Personal Finance for PhDs

Live a financially balanced life - no Real Job required

Emily

Credit Cards

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Depending on who you ask, credit cards are either dangerous or lucrative, a great convenience or a terrible temptation. What they really are, at their core, is a debt product. The credit card issuer has extended you a line of revolving credit in the amount of the card’s limit.

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

When you make a purchase using a debit card, the funds are immediately or within a few days transferred out of your account to pay for the purchase. When you make a purchase on a credit card, you are incurring debt to the credit card issuer. Between the time you make the purchase and when the payment is due, the credit card issuer is giving you an interest-free loan. If you fail to pay the balance in full by the payment due date, the credit card’s interest rate then applies to the balance.

Credit cards can be very dangerous products, especially for those who live paycheck-to-paycheck, are inexperienced with money and banking, or are unorganized. This is because credit cards typically have a very high interest rate (the average rate is 15%), meaning that if you carry a balance on your card beyond the grace period that debt will become very expensive. (In today’s low interest rate environment, it’s difficult to think of any other debt product aside from payday loans that typically has interest rates higher than those on credit cards.)

However, when used with discipline, credit cards can confer some benefits, such as fraud protection, additional insurance, and rewards (in the form of cash back, airline miles, goods, etc.). The exact benefits the user gains from using a credit card can be learned from the terms and conditions. The terms and conditions will also detail how expensive a mistake can be in terms of the late fees and interest rates.

You must determine for yourself if credit cards are a useful product for you. Credit card companies make money not only from charging interest and late fees, but also from merchants. There is a percentage fee that credit card companies collect from every transaction, so you need to realize that their rewards structures and so forth are set up to induce you to spend more than you intended to. Credit cards can also be very tempting for people who don’t have any cash reserves in the case of an emergency or a month that is more expensive than anticipated, but these people are highly susceptible to getting stuck in a debt cycle with credit card balances that they have difficulty paying down. It may be better to avoid using credit cards entirely, because their very convenience ends up being a trap.

Further reading: “I Want a Credit Card, but I’m Scared”

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Perfect use of a credit card, or it never costing you more than cash would, entails always paying the balance off in full on or before the due date and never spending more than you would if you were using debit or cash.

One of the most important attributes of credit card usage to be cautious about is its ability to dissociate the act of making a purchase from the consequence of paying for it. Even if you pay off the balance in full every period, it is possible to get 1-2 months behind in your spending in comparison to if you used debit or cash because of the grace period credit cards give you. Even if you never actually pay fees or interest, this is an undesirable position to be in because you are borrowing from your future paychecks when you make a purchase.

Further reading: Living on Time with Your Credit Cards; Credit Cards Are a Necessity, If You Are Responsible

Emily, Duke University, biomedical engineering — Targeted savings accounts

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In grad school, I took the idea of saving for irregular expenses in a separate savings account to an extreme – and it had a great psychological effect! Instead of saving into a single general account, I created multiple targeted savings accounts for different purposes. The first two I created were for travel (that was in The Year of the Weddings) and entertainment (for the season tickets I wanted to buy). Another really important account early on was for my car – that covered insurance (paid every six months), my parking permit (paid once per year), repairs, registration and taxes. Over the years, the accounts had proliferated to about ten, all for different single or grouped purposes! Dividing out my savings rate like this helped me to aggressively save. In many of the accounts, I overestimated my need, so some money built up. By the end of grad school, I had built up quite a balance in the accounts, and ultimately I transferred all the money into a general account, which helped me with my unexpected transitioning-out-of-grad school expenses.

Emily, Duke University, biomedical engineering — Frugal cell phone plan

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When I heard about Republic Wireless, I jumped on the chance to use their service. I’ve been with them for two years now and recommend them (and other MNVOs) to everyone. Republic Wireless’s business model is for your data (including VOIP) to go over wireless when it is available and over the Sprint network when it is not. This allows them to offer low prices on (effectively) unlimited service. I pay $25/month for my unlimited everything 3G plan, but you can get a plan for as little as $5/month (no contract). I think the service is perfect for most grad students because we’re under our university’s wireless all day. The downside is that you have to buy one of their Android phones up front. This is a great example of being frugal (and not cheap) because I’m paying very little for a plan that is just as good as or better than what I would get from the major carriers.

Grad Student Parents

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There are so many vital ways parents need to prepare for the arrival of a new child, yet money often rises to near the top of their concerns. Grad students have the additional wrinkle of not being considered full employees by their universities, and likely have never met with or even have access to a Human Resources department.

Take stock of your benefits

Some graduate students may have well-defined parental leave options, while others may have to negotiate their time away with their advisors or departments. You also need to match your insurance benefits with your desired care provider to anticipate your out-of-pocket expenses for the pregnancy, delivery, and initial medical care.

Save

Between your medical costs and buying supplies for your child, you are likely going to have significant out-of-pocket expenses. You can cash flow some expenses before the baby’s arrival, but you will also likely need to save up a fund to have flexibility close to the birth. Your new baby is certainly going to shift your priorities, which should be reflected in a new budget/spending plan to help you pile up money.

Further reading: What Do Newborn Babies Really Need?

Plan for childcare

If both parents are planning to resume working after the baby’s arrival, you will likely need to plan for childcare and the expense of childcare. There are many options for childcare, such as in-home care and daycare. You should investigate any local options that may be available to you for a subsidized rate, such as at or through your university.

One option for adjusting to the cost of daycare is to start living as if you were paying that expense as soon as you decide what price you will pay. This exercise will serve the dual function of helping your budget adjust to the new daycare expense and building up your savings.

Pursue Career Success

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Keep general savings to supplement your emergency fund for conference expenses (even if they will be reimbursed), research expenses, career counseling, travel, relocation costs for summer work, etc. If you are facing one of these opportunities without accessible funds, you will have the choice between not pursuing the opportunity and going into debt.

It’s reasonable to keep some amount of general savings on hand just for flexibility. However, the sooner you can anticipate the opportunity, the sooner you can set a savings goal to help you take it.

Travel

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Grad students, like other young people, often have a desire to travel, whether it is to visit far-flung family and friends, to experience new adventures, or to immerse themselves in other cultures. While some grad students have a great amount of time flexibility to travel if they want to, they usually don’t have a lot of money to spare for this purpose. Fortunately, there are many low-cost or even free ways for graduate students to indulge their wanderlust.

Further reading: How to Spend Less When Attending Out-of-Town Weddings; 33 Travel Tips For Seeing the World on a Budget; How to Travel on a Budget and Still Have the Time of Your Life

Plan Combined Trips

One of the least expensive ways to vacate is to add a side activity to an already planned trip.

Grad students should attend at least a few conferences while they pursue their degrees, and these trips are often partially or fully paid from research grants, departmental funds, or conference scholarships. You can ask your advisor for the flexibility to extend your trip to more fully experience the city or country that the conference is in; in this case, you would likely only have to pay for the additional lodging, food, and entertainment costs as the transit itself is already paid for. You can employ the same strategy for other research-related travel you might need to do, such as visiting collaborators or accessing remote resources.

Even if you are paying for a trip yourself, look for ways that you can get the best value out of your stay. You may not be able to choose your destination for obligation travel, such as to weddings, but you can make the most of the trip by planning extra activities in the city you are visiting or traveling to a nearby attraction.

Spend Less on Transit

Getting to and from your destination is sometimes the largest cost when booking travel, but flexibility can help you reduce the price quite a bit. Slower forms of transit are usually less expensive than faster ones, so if you can take extra time away from work or work remotely you may be able to reduce your overall trip cost enormously. Look for carpooling options when your destination is within driving distance to avoid paying for individual seats. You can consider discount companies such as Spirit Airlines and Frontier Airlines; just be sure you calibrate your expectations for the lack of amenities and unusual fee structure.

Transit is also usually cheaper off of peak times, so consider weekday, holiday, and overnight travel. When you book your travel also can affect the price you pay. Booking well in advance (but not too far!) usually gets you a better price, and Tuesdays or Wednesdays are often rumored to be the cheapest days to book flights. Companies like MegaBus offer heavily discounted fares for the first people to book when a trip is listed.

Further reading: Secrets to Booking Cheap Flights: 12 Dos and Don’ts; Cheapest Days to Fly and Best Time to Buy Airline Tickets

Spend Less on Lodging

Once you arrive at your destination, you will have to find somewhere to lay your head. Crashing with friends or family is a great option if they are willing to host you as it is generally free and you get quality time with enjoyable company. Couchsurfing with strangers is also a free option, often facilitated by hospitality websites, but comes with risk. If you have to pay for lodging, look to lower-cost alternatives like hostels, camping, and individual renters like AirBnB or VRBO. If you want to stay in a hotel, book early and shop around for the best price. Booking hotels judiciously may help you spend less money in other areas of your trip, such as food (complimentary breakfasts) and local transportation (airport and nearby shuttles).

Further reading: Ditch the Hotel: 10 Cheaper Ways to Stay; 14 Ways to Save Money on Hotels for Your Next Vacation

Play the Rewards Game

If you are a frequent traveler, especially one who is brand-loyal, there is no harm in signing up for the rewards programs associated with the airlines or hotel chains that you use. You can build up rewards over time and ultimately score a free flight or free night’s stay.

If you are a responsible credit card user and have good credit, you may consider using travel rewards credit cards. There are general cards that give travel benefits of many types and also branded cards available for specific airline networks or hotel chains. Using these types of credit cards for travel purchases and sometimes everyday purchases helps you accumulate points or miles that you can redeem for free flights or lodging. Maximizing your rewards while minimizing your costs can be very time-consuming and tricky, requiring a lot of research and careful planning, but it becomes like a hobby for many enthusiasts. The rewards potential is there, even for graduate students who are often low spenders, but recognize the downsides of the time investment necessary and the potential for messing up.