us about your five largest expenses, what you’re paying for each one of those so that anyone else can get some, you know, local insight.

#1 Expense: Rent

Lourdes (02:45): Yeah, so yeah, like you mentioned, state College is a college town, so the cost of living is fairly low compared to any of like the major big cities. Um, I grew up in near Washington, DC and then went to my undergrad in Boston, so I’m kind of was very accustomed to the more high cost of living, so coming here was definitely a big change. Um, um, so for my five largest expenses, I would say my top one is definitely rent. Um, I live in the downtown area of state college, so I pay a little bit more in rent and I also live on my own, um, with no roommates. And so that’s something that another sort of factor that factors into the higher cost of rent. And um, it’s something that I determined that I valued a lot. I valued being close to campus, being able to walk, um, to work every day, um, being close to like the restaurants and stuff like that. And then also being able to live on my own. Um, and so one of the reasons why I did choose to live closer to campus is because I don’t have a car, so I actually don’t have any car payment or insurance that I have to spend money on. So sort of the money that I would normally spend on that, I sort of put it into the, my sort of rent budget category. 

Emily (04:05): Yeah, that makes a lot of sense to me. Um, so first living near DC and then Boston. Have you ever owned a car?

Lourdes (04:12): No, I have never owned a car.

Emily (04:14): Okay. So this is a kind of a natural choice for you to say, okay, I’m moving to state college, I don’t currently have a car. You know, did you ask yourself, how can I set up my life so that I don’t need a car? Is this a common thing for grad students not to have a car?

Lourdes (04:27): No. I would say a majority of the grad students do have cars here. Um, I don’t think it makes it a little bit easier. Um, just in terms of, since state college, if more, if you wanna get out of state college, I would say because state college is small, there is sort of a limited amount of stuff to do that’s within walking distance and within the public transportation sort of, um, area. Um, so if you wanna sort of go away for the weekend or something, then having a car is a lot more useful. Um, but I have never had a car, so I didn’t feel the need to get one. And there’s an abundance of housing close by to campus and like I mentioned, there is a fairly good bus system, um, throughout the local area, um, that I can use if need be. So

Emily (05:15): Yeah. Um, a couple more specifics about the place that you live and did I catch, did you say the amount of money that you’re spending on rent?

Lourdes (05:22): No. Um, so I spend about $1,500 on rent a month. So it’s definitely the higher.

Emily (05:28): Sounds a little high to me. <laugh>.

Lourdes (05:29): Yeah, it’s definitely on the higher end. The apartment I currently live in, um, is a one bedroom with like, it’s called an office space, so it’s like a smaller, can be a second bedroom. And there have been times when I’ve contemplated maybe getting a roommate, but I really value having that sort of space of my own. And, um, so the reason that, um, this sort of came about is because when I first got here, so the way, because this is a college town, it runs very much on the school schedule. So as a grad student, sometimes when you get accepted and then finally learn about like, you know, finding housing and such, the big cycle of finding apartments is kind of over like, that really happens in like October, November, December. And so when you’re figuring out your grad school decision, that’s more in the spring.

Lourdes (06:19): And so there was, when I was first looking at a place to live, there was sort of a limited number of like, number of places downtown that I could live. And since I wasn’t gonna be bringing a car, that’s something that was important to me. And so, um, I did find this place. I’ve lived in the same place for my whole time in grad school. Um, and so for the first year when I wasn’t on a fellowship, my parents actually were helping me out a little bit, paying for rent. Um, and they also lived close by, um, in the DC area, so they would come to visit a lot and they liked having that sort of like that second office space bedroom to be able to stay over. Um, and then when I did get my fellowship, I sort of evaluated, um, that also came at a time for my parents when they were no longer gonna be able to help me just because of some of their own personal finance issues. And so, um, I sort of had to evaluate whether or not I wanted to move or not, and I sort of decided I liked where I was and with my fellowship I could afford it. Um, so I decided to stay where I was.

Emily (07:24): Yeah, definitely your decision making process makes sense to me. And the thing is that if you hadn’t won that fellowship, I mean, I think you would’ve had to move, right? Like it’s compared to a, you know, base sort of stipend. Yeah, it is quite high, but hey, you won it and it’s working out and you can afford it. Um, that’s, yeah, that sounds lovely. And so the reason I’m asking a little bit more about the transportation issues, um, is, is because it’s really sometimes the trade off makes sense to not own a car and then to to pay more in rent, um, but to have the proximity and to have the access to public transit and all of that stuff. So, um, I’m sort of lumping together your, like what we would talk about under transportation, under like the housing stuff. So one more question about that is, you know, you mentioned it’s, it’s easy enough to get around town. Um, what do you do about getting out of town? Like, do you not go or do you only travel with other people or do you rent a car or like, how does that work?

Lourdes (08:21): Um, so I have a, uh, long-term boyfriend. We’ve been dating for a couple of years, so usually when I go anywhere, we go together and he has a car. Um, so that’s usually how that works out. Or sometimes with friends, uh, I would say maybe half of my friends have a car, so we’ll plan group trips together and go places I hardly ever go anywhere just on my own. Um, so

#2 Expense: Taxes

Emily (08:43): Yeah. That makes sense. Um, okay, so let’s move on to your second largest expense.

Lourdes (08:50): Yeah, so for that I would say sort of, I’m not sure if I categorize it as an expense necessarily, but um, because I’m on a fellowship, um, that doesn’t take taxes out, I sort of charge myself the taxes that I would have to pay on my fellowship at the end of the tax year. Um, and so that’s sort of one of the next biggest expenses on my list of expenses and something that I take into account at the beginning of the month when I get paid, I make sure to take out that money right away and set it aside in a savings account so that when I do have to make those quarterly estimated payments, um, I have that money set aside, I don’t have to worry about trying to scrounge it out from somewhere. So,

Emily (09:27): So you just mentioned several really important things, right there for, um, fellowship recipients to consider. So first, uh, PSA <laugh>, if you’re receiving a fellowship, it’s fairly likely that your university is not withholding tax on your behalf. Mo- vast, vast majority of universities work that way. So you are withholding tax essentially for yourself instead of relying on your employer who is not your employer, um, to do that for you. So awesome system. Can you tell me a little bit more about how, you know, mechanically you actually do that? Logistically?

Lourdes (10:01): Yeah. So, um, do you mean in terms of calculating or actually set, setting aside the money? Okay. Yeah. So when I first got my fellowship and sort of realized that no taxes were gonna be withheld, I sort of had to go through the whole process of, um, I think it’s the 1040, um, es worksheet to, uh, where you input your income and it sort of takes you through the steps of sort of figuring out how much you’re gonna owe at the end of the year. And so, um, I did that and got the total amount that I would owe. And then since I also read that you would be paying these quarterly, um, divided by four, or I guess I divided the whole thing by 12, um, and then would set aside that amount of money per month. And so the way I do this and the way I do all my budgeting is on a spreadsheet.

Lourdes (10:58): Um, and so I have this budgeting spreadsheet, um, that has the entire year sort of planned out for me. So I do like a 12 month, um, overview of the year where I plan. And since I know how much I’m gonna make every month, it’s very steady. Um, I have that amount sort of as the top line, and then from there I take out taxes and then any my savings and then utilities, those types of, um, bills, um, that I know I’m gonna have to pay. And then, um, sort of from there calculate how much leftover spending money I have. But that’s effectively, so I calculated how much I would have to pay, um, each month if I were getting with like basically how much I had to pay the whole year divided by 12, and then put that into my budget spreadsheet to calculate, and then I set it aside in a high yield savings account so I can, can earn a little money off of that, um, until I have to pay it each quarter, um, to the irs. So

Emily (11:59): Yeah, I just, that’s just a perfect embodiment of, of how to handle this, the, the way that, that I think is the best way too. So I’m glad we both came to the same conclusion there. I mean, from, I’ll just review a couple things. So one, you figured out what your quarterly estimate tax would be by using Form 1040-ES, which is, um, for those of you who don’t know, it’s not something you ever have to submit to the federal government, but it just helps you figure out how much the IRS does expect you to pay throughout the year. Um, if anyone needs extra help with that, I do have a workshop on it that’s available year round, and so I’ll link that in the show notes. Um, so you use that to figure out how much you need to set aside every single month, and it’s just, it’s just another line item in your budget as you were describing.

Emily (12:42): Yep. And you have, I I would expect an automated transfer set up, um, like after you’re paid, it automatically transfers to a separate, as you said, high yield savings account. Yeah. And sort of the, the upside to paying your own quarterly estimated tax is that you do get to build it up for a few months before you send it into the IRS, uh, compared to the timing of, you know, withholding. And so, hey, you get, you know, month two, three extra of that little, you know, 2%, you know, interest rate or whatever you get on your savings account. So, um, I love that idea. Do you mind sharing who you bank with to find that high yield savings account?

Lourdes (13:16): Yeah, so, um, I bank with Discover Online Bank. I also have a credit card with them, so it kind of makes it easy. Um, and then I’m also, so that’s sort of where I put a lot of my long-term savings. And then I have a, uh, checking account with just a local credit union. Um, and that also has a savings account that has a little bit more of my, my short term savings goals, um, which I think I’ll talk about a little bit later.

#3 Expense: Food

Emily (13:39): Yeah, sounds perfect. Um, okay. Ready to move on to the next item?

Lourdes (13:43): Yeah. Um, so next item would definitely be food. Um, both groceries and going out to eat. Um, I definitely spend more on going out to eat than I would like, but I don’t necessarily feel bad about it because I generally budget for it and I know how much I can spend, so I don’t, it usually evens out in that the amount of, if I’m not buying groceries every week and going out, it’s a little bit more than I wouldn’t spend if I were buying groceries. But because it’s sort of budgeted into my overall budget, I don’t necessarily feel guilty about going out to eat.

Emily (14:19): I, I really love that I also experienced that same like, sort of psychological side effect of budgeting, which is before I kept a budget, I would maybe feel some guilt about discretionary spending, going out, making, you know, going shopping, things like that because I didn’t really have a good idea about how we would fit into my overall, you know, cash flow. And I’d be like, okay, well did I just like overdraw myself for like the end of the month? So budgeting really for me ended up being, um, a freeing exercise and something

Lourdes (14:50): I agree.

Emily (14:51): Not experience guilt anymore because as long as I knew it was in balance and I stayed within the budgeted amounts, I didn’t have to feel guilty anymore about the discretionary spending. So I’m really, really glad you mentioned that.

Lourdes (15:01): Yeah, and for me it’s also like a way, um, to get together with my friends. Generally at the end of the week we’ll go out to eat or go out for drinks and it’s just a way to unwind, um, with, and like a way to socialize. So again, it’s something that I definitely, I value, I place importance on that, so

Emily (15:21): Yeah, absolutely. Did you tell us the amount, the amount you spend on food?

Lourdes (15:24): Yeah, so I usually spend about $200 a month on food between groceries and going out to eat. Um, maybe 200 to 300 depending on the month,

#4 and #5 Expense: Utilities and Subscription Services

Emily (15:35): So. Yeah, it seems pretty reasonable even with a healthy, you know, eating out, uh, budget in there. Uh, okay, so what’s the fourth expense?

Lourdes (15:43): Uh, so honestly, aside from those major expenses, I don’t really have, oh, utilities obviously, um, utilities and, um, subscription services. Um, I’ve recently cut down a little bit on my subscription services, um, just because, um, I realized that there were some that I wasn’t using utilizing nearly as much as um, I could. And so I’ve cut them out, but I spend usually about, um, 30 to $40 on electricity, um, per month. And I have it budgeted as $40 because that’s usually the highest it ever goes. It’s usually in the thirties range. And then my subscription services, I think amount to about $25 a month, um, between Netflix, Spotify, the typical ones you’d expect. <laugh>,

Emily (16:34): Um, yeah, I was just gonna say what made the cut. Okay, so Netflix, Spotify, anything else?

Lourdes (16:38): Um, audible actually made the cut. It was one of the higher ones and I realized that I, I love to read and audio books for me are a great way to, um, be able to read while doing lab work very easily. Um, but I realized I was accumulating five, six credits that I just wouldn’t spend. So that’s almost, uh, it’s about $15 a month and I was like, I’m clearly not using this. I realized that sort of every year at the beginning of the year, I sort of evaluate my budget again, and that’s when I decided that I’m clearly not using this. I haven’t used it for the last six months, it’s, it’s gotta go. So, um, that helped cut that, cut that down a little bit. Um, so yeah.

Emily (17:20): Yeah. I just love that you mentioned that you do have a periodic reevaluation of your expenses. Um, and, and even, you know, earlier when you mentioned, you know, your rent, like after your first year of graduate school, you reevaluate and said, okay, is it worth being here? I mean, whether or not you decide, yes, it’s worth it or no, it’s not, it’s the reevaluation that’s so valuable and needs to happen over and over again. Just make sure that you’re still happy with your situation in every, every which way. So I’m glad that you, you know, sort of have it in your, in your calendar, in your mind, um, to happen every single year. So that’s awesome. Um, yeah. So is, is that all the five expenses? I think we got through them, right? 

Lourdes (17:57): Yeah, so, um, I’m lucky that my apartment complex actually has internet and cable included. Um, and so I don’t have to pay for those. I probably wouldn’t have paid for cable anyway, just ’cause I don’t watch that much tv. Um, but it is nice to have the internet included ’cause that can get pricey. Um, especially since here there’s really not, there’s two major internet companies and not much competition, so it gets pretty pricey. Um, so it’s nice to have that included.

Emily (18:27): Yeah, good to know that that is included in that rent. So it, it sounded high at the, at first, but then, you know, breaking it down, it definitely makes, uh, more and more sense.

Commercial

Emily (18:38): This summer I’m putting forth extra support for PhDs undergoing career transitions into grad school, a postdoc or a real job. If you’re moving on to the next stage in your career or thinking about it, please visit pfforphds.com/next to check out my articles, webinars, and coaching program allow me to come alongside you during this transition to ensure that you set yourself up for financial success.

What are you currently doing to further your financial goals?

Emily (19:08): Okay. So we’ve talked about your spending. Um, let’s talk about financial goals.

Lourdes (19:13): Yeah. Um, so I have short-term, midterm and long-term goals and, um, the way I sort of, um, break these down, um, I have sort of two different savings accounts that I use to break these down. Um, so I have a savings account that’s with my credit union, um, that’s connected to my checking account. So I put a lot of the money that I save for my short term goals in there, and then my more midterm and long-term goals go into the high yield savings accounts. And so, for example, some of my short-term goals, um, I have, uh, just a general travel fund since I don’t have a car. If I wanna go home, um, to visit my parents, I take a bus that takes me straight to DC um, but I save up some money, especially near the holidays, it can get kind of pricey. So sort of saving up throughout the year for that. Um, I put maybe like $15, $20 a month towards that fund. Um, and then I have a, um, gift fund as well. So, um, mainly for Christmas, but also for any gifts that come up come up throughout the year. Um, definitely getting to the age where I get invited to weddings quite frequently, so having that sort of there means I don’t have to dip into my just general daily monthly budget and can have a separate fund for that. Um, and then I have what I call a fun fund, which is for more higher price fun experiences. So we have a lot of times Broadway shows come through, um, state college, um, and, um, those are usually a little bit more expensive. They’re like 60 to $70. So being able to pull some money from my fun fund instead of, um, from my budget for the month is kind of nice because I can still, um, go to have a nice experience but not have to worry about that taking away from like going out to dinner with my friends or going on a date night with my boyfriend or something like that. Um, and also most recently, um, I also really like to bake. And so I saw a deal online, it was like a one day deal for a hundred dollars on a KitchenAid mixer, which is a pretty good steal in my opinion. Um, ’cause I’ve been like, I’ve seen the prices for those, they can range like three, $400. So I was able to sort of buy that and take advantage of that deal without sort of having it impact my whole budget. Um, so that’s sort of what my fund fund is for. And those are some of sort of my short term financial goals, I suppose. 

Emily (21:47): Yeah, let’s, I I just wanna say, you know, I, I love this system. Um, I talk about it frequently. I call it, um, a system of targeted savings accounts. Another term is sinking funds. That’s more of an accounting kind of term. Um, but yeah, the idea is just, uh, projecting as best you’re able, what your expenses are going to be irregularly, right? So something that comes up once a year, a couple times a year, um, and starting to save up in advance for those different categories. And it sounds like you’ve both, like you’re, you both have expenses that you can pretty well anticipate, like you mentioned travel, okay, it’s gonna happen around the holidays. I know approximately what amount it’s going to be in. You can save up for that pretty easily, but it also sounds like you have, um, with your fun fund <laugh>, that’s a little bit hard to say with your fun fund. Um, you have like, okay, it’s, it’s just something that you have the money there, there’s a certain amount of it that you’re saving every single month. And it’s more like as opportunities come up and you’re like, yeah, I wanna do that, this is the fund that you can draw on. Um, so again, it’s not impacting your monthly cashflow, it’s not necessarily something you’ve planned out, but it just is something that allows you to capitalize on opportunities when you see them. Like when you saw this sale for something, you’ve been thinking about buying for some time and tracking the prices for. So I really love that you have both like a, a proactive, like predictive element of this as well as a reactive like, okay, I know there’s just gonna be things that I wanna do, so let’s plan. I don’t know what it’s gonna be, but I’ll be able to do it, you know, when you see it, right?

Lourdes (23:14): Yeah, exactly.

Emily (23:15): So let’s talk about those, um, mid and long-term saving goals now.

Lourdes (23:19): Yeah, so some of those, um, so my boyfriend and I, we’ve been together for about three and a half years. And so, um, he already graduated from grad school this past, um, just this past week actually.

Emily (23:33): Oh, Congratulations to him.

Lourdes (23:35): Yeah, and I’ll be graduating in a year. So we’re thinking about, um, getting married soon and so sort of planning for a little bit ahead for a wedding since I know those can get quite expensive. Um, just putting away like a a hundred, a couple hundred dollars a month, um, towards that. And then also more long term a house is something that I definitely would like to purchase in the future. Um, this is definitely, like I said long term, um, but putting a little bit of money away each month for that and just seeing that sort of fund grow. Um, I really like having that. I have a little tracker in Excel, just a little graph that, uh, like you can see it sort of grow and it’s nice to see that and sort of gives me a goal to work for in the future, just like continually working and not having to worry about it, like when it becomes a shorter term goal.

Lourdes (24:23): And so those are some of sort of like my mid and long-term goals also, um, because I am on a fellowship, I have to pay out of pocket for my health insurance. Um, and while my fellowship does reimburse it somewhat, um, it’s not as much as if I were a regular like on a, uh, research assistantship. Um, and so it’s still quite expensive, but obviously very important. This is actually something that just, um, came up in terms of like my financial life last August because I was gonna be, um, taken off my parents’ health insurance and so I needed to sort of figure that out. And, um, thankfully at the time, I have an emergency fund as well, aside from these sort of sinking funds, um, I have an emergency fund of about, uh, $12,000, um, just set aside. And so I was able to pay for my health insurance no problem.

Lourdes (25:19): And there was some issue in getting reimbursed by my health insurance, um, which could have been an issue if I hadn’t, like if it was money that I needed to live on, but thankfully it was just money that I had set aside for this exact purpose where it’s something that I hadn’t exactly planned and hadn’t really thought of, um, but was able to pay for. And so, um, now knowing that and knowing I’m gonna have to pay for my health insurance in this upcoming August is when we have to renew it. Um, I’ve been saving aside money for that every month as well, so I can pay for that. So.

Do you have long term goals?

Emily (25:55): Yeah, what a perfect use of an emergency fund. Um, I, I kind of, I thought about what exactly is the definition of an emergency, you know, before, and to me an emergency is something that is both totally necessary, a necessary expense and also, um, unanticipated. So you knew you were gonna come off your parents’ insurance, but you did not know I would imagine what the premium was gonna be and that there were gonna be these issues with the reimbursements and so forth. So, and of course it’s a necessary expense has to be paid on time, you can’t mess around with that. So it’s just wonderful that you have that, um, fund already available for you. So do you have any other long-term goals?

Lourdes (26:31): Yeah, so I actually am also currently saving for retirement. Um, and so I was able to for one year max out my Roth IRA, um, before I, I was on my uh, fellowship. Um, but since then and since at that point I learned that I was no longer eligible to contribute to my Roth ira, I have been investing in just a general taxable brokerage account. Um, and I haven’t been contributing as, um, much as I would’ve probably to my Roth IRA just because I know that is tax deferred, but I still do try to put in a hundred or $200 a month into that, um, as sort of a very long-term goal and to try to keep that investment going even though I don’t have the tax advantage vehicle of the Roth IRA.

Emily (27:21): Yeah. So just to expand on that for another moment because this is something that, you know, I get plenty of questions about. Um, so first of all, your eligibility for an IRA depends on you having what’s called taxable compensation or earned income, which in terms of grad student pay means W2 pay, which is usually termed as an assistantship, uh, TA, RA. So you having the NDSEG fellowship, um, doesn’t count as taxable compensation or earned income. Now at that point, a lot of people who I talk with, um, throw out their hands and say, oh, well I have this higher income, I don’t have access to an IRA, I guess I won’t say for retirement. And obviously as someone who’s very, very pro investing and especially for retirement and especially at a young, as young and age as possible, um, I’m like, no, no, no. Like you can, you can go ahead, it, it can’t be inside an IRA, but you can still do it. And so I’d really love for you to talk a little bit more about how you, um, came to this understanding and found, you know, the, the way that you’re, you know, you’re using a tax taxable brokerage account, but a lot of people don’t even know what that is. So like how did you find out about this and how did you decide you know, where to open and so forth?

Lourdes (28:33): Yeah, so when I was sort of, when I got my fellowship and when I sort of learned about all the implications of that in terms of like taxes and um, investing for retirement, that’s when I also learned that um, I would have, if I wanted to invest it would have to be in a taxable account. And so I did a lot of research, um, in terms of um, I guess what brokerage I wanted to invest with. And because at the time I didn’t feel very knowledgeable about um, picking funds or ETFs or anything. I had money in a Roth, IRA, um, with Vanguard, they make it easy to have target date accounts, but I wanted to try to see if I could try something else, um, and decided to go with a, a robo-advisor, an online robo-advisor. So I currently invest with uh, Wealthfront and um, have enjoyed the experience so far, um, and just find it a very easy way to get a broad, um, a broad portfolio in terms of the different stocks that I’m invested in.

Lourdes (29:38): They sort of, um, you take a little quiz with a risk assessment and sort of I’m a little bit on the higher end and just because I’m young I know I can have that risk factor, um, and sort of um, went that route. Um, but I did a lot of research in terms of sort of what I felt would be good for me, um, and how much time I was willing to put into it. And I think maybe in the future I might move this money to somewhere with um, lower fees. I currently don’t have to pay any fees because I’m under a certain amount of money, um, which is nice. Um, but if I ever were to continue to um, uh, add money to this account and I went over that uh, threshold, I might decide to move it to somewhere where I would have, I wouldn’t have to pay an advisory fee.

Emily (30:24): Yeah, I’m really glad you you provided that detail because I learned something new. So these roboadvisors, I’ve looked into a few of them. Wealthfront is one of the prominent ones. Um, and people often ask me about using roboadvisors, so I’m really glad that you can speak to this a little bit. Um, and as you said, it’s a really, um, easy solution. You answer a few questions about yourself and they come up with a portfolio recommendation. I do in general think that it’s kind of overkill, especially for someone who is investing inside an IRA, um, and is just going for retirement and sort of a simple thing what you were already doing inside your IRA, but to me it actually makes a lot of sense once you switch to using a taxable investment account that, um, an advisory service with a little bit more of a hands-on approach can do some tax optimization for you.

Emily (31:11): So it actually makes a ton of sense to me. Um, and it’s great news actually that, you know, for now you are not being charged an advisory fee because that is really the main, as I’m sure you learned in your research, the main downside to using a RoboAdvisor or any other sort of slightly more expensive service is the fees. The fees don’t sound like very much, you know, maybe 0.25%, something like that doesn’t sound like a lot, but it adds up quite a lot over time. So it’s really exciting to me that you were, you know, able to do this without a fee. I mean, that’s kind of the best of all the worlds, right? Do you mind sharing what is that ceiling under which they don’t charge the advisory fee?

Lourdes (31:45): Um, I believe it’s $15,000. Um, and then if you refer people it, they will as a bonus, they’ll, um, increase it. I don’t know by how much, um, for each person you refer, but I think that is just the base, um, baseline ceiling for a no fee.

Emily (32:05): Yeah, that is awesome to know. Do you want to share your referral link?

Lourdes (32:11): Um, can I send that to you?

Emily (32:13): Yeah, absolutely. Okay. So we’ll pop that referral link into the show notes and you’ll help Lourdes and you’ll help yourself if you are already interested in wealthfront, Hey, why not? She’s giving you a tip about not having that advisory fee at the lower balances. So win, win, win, I would say all around.

What is your best financial advice that you’d share with your peers?

Emily (32:28): We will just conclude with me asking you what is your best financial advice that you would share with, um, your peers, whether that is another grad student, another fellowship recipient, someone else living in state college, anything along those lines?

Lourdes (32:42): Um, I would definitely say sort of speaking to what you mentioned earlier is not be afraid of having a budget. I know a lot of people think of having a budget or something constricting and something that will make you not like spend, not be able to spend money because you’re, you’re on a budget, but really it’s a very freeing thing, especially as a grad student where you’re on sort of a limited income. Um, being able to see where your money is going and sort of be in control of that, um, definitely makes you feel more free in terms of the things you can do on a day-to-day basis or, um, on even like a longer term. You sort of get this sort of freedom that, um, I think is really valuable and makes finances just seem less scary.

Emily (33:32): I’m in total agreement with you about the benefits, the psychological benefits of budgeting, as well as the actual, uh, financial benefits. So thank you so much for sharing that and uh, for joining us today. I’m really, really glad that you, uh, yeah. That you came on the podcast.

Lourdes (33:46): Yeah, thank you so much for having me. I really enjoyed speaking to you

Outro

Emily (33:50): Listeners. I’m so glad you joined us For today’s episode, pfforphds.com/podcast is the hub for the personal finance for PhDs podcast. There you can find links to all the episode show notes, a form to volunteer to be interviewed, a survey, and a way to join the mailing list. I’d love for you to check it out and get more involved. See you in the next episode. The 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 Jewel Lipps.

Where to Report Your PhD Trainee Income on Your Tax Return (Tax Year 2024)

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There are two broad categories of PhD trainee income: employee income and awarded income. Employee income is W-2 pay, whereas awarded income is any other regular type of income for a graduate student or postdoc, which might be reported on a Form 1098-T in Box 5, a Form 1099-MISC in Box 3, a Form 1099-NEC in Box 1, a Form 1099-G in Box 6, or a courtesy letter—or not reported at all. For US citizens, permanent residents, and residents for tax purposes (the intended audience for this article), both employee and awarded income are supposed to be reported in the ‘wages’ line on your tax return, i.e., Form 1040 Line 1.

This article was most recently updated on 1/17/2025. It is not tax, legal, or financial advice.

PhD where tax return

Where to Report Employee (i.e., W-2) Income

Employee income comes will be reported on a Form W-2. The terms used for employees at the postdoc level vary quite a lot, but at the graduate student level the positions are usually called assistantships (research, teaching, graduate, etc.).

Your gross yearly employee income will appear in Form W-2 Box 1, and the income tax that has been withheld from you pay will appear in Boxes 2 (federal), 17 (state), and 19 (local).

Form W-2 contains instructions for the employee (p. 7), which state: “Box 1. Enter this amount on the wages line of your tax return.”

The wages line of your tax return is Form 1040 Line 1a, which is labeled: “Total amount from Form(s) W-2, box 1.”

The Form 1040 instructions for Line 1a (p. 23) state: “Enter the total amount from Form(s) W-2, box 1. If a joint return, also include your spouse’s income from Form(s) W-2, box 1.”

Where to Report Awarded Income

Awarded income is not given in exchange for work as an employee, and therefore no W-2 is issued. At the graduate student level, awarded income is usually called scholarships, fellowships, and grants. The titles used for postdocs receiving awarded income vary, but they are not considered employees.

Awarded income will be officially reported to the student on a Form 1098-T in Box 5, on a Form 1099-MISC in Box 3, on a Form 1099-NEC in Box 1, or on a Form 1099-G in Box 6. It also might be unofficially reported on a courtesy letter or not appear on any documentation at all.

Further reading:

Please note that you must calculate the taxable portion of your awarded income for the year; it is not necessarily the same as your stipend/salary. Unlike with a Form W-2, you do not necessarily report exactly the amount that appears on your tax form or courtesy letter. See How to Prepare Your Grad Student Tax Return for more details.

Publication 970 Chapter 1 discusses where to report the taxable portion of scholarships, fellowships, and grants (p. 7):

Form 1040 or 1040-SR. If you file Form 1040 or 1040-SR, include any taxable amount reported to you in box 1 of Form W-2 in the total on line 1a. Include any taxable amount not reported to you in box 1 of Form W-2 on Schedule 1 (Form 1040), line 8r.

The Form 1040 Instructions for Schedule 1 Line 8r (p. 24) state:

Line 8r Scholarship and fellowship grants not reported on Form W-2. Enter the amount of scholarship and fellowship grants not reported on Form W-2. However, if you were a degree candidate, include on line 8r only the amounts you used for expenses other than tuition and course-related expenses. For example, amounts used for room, board, and travel must be reported on line 8r.

Purchasing a Home as a Graduate Student with Fellowship Income

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In this episode, Emily interviews Jonathan Sun, a second-year PhD student at Yale University. Jonathan purchased a house in New Haven after his first year in graduate school. He shares the process he used to search for and ultimately go under contract on a home, including applying for various incentive programs. But his home ownership goal was nearly derailed; his original mortgage lender pulled out because his fellowship income isn’t reported on a W-2, and he had to scramble to find another lender at the last second.

Links mentioned in episode

homeowner grad student

0:00 Introduction

1:02 Please Introduce Yourself

Jonathan Sun is a second year PhD student in Pathology at Yale University in New Haven, Connecticut. His stipend is $35,000 and it increases annually. When he moved to New Haven, he started by renting a two bedroom, one bathroom apartment with his girlfriend. He was paying about $1,500 monthly for rent.

3:10 What made you think that it would be a good idea to buy a home as a graduate student?

When he began his PhD program, Jonathan had in mind that he would want to buy a home. He thought between his first and second year would be the ideal time to buy. At this point in his PhD, he would know if he would be staying there for five or six years. Emily mentions that it’s a good idea to learn about the neighborhoods before buying a house. Jonathan agrees that it was a good idea to get to know the city and neighborhoods. He shares that if he had bought a home when he first moved to New Haven, he would have chosen a less convenient or less desirable neighborhood.

Further reading: Should I Buy a Home During Grad School?

5:11 Was your interest in buying a home specific to New Haven or anywhere you moved to for your PhD?

The idea of buying a home occurred to Jonathan when he was interviewing at Johns Hopkins. He saw that homes were affordable near Johns Hopkins. He realized that homes could be affordable even on a graduate stipend. When he chose to attend Yale, he did some housing market research on New Haven and saw he could afford homes there.

When Jonathan was interviewing for PhD positions, he met a current graduate student at Johns Hopkins who owned their house. He didn’t meet any graduate student at Yale who bought a home. Jonathan says owning a home as a graduate student is not that common in New Haven. Emily shares that when she was a PhD student at Duke University, it was fairly common for grad students to own home.

7:20 How did you prepare your finances in the months leading up to buying a home?

Jonathan worked on improving his credit. He says that good credit is definitely important. To get a mortgage at a decent rate, or even to get a mortgage at all, he had to have good credit. Jonathan also searched for incentive programs around New Haven. He says he saved about $10,000 with incentive programs. He shares that while Yale University offered incentive programs for employees, he could not qualify for them as a PhD student. He relied on incentive programs instead of savings because he was paying expensive rent in New Haven.

To research incentive programs, Jonathan talked to a real estate agent who pointed him to incentive programs. Shortly after Jonathan arrived in New Haven, he started working with an agent. Jonathan didn’t have connections to an agent when he started to process. He simply dropped into a real estate office and met an agent there.

9:54 What were the steps you went through to buy a home?

Jonathan started looking for houses with agents about three months after he moved to New Haven. He didn’t start seriously looking until six months after his move. He says that even if you don’t have intention to buy right away, it is important to familiarize yourself with the neighborhoods. He was looking at four different neighborhoods around Yale University. He got an idea of price range for homes and who are the neighbors. This process gave him a firm idea of whether he wanted to rent or buy. Most of the time, he looked at houses through private showings with his agent. He went to just a few open houses without his agent.

During Christmas break, Jonathan thought carefully about whether he should pursue buying a home or not. He talked to his friends and family, and it seemed like the right thing to do. He asked his family if they could help with his downpayent, and made sure to have open communication with his family.

Buying a home took at least two months of seriously looking. Jonathan went through some experiences of making an offer but not getting the house. He recalls three homes that he made an offer for, and there were some other situations where he almost made an offer. He didn’t want to settle for a house that he wasn’t satisfied with. However, his offers were outbid or made too late, and this added to the challenge of buying a home. Emily shares that in Seattle, she hears stories about bidding wars and people struggling to get the house they want, then they end up settling for a home that wasn’t all that they wanted.

13:54 How did you balance the process of buying a home with your first year of graduate work?

After his offers on homes were rejected multiple times, Jonathan felt demoralized. He had lowered his standards for a home. But then when he was browsing an online resource, he found a house that looked perfect. This house ended up being the one he bought. He says it was challenging to balance his graduate work with buying a home, but he was glad he did this in his first year rather than in his second year. He shares the example that on the day that he gave his offer, he was giving a presentation on a paper. He barely read the paper because he was so tired, but he still managed to give a compelling presentation. Right after he finished the presentation, he ran off to give an offer on the house. Much of the stressful part of home buying is waiting to get a response on the offer.

16:01 Tell us about the house that you ultimately purchased and live in now.

Jonathan was browsing online on the day before his presentation. He noticed the house was ten minutes away from where he was living. The house had just gone on the market that day. He pushed his agent to get a showing the very next morning. He got to meet the owner and exchanged contact information directly. The owner was a Masters student, and they had a connection. About two hours after the tour of the house, Jonathan gave an offer of $2,000 over the asking price. This was right after his presentation. He asked to receive a response in one day. The next day, someone else made an offer of $5,000 over the asking price with full cash. Jonathan raised the offer to $2,000 over the other offer. Jonathan’s offer was accepted, and he says that meeting the owner in person helped him get the house.

19:06 How was the process of getting a mortgage?

Jonathan didn’t have his mortgage ready until after his offer was accepted. He did have a pre-approval, but this didn’t work out for him. The lenders didn’t understand his financial situation as a graduate student with a stipend. The pre-approval came from a lender with connections to multiple banks. When you make an offer on a house, it is important for the seller to know that you can afford the house. For a pre-approval, the lender does a very brief credit check on you. The pre-approval shows that you can take out a loan of a certain amount. The pre-approval shows the seller that you can take out a loan for the house. Pre-approvals are very superficial, since they do not ask for a W-2. The lender asks for monthly income and proof that you reliably pay rent.

After his offer was accepted, Jonathan first explored incentive programs. He found an incentive program that stipulated if he stayed at least five years in New Haven, the program would pay at least $2,000 per year and contribute to the downpayment. The application for the incentive program took a while. Jonathan says that ideally the application should be done before submitting an offer. The seller wanted to move out three months after the sale, so this gave Jonathan the right amount of time to sort out the finances.

Jonathan qualified for two incentive programs, but he was happy to get just one because the programs were slow to respond. The incentive programs have a list of lenders that you have to use for a loan. The lenders were local banks in Connecticut. Everything seemed like it would work. He submitted all his documents, but about three weeks before closing, he got a phone call saying that they couldn’t pre-approve of his mortgage because the university wouldn’t be able to provide W-2. The university wouldn’t submit a form indicating that his stipend is guaranteed for 3 or 4 years.

Emily explains that there are different types of pay for graduate students. The W-2 is provided for assistantships and this represents a more typical employment situation. Jonathan says he doesn’t know the name of his pay. He gets the 1098-T, and he simply calls his pay a graduate stipend. Emily says that the 1098-T usually means you are funded through an award or outside fellowship. Lenders get confused by fellowship income. Jonathan says his acceptance letter from Yale says his stipend is guaranteed for several years, but the lender wanted the university to sign a form. The university was unwilling to compromise on signing that form that indicated the stipend is guaranteed. Emily says this “guarantee” of income is strange, because even with a W-2, the typical job is not guaranteed for multiple years.

28:15 How did you resolve the problems with the lender?

Jonathan was calling Yale’s financial office daily. He asked for help from the Dean. He started looking at the other banks on the incentive program’s list, because he had a feeling it wouldn’t work with this bank. There were a few banks around the university, so he went in person to the bank. He talked to a mortgage broker in person. They sat down together, and Jonathan filled out the form during the meeting with the mortgage broker at the new bank near the university. Jonathan resolved the situation because he found someone who was willing to work with him through his unique financial situation.

Jonathan said that this bank offered their own portfolio mortgage with their own requirements. It was harder to qualify for, but it came with a lower interest rates. He had little debt and good credit so he could qualify. It was a different type of mortgage than the first lender offered.

Jonathan was really caught of guard by the phone call from the first lender. It seemed fine, then suddenly he got the call, with no easy way to resolve the issue. Closing got delayed from Friday to Monday, but the closing went very smoothly with the new lender.

32:29 How does it feel to be a homeowner and to be a graduate student?

Jonathan says it feels good to come back to his own house. He can rent out some of the rooms. If he rents out two bedrooms of the three bedroom house, he can cover a good chunk of monthly mortgage. He says this is a great financial decision for him. The mortgage is less than what he paid in rent, plus he has the potential to rent out rooms. Two months after he moved in, he started renting out the rooms. He has two tenants and they are covering good fraction of mortgage payment.

Jonathan has to stay in the house for at least five years. He says that in five years, he will definitely be in a better financial situation from buying instead of renting. He bought in a very good location, in the up and coming neighborhood near Yale. He thinks the market value of the home will increase.

35:25 Have you thought about what you will do when you finish your program?

Jonathan says he has two different options after he finishes his PhD. First, if there’s a good market value to sell the home, he can sell it. Second, the location near Yale University will make it very easy to continue to rent the rooms in the house. He doesn’t see himself working in New Haven after his PhD unless it’s for an academic position.

36:24 Final Comments

Jonathan shares that he had a huge budget for his move, but he didn’t spend very much. He estimates he spent less than $1,000 to move into the house. He moved during the summer, so everyone was getting rid of furniture for free. He used his Toyota Corolla to pick up furniture, and hardly spent any money to furnish the house. He is replacing pieces over time as he saves money. He recommends overestimating expenses for a move.

38:44 BONUS INTERVIEW with Sam Hogan, mortgage industry professional.

Emily chats with her brother, Sam Hogan, who works in the mortgage industry. She asks him about solutions for graduate students and postdocs who are receiving fellowship income but want to buy a house.

Further listening: How to Qualify for a Mortgage as a Graduate Student or PhD, Even with Non-W-2 Fellowship Income

Sam Hogan is based out of Northern Virginia. He works for PrimeLending (Note: Sam now works at Movement Mortgage) and he is licensed in all 50 states. He explains what lenders look for in the risk profile. They are looking for the ability to repay, and to see verification of history of the type of employment as well as the likelihood of employment to continue. Sam says that ten years ago, anyone could get a no document loan. This meant anyone could verbally verify their finances, but this practice led to many foreclosures. Now, lenders require written verification of employment.

Sam explains that in Jonathan’s case, the lenders sent a form for verification of employment to the university. On the form, there is a tiny check box that asks if employment is likely to continue. It is a yes/no checkbox. Universities won’t check this box because technically a PhD candidate could discontinue their PhD by going into the workforce or transferring institutions.

Sam shares that the best approach is to document likelihood of continuation of income. This may be in the fellowship offer letter. Conventional loans look for at least three years of guaranteed income. When it comes to approving loans, it is all about the presentation of the buyer. Sam says to work with someone goal-oriented like yourself, who will be able to over-document your income. For example, you can write a letter about why you got the fellowship, and include that even after your PhD you will have income. This approach ensures you have good presentation to the underwriter. Loan approval comes down to one person’s decision, a human’s opinion. He says to work with underwriters who are flexible and will give you personalized attention.

Emily recommends that PhD students and postdocs work with Sam because he understands fellowship income situations. Sam can be contacted by cell phone at 540-478-5803. He can be emailed at [email protected]. His national licensing number is 1491786. He has a Zillow profile under Sam Hogan.

46:28 Conclusion