I share my personal money story, which is how my husband and I increased our net worth by over $100,000 while we were in graduate school. We carefully budgeted our two PhD student stipends to consistently add money to our investments and pay for both our regular monthly expenses and irregular expenses such as travel. Over our seven years as graduate students, we accumulated approximately $75,000 in retirement savings, $20,000 in cash, and enough money to pay off my student loans plus an additional $5,000. I detail the five strategies we used that made the largest positive impact on our cash flow, which enabled us to increase our savings percentage over time.
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Timestamped Show Notes
0:00 Introduction and Outline
1:45 Background Information and Income
When we graduated from Harvey Mudd College, I had $17k in student loan debt and no savings, and Kyle had zero student loan debt and approximately $5,000 in savings. Kyle went straight into a PhD program at Duke University in Computational Biology and Bioinformatics. I spent one year in the National Institutes of Health’s postbac program before starting a PhD program at Duke University in Biomedical Engineering.
Our $100k+ increase in combined net worth occurred between 2007 and 2014 when we earned two graduate student stipends. My NIH stipend was $24k/year, and my Duke stipend went from $24k/year when I started to $28k/year when I finished. Kyle’s Duke stipend went from $25k/year when he started to $29k/year when he finished.
In the first three years, Kyle and I were dating and kept separate finances. We got married in 2010, so for the last four years of the seven-year period we kept joint finances.
4:00 How We Increased Our Net Worth
- Saving and investing consistently throughout the whole period.
- Budgeting intensively to keep a lid on expenses and funnel more money into savings.
- Investment growth due to the bull stock market that started in 2009.
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4:51 High-Level Strategies to Increase Net Worth
- Our programs paid us above the local living wage, and Durham, NC is also a medium cost-of-living city.
- We identified our values, which included financial security and family/community. This meant that saving, including for retirement, was a top priority, as well as travel to visit family and friends. We reduced our spending on everyday expenses so that we could funnel more money to our top priorities.
- We employed percentage-based budgeting. Right off the top, we paid our taxes, tithed (10% of gross income to our church), and saved for retirement and near-term expenses.
- Any extra income we received, such as gifts, side income, and credit card rewards, went toward our financial goals instead of general spending.
7:38 Net Worth Breakdown
8:07 IRAs ($0 to $75k)
I started saving 10% of my gross income into my Roth IRA as soon as I started receiving a stipend and maintained that savings rate for 3 years. Kyle didn’t intentionally start saving right away, but allowed money to build up in his checking account. In 2009, he opened and maxed out a Roth IRA in 2009, and maxed out a Roth IRA every year following.
Further Reading: My Biggest Financial Mistake and Why I’m Glad I Made It
Once we got married, we made a game of trying to max out two Roth IRAs each year. We never quite achieved our goal, but we did increase our savings rate from 10 to 17%.
What exactly we were invested in doesn’t matter as much as our savings rate, though I am happy to share my investment choice.
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12:11 Cash Savings ($5k to $20k)
Initially, I didn’t focus on cash savings. In 2007, I paid off a $1k unsubsidized student loan. When I started grad school, I bought a car with a $3,500 car loan. Later that fall, my parents gave me $10,000, which I used as a general savings account/emergency fund. I paid off my car loan, then repaid my “car payment” to myself to rebuild my savings. Kyle naturally lived below his means, and he continued to accumulate savings in his checking account.
The year we got married, 2010, was a financial reset point. From our cash savings, we paid approximately $10k in wedding expenses. When we joined finances, we assessed our combined balance sheet.
We each had money in our IRAs, and we also had $17k in cash. We set $16k aside to pay off my student loan balance and set up a $1k emergency fund. However, that left us with no savings for near-term expenses, just whatever we could cash flow.
We built up $20k in savings between 2010 and 2014 using targeted savings accounts. We were inspired to start using targeted savings accounts by several large irregular expenses that hit right around the same time and were difficult to cash flow: an expensive wedding season, two university parking permits, and season tickets to the Duke men’s basketball games and Broadway theater series.
- How to Manage Irregular Expenses with Limited Cash Flow
- Our Short-Term Savings Accounts
- The Benefits of Targeted Savings Accounts – and Their Uncertain Future
We decided to start preparing in advance for anticipated expenses over the next year. We started out with savings accounts for Cars, Entertainment, Travel. We set up budget for each account by anticipating when we would need or want to spend money and calculating a savings rate. Targeted savings accounts turn large, irregular expenses into small, fixed expenses that are easy to write into a budget.
By 2014, we had more savings accounts: Travel, Cars, Entertainment, Appearance, Electronics, Medical, Charitable Giving, CSA, Taxes, and Camera in addition to our checking and emergency fund accounts. We used Ally Bank, which did not charge us any fees or require minimum balances, etc.
We set up automatic savings rates into the targeted savings accounts, then manually pulled money back for each expense when it occurred.
We built up the savings in these accounts because we over-estimated what we would need in various areas, which caused us to over-save.
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20:43 Student Loan Payoff Money ($0k to $16k in cash savings, then $16k to $21k in investments)
By 2010, we had the money to pay off $16k in student loans. Instead of paying it off, we chose to conservatively invest they money to earn a small return. It was difficult to choose how to invest the mid-term money, and we wanted to be conservative so as not to lose it.
We decided to conduct an experiment on ourselves to find out what kind of investors we were. In 2011, we put a large fraction of the money in a CD, a small fraction in aggressive stock mutual funds, and a large fraction in conservative mutual funds (stocks and bonds).
We learned that we are committed to passive investing.
- Why I Didn’t Pay Down My Student Loans During Grad School
- Why Pay Down Your Student Loans in Grad School?
- What We Learned from Our Short-Term Investment Experiment
- Revealed: Mid-Term Investment Choice from 2011
23:57 Our Best (Pain-Free) Money-Saving Moves
I started blogging at Evolving Personal Finance in 2011; learned a ton from my fellow personal finance bloggers and developed my own ideas about how I should manage my money. I published a post near the end of grad school on the best things we did to increase our available cash flow for saving and investing. This list largely explains how we increased our retirement savings rate from 10% to 17% savings and built up $20k in cash savings.
25:24 1. Moved to decrease rent twice (savings $2,340/year).
Initially, we lived in a great apartment, but one year the rent jumped up so we moved to a townhouse, decreasing our rent by $110/mo (what it would have increased to over the new rent). The next year, we moved again and decreased our rent by an additional $25/mo (previous year’s rent to new rent).
Through those two moves, we maintained our home size (1,200 sq. ft., 2 BR, 2+ BA). With the latter two townhouses, we actually reduced our commute to Duke, so the saving was even deeper than just the rent decrease. We did give up some amenities we had through the apartment complex, but that was acceptable.
- Your Most Important Budget Line Item in Graduate School and Why You Should Re-Evaluate It
- How Much of Your Stipend Should You Spend on Rent?
- Searching for a New Home
- The Cost of an In-Town Move
- The Cost of an In-Town Move Part 2
27:48 2. Cancelled cable TV (Savings: $1,208.16/year)
We cancelled our cable TV in favor of paying for internet only. We bought an antenna so we could still watch broadcast TV.
Further reading: How to Cancel Cable When You’re Addicted to a Show
28:47 3. Signed up for rewards credit cards (Income: $991.18/year)
We signed up for cash back rewards credit cards, both for good ongoing rewards and good sign-up bonuses. We looked for minimum spends that we could actually meet and timed application so that we could put our large irregular expenses on the new cards to help meet the minimum spend.
Further reading: Perfect Use of a Credit Card
30:00 4. Became a One-Car Family (Savings: $972.03/year)
After we got married, we started commuting to Duke together. Around that time, my car needed some expensive repairs, so we stopped using it. Our reduced expenses came from lower car insurance, dropping one parking permit, less gas used, half as much maintenance required, and less need to keep money on hand for repairs. We had to work out our schedules to be able to share the car and ended up spending a lot more time together, which was wonderful!
Further Reading: The Financial Implications of Dropping One Car
32:19 5. Switched to an MVNO (Savings: $544.34/year)
The best thing about these pain-free money-saving moves is that they don’t require any ongoing effort/willpower. Typically, we just had to carry out one-time decisions.
34:41 How Our Accomplishment Led into PF for PhDs
I had been blogging about personal finance for 3.5 years by the time finished grad school, and I also volunteered with Personal Finance @ Duke. After I defended, I decided to give my own seminar on personal finance for graduate students. I had the best time making and delivering the seminar and answering questions from my peers. I asked myself, how can I teach my peers about personal finance as my job?
The initial phase of my business was as public speaker; I gave seminars at universities all over the country. That first seminar I created is now titled “The Graduate Student’s Guide to Personal Finance,” and I have others on taxes, investing, budgeting, and starting grad school on the right financial foot. If you’d like to (figure out how to) bring me to your university for a seminar or workshop, please email me at emily at PFforPhDs.com.
In addition to speaking, I’ve added other aspects of my business, ebooks and online courses. I have two new initiatives launching later this year, an investing webinar series and a membership community.