Personal Finance for PhDs

Live a financially balanced life - no Real Job required

Emily

Circuit Board Designer

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Today’s post is by a PhD student who learned an important lesson about setting boundaries as a contractor with an employer.

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Name: Mark

University: University of Illinois

Department: Mechanical Engineering

1) What was your side or temporary job?

PCB circuit board design for a small local company. Designed and tested a small electronic device. Then I sent out for a PCB to be made, and I personally assembled and QA checked the devices. Finally, I provided product support for when the prototype devices were field tested.

2) How much did you earn?

$25/hr, ~0-12 hrs a month, sporadic hours typically on weekends.

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

This work began as I was getting near to finishing up my graduate work, but before a timetable had been set for my preliminary exams. I made clear that my education was my first priority with limited number of hours/week, that at times I would be unavailable due to school, and that during school hours (regular work hours where I had a TA/RA position) I was generally unavailable. There were no cases where my education was hindered by the side job, since it always had priority. However, the limited availability for working on the side job did cause some friction. These are very restrictive conditions for an employer, and do not work well with time sensitive work such as providing product support.

Make a clear boundary between when you are working at school vs working on the side job. Likewise, though I used my apartment to do work for my side job, I chose to maintain boundaries by never meeting my employer at my apartment, instead booking meeting rooms or choosing a public place. While the limited hours worked well for the research and development phase, some issues arose in product field testing. When the company was testing devices while I was at school, they occasionally had issues that required immediate responses. This is difficult to do while maintaining separation between graduate and side jobs, and would be better served by a full time employee.

Despite the limited involvement of my advisor, his friendly relationship to the CEO of the company meant that it was possible at times for a conflict of interest to arise. Ideas from the CEO could make it to my advisor who would then want independent (but ultimately related) work for graduate research. This did not occur for me, but did for a lab-mate who was also working in a similar capacity.

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

There was no direct correlation to my graduate work. However, it added real-world project experience in a related field. Although the money was nice, I was mainly pursuing it because I was interested in the project and because I wanted the experience. Most importantly, as the primary engineer on the device I learned the value in extensive QA of the design and assembly.

5) How did you get started with your job?

The position started through a one-time introduction by my advisor. His involvement in the project was limited to the introduction to avoid a serious conflict of interest.

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

Ultimately what my employer wanted was a full time professional, but for the cost of an undergraduate intern. While a professional engineer could probably have completed this project quickly compared to the average intern, the cost was considered too much. I possessed a masters degree even at the start of the work, but in mechanical engineering instead of electrical engineering. I requested to be paid at a discount to the going rate for an experienced electrical engineer due to my inexperience, but was unwilling to accept undergraduate intern level pay. As mentioned above, I was interested in the experience more than the extra money. In some instances, I refused work different aspects of the project because I was unqualified for it, suggesting he find a more qualified person.

Finally, make clear at the start what the scope of your work is and whether you are acting as an employee or contractor. Get it in writing, along with what your compensation will be. As an employee, you are working under the direction of your boss to fulfill work needed by the company. As a contractor, you negotiate what services you are providing before doing the work, leading to well defined deliverables. I would suggest acting as a contractor if possible, though in my case I ended up acting as an employee due to my inexperience; I was unsure as to how to appropriately estimate the extent of the work required and I didn’t want to seriously underestimate number of hours needed.

Budgeting Methods

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Your budget and budgeting method will be unique to you as an individual. You need to find a method that serves the purposes you set for it without being too onerous for you to follow. Below are a few common ways to budget – you can mix and match as best suits you.

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Line Item Budget

The line item budget is probably what you think of when you hear the term “budget.” You start with your net income each month and create a line item for each goal or expense that includes the category and amount. The expenses included are your fixed and variable expenses that occur every budgeting period. This type of budget will be the same every month, only evolving as your expenses change with time, so it works best for people who have very regular income and expenses.

Your objective is to spend exactly (fixed expenses) or less than (variable expenses) the amount of money allocated in each of your line items. Be sure to keep a line item for miscellaneous/unanticipated expenses as well; expenses always pop up that don’t exactly fall into one of your categories. This budget resets between each budgeting period, so you’ll need a plan for what to do with your excess money when you come in under budget or your deficit when you come in over budget.

If you want to keep a monthly line item budget, Mint is a great tool to help you track your spending and match it against the line items in your budget.

One of the pitfalls to line item budgeting for a graduate student is the periodic occurrence of large irregular expenses that overwhelm your miscellaneous line item. One solution to this issue is to use targeted savings accounts.

Unbudgeting

The unbudgeting method is about as simple as a budget can get. From your net income, you set up a savings rate for one or more of your goals and let the rest of your money be unstructured. The only tricky part is to keep from overspending your remaining money in each pay period. In this method of budgeting, you can be confident that you are meeting your goals, yet you don’t feel restricted. This kind of budgeting is great for people who want to work regularly toward goals but don’t want to feel limited in how they spend their money each month.

You don’t really need budgeting software to unbudget, but it is helpful to track your expenses manually or automatically so you know when to stop spending.

Further Reading: 4 Easy Money Management Solutions for Anti-Budgeters

Unique Budget Every Month

If you want to be more exact and directive about your budgeting, you can create a unique zero-based budget every month (aka the Dave Ramsey Method). Every month (or every pay period), you calculate your unique income and project your unique expenses. You give every single dollar an assignment for the month and make sure that it is carried out. This is on the intensive side for budgeting because it requires scrutiny of the coming month and must be completed fresh every month. This budgeting method is great for people who have irregular income, are intensely repaying debt or saving, or have relatively large discretionary income month to month.

Dave Ramsey’s budgeting software that follows this method is Every Dollar.

Envelope Method

The envelope method is a longer-term spin on the line item budget. You divide up your net income into envelopes (categories) for all your fixed, variable, and irregular expenses, then spend down those envelopes. With this system, the budget doesn’t have to reset after every month, but you can continue to accumulate money in your envelopes until it is needed. You can also smooth your spending in your regular budget categories over a few months. For example, you could stock your freezer and pantry in one month of high grocery spending, then eat it down over a few months of lower grocery spending as you build up cash for the next stockpiling month. This budgeting method works well for people whose expenses are not very regular.

One example of software that uses the envelope method is Mvelopes.

Targeted Savings Accounts for Irregular Expenses

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Irregular expenses – expenses that occur only once or a few times per year – are the bane of the grad student budget. As stipends are so limited, it is rare to find a graduate student whose money management system hasn’t been stressed by an irregular expense. Examples of irregular expenses common to grad students are quarterly or yearly tax payments, university fees or research-related expenses, travel, insurance premiums, repair/maintenance costs, shopping (electronics, clothes, home, etc.), entertainment, and gifts.

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The best way to handle irregular expenses is to save for them in advance. First, you’ll have the cash on hand when the irregular expense occurs, eliminating the need to scramble to find additional cash flow that month or to carry a balance on a credit card. Second, anticipating your irregular expenses forces you to budget over the course of a year instead of just a month, which means you can better weigh your spending options against one another instead of making last-second calls on what to purchase and what to forgo.

A system of targeted savings accounts organizes your savings for irregular expenses. From each paycheck, you save a small amount of money into each targeted savings account, which are designated according to their expense category. Then, when an irregular expense occurs, you pay for it using the money that has built up in the targeted savings account.

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); A Simple Trick to Save More Money (It Isn’t Automating); Are These Budget Busters Derailing Your Spending Plan?

Pay Yourself First

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The strategy to “pay yourself first” is among the most powerful of any in personal finance.

Pay yourself first means that you make reaching your financial goals your top priority each time you are paid and before you start paying any other bills. Right after you are paid, you make sure that you transfer the proper amount of money toward your savings accounts, IRA, or taxable investment accounts. If your top financial goal is to aggressively pay down debt, that would be your first action as well. This should happen first thing before you pay your rent, put gas in your car, buy food, or do anything else.

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The rationale behind pay yourself first is that if you leave meeting your financial goals until last each month, you will never achieve them. Your money will disappear into the ether as you are paying your bills and going about your life. You will tell yourself that next month will be different because xyz won’t happen again, but every month plays out the same way.

The best way to pay yourself first is through automatic, scheduled transfers. After you set those up, you won’t have to use your memory or willpower at all to pay yourself first. It will just go on in the background, and pretty soon you won’t even miss the money.

Resolve to pay yourself first from this month forward!

(No one is advocating that you fail to pay any of your other bills. If paying yourself first causes a shortfall that you cannot allow, transfer the money back from your savings to cover it. This is a budgeting issue, not an issue with the strategy itself.)

Bring Savings to Grad School

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Even if you are earning a stipend during graduate school, it’s essential to have some savings already when you start graduate school. In all likelihood, you are going to wait several weeks before you receive your first paycheck or fellowship disbursement, and those particular weeks are going to be unusually expensive ones.

Why Does It Take So Long to Get Paid?

Processing payroll takes time, and you probably won’t even start setting it up until after you arrive on campus.

If you are working for your university (receiving compensatory pay as an RA, TA, or GA), you will have to perform some work before you are paid. It is most typical for graduate students receiving compensatory pay to be paid monthly, so your first paycheck will arrive near the end of your first or second month after starting grad school. While you may be required by your program to be on campus for orientation, unless you are concurrently starting your RA or TA duties, you may not be paid for that time.

If you are receiving a fellowship stipend, you may be paid monthly or in lump sums. Either way, the disbursement from your funding source has to be processed by your university before it is sent to you, so you will also be paid after the start of the school year.

Unfortunately, while your pay won’t arrive until some weeks after you start grad school, your start incurring your expenses well before.

Further reading: Why I’m Voting Yes

What Will My Expenses Be Before I Am Paid?

Not only do you have to sustain yourself normally before you are paid (food, housing, transportation), you have additional start-up expenses associated with the beginning of graduate school.

1) Normal Expenses

If you’ve never tracked your spending before, you may be surprised by all the different expenses you have each month. Your basic needs are food, housing, transportation, clothing, and insurance. On top of those, you may have some discretionary expenses such as restaurants and bars, entertainment, and shopping.

2) Moving Expenses

Many if not most graduate students move to their university towns prior to starting graduate school. Your costs to move may be as low as only gas money or as high as flights and shipping, depending on the distance moved and the amount of possessions being moved.

3) Housing Start-Up Expenses

You should expect to pay your rent for each month up front (e.g., pay for September’s rent by the end of August), so at a minimum you will pay for some housing expenses before your first paycheck. On top of first month’s rent, you may be required to put down a security deposit and possibly pay last month’s rent as well; policies vary by location. Some rental companies in college towns offer discounts on these types of expenses.

After you get into your new home, you will need to furnish it to some degree (either you will pay to move furniture or you will buy furniture in your new town) and stock your fridge/pantry. You should also purchase renter’s insurance, possibly paying for the whole first year at once.

Further reading: My Beloved Air Mattress: An Anti-Debt Story

If you have chosen to buy a home prior to starting graduate school, of course you will have much higher housing start-up expenses.

4) Transportation Start-Up Expenses

If you will own and use a car during graduate school, you will have to register the car in your new location and update your insurance policy. Buying a car for graduate school will involve either paying for the car up front or taking out a loan, possibly with a down payment.

5) University Expenses

You are likely taking classes in your first year of graduate school, and your courses may require you to use certain textbooks. You might also be responsible for paying some fees or even partial tuition near the start of the school year.

What Are My Options for Paying My Expenses Before I Am Paid?

First, minimize your expenses to the greatest extent that you can by using frugal strategies. Some tips that are relevant to the start of the school year are:

  • accept as much free food as you can
  • borrow your textbooks from the library or older graduate students
  • delay buying non-essential furniture to spread out the cost and buy used
  • try living car-free if you are not certain that you will need a car

Second, by far the best way to pay for your expenses before you receive your first paycheck is to use savings. It would be ideal to have a least a couple if not several thousand dollars on hand for your transition to grad school.

If you don’t have the cash available, you’ll likely have to take out debt of some kind. Some graduate programs offer short-term loans to their students to help them through these kinds of transitions. Another option might be a personal bank loan. Accruing credit card debt should be a last resort; not only will you have to use your first paychecks to play catch-up, your debt will almost certainly generate a lot of interest charges in the meantime.

How Should I Build Up My Savings In Advance?

If you are already saving money for other purposes, divert some of it to a special transition-to-grad-school fund. If you do not currently have the excess cash flow to save money, you need to either increase your income or decrease your expenses to create some. Check out our side hustle series for ideas for increasing your income and our frugal practices for ideas for decreasing your expenses.

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Hairstyles YouTuber

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Today’s post is by a PhD student runs a YouTube channel about her passion-hobby, which also happens to bring in some money!

shannonName: Shannon

University: University of California, Los Angeles

Department: Social Psychology & Neuroscience

1) What is your side or temporary job?

Making hair tutorials on YouTube.

2) How much do you earn?

$200-250 a month

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3) How do you balance your job with your graduate work?

My work and my YouTube channel are pretty darn orthogonal, haha.

4) Does your job complement your graduate work or advance your career?

Because my work and my channel are so different, it’s difficult to balance. At the beginning of grad school I was able to put out a new video every week because I could film on the weekends and edit in the evenings during the week. However, now I’m involved in a lot more projects at work, so I’ve been failing to meet the every-week benchmark. Since this is my hobby, I always have to remind myself “if I feel like it’s something I have to do instead of something I want to do, then I need to back off a bit.”

5) How did you get started with your job?

I started my YouTube channel somewhat accidentally back in undergrad. I recreated a bunch of Game of Thrones hairstyles for fun and posted them to reddit, which went viral. Lots of people were asking for tutorials, so that’s why I created my channel and it’s been steadily growing ever since. That big boost at the beginning was really important to making this channel monetized, because for most channels it’s really difficult to get past the first 5k subscribers.

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

I definitely recommend finding something in grad school that’s unrelated to the work you do, monetized or not, so that if all your experiments fail one week, you still have something meaningful to throw yourself into. YouTube is a difficult way to make money on the side, though, I will say. I was really lucky with it. It takes a lot of work to make it monetized, and at times it’s been like another full time job. So I wouldn’t recommend this route if you’re just looking for money. But if you have a passion that you like sharing with others through video, it can be very fulfilling while still getting you money for groceries!