Personal Finance for PhDs

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Do I Have to Pay Income Tax?

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Think of the question this way: The IRS starts from the position that you have to pay income tax on every dollar you take in, and it’s up to you to prove to them that you don’t through your income tax return.

Think about all the sources of income that you may have:

  • stipend
  • fellowship/scholarship (including ones that pay your expenses like tuition)
  • TA or RA income
  • outside jobs
  • gifts
  • banking or investment income
  • loans

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Not all of these sources of income need to be reported (and therefore are not taxed). Gifts are not taxable to the recipient and are only taxable to the giver under certain circumstances. Loans are also not taxable income as you will be repaying them in the future.

Even once you add up all your reportable sources of income, you will not be taxed on that full amount because you will have a personal exemption and some deductions. You will figure out the portion of your income that is taxable and how much tax you need to pay through filling out your income tax return.

As a general principle, if you are using any of your income for living expenses, at least that amount of income will be reported and possibly taxed. If all of your income goes toward qualified expenses like tuition, you probably won’t end up paying tax, but you will need to do the math on the proper forms to be certain.

Further reading: Grad Student Tax Lie #1: You Don’t Have to Pay Income Tax

We at Grad Student Finances are not tax professionals, and none of the content in this section should be taken as advice for tax purposes.

 

Graduate Student Benefits

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Wellness

While not the case in every program, grad students often receive free or subsidized health insurance and gym memberships.

On-Campus Entertainment and Socializing

Your student ID will likely give you access to all kinds of subsidized or free on-campus entertainment and socializing, such as happy hours, parties, sports, concerts, theater, etc.

Discounts

At on-campus and off-campus retailers, as whether they offer a student discount, especially for big-ticket items like computers.

Fellowships

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Frequently, PhD students will be supported for one or more years of grad school by training grants or fellowships. Training grants are given to departments to support incoming students while they are engaged with taking classes and doing rotations before committing to an advisor. Fellowships may be given by the university or an outside funding source and typically carry some prestige as well as possibly a higher pay rate. Both fellowships and training grants are typically considered non-compensatory pay because there is “no work requirement.”

Further reading: Stop Making Excuses and Start Applying for Graduate Grants, Scholarships, and Fellowships

Finding Fellowships

Before you enter your program, you should talk with faculty members, administrators, and older students to learn what type of funding you have been offered for the first and subsequent years and what additional funding you might apply for. Fellowship applications are often due in the fall for funding beginning in the next school year, so you may need to start your applications soon after arriving on campus.

In addition to university-based fellowship opportunities, there are many national-level field-specific fellowships available to students at different stages of their degrees that are catalogued in fellowship databases.

What if I have more than one fellowship?

It is not uncommon for students to receive more than one fellowship that provide stipends. In those cases, the funding agencies typically coordinate a schedule that will allow the student to use only one fellowship at a time and spread the funding out over more of the student’s tenure in grad school. These qualified students may have fellowship funding from the start of grad school to the end.

If I win a fellowship, what does my department give me?

If you receive a fellowship that alleviates your university of providing your stipend, particularly if it is prestigious and for multiple years, ask your department if they provide a bonus or supplemental pay to students who win that fellowship. If you are receive the fellowship during your application process, find out which schools would offer a bonus or supplemental pay and consider letting your top choice know what your other offers are. This is possibly the only opportunity a grad student has to negotiate compensation.

What happens when my fellowship ends?

If you receive a fellowship that provides a stipend that is higher than the base stipend of your department, be cognizant that your stipend may decrease significantly when your fellowship ends. Be proactive in using your excess income for those years to beef up savings or pay down debt instead of inflating your lifestyle.

Finding Fellowships

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There are many opportunities for graduate students to win fellowship funding for their own stipends, tuition, and/or research expenses. The fellowships often provide a stipend that is higher than what the graduate programs normally pay, confer a degree of independence to the recipient, and boost the recipient’s CV with their prestige.

Fellowships Databases

ProFellow is a large, comprehensive, user-friendly database of fellowships that individuals can apply for that provide funding both for graduate student and for work opportunities. You can find fellowships to fund your graduate work by choosing either ‘Graduate study’ or ‘Doctoral study’ under the ‘Fellowship Type’ search field. After you create an account, you can keep track of fellowships of interest to you by bookmarking them.

These comprehensive databases of funding opportunities will also help you find fellowships and grants that you are eligible for:

Broad National Fellowships

The fellowships included below are popular among early-stage graduate students because they provide a large number of fellowships each year to students in a range of disciplines.

National Science Foundation

Graduate Research Fellowship Program

Award: $12,000 toward tuition and fees and a $32,000 stipend for three years

Fields: a variety of fields within chemistry, computer and information science and engineering, engineering, geosciences, life sciences, materials research, mathematical sciences, physics and astronomy, psychology, social sciences, STEM education and learning research

Eligible years: college seniors and first and second year graduate students

Deadline: October to November 2015 (field-dependent)

Further Reading: Preparing an Award-Winning NSF GRFP Application

Department of Defense

National Defense Science and Engineering Graduate Fellowship

Award: tuition, fees, and 12-month stipend of $30,500 in the first year, $31,000 in the second year, and $31,500 in the third year

Fields: Aeronautical and Astronautical Engineering; Biosciences; Chemical Engineering; Chemistry; Civil Engineering; Cognitive, Neural, and Behavioral Sciences; Computer and Computational Sciences; Electrical Engineering; Geosciences; Materials Science and Engineering; Mathematics; Mechanical Engineering; Naval Architecture and Ocean Engineering; Oceanography; Physics

Eligible years: college seniors and first and second year graduate students

Deadline: December 11, 2015

Fannie & John Hertz Foundation

Hertz Fellowship

Award: tuition and $32,000/year for five years

Fields: applied physical, biological and engineering sciences

Eligible years: college seniors and grad students

Deadline: October 31, 2015

Notes: Must agree to a moral commitment.

 

Do you know of another national fellowship for a variety of disciplines or a great funding database? Leave the name in the comments and we will add it to the list.

Types of Investments and Basic Principles

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Risk and Return

In general, in investing there is a correlation between risk and return. Over the long term, being willing to take more risk generally results in a higher overall return.

Further reading: Risk-Return Tradeoff

Asset classes

The three primary asset classes are stocks, bonds, and cash. Within stocks and bonds, there are a variety of sub-classes. Within the stock asset class, you can have US vs. international, large-cap vs. mid-cap vs. and small-cap, growth vs. income, etc. Within the bond asset class, you can have various time horizons, risk ratings, and organization types. There are also more minor asset classes (alternative investments), which include commodities, real estate, etc.

Further reading: Stocks – Part II: The Market Always Goes Up

Asset Allocation

Your asset allocation is the percentage of your investments that are in each asset class or sub-class. You can create an asset allocation that reflects your desired balance between risk and reward. A higher-risk, higher-reward asset allocation would be heavier toward stock investments, while a lower-risk, lower-reward asset allocation would be heavier toward bonds and cash. Your asset allocation will reflect your personal risk tolerance as well as your timeline on your investment. Traditionally, an individual with a consistent risk tolerance will move her retirement investments from more aggressive to more conservative investments as she draws closer to starting to withdraw the money.

Further reading: 9 Common Investment Mistakes and How to Avoid Them

Active vs. Passive Investing

Active investing usually involves a lot of activity, such as picking individual investments and trying to buy low and sell high. Passive investing, conversely, applies a buy and hold strategy in which the investments are held long-term. A subset of passive investing is index investing, in which the investor holds a representative sampling of a subset of investments, such as the S&P 500.

Further listening: Planet Money Episode 688 Brilliant vs. Boring; Passive Index Investing is Boring. And it’s Spectacular., Stocks – Part III: Most People Lose Money in the Market

Get Started Investing

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Getting started with investing is simple, though perhaps not easy. Many young people, graduate students included, are intimidated by investing. They may even be unaware that you can buy investments yourself; you don’t have to go through a broker or financial advisor.

 

1) Ask yourself if you are prepared to start investing.

Do you have a lump sum of money that you want to invest and/or do you have an ongoing savings rate that you would like to invest? Have you met your other financial priorities, such as saving an emergency fund? Are you emotionally steeled to stomach the volatility that is likely to come with a long-term investment?

2) Determine the timeline for your investment.

Are you investing for retirement, many decades away? Or are you investing for a mid-term goal? The timeline on your investment will influence how much risk you should take.

Further reading: How to Invest Differently for Short, Medium, and Long-Term Goals

3) Research the type(s) of investments that you want to buy and develop an (initial) investing philosophy.

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This is the most daunting step for someone who wants to start investing, but there is plenty of material available to help you do your research. While you should make a few determinations about your personal investing philosophy, you do not necessarily need a fully worked-out plan to start investing, especially if you keep it simple at the start. The important part is to get started, even if you don’t have the perfect, complete plan from the beginning.

Some questions to ask yourself are:

  • What is my risk tolerance?
  • Do I want active or passive management?
  • How important is fee minimization?
  • What are my ethical considerations for my investments?

Great resource: The Bogleheads

Further reading: How to Keep Investment Costs Low (and Returns High)

4) Choose the brokerage firm you want to invest through.

There are many brokerage firms to choose from online for the DIY investor and also many firms that will manage your investments for you through financial advisors. Your investing plan will help you decide which firm to use.

How much money you have to invest may influence your choice of firm. Most firms have some kind of minimum investment necessary to open an account, which may be a lump sum or a recurring transaction.

If you plan to buy mutual funds or ETFs, you must verify that the funds you want to buy are offered through the firm you are considering. Look at the expense ratios of the funds that you plan to buy to compare between firms. (Generally speaking, Vanguard is the industry leader in minimizing expense ratios.)

If you plan to buy single stocks, look at the firm’s trading fee structure (both on the buy and sell) to find the best price for your anticipated volume of trades.

Further reading: Where to Start Investing When You’re Broke; Stocks – Part X: What if Vanguard Gets Nuked?

5) Open your account and buy your investments.

Once you have decided on the brokerage firm you want to use and the investments you want to buy, open an account with the firm. You can choose to open an IRA (only if you have taxable compensation) or a taxable investment account. Once you have your banking information linked to your brokerage account, you can transfer money and buy your desired fund(s). Consider setting up an auto-draft of a regular savings amount from your checking account each month.

Further reading: Stocks – Part XV: Target Retirement Funds, the Simplest Path to Wealth of All, Stocks – Part XVI: Index Funds Are Really Just for Lazy People, Right?

6) Monitor and maintain.

While you don’t have to look at the balance every day, it is a good idea to periodically check up on your investments to make sure they are behaving as you expected (against the relevant benchmarks, etc.). If you are doing your own rebalancing, make sure you stick to your investment plan in terms of how often to check and execute the rebalancing.

7) Refine your philosophy.

As you learn more about investing and through the process of buying and monitoring your first set of investments, you will likely evolve your investing philosophy. Once you have the next iteration of your philosophy well thought-through, you should change your investments to reflect it. In the process, minimize turnover to the extent possible to avoid incurring new fees and taxes. And don’t halt your learning process! Your philosophy and certainly your implementation will probably change many times throughout your life.