Personal Finance for PhDs

Live a financially balanced life - no Real Job required

Emily

Higher Ed Coordinator and Consultant

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Today’s post is by a grad student who strategically took on two roles within her university aside from her job as a teaching assistant, which had an unexpected consequence.

Name: Katy Peplin

Institution: University of Michigan

Department: Screen Arts and Cultures

1. What was your side job?

  • Program Coordinator, Preparing Future Faculty (PFF) series for the Center of Research on Learning and Teaching (CRLT) – I basically was a full team member with staff from CRLT, doing everything from making copies all the way up to designing and presenting seminar content. I ran two seminar sessions (2015 and 2016) and one conference (2016) under this title.

  • Graduate Teaching Consultant, also with CRLT – I observed graduate student instructors, worked one on one to improve their teaching, and facilitating workshops of my own design to graduate students.

2. How much did you earn?

$20/hr – my hours varied widely, averaging five to ten hours a week, and 30-40 hours a week for the 5 weeks the seminar ran (in May of each year.)

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3. How did you balance your job with your graduate work?

My advisor was not supportive of my alt-ac career planning, so I did not fully disclose this work to her. Logistically, I worked with my department administrator (who handled our budget) in confidence, and she worked directly with CRLT (which was also a unit within the University) to make sure that I complied with hour restrictions for my funding as it changed from semester to semester. In terms of managing my time, I was also teaching a full load and working on my dissertation, so I scheduled on-campus meetings with CRLT around my teaching schedule, and generally tried to put out whatever fire was burning the brightest at any one moment.

4. Did your job complement your graduate work or advance your career?

It was definitely a strategic move to work at CRLT, as I knew early on that I wanted to be prepared for a wide range of post-PhD career moves. I figured that teaching-focused institutions would look kindly on the pedagogy aspects of the work, that non-profits would appreciate the administrative, budget and publicity parts of my portfolio, and that I would have extensive experience to prepare me for a variety of positions in other teaching centers. It did definitely detract from my graduate work, however – compared to some of my other peers, I published less and often missed out on things like scholarly talks because of my schedule.

5. How did you get started with your job?

I completed the Preparing Future Faculty seminar as a participant in 2014, and approached one of the facilitators for an informational interview about her role in the teaching center. When the program coordinator position came up, she emailed me to encourage an application, and to apply for the teaching consulting position the next year.

6. Is there anything else you would like to share about your experience?

Looking back, I feel I might have focused too narrowly on the field of educational/professional development when pursuing work experiences during the PhD. When I graduated and entered the market, I was over-qualified for post-docs in professional development, but also was passed over for positions in teaching centers that ultimately went to people with post-docs. Because I was geographically tied to one location because of my partner’s career, there were only so many jobs in that field in our city (and even fewer tenure-track or adjuncting opportunities in my research area) and my resume was still decidedly “higher-ed.”

Katy Peplin completed her PhD in Screen Arts and Cultures at the University of Michigan in 2016 and is now a graduate student coach, specializing in wellness, mental health, and sustainable work/life balance during graduate school. See more at www.katypeplin.com, where she blogs regularly about all things grad student.

Why and How I Eliminated Eating Out for Convenience in Grad School (and You Can, Too)

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Shortly after my husband and I got married and combined our finances, we faced a reckoning in our budget. As we created our first combined spending plans and started our system of targeted savings accounts, we realized that our month-to-month spending was out of sync with our values and short-term goals. Chiefly, we wanted to put aside more money for travel spending, which meant that we had to find other areas in our budget to cut back. On the chopping block: eating out for convenience.

While our restaurant spending was never astronomical, we had each fallen into a pattern of buying convenience food on a regular basis. Among other reasons, I tended to buy a quick dinner on campus when my lab experiments ran into the early evening, my husband bought a fast food dinner every week on his way from campus to an evening activity, and we also occasionally went out to dinner just because we didn’t feel like cooking.

We determined that these convenience meals were not a great use of our money, especially in light of our travel goals. So we made a spending rule: We only ate out with other people on social occasions; we eliminated eating out alone or with each other. We held to that rule almost perfectly for our last few years of grad school, though I admit we started deviating a bit while dissertating!

eliminated eating out

 

In this post, I’ll share our strategies for sticking with our no-convenience-eating-out rule. I know this topic is of high interest to grad students (with busy schedules!) who are looking to reduce their spending. Most recently, we discussed it at length in Grad Student Finances’s monthly live money chat. (If you want to join our next money chat, sign up for the mailing list here to receive more information.) Even if you don’t want to eliminate eating out for convenience entirely, implementing these strategies will help you to enjoy eating out more when you choose to because it’s not done out of desperation.

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

Identify Your Patterns

The very first step to eliminate eating out for convenience is to take note of when and why it happens. In all three scenarios I listed for my own life, dinner was the issue. My husband and I never ate out for breakfast and rarely did for lunch, as we were consistent brown-baggers. Since dinner was the problem time for us, that was where we focused our energy for creating solutions.

I realized that I tended to get hangry and need to eat right away; if there’s not ready food available, I would buy something because I couldn’t wait an hour or two to get home/shop/cook. So part of my solution was to keep homemade food available (more on that next).

The pattern you identify in your convenience eating could relate to any meal or snack of the day or more than one of them. Maybe you’re not a morning person so you habitually stop for a coffee and bagel on your way to work. Maybe you like to take a nice break for lunch, and part of that is leaving your office to go to an eatery on campus. Maybe you need a pick-me-up snack in the mid-afternoon to keep from nodding off while reading. Maybe you tell yourself you deserve a night off from cooking after a long day in the lab. Work first to identify the situations in which you habitually buy convenience food or are tempted to, whether those are based around a meal, a time of day, a feeling, a stressor, a regularly scheduled meeting, etc.

Keep Food on Campus

If you are buying convenience food on campus or on your way to on from campus, like my husband and I were, the easiest solution is to keep food on campus in your office, department lounge, or whatever personal space is available to you.

Further reading: Make Your Stipend Go Further: Bring Your Lunch to School

We were consistently bringing our lunches with us every day and keeping them in our shared refrigerators. After identifying dinners as our weak point, we started bringing in dinners as well. On the days of the week that we knew in advance that we would need to eat on campus (like before a regular evening activity), we just brought in our lunch and dinner together. But I also started bringing an extra dinner in with me on Monday to stay in the fridge for the week to be eaten on whatever night I happened to stay late (and if that was early in the week, I’d bring in another the next day). In this way, I planned for the eventuality of needing to eat on campus, even though I didn’t know exactly when it would happen.

You don’t necessarily need to bring in a full extra meal to make this work. If you just need to tide yourself over for an hour or two, a snack will do just fine. If you choose shelf-stable foods or long-lasting refrigerator foods, you don’t even need to change them out every week.

Batch Cook

No kidding, batch cooking changed my life. When I first started eating out of my own kitchen and learning to cook, I prepared one-serving meals, which was very time-consuming and didn’t allow me to use frugal strategies like buying in bulk. I also ate a lot of pre-prepared foods and meals out because that kind of cooking was so exhausting. Our slow cooker changed all that for me.

While batch cooking is not limited to slow cookers, it is a good entry point. I started making 8+ servings at once of hearty chilis and soups in our slow cooker, which were easy to toss into a Tupperware and bring to campus for lunch or dinner. From there I moved on to other styles of cooking, but always making at least 4 servings at once. Batch cooking is perfect for a busy grad student as it is so time-efficient.

Batch cooking was key to eliminating our convenience eating out because 1) it created those meals that we wanted to keep on campus and 2) we always had food ready for reheating at home. Gone were the days of convincing ourselves to eat out because we had no groceries at home or cooking would take too much effort.

Further reading: Eliminate Eating Out for Convenience with Batch Cooking

Eat Before You Cook

Batch cooking also leads easily into this tip: eat, then cook. When I arrive home from work hungry, the last thing I want to do is spend a bunch of time cooking! People are always saying “don’t grocery shop while hungry” because it leads to poor decisions, and I apply the same logic to trying to cook while hungry. I get impatient and am liable to go off-plan.

So my (largely unconscious) strategy became to eat a pre-prepared meal upon arriving home, then do any necessary cooking for the following day(s). I did try to batch cook on the weekends, but usually I also needed to do it once or twice during the week, so I made sure that I had a dinner already available on those nights so that cooking could be put off until the later evening.

Use Your Freezer

Tying in closely with batch cooking and always having a meal available to you is freezer cooking. This is not a strategy I personally employed, but it works amazingly well for many people. Basically, you prep/cook one or more meals that are to be immediately frozen and then reheated/cooked at a later time. If you have a meal available in your freezer, you will never have an excuse to stop for convenience food on your way home.

This strategy also works very well for people who want to batch cook but don’t want to eat the same thing every single day. You can cook a four-serving meal, for example, eating one and freezing three. Rotating through that a few times will give you a selection of different freezer meals so you can spontaneously choose which to eat for any given meal.

Meal Planning

I’m a big believer in creating habits to avoid decision fatigue. I do not want to have to think about what I’m going to eat 3-4 times per day, 7 days per week. Eating the same meals over and over again makes my life so much easier. Grocery shopping, cooking, and eating all become consistent and decisions are minimized. If I have my meals planned out and food available to me, such as through batch cooking, I don’t have the opportunity to decide to eat out for convenience.

Luckily, my personality allows for eating the same dinner multiple nights in a row without becoming dissatisfied. If you crave more variety, meal planning can help you preserve that while still eliminating on-the-spot decisions. When you meal plan, you decide in advance what you’ll eat throughout the week. Often, weekends are used for shopping and prepping/cooking all of the meals, so all you have to do during the work week is carry out the plan with minimal effort.

To combine decision elimination with batch and freezer cooking, you can create a pattern of eating one type of meal every Monday, a different one on Tuesday, another on Wednesday, etc. An even more advanced level of meal planning coordinates the ingredients in the meals you eat throughout the week. The different meals will all draw from a common set of ingredients, which allows you to buy in bulk. (Combine that coordination with the sales cycle at your local grocery store and you are a super-frugal meal planning genius!)

It’s a tough adjustment going from eating family meals growing up or dining hall meals in college to cooking for one or two as a young adult. There is absolutely a learning curve, and sometimes convenience eating is part of that. But as you gain skills in the kitchen and clarity on how you want to use your money, you can make the decision to eliminate eating out for convenience. Start with identifying when convenience eating crops up in your life, then apply these strategies to combat it.

What strategies do you use to avoid eating out for convenience?

Independent Research Coordinator and Consultant

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Today’s post is by a PhD who had extensive work experience prior to starting grad school, which she leveraged into several relatively remunerative part-time jobs. She shares honestly about the effect her extra work had on her personally.

Name: Marika Morris

Institution: Carleton University

Department: Canadian Studies Ph.D.

1. What was your side job?

  • Research Coordinator, Canadian Research Institute for the Advancement of Women (CRIAW), on a part-time basis
  • Research consultant – I produced research on contract for Health Canada which was an overview and analysis of gender-sensitive home and community care research, with policy implications. Part of that contract involved travel to be a keynote speaker at a conference on that issue.

2. How much did you earn?

About CAD $30,000 the first year of my Ph.D., not including academic funding. This was much less than I had earned the previous year full-time in the labor market.

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3. How did you balance your job with your graduate work?

Not very well. It was very stressful, because I was also a teaching assistant at the university. I had to start on anti-anxiety medication. I eventually resigned my CRIAW job, and took on further research contracts only after my scholarship funds ran out.

4. Did your job complement your graduate work or advance your career?

Yes. Although my academic research was not on the same topic, the publication for Health Canada has been widely quoted and expanded my professional networks. The CRIAW job provided me with a sense of community which was lacking at the university, and both the Health Canada and CRIAW jobs provided me with a sense of accomplishment and value as a researcher. I had already been working as a researcher for 14 years before starting the Ph.D., but this experience did not seem to count for much with some professors.

5. How did you get started with your job?

I was already Research Coordinator at CRIAW when I reduced my hours to complete a Ph.D.. The Health Canada contract came from previous gender and home care research I had done.

6. Is there anything else you would like to share about your experience?

Looking back, it’s amazing that I did not have a nervous breakdown. It was a mistake to take a full course load and have three part-time jobs. However, it was very interesting and valuable, and it would have been hard to give up any of those opportunities. It is very important to gain/maintain work experience outside academe.

Marika Morris has worked as a Senior Policy Research Advisor in the Government of Canada, as a Researcher/Legislative Assistant for two Canadian Members of Parliament, was Research Coordinator for the Canadian Research Institute for the Advancement of Women and did a Canadian Institutes of Health Research Postdoctoral Fellowship at the Faculty of Education, Western University. She now runs Marika Morris Consulting, which specializes in research, evaluation and training services. She is also an Adjunct Research Professor at the School of Indigenous and Canadian Studies at Carleton University in Ottawa, Canada.

How to Manage Irregular Expenses with Limited Cash Flow

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A version of this article was originally published on GradHacker.

Irregular or non-monthly expenses can be difficult to weather for anyone, but even more so when you have a low income or little to no discretionary income. Irregular expenses are a nearly universal pain point among graduate students. Any (relatively) large expenses that crop up once or a few times per year can pose a problem, and common examples include school fees, taxes, car registration, car repairs, travel, conference expenses, entertainment, electronics, clothes, home furnishings, insurance, gifts, and medical expenses.

For grad students without much available non-emergency cash, there are limited options for paying for these types of expenses that don’t involve debt: increasing ‘income’ or decreasing spending. A grad student with a side income may be able to ramp up work when an irregular expense crops up. Another grad student may be able to clean out a closet and generate some quick cash on Craigslist or eBay. Frugality in variable spending areas, such as shopping, groceries (eat down your pantry!) and restaurants/bars, entertainment, gas/parking, and personal care, may be sufficient to pay for the expense. An undesirable idea that grad students may consider is to rely on credit cards to float or spread out the expense. This is a dangerous strategy because it is easy to let a balance accumulate, credit card debt is very expensive, and the cycle is hard to break for people with low incomes.

irregular expenses

Instead of being forced to make difficult last-minute decisions or put themselves in financial jeopardy, grad students can get ahead of irregular expenses by generating short-term savings that are earmarked for the specific expenses.

Building up cash to have available for these types of expenses certainly takes planning, self-control, and sacrifice in the short term, but it is well worth the long-term benefits of reduced stress, increased confidence in spending decisions, and the ability to say yes to unexpected opportunities.

My husband and I reached a point of frustration with the irregular expenses in our lives about halfway through our PhDs. We had to decline some wedding invitations that we really wanted to accept due to the cost of traveling. This distress spurred us to try to save ahead for the travel we anticipated in the upcoming year. We soon applied this strategy to other areas of our budget.

If it were easy to build up significant savings with a low amount of available cash flow, everyone would have it in place already. For those people, like my husband and I, who don’t naturally live well below their means and watch their checking account balance grow, certain strategies and psychological tricks may make this process more palatable.

The key strategy we used was to set up a system of targeted saving accounts or sinking funds. With this strategy, you essentially convert irregular expenses to regular expenses by spreading out their impact on your cash flow over several months or a year. Targeted savings accounts are either literally distinct savings accounts or simply notations within a single savings or checking account. (If your bank doesn’t allow you to open multiple savings accounts for free, look into an internet-only bank like Ally or Capital One 360. Nickname each account with the category of spending it represents.) The money in each account is designated only for its individual purpose. To fund the account, you anticipate the expenses in each category over a period of time (e.g., a year) and set up a monthly savings rate to pay for the expenses. When an expense occurs in the category, you draw money from the account to pay for they expense.

Returning to the travel example that inspired my own finances, to implement this strategy my husband and I projected all the traveling we expected to do over the course of the upcoming year. Generally, that included a few trips to see one set of parents or the other, travel to a few weddings, and sometimes travel for a special event like a reunion. We assigned an amount of money that we would need to each event and used the total amount of money we expected to spend to calculate a monthly savings rate. The exact number of out-of-town weddings we attended were difficult to pin down a year in advance, but we took a guess based on the previous year’s spending. As the year progressed and the events came into focus, we adjusted our cost estimates to be more accurate and changed our savings rate.

You could project an entire year’s irregular expenses all at once and start saving immediately for everything, but there is an easier and more gradual way to get started with targeted savings accounts. Each time you encounter a difficult irregular expense, figure out the next time it will occur and in what amount. Calculate your required savings rate by dividing the amount of money needed by the number of pay periods you have to prepare for it. Then, set up a recurring automatic transfer from your checking account to the appropriate targeted savings account (create a new one if needed). You will be prepared for that expense the next time it arises.

You can create as few or as many of these accounts/designations as your lifestyle suggests. By the time my husband and I finished grad school, we had proliferated our targeted savings accounts to cover travel, car, medical, community supported agriculture, electronics, entertainment, appearance, and tax expenses.

Converting irregular expenses to regular doesn’t make money magically appear out of thin air, but we did find its structure helpful for motivating us to find ways to cut our spending in certain areas or earn extra money. The main benefit we experienced was reduced stress and a feeling of more control over our money as we moved from being reactive toward our irregular expenses to proactive.

Would you like a one-page worksheet that helps you brainstorm your irregular expenses? It includes the three questions to ask yourself to map out your upcoming year and a list of the most common irregular expense categories. Sign up below to receive your worksheet!

Further Reading: Weather Irregular Expenses on Your Grad Student Stipend with Targeted Savings Accounts (a Personal Finance for PhDs Guide)

How Graduate Students Are Financially Distinct from Young Professionals

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Two young adults graduate with the same major from the same college in the same year. One of them gets a job and the other enters a funded graduate program. Their financial lives have just diverged, despite their similar professional starting points, and it’s not because the graduate student lacks an income.

graduate students are financially distinct

 

Here are the top ways graduate students are financially distinct from their young professional former peers.

Limited Income, Unlimited Training

Graduate students are among the best and the brightest college graduates, but that isn’t reflected in their stipends/salaries.

The value proposition of graduate school is that the student will be provided with training, and therefore the stipend is only intended to cover living expenses (more or less) to keep the student from undertaking outside work. (Of course, some students undertake unfunded PhDs or lose their funding at some point.) So the grad student’s income is suppressed, and there is little opportunity to increase it without engaging in a side hustle. This is very different from a regular job, where there is a chance for promotion or at least opportunity to take a different job with a better salary without derailing your career trajectory.

by Jorge Cham

A compounding factor in this situation is the uncertainty of the length of the training period. It’s unusual for a PhD in the U.S. to take less than five years, and apparently the average is 8.2 years. This is such an issue that asking a PhD student when she’s going to graduate is viewed as a faux pas. It takes an unusually driven graduate student and motivated advisor to accurately set the end date for the graduate degree more than a year in advance, let alone at the start of grad school. And even the end of graduate school doesn’t mean the student will get a big income boost, as 65% of PhDs will continue their training as postdocs.

These factors together mean that a grad student has a low salary for an uncertainly long amount of time: at minimum half a decade, and for many a decade or more.

Not a Full Employee

The exact nature of the relationship between the university and the graduate student is being reinterpreted at many universities around the US due to the recent National Labor Relations Board ruling that allows the unionization of graduate student assistants at private universities.

Graduate students are certainly “students” in the eyes of the university, and graduate assistants are also considered “employees” secondarily. The benefits offered to graduate students therefore often straddle these two statuses; they receive some or all of the benefits that undergraduate students do, but virtually always less than other classes of employees like faculty and staff.

Commonly, graduate students take part in the student health insurance plan, and the premium might be partially or completely paid as one of their benefits. Beyond that, benefits vary widely by university, school, and program. Some graduate students may have defined vacation policies while others’ are left to the discretion of advisors; some get dental and vision insurance alongside health insurance; some receive subsidies for housing or childcare; some receive a free or subsidized gym membership; very few even have access to a 403(b).

Common financial advice to young professionals to take full advantage of employer benefits by contributing to a 401(k) at least to the full match amount and maximizing the value of life, disability, health, dental, and vision insurance benefits therefore does not apply to graduate students. Conversely, graduate students may access to student benefits that are very unusual outside of universities, and it’s very important in those cases that the students are aware of all their benefits.

Fellowships Do Not Provide Taxable Compensation

While grad students receiving stipends have an income, they don’t all have “taxable compensation” or “earned income.” Graduate students (and postdocs) whose salaries are paid by fellowships are not being compensated/earning their income. (Their income is still taxable, however.) They are not employees, but neither are they self-employed. Therefore, they are not eligible for tax benefits that are tied to having compensation or earned income, such as IRA contributions and the earned income tax credit. Having an income that is not reported on a W-2 also may throw a wrench into the process of taking out a mortgage. This situation is very hard to wrap your mind around when you first hear about it because it is so different from what (self-)employed people experience.

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Low Taxes

The silver lining to having a low income is that you don’t have to pay much in the way of income taxes. Nearly all graduate students whose only income is their stipend will fall into the 15% marginal tax bracket or lower. Therefore, tax reduction strategies that might be recommended to young professionals are not as beneficial for graduate students. For example, contributing to a Roth IRA is a great idea for a graduate student with taxable compensation, while a young professional with a higher income might benefit more from using a traditional IRA or 401(k).

The unexpected bonus to being in the 15% tax bracket or lower is that the current federal tax rate on long-term capital gains and qualified dividends is 0%. Therefore, even graduate students who are saving for retirement outside of tax-advantaged retirement accounts can minimize the tax bite on their investments.

Finally, graduate students do not have to pay FICA tax, either because they have a student exemption or because they aren’t receiving compensation. Young professionals can’t easily avoid that 7.65% tax bite.

Access to Student Loans

Lastly, graduate students have the option to take out student loans. If the student experiences an income drop or a personal emergency, they could take out a student loan to cover it, whereas a non-student would more likely turn to credit cards or personal loans. While using a student loan in these circumstances might be advantageous in some ways (for example, the interest rate is almost certainly lower than the interest rate on a credit card), student loans are more uniquely dangerous than other kinds of debt because they cannot be discharged in bankruptcy. A graduate student, because of this access, therefore needs enhanced information and counseling when looking to take out a new loan.

In what ways are graduate students financially different from their age-mates who have real jobs?

Perfect Use of a Credit Card

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Graduate students have a pretty good handle on financial literacy topics like credit cards. In fact, 85% of graduate students have a credit card (Council of Graduate Schools’ Financial Education). But it’s one thing to understand how credit cards work and another to actually practice perfect credit card usage.

When I signed up for my first credit card after college, I thought of it as a form of an emergency fund. While I never ended up carrying a balance, on a couple occasions I used it to push paying for an expense from one month to the next. I thought I was being responsible by choosing a credit card with a relatively low interest rate (only 10%!) in case I did ever carry a balance.

With a lot more financial savvy and years of experience under my belt now, I can appreciate both the benefits and dangers of credit cards. If you follow the rules of perfect usage, credit cards can serve you well and benefit your life in small ways. But if you deviate from perfect usage, credit cards can bite – and it could be a tiny nip or a scarring chomp. The downside potential is definitely larger than the upside potential, so you must toe the line carefully!

Further reading: Don’t Buy into the Pro- or Anti-Credit Card Hype

Here’s how to use a credit card perfectly so it never bites you.

Have a credit card

It is a good idea to have a credit card as (when used perfectly) it will benefit your credit report and score. If you have never had any debt, opening a credit card will generate a credit report and score for you. (Make sure your first credit card is one you can keep open indefinitely, as it will establish the beginning of your credit history.) If you already have a credit score due to installment debt, such as student loans or a car loan, adding a revolving debt like a credit card will increase your score.

Further reading: Reader Request: Credit Scores and Credit Reports; “I Want a Credit Card, But I’m Scared”

The main reason to have a high credit score is to obtain favorable terms when you take out new debt, such as a mortgage. (The time to be concerned about maximizing your credit score is when you’re approaching taking out new debt, but other than that it’s not a big concern.) Some landlords also check credit scores, so a good score can be beneficial to a renter.

Further reading: 7 Ways to Improve Your Credit Score

If you have ever failed to make payments on a debt or have carried a credit card balance, don’t use a credit card. Give yourself time (at least a year) to ingrain good financial habits using only a debit card before returning to credit.

Never pay interest or fees

Your credit card should never cost you any money. Perfect use of a credit card means that you never carry a balance or pay any kind of fee (with one possible exception).

Pay off the entire balance by the due date

To avoid ever paying interest on your credit card, you must pay off the balance in full by the due date.

42% of graduate students with credit cards carry a balance on their credit cards, and 9% only make the minimum payment (Council of Graduate Schools’ Financial Education)! These students are paying a ridiculously high interest rate (15% on average) on this debt, which in many cases could be avoided entirely by better money management practices. With credit card debt, compound interest works against you with amazing ferocity.

Make it an unbreakable rule to always pay off your entire credit card balance before the due date; it’s a slippery slope from allowing a balance to carry over in one month to being saddled with thousands or tens of thousands of dollars in credit card debt that just keeps growing. The average American household with credit card debt has a balance of $16,425. Having this rule in place will force you to get creative about ways to cut your spending or earn extra money before the deadline.

A great way to make sure that you never miss a payment and incur a late fee or interest charges is to set up your card to auto-pay the entire balance before the due date. Just make sure that you always have enough money in your checking account to cover your credit card bill or you risk getting slapped with a fee by your bank instead.

Don’t Spend Ahead of Your Income

To use your credit card(s) perfectly, though, you have to go a step further. It’s not quite enough to pay off your credit cards when they are due. If you get sloppy with this practice, your spending can actually get ahead of your earning by 1-2 months, which can really put you in a bind if an emergency occurs.

To use a credit card perfectly, treat it like a debit card: only spend money that you already have in the bank, not money you expect to receive before the bill is due. That means that you will earn money, then get paid, then spend the money. To keep your credit card bill in sync with your budget, pay it off in full at the end of every month/budgeting period. You could even pay it off a couple times each month to keep your utilization ratio low.

Further reading: Living on Time with Your Credit Cards

Gain Benefits and Rewards… But Don’t Go Crazy

All the points above are about avoiding the downsides of credit cards, but now we get to the fun part – the upsides!

Credit cards are safer than debit cards for fraud protection, and they also often confer benefits in the small print like rental car insurance.

Further reading: Credit Card vs. Debit Card: Which Is Safer Online?; Renting a Car? Know Whether Your Card Adds Insurance

But the really big draw is the rewards. When you have a good credit score, you will be eligible for all kinds of rewards credit cards. These rewards come in the form of a signup bonus (usually after meeting a minimum spending requirement), ongoing rewards based on your spending, or both. Credit card rewards are actually one of the top ways my husband and I ‘saved’ money while we were in grad school, even though we rarely spent enough to meet minimum spending requirements.

Signing up for credit cards for the bonuses and strategically using certain cards for certain purchases to rack up points is a great way to score some free money or free travel. But you can’t get so caught up in the bonuses that you overspend or deviate from perfect use.

Credit card companies use rewards to prey on your psychology. The rewards make spending feel even better than it normally does, so you’re more likely to spend lots of money on their particular card. In that way, the company gets the transaction fees from the merchant plus a greater chance that you will overspend, not be able to pay off your balance, and end up paying interest.

Further reading: Think about It: Why Would the Credit Card Company Give You Cash Back?

If you want to go after credit card rewards, great. Just put in place strict boundaries such as a budget to constrain your spending, the habit of paying off your card every month, and autopay. If you juggle multiple cards at once, consider signing up for account aggregating software like Mint or You Need a Budget to help you keep track.

I said earlier that you should never pay a fee for a credit card. The one exception is a fee for a rewards credit card when you are dead certain that you will gain more in rewards than you are paying in an annual fee. If you’re at all unsure about the ROI of the fee, don’t get the card. A credit card with a fee should also not be the first credit card you open (or probably your first rewards card, either) as you should feel free to close it whenever paying the fee no longer makes sense. If that is your oldest credit card, your credit might take a small hit upon its closure.

If you’re going to use a credit card, use it perfectly. Credit card fees and interest are too detrimental to your financial health to play around with! Just treat your credit card like a debit card and you’ll be fine.