Personal Finance for PhDs

Live a financially balanced life - no Real Job required

Emily

Financial Reasons to Work Before Starting Your PhD

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College students who aspire to earn PhDs often ask themselves if they should proceed directly from undergrad into a PhD program or take a year or more “off” to work. From a career perspective, there are some arguments on either side (and it’s probably field-dependent), though personally I think it’s better to not go straight from college to grad school. However, from a financial perspective, working for at least a year prior to starting grad school is a slam-dunk better choice – provided you handle your salary the right way in the meantime.

I’ll assume in this article that you’re earning more in your post-college job than you will as a grad student. I know that’s not always the case (my postbac fellowship paid a stipend comparable to that of a grad student), and if it’s not true for you, simply pick and choose the advice that works for you.

This article provides financial arguments for working prior to starting a PhD and gives you a strategy to combat the biggest potential downside to doing so. Working before starting a PhD program gives you the best shot at starting grad school (and the rest of your life) on the right financial foot.

Save Cash for Start-Up Expenses

Starting grad school, especially if you have to move to do so, is a cash-intensive endeavor. It can be done on the cheap depending on your city, but you are looking at paying for much or all of this before receiving your first grad student paycheck:

  • Moving expenses
  • First month’s rent (maybe last as well)
  • Security deposits, installation fees, and/or service fees for housing and utilities
  • All your normal living expenses like food, transportation and personal care for a month or more
  • Fees (and possibly tuition) if not covered by your program, e.g., parking or an insurance premium
  • Textbooks and other course-related expenses

Those expenses are similar to any that you would incur if you moved for a job, but in addition you have the educationally-related ones and you most likely will wait over one month for your first paycheck to arrive instead of the two weeks to one month typical for a job.

If you work prior to starting grad school, you have the opportunity to save for those start-up expenses. If you don’t have enough savings available when you matriculate, you’ll start grad school already feeling financially behind.

Build a Strong Financial Foundation

Working prior to starting grad school also means you can improve your overall financial health compared to where you were when you finished undergrad. You can work on one or more of these goals right away:

  • Saving cash for an emergency fund and short-term irregular expenses
  • Paying down debt (prioritize high interest rate debt such as credit cards and unsubsidized student loans)
  • Contributing to a tax-advantaged retirement account such as a 401(k) or IRA

Starting grad school doesn’t necessarily mean stalling financially, but it is easier to make progress with a salary intended to do more than pay basic living expenses.

Further reading:

Investing for Retirement

I already mentioned retirement saving above, but it’s worth emphasizing again. Saving for retirement during grad school is a challenge. This is due primarily to your limited cash flow, but in addition grad students are sometimes disallowed from contributing to any kind of tax-advantaged retirement account due to their income type. If you receive only fellowship income throughout an entire calendar year, you will not be able to contribute to an IRA. It is also exceedingly rare for a grad student to have access to a workplace-based retirement account like a 403(b).

Further reading: Taxable Compensation or Earned Income

Getting an early start on retirement investing will make an enormous difference in your account balances once you reach retirement. For example, if you work for one year until age 23 and contribute $1,000 per month to a retirement account, just that $12,000 contribution alone can grow to approximately $434,000 by the time you are 68 (assuming an 8% average annual rate of return.

Further reading: Whether You Save During Grad School Can Have a $1,000,000 Effect on Your Retirement

If you have to slow down or stop retirement investing during grad school, you can still feel good about the investments you already have in place that are working for you in the background.

If your employer provides a retirement match, please contribute enough to get the full match! It’s going to be a long time before that opportunity comes around again.

Applying Everywhere that Is a Fit

Grad school applications can easily cost over $1,000 between the direct application fees and indirect costs like taking the GRE. If you are working when you apply instead of doing it during college, you will have more money (and time) to apply and visit everywhere that is a good fit for you. It would be such a shame for a low budget for applications to constrain your career choices.

Further reading: The Full Cost of Applying to PhD Programs

Start a (Passive) Side Hustle

Side hustling during grad school is a great way to earn some extra income, maintain an identity and emotional outlet separate from your research, and potentially improve your post-PhD career prospects. But when you’re busy with research, classes, and/or teaching, it can be difficult to put in the time and energy needed to get your side hustle off the ground.

It’s much easier to maintain a side hustle you established prior to starting grad school (or you could continue some aspect of your job as a side hustle). An ideal side hustle for someone anticipating entering grad school is one that is location-independent and time-flexible.

The perfect side income for a grad student is not a “hustle” at all but passive income. Passive income comes in many forms, but requires an up-front investment of time or money to establish the income stream with little to no additional work required on an ongoing basis.

Minimize Your Tax Burden

In our current low tax environment, I don’t talk about tax planning, that is, changing your behavior due to the tax implications. I don’t like to let the “tail” of tax repercussions wag the “dog” of the rest of your life. However, in this case, I want you to at least be aware of the tax implications of starting a PhD program right away vs. waiting a year or two.

There are two big tax effects of having a “student” status (i.e., being a full time student in at least part of five months in the calendar year) and also being young (i.e., 23 or younger on 12/31 of the year in question).

Dependent

Normally, being considered a dependent of your parents expires at age 18, but students can be claimed as dependents up until the year they turn 24. Generally speaking, being claimed as a dependent is bad news for your tax return and good news for your parents’ tax return (or whoever is claiming you).

There are a few ways to avoid dependency status in the year you exit undergrad and/or the year you enter grad school, all of which can be more easily accomplished by working in between:

  • Live apart from your parents for at least six months of the year you finish undergrad (assuming you graduate in the spring) and continue to do so until the year you turn 24 (at least).
  • Wait to start grad school until at least the year in which you turn 24.
  • Provide at least half of your own “support.” Support is basically all your expenses, both living expenses and educational expenses. If you provide at least half of that support through your own income (taxable fellowships and loans count, but scholarships do not), you are independent. This is much easier to accomplish if you earn a higher income and minimize your educational expenses in any year that you are under age 24.

Kiddie Tax

The Kiddie Tax is bad news for the “kid” subject to it (that’s you, potentially) as it imposes a much higher tax rate on “unearned” income than what you would have on ordinary income. Weirdly and unfortunately, fellowship income is considered “unearned.” If you are a student, under age 24, and do not provide more than half of your own “support” with ”earned” income, your “unearned” income is subject to this higher tax rate. You do not have to be a dependent for the Kiddie Tax to apply to you.

How do you avoid the Kiddie Tax through tax planning? 1) You can wait to start grad school until the year you turn 24. 2) If you start grad school prior to the year you turn 24, make sure you have enough “earned” income in each year you are a student to cover at least half of your own “support.” Keep in mind that “support” includes educational expenses.

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How to Make the Most of Your Salary and Start Grad School on the Right Financial Foot

Have you ever heard the advice to “live like a college student” or “live like a resident?” Take that a step further and “live like a grad student” in your working years prior to starting grad school.

Further reading: Is “Live Like a College Student” Good Advice?

The advantages to living like a grad student when you have a job are three-fold:

  1. You will get a head start on the essential financial skills you’ll need during grad school, such as budgeting, frugality, and saving.
  2. You will rapidly increase your net worth through saving and/or debt repayment because you will be living far below your means.
  3. You will avoid experiencing the very painful process of decreasing your standard of living when you enter grad school.

Living like a grad student when you have a better-paying job is definitely a sacrifice, but it’s one that is well worth it. I often speak to grad students who worked prior to starting grad school, and their common refrain is “I wish I had saved more when I had the chance!”

The First Step to Complete Your Grad Student Tax Return (2018)

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There is one vital step grad students need to take when starting to prepare their tax returns. It’s a super simple step, but most often overlooked, and skipping it can lead to an inaccurate return or even overpaying tax. This is the step that you take before you start feeding any numbers to your 1040, your tax software, or your tax preparer, and it is to find and categorize all of your income sources (funded grad students have at least two!).

If you found this video insightful and you want to take the next step to completing your tax return – including one trick to reduce your tax due that your tax software or tax preparer can easily miss – register for my workshop, “How to Complete Your 2019 PhD Trainee Tax Return (and Understand It, Too!).”

grad student tax return step

Can a PhD Achieve FIRE?

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Would you like for paid work to become optional for the rest of your life? What would you do with your time if you didn’t have to work? When you become “financially independent,” you have enough money and passive income streams to sustain you for the rest of your life without earning any more. At that point, you have the option of retiring (whether or not you actually do). Achieving this goal in youth or middle age instead of 65 is the objective of adherents of the FIRE movement (Financial Independence / Retire Early). Typically, FIRE walkers earn high salaries and save a radically large percentage of their income. This article explores whether FIRE is a good or reasonable goal for a PhD (graduate student, postdoc, or PhD with a Real Job) to set.

Can PhD FIRE

 

Further listening: This Prof Used Geographic Arbitrage to Design Her Ideal Career and Personal Life

What Is the FIRE Movement?

The FIRE movement (or at least the current iteration of the trend) started to gain traction within the last decade. Two of the fathers of the movement who documented their FIRE journeys on popular blogs are Jacob Lund Fisker (Early Retirement Extreme) and Pete Adeney (Mr. Money Mustache). They both advocate establishing a very frugal lifestyle to 1) save a high percentage of your income while working and 2) minimize the size of the nest egg needed to retire from paid work.

Now that the FIRE movement has gained popularity, it has diversified (it’s not just for young, single, male tech workers!) and splintered. One of the useful delineations is among ‘lean FIRE,’ ‘FIRE,’ and ‘fat FIRE.’ Roughly speaking, lean FIRE adherents seek to achieve FIRE primarily through expense minimization (and a high salary as well) while fat FIRE adherents seek to achieve FIRE primarily through vastly out-earning their spending (and keeping a lid on expenses as well), with regular FIRE falling somewhere in the middle.

Why Would a PhD Want to FIRE?

A person who completes a PhD has passion for her work (as well as incredible perseverance). I find it hard to imagine that such a person would want to retire early from her chosen field – especially those pursuing a life of the mind in academia.

But people who complete PhDs are also people. They end up in all types of jobs with all levels of job satisfaction. Even those with high job satisfaction might want to escape the demands of full-time work.

Even if retiring early is not attractive, becoming financially independent may be. Once you are financially independent, even if you keep working, you don’t have to be concerned about losing your job or put up with a job that’s no longer a good fit. Even during the journey to FIRE, you will have a much, much greater degree of financial security than most Americans, which brings peace of mind.

How Do You FIRE?

While difficult and rare to achieve, the mechanism of becoming FIRE is easy to understand.

To become financially independent (from active work), you need to have investments and/or passive income streams that will pay for your expenses in perpetuity. I’ll focus this discussion on the investments needed rather than the passive income streams.

Basically, to achieve FIRE, you need a nest egg of investments that is large enough that you can withdraw what you need to live on each year without eating into the principal. The higher your living expenses, the larger the nest egg you need to support them in perpetuity.

FIRE adherents usually follow the “4% Rule,” also called the Safe Withdrawal Rate (SWR), or perhaps a more conservative 3% or 3.5% Rule. The 4% Rule means that withdrawing 4% of your portfolio balance each year gives you a very good chance of your portfolio not running out of money prior to your death; it is based on historical market returns. (Early retirees may adjust this rule to be more conservative due to their post-FIRE life expectancy being longer than a typical retirement.)

The 4% Rule shows you the two vital factors to FIRE: size of your nest egg and yearly living expenses. Therefore, to achieve FIRE you must save (invest) a lot of money and keep your living expenses in check. For example, for a household with $50,000 in yearly living expenses, a portfolio of $1,250,000 is needed.

A person pursuing LeanFIRE will primarily focus on minimizing living expenses. The rough definition of LeanFIRE is living expenses of under $40,000/year or a portfolio of $1,000,000. A person pursuing FatFIRE will primarily focus on building a large portfolio. The rough definition of FatFIRE is a portfolio of over $2,500,000 or living expenses of at least $100,000/year.

There is a delightful synergy between the necessarily high savings rate and necessarily low expenses. Given a static income, the less you spend on living expenses, the higher your savings rate can become, enabling you to achieve FIRE even faster. Mr. Money Mustache published in “The Shockingly Simple Math Behind Early Retirement” a set of ratios that illustrates the relationship between savings rate and years of saving needed until the SWR could be achieved. For example, with a savings rate of 10%, you need 51 years to save before you can retire, but that drops to 22 years with a savings rate of 40% and 8.5 years with a savings rate of 70%.

Because the key to achieving FIRE is an unusually (to say the least) high savings rate, it is almost exclusively pursued by high income earners. There is a floor on how low you can drop your living expenses (although that varies person to person), so if your income doesn’t exceed your expenses by much, achieving the “E” in FIRE becomes a remote possibility.

Can PhDs FIRE?

PhDs can FIRE if they commit to the process, but they have challenges that are not shared by their peers from college who went immediately into high-paying careers. (It has been done; Jacob Lund Fisker has a PhD and retired at age 33.)

The ideal path for someone pursuing FIRE is to obtain a high-paying job immediately upon completion of their education at 18 or 22, commit to a low-cost lifestyle, set up a radically high savings rate into investments, and keep the pedal to the metal until FIRE is achieved, for instance by age 30 or 35.

A PhD becomes derailed from this ideal path upon entering graduate school. Unless he previously set up massive passive income streams, a grad student’s income is nowhere near large enough to achieve a high savings rate (even if you live in a van like Ken Ilgunas did at Duke). This means that pursuing FIRE with a high savings rate will have to wait until landing a post-PhD Real Job.

However, the graduate school experience offers a unique advantage to FIRE: A necessarily low lifestyle. The $40,000/year maximum living expense for the definition of LeanFIRE is much higher than what virtually every graduate student takes home after paying income tax. Even a couple living the graduate student lifestyle can usually spend less than that amount.

Further reading: What Grad Students Can Learn from the FIRE Movement

A PhD also confers the possibility of a high income. While PhDs are not needed in currently high-paying careers such as finance, medicine (some specialties), computer science, and engineering, a person with a PhD does on average earn much more in a lifetime than the average person with less education, and people with PhDs can absolutely land well-paying jobs.

Therefore, a PhD maintaining her grad school lifestyle (more or less) while earning a high salary post-PhD is a recipe for FIRE, albeit starting in earnest closer to age 30 than age 20. A LeanFIRE early retirement can still be achieved within a short period, and of course she could opt for FatFIRE if her income is generous enough.

However, a graduate student (or postdoc) who commits to FIRE can go further than this default:

  1. Instead of living at 100% of net income during graduate school, save (invest) as much as possible. This will have the dual effect of further lowering living expenses and getting a head start on building your nest egg.
  2. Experiment with frugality to discover whether you want to ultimately pursue LeanFIRE, FIRE, or FatFIRE. You may decide that living below a graduate student’s means is not what you want long-term.
  3. Finish your training as quickly as possible to increase your income as early as possible. Prepare yourself to land a high-paying job through professional development and networking.

Further reading: Whether You Save During Grad School Can Have a $1,000,000 Effect on Your Retirement

What Is Your Reason to FIRE?

Ultimately, it’s vital to have clarity on why you want to pursue FIRE. It’s easy to become consumed by the numbers and the process and lose track of your motivation along the way. Sometimes it’s possible to achieve aspects of the FIRE lifestyle without actually being FIRE, and I think that’s particularly true for PhDs who have a lot of transferrable skills and potential for autonomy. Remember the parable of the fisherman and the businessman. Just like you shouldn’t put your “Real Life” on hold during graduate school, you shouldn’t put your Real Life on hold while building up to FIRE.

If you are a PhD (-in-training) and seriously pursuing FIRE, I’d love to interview you on my podcast! Please fill out this form to volunteer.

An Unfunded Summer Didn’t Deter this PhD Student Thanks to Her Creative Side Hustle

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In this episode, Emily interviews Bailey Poland, a rising second-year PhD student in rhetoric and writing at Bowling Green State University. Bailey earns a stipend of just $14,000 for the academic year, but manages to live a comfortable life thanks to her disciplined budgeting and two side hustles. Unlike many of her classmates, she devoted her first summer as a PhD student exclusively to research, relying on her side hustle income and savings from her stipend to tide her over until the next academic year started. Emily and Bailey discuss in detail Bailey’s housing choice, frugal habits, and unique Patreon side hustle that complements her graduate work.

Links mentioned in episode

unfunded summer PhD

0:00 Introduction

1:26 Q1: Please Introduce Yourself

Bailey Poland is a second year PhD student in the Rhetoric and Writing program at Bowling Green State University. Bowling Green is a city in Ohio, located to the south of Toledo, Ohio. Bailey’s stipend is $14,000 per academic year. Additionally, Bailey earns $460 per month from Patreon and $150 quarterly from copy-editing a music magazine focused on Texas. She is the only person in her household.

Bailey’s PhD stipend does not include summer funding. She budgets savings over the academic year in order to meet her expenses over the summer.

3:25 Q2: What are your five largest expenses each month?

Bailey’s largest expenses are rent at $600 per month, car payment at $200 per month, health insurance and fees at $400 per month, food at $150 to $200 per month, and car insurance at $112 per month.

4:14 #1 Expense: Rent

Bailey rents a two bedroom apartment for $600 per month. She says this rate is higher than other options available in Bowling Green. She looked at options for rent at rates of $350 to $450 per month, but these apartments were in poor quality or clearly undergraduate housing. Bailey used to own a house, so she approached her apartment search with those expectations.

Bailey’s apartment is in downtown Bowling Green. She walks to campus, so she doesn’t use her car or have a university parking pass. She drives to the grocery store, but she lives above a coffee shop. She thinks she is in the perfect location. She lives by herself in the two-bedroom apartment, so she sleeps in the smaller bedroom and uses the extra bedroom as her office and library.

6:18 #2 Expense: Car Payment

Bailey pays $200 per month for her car. She has a 2017 vehicle that she bought new. She traded in her older Toyota Corolla when she bought her new car. Due to unfortunate family circumstances, Bailey received money from inheritance and estate closure. She used this money for her car payments. She has stayed ahead of interest and has gotten ahead on payments.

8:06 #3 Expense: Health Insurance and Fees

Bailey pays health and insurance and fees in lump sums a couple times a year. The amount works out to about $400 per month. She uses her credit card to make the payment at the start of each semester, but she pays it off immediately. Her credit card pays back 1.5% so she received a small kickback. Generally, she doesn’t keep a balance on her credit card so she avoids interest payments.

She made her first health insurance and fees payment before she received any of her graduate school stipend. Because she formerly worked as a marketing analyst for global HR and payroll company, she had enough savings available to make this payment when she started graduate school. She chose to go to graduate school because she was much happier in a classroom than behind a desk in a corporate office.

10:25 #4 Expense: Food

Bailey pays $150 to $200 per month for food, which includes groceries and dining out. She plans and prepares meals ahead of time. She cooks two or three times a week and freezes leftovers. She takes food with her to campus.

She has a limited set of go-to recipes. One of her favorites is chile garlic tofu. She says the meal is filling and takes half an hour to prepare. She gets four meals from one block of tofu. She eats lots of eggs, pasta, and rice-based meals. Her vegetarian cooking has increased since she started PhD program.

Bailey learned meal preparation from trial and error in the first few months of graduate school. She figured out which meals took too long or she didn’t like enough to have leftover. She used the Budget Bites website to find recipes. She cooks on the free nights of her week, because she knows which nights she’ll want to eat dinner as soon as she gets home. Bailey is on campus from 8am to 6pm most of the week. The latest she gets home is 7pm or 8pm. She takes lunch and a small snack with her to campus, and she eats dinner at home.

14:51 #5 Expense: Car Insurance

When Bailey purchased her new car, her car insurance rate increased from $85 per month to $130 per month. She has a plug-in for diagnostics of her driving habit, which lowered her insurance rate to $112 per month. She only regularly drives to and from the grocery store, which is a 10 minute drive. She also drives to her mom’s house, which is 30 minutes away and all highway driving.

Bailey says graduate students can get by without a car in Bowling Green. In her PhD cohort, at least one person doesn’t have a car. Busses run regularly to and from campus. Grocery stores deliver for a fee. Local activities are accessible to pedestrians. Bowling Green does not have cabs, Uber, or Lyft. It is pretty rural. Bailey needs a car to leave town to see her family.

18:10 Can you tell us about your side hustles?

Bailey has two separate side hustles. For one, Bailey copy edits a magazine about the country music scene in Texas. She missed doing copy-editing work, so she posted on Twitter that she was looking for an opportunity. Someone from the magazine responded to her and said they’d pay her to copy edit. Bailey has had this side hustle for three years. She receives $150 every few months and she has learned a lot about a topic that is unfamiliar to her.

For another, Bailey uses Patreon, the crowdfunding platform for artists and creators. She receives $460 each month from Patreon. She got started after she defended her Master’s thesis and she quit her corporate job earlier than she had planned. She was working at a bookstore and she needed more income. Some of her friends had Patreon, so she was familiar with the platform. Bailey started by doing live readings of The Rhetorical Tradition, like live tweeting her readings with funny commentary. People got invested in her live readings and she transitioned the activity to Patreon. Reading The Rhetorical Tradition was a really long project. She planned in advance and read as much as possible during the summer so she wouldn’t need to read during her first graduate school semester. She planned to post about The Rhetorical Tradition on Monday and Friday, post photos of her mom’s three cats on Tuesday and Thursday, and post an essay style blog post on Wednesdays. She only writes one or two truly new posts per month. With her PhD work, she doesn’t have time to write four or five new posts a month. Recently she has started a new reading series that overlaps with her prelim list for her PhD. She is gaining familiarity with texts in her field, having interesting conversations with her patrons, and making some money.

Bailey has created a very niche platform. Starting a Patreon was a huge leap of faith. She used to be super active on Twitter with a group of 18,000 followers. She authored a book, which helped her gain an audience invested in her thoughts. She trusted that her audience would move with her from Twitter to Patreon. She front loaded the work during the summer, so during her first semester it was more like a passive income stream. Now it serves multiple purposes for her. She finds it fulfilling that her academic work is accessible to the public. Her work lately is archival, and through Patreon she can share what it’s like to work in an archive. Bailey finds joy in her patrons and appreciates that they pay for her to do this work.

26:35 How do your colleagues react to your side hustle? Do they take on side hustles?

Bailey says her colleagues know and are supportive. For example, Bailey did a public series on Patreon that was a reflection on teaching practices she learned at Bowling Green. Her program’s website’s homepage included a link to her series. Generally, PhD students are discouraged from outside work because they should focus on doctoral work, but her department gives no formal prohibition of outside work. Most other graduate students have some other work, though it may not be talked about.

During the summer, other PhD students in her department find jobs. Some find online teaching roles, and one is working in the garden center at Lowe’s Hardware Store. One is going to a writers retreat that comes with a stipend. PhD students with spouses don’t work or find part time work.

29:28 Q4: What are you currently doing to further your financial goals?

Bailey has a 401k from her corporate job that she will roll into a Roth IRA over the next few years. She has investments with Betterment that serve as her long-term emergency funds. She has a high earnings online savings account as her primary emergency fund. Her goal is to have three months of expenses saved, and she is $600 short of her goal. Generally, her goal is to have her retirement well planned. She wants to be in academia long term, but she can’t be certain about this path. She wants security and confidence during her job search. Having savings going into graduate school frees up opportunities.

During her first summer as a PhD student, Bailey is working on archival projects and taking a class. During the school year, Bailey has multiple things going on, like classes, teachers, committees, conference planning. Summer is really valuable to devote focused attention to a project. In subsequent summers, it is possible she will take teaching jobs.

34:30 Q4: What don’t you spend money on that might surprise people?

Bailey doesn’t have student loans. She paid all of her loans within two years after undergrad. She hasn’t taken out any loans for higher education. Because she went to a State school, had scholarship, and finished in three years, she had very manageable loans from her undergraduate education. She took a job after college right away.

She has stopped buying books, which is hard for her personally. Even if she buys used books, it adds up quickly. She tries to keep miscellaneous spending low every month. She used to buy $200 to $300 worth of books every month, now she just buys one book a month. She checks out a lot of books from the library, and she lives less than a block from local public library

She doesn’t spend a lot on hobbies. She likes to cross stitch. This is inexpensive and takes a long time. She can spend $20 on one project that entertains her for five months. She has hobbies that help her relax and are not difficult for her budget.

39:00 Q5: What are you happy with in your spending and what would you like to change?

Bailey’s rent is higher than she wants to pay and is more than what others pay. She negotiated for lower increase rate when she renewed her lease. She’s considering doing a spending fast over the summer because she has no stipend coming in. She wants to minimize the hit that her savings is taking. She can find entertainment in Bowling Green for free. For example, there is a huge arts community and a massive arts festival.

42:12 Q6: What is your best advice for someone new to your city who is budget-conscious?

Bailey recommends that someone new to Bowling Green shops around for a place to live. There a lot of good options. Graduate student housing is affordable and it is easy to find a roommate. She says to look for an apartment as early as possible. She started looking in July, which limited her options. She would have looked earlier if she knew.

She advises new PhD students in Bowling Green to plan on saving. She says make sure you have cushion before you get here. Graduate school is stressful enough without living paycheck to paycheck. You should get rid of debt completely if you can.

44:22 Q7: Would you like to make any other comments on what it takes to get by where you live on what you earn?

Bailey says it is definitely possible to live in Bowling Green frugally and have a good time. She says there is always stuff happening that’s free or inexpensive. Toledo is a twenty to thirty minute drive. It may not be possible to live on the stipend alone, but you don’t need much more. Bowling Green has a low cost of living and is a college town invested in the university community.

45:22 Conclusion

This Prof Used Geographic Arbitrage to Design Her Ideal Career and Personal Life

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In this episode, Emily interviews Dr. Amanda, a tenure-track professor at a small college in the Midwest. While a postdoc, Amanda listened to career advice from R1 university faculty, but ultimately decided their path was not for her. Instead, she employed geographic arbitrage to maximize her academic salary while minimizing her cost of living. This choice enabled her to quickly pay off her student loans, and now she is considering buying a house. Amanda gives great career and financial advice and encouragement to current graduate students and postdocs, particularly emphasizing the importance of deciding for yourself what your career and personal priorities are. Amanda writes about personal finance at Frugal PhD.

Links mentioned in episode

geographic arbitrage PhD

0:00 Introduction

1:25 Please Introduce Yourself

Amanda has a PhD in Digital Media. She does research on digital media and learning, and digital equity. She teaches courses on these topics, and on research, writing, and information literacy. She completed her PhD in 2015 at a large research university in the midwest. She did a two year postdoc at a large private university in California. She got married during her postdoc to another PhD who she met during graduate school. Now, she is a faculty member at a small liberal arts college in the midwest.

3:07 What is geographic arbitrage?

Geographic arbitrage is a concept promoted within the Financial Independence / Early Retirement (FIRE) community. Arbitrage is the practice of taking advantage of different prices in different markets. Geographic arbitrage is taking the cost of living of different places into account and taking advantage of the fact that your dollars can go farther in a place with a lower cost of living. If you’re still working, you can see if you can find a higher salary or work remotely to live in a place with a lower cost of living. If you’re financially independent, you would move to the place with the lower cost of living to stretch your dollars.

4:34 How did you use geographic arbitrage in your job search?

During her postdoc, Amanda and her husband lived in a large city in California with one of the highest costs of living in the U.S. They considered what their finances would have to be to live comfortably there, including what the downpayment on a house would be and what it would take to pay back student loans. When she was on the job market, she started to pay attention to how salaries compared to the cost of living. Although people expect salaries to be higher in more expensive places, she realized that this pattern was not consistent for academic jobs.

Amanda had an interview for a job in a city with a high cost of living, but the salary was less than what she received as an editor with only an undergraduate degree. Then she interviewed for another position in a small city with a low cost of living. The institution offered her a salary comparable to what a first year faculty member would have been making in her current location in California without adjusting for cost of living. This discrepancy in salaries and cost of living caught her attention.

Both Amanda and her husband had a campus interview in a city on the West Coast, but it was one of the most expensive zip codes in the U.S. They realized that even with spousal hire, they still wouldn’t make enough money to afford a house. They decided to move to a semi-rural part of the midwest for Amanda’s job offer, even though her husband didn’t have an offer in that location. Amanda accepted a tenure track position in a location where they could both live on only Amanda’s salary.

Emily shares her experience, which contrasts to Amanda’s experience. Emily lives in Seattle with her husband. Seattle has a high cost of living, which Emily believes is associated with the opportunity of getting tech jobs from Amazon, Microsoft, and many other places. However, faculty jobs are distributed across many locations, so there may not be correlation of place with salary. Amanda shares that she considered jobs in Seattle, but being near family mattered to her. Amanda’s family lives in the midwest, where she lives now. Emily shares this value, but Emily wants to move to Southern California to be close to family and is willing to put up with higher cost of living to be near them.

12:13 What did you hear from other academics? How did you take or filter that advice?

PhDs from research institutions receive a lot of advice about landing tenure track jobs and getting positions at R1 universities. Amanda says many people assumed she wanted a tenure track position at an R1 university. However, because Amanda attended a small liberal arts college for undergrad, she felt like her goal was to work at an small college. She felt like she couldn’t be transparent about her goal. She got a lot of advice about how to get a position at a big research university, how to negotiate spousal hire, and how she should be willing to go anywhere for the R1 position. She felt like a big university wasn’t the best fit for her.

Amanda and her husband felt like they could be happy in the academy as well as outside of it. Amanda felt pressure to be in academia, and academy was the only trajectory she could speak about with her mentors. She struggled with how she could talk about what she wanted. Amanda and her husband have important personal goals, and they want work-life balance. They decided to accept Amanda’s job offer in the midwest even though they both had more interviews planned. This gave Amanda’s husband more time to explore job options and say yes to the right thing.

Amanda and her husband’s financial situation allowed them to make these decisions. They have a solid emergency fund, live on a portion of their income, and work in a place with a low cost of living. Money gives you the flexibility to pursue what you want professionally and personally. Emily discusses the financial strategy for two-income households to budget off of only one income, so the other income is free for financial goals.

19:30 How has your choice to live in a low cost of living location affected your finances?

Amanda’s husband accepted a new job last year. Since then, they both made major progress on paying off their student loans. They have paid their loans off completely. They accomplished this goal by deciding to keep living off only one income. Amanda’s husband’s income went toward their student loan payments.

Amanda says that academic life is inconsistent and can make budgeting challenging. She attends conferences and travels often, but it’s made easier when she’s not worried about when reimbursements are going to come in. Budgeting for travel and reimbursements is hard for graduate students, and it is hard for faculty members too.

22:35 What are your next financial goals?

Amanda and her husband are figuring out their plan for home ownership. Navigating the career stages of graduate student, postdoc, faculty as a pair can be very challenging. Many partners spend time living apart. People with PhDs seem to delay home ownership more than other groups of people. They are considering buying a single family home, but a duplex or triplex appeals to them so they can bring in extra income from renting the other units. They are still considering if purchasing property makes sense for them at this time and in this location.

Another one of their goals is to get caught up by saving, investing, and building retirement funds. She needs to balance buying a house with saving for retirement. Amanda and Emily discuss that common retirement savings benchmarks, like retirement fund of one year’s salary by age 30, are challenging for PhDs to meet. Many people don’t start saving for retirement until their 30s, not just in the PhD community. Amanda says that finance benchmarks can be very demoralizing, and she wants people to know that it’s never too late to care about your finances.

27:44 Advice for setting personal finance goals.

Amanda emphasizes that she didn’t learn about personal finance until she was in her postdoc. As a graduate student, she was not financially savvy. Once she was a postdoc and her husband was working full time, they started learning about personal finance. Amanda says she used her graduate student situation as an excuse to put off thinking about finances. She used to think money was something that could work itself out later. Now, she knows it’s never going to work itself out later. Amanda wishes she hadn’t used being in graduate school as an excuse to not know about personal finance.

A common roadblock is figuring out where you are financially, because it’s uncomfortable. Becoming aware of your finances is the first step to set goals and make progress. The beginning is the hardest part, bud don’t give up. Amanda used the Personal Capital tool to track her net-worth and visualize her finances. In just a few years, Amanda has changed her financial situation. Now she makes intentional decisions and has seen big changes in her finances in a short period of time.

Amanda connects her career decisions to her new attitude towards finances. When Amanda felt trapped in the R1 career trajectory, she avoided thinking about personal finance. She realized she needed to be assertive about the career she wanted and finances, because this was related to her quality of life. As she opened up to other career trajectories, she realized that being in a good place financially is deeply connected to her goals. Emily shares that sometimes personal and professional aspects of decision-making in our lives collide, and maybe personal life holds sway, but it’s not easy to talk about in a professional setting.

33:10 What is your advice for someone finishing their PhD training and looking for job?

Amanda tells other PhDs looking for a job, “you have options!” Amanda accepted the narrative about tenure track jobs at R1 universities, but she felt it was so empowering to realize it was her life. She says do everything you need to do to figure out what will fulfill you and make you happy. Make sure you are true to you and what you want.

The online community Beyond the Professoriate helps PhDs explore non-academic positions. Amanda took an online class, and it was great to have community and resources. She learned how to make use of LinkedIn, how to make CV into a resume, how to network, and how academic skills are useful in industry. Beyond the Professoriate has an online conference every year. Additionally, there are resources for understanding your finances at Emily’s site Personal Finance for PhDs.

37:57 Conclusion

Working Hard and Playing Hard as a Grad Student in NYC

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On this episode, Emily interviews Nicholas Giangreco, a bioinformatics graduate student at the Columbia University Medical Center. Nick’s expenses in Manhattan are relatively high – such as spending over 50% of his net income on rent – but his stipend still allows him to spend on his priorities and still save money consistently. Nick lived very frugally while he was paying off his student loans prior to grad school, and now applies his thoughtful budgeting skills to enjoying life in Manhattan without breaking the bank or detracting from his research.

Links mentioned in episode

PhD_NYC_playing_hard

0:00 Introduction

1:15 Q1: Please Introduce Yourself

Nick Giangreco is a bioinformatics graduate research assistant at Columbia University Medical Center in New York City. He started his program in August 2016. His post-taxes pay is approximately $1,300 biweekly.

2:58 Q2: What are your five largest expenses each month?

Nick’s top expense categories are rent, health, transportation, and food. His miscellaneous and entertainment expenses are considerably low. He uses a spreadsheet to monitor his spending.

3:38 #1 Expense: Rent

Nick lives in a studio apartment located on-campus and managed by the university. He pays $1,200 for his studio, which is lower than nearby off campus studio apartments that are $1,500 to $1,600 rent. Nick recognizes that he could find housing options near campus for less than $1,200 monthly rent. He mentions his friends who share four bedroom apartments and each pay $600 for their room. Finding a place in New York City is challenging. If you don’t find somewhere on Craig’s List, you may need a broker and to pay the broker fee.

Nick says the majority of graduate students live on-campus. To accommodate the demand for on-campus housing, the university has three tiers of priority consideration for housing applicants. The first priority tier is international students, the second tier is students from outside the New York – New Jersey – Connecticut Tri-State area, and the third tier is students from within the Tri-State area.

According to Nick, living on-campus makes graduate student life easier. Nick has a 15 minute walk to work, and he avoids commuting on the subway. The university gives current residents the first priority to renew leases. Nick plans to renew his lease for his on-campus apartment.

11:38 #2 Expense: Health

Nick spends a few hundred dollars per month for pilates sessions. He sees a personal pilates trainer in the West Village and pays $100 per session. He goes to physical therapy and rehabilitation at the hospital at Columbia. The copay is $20, which adds up since he has an appointment every week.

Nick’s health insurance does not cover his pilates session, but he likes his personal trainer and gets value out of the sessions. He first tried going to pilates classes at the university’s gym for no charge, but he was dissatisfied with the generalized approach of group classes. He wanted something personalized for his needs, so it is his priority to budget for pilates classes.

14:23 #3 Expense: Transportation

Nick estimates that he spends $200 to $300 per month on transportation and travel, or as little as $100 in a month if he doesn’t leave New York City. He puts $20 on his subway card and adds as needed. Additionally, he takes taxis and Ubers to get around Manhattan. Though taking a taxi to the JFK airport can be expensive ($70), the subway takes two hours. He uses Amtrak to go to his hometown, but those tickets add up. He also looks for cheap tickets from Megabus.

18:55 #4 Expense: Food

Nick spends less than $200 per week on food. In his studio apartment, he has a kitchenette which has a stove but no oven. He doesn’t buy groceries that require baking. He buys non-perishables and items that keep well. Some of his go-to items are sweet potatoes, oatmeal, and popcorn. He takes out $20 per week in cash for use at the food trucks, which only accept cash. He buys gyros for $5 and coffee for $1 from the food trucks. He goes to restaurants or diners once or twice a week.

Nick looks for free food from graduate school events. He is part of a Slack group for graduate students in the department, where people share information about free food. He eats food at seminars, lectures when alumni are invited, and club events.

Nick’s kitchenette does change how he approaches his food budget. When he lived in Washington, DC, he lived in a house with a kitchen. He used to batch cook on the weekend and set aside portions of leftovers for the week. He would host friends for meals. In New York City, he doesn’t have room to host anyone and can’t cook very much. He microwaves sweet potatoes and makes rice and beans on the stove. He keeps leftovers from events. He doesn’t plan his food for the whole week, instead he plans by the day. Nick thinks he could plan better, but right now he needs to focus on his PhD work so he needs the convenience.

30:35 Low Entertainment Expenses

Nick says there is a lot to do in New York City. He doesn’t spend much money on entertainment because he does a few cheap activities. He goes to clubs and university events. He sees plays for $10 on the Columbia Medical Center campus. He saw Spongebob the Musical for $30. Though Nick has friends who go out for drinks every day, Nick doesn’t buy much alcohol.

33:30 Q3: What are you currently doing to further your financial goals?

Nick recently paid off all his student loans. Before starting his PhD, Nick lived in DC for two years. He lived a very frugal lifestyle, and took two and a half years to pay off his student loans. Now, Nick is working on his rainy day fund so he can create a financial cushion in his budget. He spends about $2,300 per month of his $2,600 monthly income, so he puts the rest to savings.

Nick keeps a budget in google sheets to log his expenses. He wants to become conscious of his spending habits. He is looking into passive investing approaches and learning about retirement. Columbia Medical Center provides graduate students the option to invest with Vanguard. Though there is no matching offer, he determine an amount to withhold out of his biweekly check. He called the financial office and asked explicitly about this retirement program applicability to graduate students, and he is considering it.

Nick tries to save $100 to $200 per month for his rainy day fund, and wants to increase this to $300 to $500 per month.

39:14 Q4: What don’t you spend money on that might surprise people?

Nick doesn’t spend much money on entertainment or alcohol. He takes it seriously that he is in New York City for graduate school, so he prioritizes his studies and his work. He doesn’t go to Brooklyn or the East Side, instead he goes to Central Park for free and finds cheap shows at comedy clubs. He uses the subway because this transit option is $20 to $30 less than taxis and Ubers. He will listen to podcasts while he’s on the subway.

43:07 Q5: What are you happy with in your spending and what would you like to change?

Nick is happy with his food spending and his entertainment spending. He has a social life and indulges in brunch with friends on the weekends. He wishes he could save more on rent, but he doesn’t want the responsibilities that come with living in a house. Landlord, roommates, and housing infrastructure problems add extra stress that he doesn’t want to deal with. He wants to concentrate on graduate school, and his studio apartment helps him focus. He also appreciates the security in his building, the community and the convenience. He lives on-campus and one block away from the subway. Ultimately, the convenience of the location is worth the high rent.

46:42 Q6: What is your best advice for someone new to your city who is budget-conscious?

Nick recommends living on-campus. He thinks the Columbia Medical Center bioinformatics graduate program pays well. He says the initial payment for first years is nearly $20,000 as a lump sum, which needs to be budgeted carefully. The Columbia Marketplace Facebook group is useful to find free and cheap items. The Grad Talk list-serve helps you find out about free and cheap items as well.

Nick says to enjoy yourself without going crazy, and to be mindful. Anyone considering New York City for a PhD program should know that grad school can be intense, New York City can be intense, but this is a time to work really hard while making good friends and good memories. Nick coordinates a Meetup group and leads an NYC chapter of an international organization. New York gives you access to broader networks and opportunities.

51:38 How do you budget your biweekly pay? How does it compare to other pay structures?

Nick used to work at the National Institute of Health in DC, where he monthly check. The biweekly pay does not change how he budgets, instead he enters his income twice a month into a spreadsheet instead of once a month. He had enough cushion money in his account to manage expenses, and knows that he will get another paycheck in two weeks. His spreadsheet helps him keep track.

55:41 Q7: Would you like to make any other comments on what it takes to get by where you live on what you earn?

Nick says it’s a great time to be a graduate student in New York City. So many people like to visit New York City, so it’s great for spontaneous reunions with friends. It’s easy to get out of the city if you want. New York City offers many opportunities, and you’ll interact with people from multiple universities, companies, and form a broad network.

57:48 Conclusion