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How Winning Fellowships Forced This Grad Student to Take Out Student Loans

January 6, 2020 by Lourdes Bobbio

In this episode, Emily interviews Dessie Clark, a doctoral candidate in Community Sustainability at Michigan State University. In 2018, Dessie received a few small fellowships for conference travel and a couple months of stipend income. In 2019, the financial aid office told her she had been “over-awarded” and had to pay the travel fellowship money back. Dessie took out student loans to pay that bill and then set up a payment plan with the IRS when she couldn’t pay the additional tax due on the fellowships. Dessie shares the steps she takes now when receiving fellowships so that she does not become over-awarded and how to prepare for tax time as a fellowship recipient.

Links Mentioned in This Episode

Teaser

00:00 Dessie: Outside of academia, people wouldn’t hesitate to ask questions about their paycheck, right? And so we need to kind of be thinking about it the same way. If something was different on your paycheck, you would ask why or what’s going on and how you need to deal with it. So just not being afraid to try and talk to people about what’s going on with you so you don’t get in a bind.

Introduction

00:22 Emily: Welcome to the Personal Finance for PhDs podcast, higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season five episode one and today my guest is Dessie Clark, a doctoral candidate and community sustainability at Michigan State University. In 2018, Dessie received several thousand dollars in fellowship income for travel awards and a couple months of stipend income. In 2019, she received a bill from the university for the amount of the travel awards. Apparently, she had become overawarded, a term that was totally new to me., Dessie he took out student loans to pay back the university, and to add insult to injury, faced a higher tax bill that season as well. Dessie relays what she had learned on how to avoid becoming over awarded and her advice for all graduate students receiving stipends. Without further ado, here’s my interview with Dessie Clark.

Will You Please Introduce Yourself Further?

01:19 Emily: I have joining me on the podcast today Dessie Clark, who is a graduate student and is going to be telling us about being awarded fellowships as a graduate student and some of the unexpected downsides that can come with being awarded fellowships, which is of course a wonderful thing, but in Dessie’s case they caused a few other complications. Dessie, thank you so much for joining us on the podcast today and will you please tell us a little bit about yourself?

01:45 Dessie: My name is Dessie Clark and I am a doctoral candidate in community sustainability at Michigan State University. I actually got my master’s degree at Vanderbilt University in community development and action. And then I moved to Michigan to finish out my PhD.

02:01 Emily: Great. And how long have you been at Michigan State?

02:04 Dessie: I have been at Michigan State for four years.

02:09 Emily: Okay. So I won’t ask you when you’re finishing, but I’ll just say soon, you’re finishing soon.

02:13 Dessie: Yeah, hopefully this year, maybe next year, maybe, you know, whenever.

Funding During the PhD:

02:16 Emily: Yeah. So can you tell us a bit how your funding has worked since you’ve been doing your PhD?

02:22 Dessie: I’ve mostly been funded as a research assistant, so that provides coverage for tuition and then a stipend to live on. There have been a couple of summers where I’ve taught as an instructor, but for the most part it’s been RAs. And then there have been some brief moments in time where fellowships have also come into play, which is what I wanted to talk about today.

02:43 Emily: Yeah. Please elaborate about that. When did you win fellowships and maybe what amounts were they, those kinds of details?

02:52 Dessie: I think one of the things that’s important is that I didn’t necessarily know that I was getting fellowships. How this came into play for me was I had friends that had gotten fellowships and they had talked about how they were unaware of the tax implications. So I knew when I was going to apply for fellowships or asked for them that there would be tax implications there. But for me, I was actually receiving fellowships in the form of travel awards. So there were multiple times where I applied to go to conferences, and when I was awarded that travel money, I wasn’t aware that they were fellowships. So I’ve won I guess, fellowships of several thousand dollars for travel. Then there was a brief time where, I needed to change labs and so fellowships were used to fund me in my transition.

03:40 Emily: Okay. So definitely for the travel awards, we’re only talking about thousand, few thousand dollars here and there. Seemingly a relatively small amount of money, right? And then when you were switching labs, was it a semester’s worth of funding or how long was that?

03:54 Dessie: It was still relatively small. It was a couple of thousand dollars, but all of these fellowships awards actually happened in the same semester, so by the end it ended up being like $7,000 or $8,000.

04:07 Emily: Oh, okay. When they hit all at once, it really does add up in that case. Okay. So yeah, you didn’t really know that that was what you were receiving. So what happened? You get this money and it’s all good, right?

04:19 Dessie: Right. So I get this money and I’m really excited, I can afford to go to these conferences, I’m able to switch labs. But one of the things that I didn’t know is that they were fellowships, so I was kind of surprised two-fold. The first thing that happened that let me know that something wasn’t going quite right was that — this was in the fall of 2018 — so when I was going to start school in spring 2019, I got a bill from the university that said, “you owe us money, you’ve been over awarded.” I had no idea what that meant, but what I understand now is that every student has a cap on what they’re allowed to receive for education-related expenses. They had decided that this amount of money that I had received for travel had thrown me over that, so I needed to pay back university. That was kind of the first thing I noticed.

Fellowship Cap and Being Over-awarded

05:05 Emily: Let me pause there, because this term over awarded is new to me as well. What are you paying back to the university?

05:16 Dessie: What they were charging me ended up being the sum total of those travel award costs. There’s something that you can do to kind of help with this. Like I said, every student has a cap for how much money they’re allowed to receive, but one of the things that your department can do is they can write a letter saying, “This travel money is necessary for this person’s education. This is advancing their education or contributing in some way and this money is going towards that. It’s nothing extra. It’s not something we can go shopping on. This is money for the students’ education.” I didn’t know that that was something that could be done or needed to be done, so it wasn’t done in my case. I got this bill and it happened to be for the exact amount that I had received for travel awards. I found out through talking to financial aid that basically those things have been passed through as fellowships and because of how they were categorized, I got more money from the university than I was allowed to and so I needed to pay it back.

06:12 Emily: So it sounds like your stipend had been paid by your RA position and this supplemental fellowship, but those were kind of evening out to be what you’re allowed to be paid. And then these travel awards were over and above that and they were like, you’re not allowed to receive this money. This is literally the first time I’ve heard of this. I don’t know if maybe this is unique to your university or your department or maybe in all these cases, other people write these letters, their advisors write these letters that you’re talking about. I’m not sure how that works out, but this is really the first time I’m hearing about this, so it’s definitely raising like some major red flags for me.

06:46 Dessie: Yes. So from my understanding, and this is just what I’ve been told, this kind of cap exists for every student that is at a university, but I don’t know if it’s just how my university chose to handle it, or if this is happening a lot more than people know about, but basically what happened was I was over whatever that cap is. So it became a huge issue because now I’m sitting here before I can start school being told that I was thousands of dollars.

07:15 Emily: Right, exactly. So what did you do?

07:19 Dessie: What I did was what I didn’t want to do, I took out student loans and they subtract it from that.

07:24 Emily: So you took out student loans to pay the university for money that you had won that you used go to conferences. This Is bananas. This situation makes no sense. I’m really glad that you volunteered to come on the podcast to talk about this because the situation I’ve heard in the past for other students is that maybe they have a fellowship coming from the university or maybe they have an RA position or TA, something like that. Then they win a fellowship that’ll pay like their stipend. And a lot of students think, “I am in the money now.” They think getting that fellowship on top of the existing funding for their RA position or whatever it was. That is almost universally not the case. It is possible that you may end up being paid more than you were going to in the first place, but it’s not going to be double what your stipend was to begin with. And so there’s plenty of people who are caught by surprise by “what I just won funding, what do you mean you just take away my other funding?” No, that’s definitely how that works everywhere. There may be some room for negotiation and so forth, but that’s how the standard situation works. But I’m really glad to hear about your situation as well. So you know, now that you have been through the whole thing, what could have been done on your behalf and wasn’t. I don’t know. This is something that I’ve never heard of, of a student having a proactively ask for, so of course you wouldn’t have known, but I guess in the future, anyone listening who receives extra fellowships in some manner, make sure that you’re not going to run into any kind of cap, or whatever exceptions need to be made are going to be made on your behalf. Is that your advice?

Proactive Steps to Avoid Getting Over-awarded

08:54 Dessie: Yes, that is definitely my advice. I think something else too that really ties into this, that I experienced, is I got another fellowship for travel in spring and of course this time I was like, “hi, can you please write this letter and send it to financial aid? “And they were able to do that. But I came upon a situation this summer where there was something the university was going to pay for and they weren’t able to pay for it the way that they want it to. I had gone to my college and I said, I need help figuring out how this thing is going to get paid for, but it can’t be a fellowship because I’m scared I’m going to get over awarded again and I’m going to owe it. My college was really great at hearing that concern and trying to work with me on it, but what ended up happening in the meantime is that the graduate school at my university granted it as a fellowship anyway. One of the things that I think is a kind of a broader issue is that when we’re getting loans or we’re getting grants, we have to accept them and there’s usually some paperwork that we have to go through promising whatever and making sure we fully understand the impacts, but I was awarded a fellowship without my permission basically. I think that the school has figured it out, so that way I won’t be over awarded and this won’t impact me, but I also think that’s why I said at the beginning, it’s really important to know how things are being classified and categorized on your behalf because maybe something is a fix, but then all of a sudden six months down the road you’re being asked to pay it back. I think keeping an eye on that is really important.

10:15 Emily: Yeah. I mean, it sounds like you were taking the proactive steps the second time around that you knew to take, and yet, as you just said, they can just push these things through into your student account and there’s no process around it. It’s totally on their end and they have control over it. But I guess, did it just end up being that they just took it back like, “Oh, we gave it to you, now we’re going to take it back and award you the money in some other way?”

10:40 Dessie: They ended up just doing what I was talking about before and doing the right amount of paperwork to explain why this is an educational expense and all of that. I think it was handled because they knew that there were some extra steps that needed to be taken. But I think another thing too is you asked me how I found out about all this. Like so many other students at tax time, it really became a “you owe this money.” I think too, it’s easy for us to just think like, well this was only, you know, $1,000 here or $1,000 there. But it really adds up. And for most graduate students, we’re not in a super comfortable financial place. So even a surprise tax of a couple of hundred dollars can really set you back.

11:20 Emily: Yeah, and sometimes I think it’s easy to forget the academic year and the calendar year don’t line up, right? So you could be receiving fellowships maybe in two different academic years, but if they fall in the same calendar year, then it’s all going to add up at that year-end tax return.

Commercial

11:40 Emily: Emily here for a brief interlude. Tax season is upon us and while no one loves this time of year, it’s particularly difficult for post-bac fellows, funded grad students, and postdoc fellows. Even professional tax preparers are often thrown for a loop by our unique tax situation. And don’t get me started on tax software. I provide tons of support at this time of year for PhD trainees preparing their tax returns. From free articles and videos, to paid at-your-own-pace workshops, to live seminars and webinars for universities and research institutes. The best place to go to check out all of this material is pfforphds.com/tax that’s P F F O R P H D dot com slash T A X. Don’t struggle through tax season on your own. Visit my website for the exact information you need in the most efficient form available. Now back to the interview.

Tax Consequences of Being Over-awarded

12:44 Emily: Okay, not only did you, you know — Hey, you received award funding. Awesome. Got that. Oh no, you have to pay it back to the school. Ridiculous. You have to take out student loans, do that. So essentially, with some middlemen, you were just taking out student loans to go to conferences, which is probably not a decision, it sounds like, you would have made, had you known that was going to be outcome. On top of that, travel and research is not a qualified education expense for making fellowships tax free. So you end up with this tax bill on top of all the other stuff that’s happening. How did that play out?

13:19 Dessie: I think one of the things that I knew when I was changing labs is that I knew that a portion of that fellowship money, I knew it was untaxed* and I was gonna need it. So I was able to put that aside. What surprised me is when I sat down with my accountant and she put two and two together, that all these other things had been categorized as fellowships, the amount I had set aside to pay taxes on was not nearly the amount of money that I needed. That was obviously a huge strain. I’m lucky enough that I have a partner who works, but we did end up having to go on a payment plan to the IRS because I just couldn’t afford to come out of pocket the amount that I owed.

[* By ‘untaxed,’ Dessie is referring to the fact that income tax was not withheld for her on this portion of her income, not necessarily that it is tax-free.]

13:57 Emily: At the point when you were working with your tax preparer, at what point in tax season was that? Were you getting ready to file and you found out that, “Oh wait, I’m going to owe more than I had set aside?”

14:08 Dessie: It was right at the end. There was no fixing it. I getting ready to file taxes and she’s like, this is not looking good, and it was what it was at that point.

14:18 Emily: Not all the listeners may know, but some people might hear, maybe from their parents or something, about filing extensions. So they get another, I don’t know, six months or something to file your tax return. You do not get an extension on actually the tax that you owe. You only get the extension on the return. So if you’re finding out in March or April that you owe a tax bill and you’re not prepared to pay it, as you said, graduate students typically live without much margin in their lives. If you find that you owe a tax but you’re not prepared to pay it, really probably the best thing to do is what you did, which is to go on a payment plan with the IRS. A lot of people would say, “Oh my gosh, the IRS, I’m so afraid I don’t want to talk to them. I don’t want to deal with them,” but actually that’s the worst step you can take, is not to talk to them. Did the payment plan work out okay? Did it end up being all right that you could pay a little bit over time?

15:06 Dessie: I’m still on it to this day. I owed a chunk and there’s only so much I could put towards it per month. So yeah, it has worked out. I’m making my payments so I haven’t gotten in trouble with the IRS, but it isn’t a new bill now every month that I have to pay. I think too, just thinking about this calendar year and the implications for next tax season, I think now I’m just very closely watching anything financially that comes through the school just to make sure I don’t get into this situation again. I know now there are ways that your department or your college can help you, and making sure that these expenses are processed the way they should be as true education expenses and not as extra in your life. And just keeping an eye on that. I think especially as I get into the fall, I will definitely be following up with my administrators and saying, “Hey, just want to make sure I see this here. Was there something that went with this to make sure that I’m not getting a bill for being over-awarded again, or I’m not having any more tax implications than I already know I will have.”

Saving Money for Taxes When Your Fellowships Do Not Have Tax Withheld

16:08 Emily: Right. At this point, now that you’re so aware and you’re so proactive about everything, are you filing quarterly estimated tax or does your additional tax due not rise to that level of necessity?

16:22 Dessie: It doesn’t rise to that level, but I am always putting stuff aside. Even when there are things that should be categorized in a way that I won’t have to worry about that, I’m still always just taking a certain percentage and putting it aside, because I think in my situation, the worst case scenario is to have what happened this year and be totally surprised and unprepared, because that’s exactly what happened.

16:42 Emily: Can you tell the listeners a little bit about your system for setting money aside? Because maybe they want to know, mechanically, how you do that.

16:48 Dessie: Yeah. I am not an accountant so I don’t have this down to any kind of science. It’s just kind of what I’ve found has worked for me. So anytime that I get any kind of award through the school, whether it be for travel or whatever else, it could be research money, I always take about 30% of that and I put it in a savings account. And that seems to be kind of a pretty safe estimate of you definitely won’t need to pay more than that, and so I think that’s been my system now. Even when I make requests for money, I always keep that in mind, because I think something that I’ve watched other students go through is they ask for exactly what they need, forgetting about that tax buffer. And so you might end up short or paying back necessary money later.

17:33 Emily: Yeah, good idea. I do think 30% is a very good margin, probably more than you’ll need, but better to be on the safe side than on the sorry side, as you definitely found out. Do you have like a separate savings account that you use for that or something?

17:46 Dessie: Yes, I have a savings account that I just don’t touch. I kind of joke with my partner, that it’s like the savings account that you don’t use as a savings account. There is no level of emergency that could make me touch that money. I pretend it’s not there because for all intents and purposes, it’s not mine. It’s the government’s, and I don’t want to end up in a situation. I mean it’s August, right? And I’m still on a payment plan for this past year’s taxes. I don’t want to have to do that again.

18:12 Emily: Yeah, I do the exact same thing. When I was in graduate school, some years…Well, I guess it wasn’t in graduate school, but it was when I did my postbac, taxes weren’t being withheld. I had to pay quarterly estimated tax at that time. I started doing the exact same thing. I set up a separate savings account, I have it nicknamed tax, put money in there as I get money to come in, withdraw from it as I was paying quarterly estimated tax. But I wanted to say that I do the exact same thing as you, which is that I don’t think about that tax savings account as being my money. Right now, when I’m self employed, I also have the responsibility of paying quarterly estimated tax. And so I actually calculate my, or our family’s net worth every month, on the first of the month, and so I calculate two numbers, which is one my technical net worth, which includes the tax money in it, and then what I label as my true net worth, which subtracts that tax savings account balance out. And I say, “Nope, I don’t even think of it as being mine right now because, as you said, I know I just have to hand it over to the IRS in a few months.” I don’t want to think of it as accessible at all, in the meantime. So yeah, thanks for sharing about that.

Final Words of Advice

19:16 Emily: Is there any other final advice around the situation that you would want to tell someone else so they don’t get into the same kind of problems that you did?

19:24 Dessie: Yeah, just kind of recapping what I said. So I think, of course, the conversation that fellowships are untaxed* is just a broader conversation we need to be having in general because I don’t think a lot of people know that. But again, just monitoring how things are being processed for you and if they’re technically being categorized as a fellowship. Then, I think that for the most part students are pretty safe. I don’t want to create mass panic as far as this cap goes. If you’re just talking about you just have an RA or you know, just the little student loans or you just have a TA. I think where you start to get near this cap is when you’re doing a lot of research awards and travel awards and teaching where it’s on top of what you’re already getting. I think for students that might have multiple things going on, like I clearly had, making sure you’re having a conversation and knowing where that line is so that way you don’t cross it because the way that they balance their books is you’re not going to know until you’re far down the road and the money is already spent. It’s going to be the next semester. So just keeping an eye on that and honestly just reaching out and asking your financial aid office and saying “I know that there’s a certain amount of aid that we’re allowed to get. What is my number?” So you can kind of monitor it yourself because I really think that for most people, you’re better off saying, “No, I’m not going to take that award this semester. No, I’m not going to get this or do this now” and waiting, so you don’t cross that line and end up having the money need to be paid back.

[* By ‘untaxed,’ Dessie is referring to the fact that income tax was not withheld for her on this portion of her income, not necessarily that it is tax-free.]

20:44 Emily: Yeah. Or just be aware, as you were saying earlier, that these letters or whatever can be written so that the money goes on top. So it sounds like, at least your university, your department, it wouldn’t be like, oh, your advisor just wants to pay you more or someone wants to just like give you a fellowship. You’re going to run into problems with that. It has to be something that’s justifiable under their system for raising their cap on an exception basis to allow that award to go through.

21:10 Dessie: Right, and I think too, just noting that the people that work in financial aid may not be as familiar with why research money or why conference money is an educational expense. So things that you might see and go through and you think, “Oh yeah, that’s totally an expense for my education. Anyone would see that?” No, you might have to justify it and they might need, you know, justification from your department on why this is important for your education.

21:32 Emily: Yeah. And I will just add that financial aid professionals and so forth, they’re not going to touch this tax issue with you. They’re going tell you to go away if you try to ask them tax questions. But in the area of how much you’re supposed to be awarded and what the education expenses are, they are the experts in that area. So you can definitely go to them with those kinds of questions. Just don’t ask them, “what’s my tax bill going to be?” They’re not going to answer that. But, yeah, among that subject matter, they are the best people to go to, I think. It sounds like you’ve developed a little bit of a working relationship with those people.

22:04 Emily: Dessie, thank you so much for giving this interview and sharing the story. I think it’s really unfortunate how it worked out and also just that you were saying that you didn’t catch all of this until the following calendar year or the following semester, naturally. That’s how these things work. Of course you wouldn’t, but because it happened so late, it sounds like the proper paperwork couldn’t have been pushed through in the past. I just want to ask the concluding question that I ask of all my guests, which is what is your best financial advice for another graduate student or early career PhD?

22:34 Dessie: I think asking questions. I think that early and often you should ask questions about the money that you’re getting, where it’s coming from, how it’s classified, and just always not being afraid to shoot financial aid and message and say “Hey, this has come through. Is there anything I need to do with this?” Because I think everyone, us included, but also the financial aid folks would rather be proactive about dealing with a problem rather than getting the early spring email, which was “what is happening, I can’t pay you a couple of thousand dollars.” I think just always asking questions and not being scared to ask about how these things impact you. Outside of academia, people wouldn’t hesitate to ask questions about their paycheck, right? And so we need to kind of be thinking about the same way. If something was different on your paycheck, you would ask why or what’s going on and how you need to deal with it. So just not being afraid to try and talk to people about what’s going on with you so you don’t get in a bind.

23:28 Emily: Yeah, absolutely. And like you said earlier, you don’t have to accept a fellowship. It can just be pushed through. And likewise for some other people, they might not even really be aware of how they’re being paid. They’re just kind of receiving a paycheck and they don’t really know is it from an assistantship. I mean they would know if they were teaching your class, right? They know if it says teaching assistantship, but is it a fellowship, is it an RA, I don’t know. The roles, like what you actually do for each of those things, are pretty much the same. So you might not even be aware until you get a W2 at tax time or don’t get a W2 at tax time, what happened in the previous year. Then, if any adjustments need to have made, then it’s too late, right? Then the tax year has already ended. So totally want to underline that advice — know why you’re being paid, know what kind of tax forms you’re going to receive.

24:10 Emily: I just want to add in a final note for the listeners, if there’s anyone listening who is receiving a fellowship, even a small award, like what Dessie’s been talking about during this interview, you should look into whether or not you need to file quarterly estimated tax. I’m going to link in the show notes my massive article on quarterly estimated tax. And I also have a workshop on that that’s linked from that article. So I’ll link to both those things in the show notes. Please note that the deadlines for quarterly estimate tax are in mid April, mid June, mid September and mid January of every year, usually the 15th of the month or the business day following. So keep those deadlines in mind. If you are receiving a fellowship, you might not have to pay quarterly, but at least you need to investigate and figure out whether or not it’s your responsibility, or whether like what Dessie’s doing, you can just set the money aside and leave it until the end of the year and pay it all at once with your annual tax return.

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25:01 Emily: Thank you again Dessie for coming on and giving this interview and giving this word of warning to all the other graduate students listening.

25:08 Dessie: Thank you for having me.

Outtro

25:10 Emily: Listeners, thank you for joining me for this episode. PFforPphDs.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple podcast, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media or with your PhD peers. Three, recommend me as a speaker to your university or association. My seminars covered the personal finance topics PhDs are most interested in, like investing, debt repayment, and taxes. Four, subscribe to my mailing list at PFforPhDs.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode, and remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is Stages of Awakening by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing and show notes creation by Lourdes Bobbio.

Fellowship Income Is Now Eligible to Be Contributed to an IRA!

December 30, 2019 by Emily

In this episode, Emily explains the new legislation that allows non-W-2 fellowship income to be contributed to an Individual Retirement Arrangement (IRA). Up until 2019, fellowship or training grant income (reported on a Form 1098-T or Form 1099-MISC or not reported at all) was not eligible to be contributed to an IRA. Certain legislation, the Graduate Student Savings Act (GSSA), which fixes this problem, has been proposed a few times since 2016, but never passed. However, at the end of the 2019 Congressional session, the text of the GSSA was passed and signed into law as part of an omnibus spending bill (H.R. 1865). PhD trainees who are newly eligible to contribute to an IRA should consider their overall financial status and goals to determine whether to contribute and in what amount.

Links Mentioned in this Episode

IRS Publication 590A (p. 6, old definition of taxable compensation)
The Graduate Student Savings Act Fixes a Major Flaw in Tax-Advantaged Retirement Accounts
House Resolution 1865
IRS Publication 970 (p. 5, definition of fellowship)
Everything You Need to Know about Roth IRAs in Graduate School
One-on-One Financial Coaching
The Wealthy PhD

Intro

Welcome to the Personal Finance for PhDs podcast: a higher education in personal finance. I’m your host, Dr. Emily Roberts.

This is Season 4 Bonus Episode 1, and in this episode I will update you on recent legislation that has a major positive impact on the PhD trainee population.

Specifically, starting on January 1st, 2020, the definition of “taxable compensation” for the purpose of contributing to an individual retirement arrangement or IRA was updated to include taxable fellowship income not reported on a W-2.

That’s the takeaway point for those of you already in the know about this issue: Your taxable non-W-2 fellowship income is now eligible to be contributed to an IRA. You can open a Roth or traditional IRA on January 1 or following and put in the $6,000 maximum contribution if you like, assuming your taxable fellowship income is at least $6,000 in 2020. If that’s all you need to know, feel free to stop this episode now, but please share it with your peers as you go.

In the rest of this episode, I will review the prior definition of taxable compensation and how it negatively impacted the PhD trainee community and then explain the recent legislation that changed the definition for 2020 and forward. At the end of the episode, I’ll point you to a few resources to help you in your investing journey.

1 The Prior Definition of Taxable Compensation

The federal government offers a few different tax incentives to encourage individuals to invest for their retirement.

When you invest money inside a tax-advantaged retirement account, you don’t have to pay tax on the growth in your investments as you would for a regular taxable investment account and you also can take a tax break on either the amount of money you contribute to the account or the amount of money you withdraw from the account in your retirement.

Most of the tax incentives are offered through workplace-based retirement accounts, such as a 401(k) in the private sector or a 403(b) in the nonprofit sector. However, there is one type of account that can be opened outside of your workplace, and that is the Individual Retirement Arrangement or IRA.

You as an individual can go to just about any brokerage firm and open an IRA, and it’s not at all connected to where you work. The contribution limit for an IRA is $6,000 per year if you’re under age 50.

The restriction the federal government places on IRAs is that you have to have what’s called “taxable compensation” in a given calendar year to contribute to an IRA. Your overall income also has to fall under certain limits to contribute.

The old definition of taxable compensation was as follows. Think of a two-column list. The left-hand column is types of income that are considered taxable compensation, and the right-hand column is types of income that are not considered taxable compensation. I’m not giving you the exhaustive lists, but just an idea.

In the left-hand list, taxable compensation, you had:

W-2 income, such as you would receive from being an employee,
Self-employment income,
Alimony,
Etc.

In the right-hand list, not taxable compensation, you had:

Rental income,
Interest and dividend income,
Pension or annuity income,
Taxable scholarship and fellowship income not reported on a W-2,
Etc.

This was specified in the tax code. So if your fellowship or training grant income was reported on any kind of tax form other than a W-2, such as a 1098-T or 1099-MISC, or not reported at all, it was not considered taxable compensation for the purposes of contributing to an IRA.

That means that if you went an entire calendar year with only non-W-2 fellowship income, you would not have been able to contribute to an IRA in that calendar year.

This was really tough news for a lot of people in our PhD community. The irony was that students and postdocs who won outside fellowships often received a higher income than their employee peers, so they perhaps had more money available to invest, but they were barred from using an IRA to do so.

Now, there were a couple workarounds. Keep in mind that the contribution limit to an IRA is $6,000 or the amount of your taxable compensation, whichever is lower.

First, the calendar year and the academic year do not line up. So if your funding source switched between W-2 and non-W-2 between academic years, you would still have at least a degree of IRA eligibility in that calendar year.

Second, if you were married and your spouse had taxable compensation, you could contribute to a spousal IRA, up to their amount of taxable compensation or the overall $12,000 per year limit for two IRAs, whichever was lower.

Third, if you had a side hustle, that self-employment or W-2 income would give you some eligibility.

As a last resort, if you truly didn’t have access to an IRA in a calendar year, you still had the option to invest for retirement in a regular taxable investment account. If you chose a tax-efficient investing strategy, such as passive index investing, you probably would not have much of an additional tax burden due to the favorable tax rates for long-term capital gains and qualified dividends. However, this tax advantage was not widely recognized.

The effect of this law was that many PhD students and postdocs who had the financial means to invest for retirement were prevented from contributing to IRAs, and they likely didn’t try to invest instead in a taxable account. The law sent the message that PhD trainees were not supposed to be investing for retirement and were not worthy of being extended the same tax break that employees were. This had an overall dampening effect on the financial ambition of PhD trainees, which in my opinion was a very serious problem.

2 The Legislation That Changed the Definition

All that has changed now. In essence, the new legislation moved taxable scholarship and fellowship income not reported on a W-2 from the right-hand column to the left, from being explicitly excluded from the definition of taxable compensation to being explicitly included in the definition for graduate students and postdocs.

The origin of this legislation was the bipartisan Graduate Student Savings Act or GSSA, first introduced in 2016 in the Senate by Senators Elizabeth Warren and Mike Lee and in the House by Congressmen Joe Kennedy and Luke Messer; however, it was not passed at that time. The GSSA was re-introduced in 2017 and 2019 and eventually included in the bipartisan SECURE Act in 2019, none of which passed.

You can learn more about the GSSA in Season 4 Episode 9 of this podcast, in which I interview Abby Dove, a graduate student who as a science policy fellow worked on getting a scientific advocacy group to endorse the GSSA.

Ultimately, in the closing days of the 2019 session, the text of the GSSA was included in an omnibus spending bill along with the rest of the SECURE Act, passed by both chambers of Congress, and signed into law by the president.

I’ll read to you exactly the change that was made in House Resolution 1865, and I’ll link it from the show notes.

“SEC. 106. CERTAIN TAXABLE NON-TUITION FELLOWSHIP AND STIPEND PAYMENTS TREATED AS COMPENSATION FOR IRA PURPOSES.

(a) In General.—Paragraph (1) of section 219(f) of the Internal Revenue Code of 1986 is amended by adding at the end the following: “The term ‘compensation’ shall include any amount which is included in the individual’s gross income and paid to the individual to aid the individual in the pursuit of graduate or postdoctoral study.”

(b) Effective Date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2019.”

There you have it! The definition of “taxable compensation” for the purposes of contributing to an IRA now includes taxable fellowship income for graduate students and postdocs. However, by my reading, it seems that taxable post-baccalaureate fellowships have not been included in the definition.

That language of “aid the individual in the pursuit of graduate or postdoctoral study” reflects the definition of a fellowship from IRS Publication 970, which reads quote “A fellowship grant is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research” end quote.

3 What to Do Now

This change is really good news for the PhD trainee community overall, but it may or may not materially change anything for you. If you now have access to an IRA in 2020 when you otherwise would not have, what should you do? I imagine that PhD trainees fall into one of three groups.

First, some PhD trainees should not be investing for retirement right now, so having access to an IRA doesn’t really matter. This is the case if you don’t have the available cash flow to invest or have other, higher-priority financial goals, such as paying off high-interest debt or saving up cash.

Second, some PhD trainees are ready and able to invest but don’t have pre-existing savings or investments. Maybe they have recently finished paying off certain types of debt or saving up sufficient cash, and they now have cash flow available for investing. This is the group that can open up an IRA and set up a regular savings rate into it; this is called dollar cost averaging. With a $6,000 per year limit, your regular monthly contribution to the IRA can be up to $500, which would be a great savings rate for a graduate student or postdoc.

Third, some PhD trainees have already been saving or investing outside of an IRA and are eager to contribute a lump sum of money to an IRA. You are permitted to contribute the full $6,000 in one go if that’s your preference. Then, throughout the year, you can direct your ongoing savings rate to a taxable investment account or other financial goals.

One question I’ve already received a few times is whether fellowship recipients will be able to contribute to a 2019 IRA. In general, you are allowed to contribute to your prior year’s IRA up until tax day of the subsequent year, and this is a strategy I recommend to anyone who has not yet maxed out their IRA for the prior year. However, since the text of the bill says the change will go into effect after December 31, 2019, my reading is that the old definition of taxable compensation will apply to 2019 IRAs and the new definition will apply to 2020 IRAs.

If you’re not sure what your unique next steps should be or if what I spoke about today even applies to you, I am available to coach you. I can’t recommend specific funds, but we can work together to determine your next financial goal, increase your savings rate, and figure out which high-level investing strategy is most appropriate for you.

You can set up one-on-one coaching with me by going to PFforPhDs.com/coaching. Another excellent option is to participate in my upcoming program, The Wealthy PhD, through which you will receive course content, individual and group coaching, and community with your peers. You can find more information about The Wealthy PhD at PFforPhDs.com/wealthyPhD.

I would be absolutely delighted to shepherd fellowship recipients who have never before invested through the process.

As for additional resources, I have many, many articles on investing on my website, and I have linked several updated ones from the show notes. You can find the show notes for this episode at PFforPhDs.com/s4be1 for season 4, bonus episode 1.

For international students and postdocs, I would also recommend listening to Season 4 Episode 17 of this podcast, which answers the question of whether it is permissible and advisable for international students, postdocs, and workers to invest while living in the US. Keep in mind that I recorded this episode prior to the definition of taxable compensation changing.

Finally, if you need to take a big step back because you were surprised to hear that your fellowship and potentially scholarship income is taxable, I recommend listening to Season 2 Bonus Episode 1 of this podcast, titled Do I Owe Income Tax on My Fellowship?

Thank you for joining me for this special bonus episode. Please spread the good news about IRA eligibility to your peers also receiving fellowship or training grant income by sharing this episode with them!

Outtro

Listeners, thank you for joining me for this episode.

PFforPhDs.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved.

If you’ve been enjoying the podcast, here are four ways you can help it grow:

One, subscribe to the podcast and rate and review it on Apple podcast, Stitcher, or whatever platform you use.

Two, share an episode you found particularly valuable on social media or with your PhD peers.

Three, recommend me as a speaker to your university or association. My seminars covered the personal finance topics PhDs are most interested in, like investing, debt repayment, and taxes.

Four, subscribe to my mailing list at PFforPhDs.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs.

See you in the next episode, and remember, you don’t have to have a PhD to succeed with personal finance—but it helps.

The music is Stages of Awakening by Podington Bear from the Free Music Archive and is shared under CC by NC.

How Effective Presentations Advance Your Career and Improve Your Finances

December 23, 2019 by Lourdes Bobbio

In this episode, Emily interviews Dr. Echo Rivera, a PhD in community psychology and founder of Creative Research Communications. Echo is an expert in effective presentation, and she teaches these skills to other academics and researchers. Emily and Echo discuss the various ways effective presenting can improve an early-career PhD’s finances, such as through career advancement and networking in person and online. Effective presentation design can even help you feel more confident and move past a fear of public speaking, as it did for Echo.

Links Mentioned in This Episode

Teaser

00:00 Echo: Try to invest in yourself as soon as you can. Especially for something like effective communication skills, effective presentation skills, the earlier you can get in on some type of professional development, it’s going to pay off more in the long run.

Introduction

00:21 Emily: Welcome to the Personal Finance for PhDs podcast, a higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season 4, episode 19 and today my guest is Dr. Echo Rivera, a PhD in community psychology and expert in effective presentation design. During graduate school, Echo began teaching herself effective presentation design to help her move past her own anxiety around public speaking. Through her business, Creative Research Communications, she teaches academics and researchers how to present effectively. We discuss the various ways effective presenting can improve your career prospects and financial bottom line. Without further ado, here’s my interview with Dr. Echo Rivera.

Will You Please Introduce Yourself Further?

01:05 Emily: Joining me on the podcast today is Dr. Echo Rivera, and I’m so pleased to have Echo on. We’ve been in each other’s circles for a number of years now, but this is actually the first time that we’re talking together live. I’m really excited to have a conversation with her about what she does and how it can improve early career PhDEs finances. So Echo, thank you so much for coming on the podcast.

01:26 Echo: Thank you so much for having me. I’m really excited to be here.

01:29 Emily: Awesome. So please tell us a little bit more about yourself.

01:33 Echo: Yeah, so just real briefly, I have a PhD in community psychology from Michigan State University and immediately after finishing my PhD, I got a job as a research associate at a nonprofit research and evaluation center and that’s in Denver, Colorado. I worked there for three years and then quit so that I could pursue my own business full time. That’s called Creative Research Communications and I’ve been doing that for about one and a half years. That’s the nutshell.

02:09 Emily: So one and a half years full time, but you started this sometime before you left your job?

02:14 Echo: Yeah, it was the side hustle. Something I worked on on the weekends or when I got home after work.

02:20 Emily: Yeah, we talk plenty about side hustling on this podcast. Echo and I met through the self employed PhD community originally, which now is part of Beyond the Professoriate run by Jen Polk and Maren Wood. If any of you are self employed in your side hustle or your full time thing, or interested in that, that’s a great community to join to have more conversations with me and people like Echo and others who are pursuing the same kind of thing, so definitely want to plug that.

More About Creative Research Communications

02:48 Emily: All right. So awesome. You’re now self-employed. Tell us a little bit more about what your business is, like what do you actually do?

02:56 Echo: Yeah, so I help academics and researchers and scientists and basically people in this higher education world, I help them communicate their work more effectively and creatively. So that’s mostly through slide presentations, like PowerPoint, Keynote, Google Slides, stuff like that, because it’s just a great place to start for a lot of people, but it also includes things like comics and infographics and visual abstracts and just things that are beyond a standard conference presentation or publication. Today I’ll be focusing on presentations, but a lot of it’s about creativity.

03:36 Emily: Gotcha. What inspired you to go into this line of work?

03:40 Echo: In undergrad I was really torn between going into graphic design for my major or psychology for my major. I had already transferred universities and it was already going to take me five years to get my bachelor’s degree and it would have taken even longer if I switched my major to graphic design. So I basically just went with psychology and I enjoyed research. My degree is in research, not clinical psychology, so I just kind of went with it. But I never really left that graphic design world. I took classes, I learned on my own, and in grad school, I just kind of started merging those together, using graphic design for things like participant recruitment flyers and toolkits, presentations, obviously. I did comics for a blog. It just kind of always was merged for me, and I really loved it, so I made it my business.

04:37 Emily: Yeah. Well, it is kind of a leap from applying your talents and doing something for your own work, to teaching others how to do it or doing it for other people. Now which one do you do or is it both?

04:49 Echo: It’s both. I do design presentation slides or comics or things like that for others. I also train people to do it and I have sort of different options, like an online course or one-on-one sort of more mentoring style. I try to help everybody where they’re at, and what their available time and resources look like. So I offer that that wide range.

05:13 Emily: Gotcha. Very, very exciting. I had another interview recently in season three with Dr. Gaius Augustus who told a similar story, I’m sure you know Gaius, of how he also was an artist and a scientist and over time has found a way to combine both of those two passions. So yeah, really cool that we’re having another episode around that same idea.

Effective Presenting and Finances

05:35 Emily: But Echo, why are you here on a personal finance podcast talking about effective presenting? How can the skills that you teach people, if people are able to present more effectively, how can that actually affect their bottom line?

05:52 Echo: I’m so excited to talk about this, especially because I haven’t really talked about this on my blog, yet, so this is kind of the first time I’m really out there telling people this, but I need to, because effective presenting it can help you in some pretty obvious ways, but also some more indirect ways that you might not have thought about. The things I want to talk about today are how effective presenting can help you with the obvious thing, which is a job talk. Pretty important. And some of the less obvious things, like networking and promotions, once you have a job.

Situation #1: Job Talks

06:29 Emily: Excellent. Yeah, let’s get started with the obvious one. If you are finishing up your PhD, finishing up a postdoc, finishing up a job, you’re looking for something new. Pretty common. If you’re going to another research position, certainly within academia, but also outside of academia that you’re going to have to give a job talk or research talk in some capacity. So you’re presenting your past work, maybe you’re even presenting a proposal for future work at that particular institution. That’s kind of the context of what we mean by a job talk. So what can people do when they’re preparing for a job talk to make it killer? And why would it matter if they did a great presenting job with that? How would that actually affect whether or not they get the position?

07:10 Echo: Yeah, yeah. Let’s talk about all of that. So why does this matter? I’ll start there. The reason why this matters is because once you get to that point, once you’re invited for an interview, the job talk is probably one of the most important things. I have even a couple of quotes for you. Karen Kelsey, from The Professor Is In, who is amazing and if you don’t know about her website definitely check it out. In one of her webinars about job talks, she had a quote, this is sort of like a loose quote, but she said “you cannot bomb the job talk and still get the job.” She just came right out and she just said it. You’re not going to get an offer if you bomb the job talk. That’s how important it is. And even Rick Reis, I might be saying his name wrong, from Stanford, he’s called Tomorrow’s Professor, he said the job talk is, quote: “Perhaps the single most important thing you’ll do during an academic interview.” So you know that’s a lot of pressure. I mean a lot rides on this job talk and —

08:22 Emily: I just want to jump in there, because it’s a little bit almost counterintuitive to think that it would matter that much, right? If you can’t do this one thing, you are disqualified from this new position. Because maybe giving presentations is not going to be a huge part of that actual job. Maybe doing the research is what it is or maybe it’s teaching, which is a little bit different from a presentation kind of scenario. The one-on-one interviewing that you do over the course of the interview visit, all that stuff matters as well. And maybe why is the job talk important in particular? I mean, we’re not asking why, we’re just saying it is really, really important. It’s a little bit counterintuitive because maybe you’re not thinking that that’s a huge part of what you do. I mean, what percentage of your time do you actually spend presenting, as like a researcher or an academic? It’s pretty small ,yet a lot rides on those singular moments, right?

09:17 Echo: Yeah, absolutely. And I think part of it is…I don’t know how it was 10, 15 years ago, but we all know how much more competitive the job market is now. It’s an ultra competitive situation and it is one way where you can set yourself apart from other people who are also there or doing a job talk. So that is one reason I think it’s so important. But I’m sure it’s a complex combination of reasons too.

09:50 Emily: That was the obvious thing, right? You’ve got to nail the job talk, of course, and the skills that you teach are going to help the candidate do that. Outside of the job talk scenario, what are some other ways and other scenarios where effective presenting can really help your finances?

Situation #2: Networking

10:08 Echo: Networking is one of the ones that might surprise people, because it is a little more indirect. This is something that will help just about everyone. I know we were just talking about a job talk and an academic interview, which mostly applies to academic jobs, but in terms of nonacademic jobs, as well as academic jobs, your network is crucial. It’s crucial for getting opportunities, whether it’s for publications or projects or grants or jobs even — your network is really crucial at pretty much any stage of your career. So how do you network? There’s a lot of tips out there, there’s a lot of suggestions, and one way is through presentations. So how? If you think about it, conferences are actually an excellent opportunity for increasing your network, which I think a lot of people already know. I don’t think that’s new and surprising. What people might not think about is that if you have a visually engaging, effective presentation, one that is organized, one that is easy to follow, that people understand that doesn’t feel overwhelming, isn’t just all text, isn’t just bullet points, it doesn’t have word clouds, doesn’t have all the data, it’s an organized narrative — people will be more likely to come up to you and talk to you after your presentation and you’re going to stand out more. If you think about it, one hard part about networking is just making that introduction. When you want to meet someone new but you’re nervous, you don’t know how to break the ice, you don’t know what to say — if you have a presentation, you’ve given that to people. People can now come up to you and they know what they want to say — “your presentation was great, your slides were great, I loved your presentation” — and it breaks the ice and people have already connected with you because you presentation was great. It speeds all that up along and encourages ways to build your network.

12:17 Emily: I totally, totally agree with you. Obviously as someone who presents as part of my living, I agree with you that it’s, it’s a wonderful way to start networking. Another thing, a little bit to take a step back from maybe an individual presentation that you give, if you as a researcher, as a PhD, increase your confidence around presenting because you’ve learned how to create effective visuals, you’ve done some practicing of your actual delivery of presentation, wouldn’t you be more likely to put your name in to do this sort of thing more and more and more, if you build up your skills and you feel competent. It’s kind of a stereotype, but public speaking is people’s number one fear, right? It’s like the worst, most intimidating thing that you would possibly do. Many, many people think that. So instead of shrinking back from those opportunities, if you have confidence around that, especially if you’ve been trained in some capacity, then you can again, put yourself out there, put yourself forward, and be increasing your network, because you’re just having more and more of those opportunities, where maybe you wouldn’t, if you weren’t feeling so confident about it.

13:23 Echo: Absolutely. I’m really glad that you actually brought that up because I’ve really started all of this — my own personal training for effective presenting, because I was terrified of public speaking. I was scared. I was nervous. I would throw up before a presentation. I was really high on that anxiety scale. I started doing visual presentations and storytelling and academic presentations almost as a way to distract from myself and help myself just get up on the stage hoping people would look at my slides and not mean. Then, just over time people would compliment me and I would be surprised and not believe them at first, but then, over time, it really did build up my confidence and now I love it. Now I love public speaking and giving presentations because I know people are going to engage with it. It’s going to resonate with them, they’re going to be able to understand it and it goes really well.

14:23 Emily: Yeah, and this ties into the job talk part of it as well. If you’re feeling confident about giving that job talk, you’re going to come off that much better in the interview. Something I’ve also seen, and this is sort of regarding networking as well, in the past few years since I’ve been giving presentations at universities, I see people pull out their phones or their iPads and take photos of my screen. I’m assuming it’s usually for their own like future reference or something like that. But if you, and I’m not saying I do, but if one has really beautiful visuals up on that screen, that’s a sharing opportunity, in terms of social media. We’ve all seen, if you follow a conference on Twitter, people are posting images of slides from presentations and so forth, so if you have a particularly beautiful, engaging, clear, as you were saying earlier, slide, that’s something that could even expand that network beyond the people in the room.

15:18 Echo: That’s such a great idea. Yeah, that is so true. I definitely see people sharing slides from conferences they’re at all the time on Twitter and the ones that get a lot of engagement and excitement are definitely the ones I would say are more well-designed compared to the ones that are all text, small text, bullet points, that kind of thing.

15:38 Emily: Yeah. The text ones might be getting some photos in the room because they’re like, “Oh, I can’t read all of this and the amount of time it’s going to be up, I need this for future reference”, but the shareable ones are definitely going to be the more beautiful and clear ones.

Commercial

15:53 Emily: Emily here for a brief interlude. As a listener of this podcast, every week you hear strategies that another PhD has used to improve their financial picture. But listening and learning does not automatically translate into action in your own financial life. If you are ready to change how you think about and handle your money, but need some help getting started, I can be of service. There are two main ways you can work with me to create and implement a financial plan tailored for you. First, I offer one-on-one financial coaching, either as a single session or a series, as you make changes over the long term. You can find out more at PFforPhDs.com/coaching. Second, I offer a group program called The Wealthy PhD that is part coaching, part course, and part community. You can find out more and join the wait list for the next time I open the program at PFforPhDs.com/wealthyPhD. I believe it’s possible to succeed with your finances at every stage of PhD training and throughout your career. Let’s figure out together how to make that happen for you. Now, back to the interview.

Situation #3: Promotions

17:07 Emily: Okay, so what was the third way that effective presenting can affect one’s bottom line?

17:13 Echo: The other way was promotions. This works for academic context, but also nonacademic context. A lot of people think that, okay, so presentations are great for a job talk, itt helps me get the job, but once I have it, now it’s time to worry about tenure. And that is all about publications and that’s not a good time to learn how to present effectively. And yes, publications are important. I’m not trying to diminish that at all, but I think people don’t realize how presentations can help with the other part of the tenure package. So for example, I just had a student in one of my online courses, she’s an assistant professor. She just did her third year review letter, which she called, a mini tenure package and she wrote in there in her section about teaching effectiveness, she talked about the professional development that she took, how it helped her teach her undergrads and how she was evidenced based principles that she learned in my course for learning and memory and that kind of thing. And she had quotes from her student evaluations and her students even said things like “the PowerPoints were the best part of the class” — is a loose quote. But it was something like that where they said PowerPoint slides were the best part of this course. And so it can help you in that area. It can help you with maybe the broader impact, if you have to talk about that. It can help you with those other areas if you just frame it that way.

18:49 Emily: Yeah, absolutely. I mean, this all again goes back to effective communication of which presenting and visuals and all of that are components of that. But just effective communication in general, of course that’s going to help you maintain the job you have, get promotions at the job that you’re in, not just in a new job scenario. Yeah. Great point. And again, I actually want to go back to the confidence aspect that we were talking about earlier because I’m thinking, okay, we’ve been talking a lot about landing a job, keeping a job, and that’s career-related, which is obviously within the scope of personal finance. But I’m also thinking about like negotiations. I don’t know if you’d necessarily be using visuals in a in a negotiation session with your potential supervisor or boss, or your existing one, b,ut again around the confidence, if you’re just building up your confidence in talking in front of people, in presenting a case to other people, that is an enormous asset to have with you when you go into a negotiation situation.

19:53 Echo: Yeah, and I would actually agree with that. Part of effective presenting, a lot of people are thinking probably about design, about typography and text and text size and colors and that kind of thing, which is definitely part of it. The other part is also the story-boarding, which is just the word I use to describe organizing your content, what order are you going to say things, what are you going to say, what level of detail. And learning that for presentations is a great place to start, but then it starts helping you just to make good arguments in other areas. I’ve heard this from my students that it even helped with things like grant applications because you learn how to set up your argument and maybe it’s not an argument, but you still learn how to hook the audience from the first thing that you say. So yeah, if you want to negotiate for a promotion or a raise, you’ll have more skills to do that in a more narrative, storytelling kind of way. A lot of academics were trained to do fact, fact, fact, like just a list of facts, just a data dump. And that’s not an effective way to communicate. That wouldn’t be an effective way to communicate for a promotion, probably. You would want to start with more of an engaging opening, so to speak.

21:23 Emily: Yeah. I’m really seeing how, I mean, we started talking about effective presenting, but how these skills that you’re talking about are permeating so many different areas of professional life.

21:35 Emily: Okay, I think we’ve made a good case. People care about the skill set, they want to get better at it. Really quickly, what are some tips that you have for people to do a better job in this area that they could implement right away?

Presentation Tips You Can Implement Today

21:52 Echo: Yeah. I think there’s some things that you’ve heard before so I won’t spend too much time on them. I’ll just reinforce them a little bit. Less text. Yes, even academics want less text on your slides and you want to use bigger font sizes. A lot of people they have too small font sizes. The other thing that I wanted to mention, because a lot of people feel like the problem is PowerPoint, and that they have to spend a lot of money on a fancy program like Prezi, or they have to take a lot of time to learn a new program. I have good news and the good news is that you don’t need to do that. PowerPoint is actually fantastic. You can absolutely make visually engaging presentations with PowerPoint or with Keynote. So if you’re an Apple user, Keynote is great as well. Google Slides is okay. It has fewer features, and most people have PowerPoint anyway. So PowerPoint is great. You can totally use PowerPoint.

22:53 Emily: Yeah. So it turns out the tool was not the problem, it’s our usage of the tool.

22:59 Echo: Exactly. And the other thing I wanted to mention was habits. You probably also know that you should be practicing your presentation and that you should be starting your presentation earlier than say, on the plane ride to the conference. I know —

23:16 Emily: You don’t say?

23:17 Echo: I know it happens, I’ve done it, so I totally get it, I’ve totally been there. But if you start earlier, it doesn’t have to be a lot of time, but if you start earlier and give yourself time in between revisions, you’ll be surprised at how much better your presentations turn out, because I think a lot of presentations are ineffective because people are cramming in it at the last second.

23:40 Emily: Yeah, it’s just something that hasn’t been thought through well yet.

23:44 Echo: Yeah, exactly.

Final Words of Advice

23:46 Emily: The final question that I like to ask everyone who comes on the podcast is what is your best financial advice for another early career PhD? And that could be related to what we’ve been talking about today or it could be something totally different.

24:00 Echo: Yeah, I think, partly related to what we’re talking about is try to invest in yourself as soon as you can. Especially for something like effective communication skills, effective presentation skills, the earlier you can get in on some type of professional development, it’s going to pay off more in the long run. For example, if you learn it now, then you’re going to have those skills when it comes time to make your job talk presentation, you’re teaching demo. You’ll already know how to make good slides for that and a good presentation from start to finis,h rather than trying to do all of that at the last second. And the earlier you learn it, the sooner your presentations will be better and more effective, and then you can sort of continue to improve on that over time. That’s sort of a tip I wanted to share.

24:53 Emily: Yeah, totally, totally agree. And the thing is, the listener might be thinking, especially if they’re still in training, “I am investing in myself right now, I’m taking this huge pay cut to like be in grad school or be doing a postdoc, that is investing in myself.” But the unfortunate reality, as we mentioned earlier, is that a lot of essential skills for the workplace, and even for the job you have right now, are not being taught by universities or by advisers or by departments. Maybe they are in some pockets, I don’t want to say that’s a universal thing. Maybe you at your university have a course on public speaking. Maybe there’s something available to you, that’s awesome if you can take advantage of that. But probably most places it’s not available, or it’s not really a good time investment, maybe you have to put way too much time into it than what would be effective for you. So I totally agree that it’s oftentimes very necessary to go outside the university environment to pick up these skills. And the earlier you do it, of course, as you said, the more and more you can deploy those skills over the years and hone them and continue to develop them.

Find Dr. Echo Rivera Online

25:58 Emily: Speaking of which, Echo, how do people get them to get you to teach them some of these skills that we’ve been talking about?

26:06 Echo: Yeah, so I hope that I’ve excited people about learning presentation design and how to be an effective presenter because I have tons of stuff on my website. I have free courses, I have tons of blog posts, I have some download-ables in my blog posts, I have a YouTube channel. All of that you can find at echorivera.com so it’s just my name, Echo Rivera dot com. I’m also really active on social media. I’m on Twitter and Instagram and my handles are @echoechoR. Find me on social media, check out my website. I’d love to connect and I’m just kind of curious what people thought of this podcast and if they learned something new or just want to chat, so don’t hesitate to reach out.

26:59 Emily: Yeah, absolutely. When this episode comes out, I’ll be tweeting a bunch of times that week and tagging Echo and certainly reply to any of those and tell us like what you thought about this. Maybe this is a surprising thing for us to talk be talking about on a personal finance podcast, but as you can see, it plays into your finances in so many different ways and these skill sets are so essential. Echo, thank you so much for, for being my guest today.

27:24 Echo: Thanks so much for having me.

Outtro

27:26 Emily: Listeners, thank you for joining me for this episode. PFforPphDs.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple podcast, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media or with your PhD peers. Three, recommend me as a speaker to your university or association. My seminars covered the personal finance topics PhDs are most interested in, like investing, debt repayment, and taxes. Four, subscribe to my mailing list at PFforPhDs.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode, and remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is Stages of Awakening by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing and show notes creation by Lourdes Bobbio.

How This Graduate Student Financially Manages Daycare Costs, Debt Repayment, Saving, and Side Hustling

December 16, 2019 by Meryem Ok

In this episode, Emily interviews Aubrey Jones, a PhD candidate in social work who lives in Tennessee. Aubrey is married and has a 3-year-old and a 1-year-old, which means childcare is their household’s largest expense. They discuss how Aubrey’s family found a great deal on their housing and how to minimize food waste with littles. Aubrey and her husband both have variable incomes, which play into their savings and debt repayment strategy; Aubrey’s main side hustle is a very popular and accessible one for graduate students. Aubrey and her husband have set their debt repayment and savings goals so that they can buy a home about a year after moving for Aubrey’s first post-PhD job.

Links Mentioned in the Episode

Teaser

00:00 Aubrey: You’ll find the money for things that you prioritize, and I think that’s so true. In the past, we didn’t necessarily prioritize our savings, and so it was hard to find money for that. And now suddenly, we’re prioritizing it and prioritizing extra payments, and it’s because we figured out where we can cut and what we don’t need to do.

Intro

00:26 Emily: Welcome to the Personal Finance for PhDs podcast, a higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season four, episode 18, and today my guest for this budget breakdown episode is Aubrey Jones, a PhD candidate in social work who lives in Tennessee. Aubrey is married and has two small children, which means childcare is their household’s largest expense. We discuss how their family found a great deal on their housing and how to minimize food waste with littles. Aubrey and her husband both have variable incomes which play into their savings and debt repayment strategy, and Aubrey’s main side hustle is a very popular and accessible one for graduate students. Aubrey and her husband have set their debt repayment and savings goals so they can buy a home about a year after moving for Aubrey’s first post-PhD job. Don’t miss Aubrey’s spot-on financial advice at the end of the episode. Without further ado, here’s my interview with Aubrey Jones.

Will You Please Introduce Yourself Further?

01:25 Emily: I am delighted to welcome to the podcast today Aubrey Jones who is going to be doing a budget breakdown episode for us and she’s got some really interesting elements in here. So, I’m really looking forward to this conversation. Aubrey, will you please introduce yourself, your career, and your family?

01:43 Aubrey: Sure. So, My name’s Aubrey Jones, and I have a husband, Josh. And then we have two little kids. We’ve got a three-year-old and a one-year-old, Madison and Simon. And basically, I started the PhD program with a seven-month-old, and when I finished my PhD program, I will have a four-year-old and a two-year-old. And I am getting my PhD in hopes to become a research professor, hopefully in R1, in the near future.

02:17 Emily: And what is your field?

02:18 Aubrey: My field is social work.

02:22 Emily: It sounded like you’re about a year away from finishing, hopefully?

02:27 Aubrey: Yes, I am a year away from finishing. I was able to take an extra year because I was awarded an extra GRA position for the fourth year. So, I was able to do that, which was nice.

Aubrey’s Household Income

02:41 Emily: All right, well we are actually in a very similar spot. My two children are the same ages, roughly, as your two. So, I’m sure many of your expenses will sound very similar to me. So, please tell me about your household income, your income as a doctoral student, and other sources of income in your household.

02:58 Aubrey: Sure. So, as a doctoral student, I received a stipend throughout my entire program, and it’s fluctuated from year to year, but it’s on average about $15,000 a year. And then it’s covered my health insurance also. And then my husband works in a job in which sometimes he will get additional money. So he’s a recruiter and he works on a draw system, and once he’s caught up, then any additional money that he gets goes straight to him. So, our household income fluctuates as well. So, usually anywhere from about $55,000 on the low end to $75,000 on the high end is where we fluctuate. And then, I recently just started teaching with VIPKid. I had been hearing about it, I have friends who’ve done it, and I finally jumped in to do it just to supplement some costs in our household because the hours are so flexible. And then as a doctoral student, I’ve also just picked up other side work with professors who had funding and were able to pay me to do stuff like that during the summer or in addition to get the extra experience and also the extra income.

04:18 Emily: So, the $15K stipend that you mentioned, is that just during the academic year or is that 12 months?

04:26 Aubrey: It is 12 months. So, you’re required to do about 10 hours of graduate research assistantship work, and then they break it out throughout the year as your payments.

04:40 Emily: Okay. So the additional work you’ve taken on within your academic role or to the side of it–you said during the summer, but that’s not because you’re not being paid during the summer–it’s just because you have some different time allocations or something?

04:52 Aubrey: Yes, correct.

Side Hustle: What is VIPKid?

04:54 Emily: Gotcha. So, I want to hear a little bit more about VIPKid because, similarly to you, I have been hearing that name a lot and I don’t know how new it is, but it feels new to me. So, can you say–maybe for someone else who’s interested in this kind of side hustle–what you’re doing exactly and what kind of the advantages are that you see?

05:13 Aubrey: Sure. So, I really love it. I actually just started this month, and there’s a fluctuation in pay. It ranges from $14 an hour to, I believe, $22 an hour. And the way that they do it is you teach a 25-minute class to kids in China and you’re teaching them English. So, you don’t have to know any Chinese. You just have to take some TESOL certificates that the company actually offers you for free and go through some mock interviews so they can see that you’re using props in your classroom that you’re using, it’s shortened TPR [Total Physical Response], but basically they want to see lots of hand gestures and pointing at your mouth and telling the kids, you know, listen. So, the 25-minute class is what you teach, and they pay you by 25 minutes. So, most people start out at about $8 per 25-minute class.

06:25 Aubrey: And then, assuming you get another class, that’s where it turns into that hourly pay of $14 to $22. But essentially you teach a 25-minute class, you get half of that $14 to $22 an hour. And you open up the schedule and you choose when you’re available. So, they tell you what the peak times are and you’re running on Beijing time. So, for people who are in Eastern Standard Time, I almost think that they’ve got it the best because the peak times are between 7:00 AM and 9:00 AM and then in the evenings on Friday and Saturdays from about 8:00 PM to 11:00 PM. You can teach all through the night, and I know some people do. I do not. So, I teach in the mornings from about 6:00 to 7:00 AM. Mostly because my kids are still sleeping, and sometimes I get the full time booked. Sometimes I don’t.

07:26 Aubrey: So, like I said, this is my first month doing it and I’ve made–well it’s not even the whole month yet. So just in the month of July, I’ll make about at least a hundred dollars, assuming I get no others classes booked.

VIPKid: Teaching English to Kids in China

07:40 Emily: I was a little bit confused about this. So, you said that you’re teaching in English. Are you teaching English or what is the subject matter that you’re teaching?

07:50 Aubrey: Yeah. So, the goal of VIPKid, the reason that parents in China sign their kids up for it is to help their kids learn how to be more comfortable talking to native English speakers. So, you are teaching English, but the whole class is also in English. And so, by proxy, you’re having a conversation in English, you’re trying to teach them certain things in English, and so you might be teaching them different vocabulary words that day.

08:18 Aubrey: So, this week I was teaching a kid “stamp,” so I had an envelope and I had some stamps and we talked about the word stamp and you say “stamp” and you make them repeat it twice so that they’re learning the word and then they’re learning in context. I teach primarily older kids who are already fluent in English. So, it’s more of making them comfortable having that conversation as opposed to teaching them new things. Now, some people teach younger kids–like three, four years old. So, they really are teaching them English words and what that means. And so, they might say “happy, sad” and have them repeat it back. So, it just depends. But VIPKid already has the lessons prepared for you. So, you go through it with the student and the older kids read most of it. The goal is to have them talking about 75% of the time.

09:14 Emily: Gotcha. And I think I’m picking up that this is a one-on-one interaction?

VIPKid versus Qkids

09:18 Aubrey: It is a one-on-one interaction. Yes. And there’s another company called Qkids which is similar, and they do anywhere from one to four kids in the classroom. And they actually schedule for you. Whereas VIPKid, the parents choose you as a teacher. So, it’s a lot more competitive to make a savvy profile that parents want to choose you.

09:44 Emily: I see. Well yeah, I can definitely see why this is an attractive, exploding side hustle. At any rate, as of July, 2019. So, thanks for telling us about your experience with that. Do you like doing this so far? Do you imagine continuing? And how many hours are you devoting to it per week?

10:04 Aubrey: Okay. Yeah, so I do, I really like it. It’s a lot of fun. It’s different than anything I’ve done in the past, and I will definitely keep doing it for the foreseeable future. Right now, the summer months are kind of slow so I’ve been able to just open up more slots knowing that I wasn’t going to see as many kids. But in the future, primarily in the fall, I will be finishing my dissertation so I won’t be devoting nearly as much time to it. But after I’m done dissertating, probably five to 10 hours a week.

10:41 Emily: I’m really glad that you brought this up because I can see how, for someone who wants a side hustle, this is a really, really accessible one. It sounds like you’re able to get started pretty fast too.

10:52 Aubrey: Yeah, it took me about two weeks to go through the whole process.

10:57 Emily: Yeah. Excellent. Okay, so let’s dive into the budget breakdown, right? So, we’re going to talk through your top five expenses. And I don’t remember if you mentioned, but where do you live?

11:09 Aubrey: We live in Tennessee.

Budget Breakdown: Top Expense = Daycare

11:11 Emily: Okay, great. So, top expense.

11:15 Aubrey: Our top expense is daycare.

11:18 Emily: Ah, new and different because usually this is rent, but I am not surprised that daycare is at the top of your list with two children. So, how much are you spending?

11:27 Aubrey: Yes. So, daycare is about $1,000 a month for both kids to be in daycare full-time. And so, our youngest kid was not in daycare the whole time. He actually just started going to daycare more recently. And that’s because, as a graduate student, I was really lucky to have such a flexible schedule where he could essentially just home with me. I wasn’t taking classes, I was working on my dissertation, and when I had to work on my dissertation or do extra work for my GRA position, I was able to do so in the evenings or on the weekends when my husband was home. But now that I’m in the final stretch of my dissertation, I need the distractions out of the house so that I can work all the time. So again, that’s new. When it was just our daughter, it was closer to like $600 a month, I want to say, for her. So, obviously not greater than our rent at that point.

12:27 Emily: Yeah. I’ve had a similar approach. I am the primary caregiver for our children and so we mix in childcare maybe as needed and it kind of fluctuates. It really changes a lot with how old your children are and kind of what type of kids they are. Whether or not they give you time that you can be doing other things or whether they require a lot of hands-on attention, and that changes with age. So yeah, I definitely feel you on what you were trying to do in the past and also your decision to put them both in daycare full-time now. Is there anything else, any other comments you want to make on that daycare expense?

13:05 Aubrey: So another way that we reduced the cost of daycare too was our daughter was in daycare full-time when we first started, and I was a full-time student. And then once my classes started slowing down and they were online, I was able to transition her to a “Mother’s Day Out” program, which is just a part-time daycare, essentially. And so that drastically reduced our cost. It was like $80 a week to have her in that three days a week and they fed her and everything. So that was great. And then in the summers we’re able to take them both out and just pay about half the cost to keep their spots if we need to or if we want to so they can go part-time and full-time in the summer for a reduced rate, essentially.

Does Your University Aid with Childcare Expenses?

13:58 Emily: And does your university help at all with childcare expenses?

14:03 Aubrey: They do not. I will say that my professors and department have been incredibly supportive of me having kids and just understanding that. There was one time I had to bring my daughter to class with me because there was like a nasty flu outbreak happening at her school and I wasn’t about to let her get it, let alone really let myself get it. So, one of my professors let me bring her, and I was so thankful. And she just hung out and loved it. So they’re like emotionally supportive of that. But financially, no.

14:44 Emily: Yeah. They help you to a degree, but not as much as maybe we would like. Okay. Number one expense: childcare. What’s that second expense?

Budget Breakdown: 2nd Expense = Rent

14:55 Aubrey: Rent. So, we pay just a little over $907 a month, so I rounded it up to $908. And we actually pay below market value for where we live. We have a two-bedroom condo, we’ve got a garage, we’ve got a backyard, two bath. And I think our neighbors rent for about $1200 a month. When we first moved here, we actually only paid $875 a month and we were living across the street. And then our landlords decided to sell. And so we already knew the neighborhood. We really loved the neighborhood. This might sound silly, but we knew our mailman and to us, that was just so great. Like, we really know this place. And we had some friends who lived across the street and they happened to be moving out and going somewhere else. And we told them, “Hey, our landlords are selling, can we rent from you because we know you’re not ready to sell yet?” And they said, “Yeah, sure you can just cover our mortgage and our HOA fees.” And so that’s how it bumped up to $908, but still below market value for this area. So we’ve been really fortunate in that.

16:17 Emily: That is an amazing deal. I have to say, not the best financial decision for them, but really great for you.

16:27 Aubrey: Yeah.

16:28 Emily: Yeah. And of course, you know, I actually talked about this with another episode I did in season three. I interviewed a landlord who was renting to people he knew from his program. You know, they were his roommates at first. Then when he moved out it was people he had known from that graduate program, and he just talked about what like peace of mind it gave him to know his tenants and trust them. And so, yeah. Maybe they’re giving you a good deal on this rent, but they probably also have a lot less stress.

16:58 Aubrey: Yeah, absolutely. Yeah. And some of it too, like we do have to take care of some things on our own just because they weren’t really prepared to be landlords. So, like we have to pay to have someone come out and fix our dishwasher, which isn’t a big deal to us, but there are just a couple of trade-offs to it. But again, it’s better than having to go out and move all of our stuff and pay. I mean, that would be a large amount of money to increase that we just weren’t prepared for or ready for.

17:34 Emily: Yeah. Well, yeah, it sounds like a really good situation that you’re in. And I guess the tip that may be applicable to other people is get to know some homeowners who are ahead of you. Yeah. I actually also rented a private residence from a former graduate student who was then in a postdoc somewhere else when I was in graduate school, I did not know her personally so I don’t think we got any rental discount, but yeah, you know it happens. People buy, and then they move on.

Commercial

18:03 Emily: Emily here for a brief interlude. As a listener of this podcast, every week you hear strategies that another PhD has used to improve their financial picture. But listening and learning does not automatically translate into action in your own financial life. If you are ready to change how you think about and handle your money but need some help getting started, I can be of service. There are two main ways you can work with me to create and implement a financial plan tailored for you. First, I offer one-on-one financial coaching, either as a single session or a series as you make changes over the longterm. You can find out more at pfforphds.com/coaching. Second, I offer a group program called The Wealthy PhD that is part-coaching, part-course, and part-community. You can find out more and join the waitlist for the next time I open the program at pfforphds.com/wealthyPhD. I believe it’s possible to succeed with your finances at every stage of PhD training and throughout your career. Let’s figure out together how to make that happen for you. Now, back to the interview.

Budget Breakdown: 3rd Expense = Food

19:18 Emily: Okay. So, really good deal on rent. Excellent job on that. What’s that third expense?

19:23 Aubrey: This would be food. So, we are not super great at keeping our food costs down. That ranges anywhere from $800 to $1,000 dollars a month right now. And $1,000 is pretty rare. But, I was going through prepping for this and I felt like, “Well, let’s be honest, we’ve hit $1,000 before.” So, it doesn’t normally happen. We keep it closer to $800, and we’re pretty strict on that. So, we are feeding two kids. Our one-year-old, I swear, is just a garbage disposal. He just consumes everything and anything right now. And I was nursing him for about eight months, and then his appetite exploded. So, we switched him over to formula. So, we’re weaning off formula. So, that should start decreasing.

20:22 Aubrey: And then it also has a lot of our household stuff too, like diapers and pull-ups. We potty trained our oldest before our second was born because there was no way we were paying for two kids in diapers, and that was the best thing we ever did. She took to it really easily. I’m a little nervous the second time around that it may not go quite as well. And then we keep tons and tons of fresh produce in the house. But other ways that I do try to reduce the cost, things that we’ve been thinking about a lot more lately, especially once we started keeping track of our expenses, is food waste. And so that always seemed to really obvious to me. I would hear people talk about that and I would think, well, I don’t waste food. What are you talking about?

Strategies to Avoid Food Waste with Littles

21:09 Aubrey: And now I’m so much more cognizant of it. And my three-year-old will take two bites of something and say, “I’m done.” And in the past I used to think, “Okay, whatever.” And I would just toss it. And now, “What are you doing?” So, I just put it in the fridge and when she gets hungry later I put it back out on the table and say, “You can finish this if you’re that hungry.” And most of the time she doesn’t want to finish it because she’s not actually hungry. She’s just fishing around to see what I’ll give her. And then we’re really big on right now food exposure and trying to make sure that they’re constantly being exposed to vegetables. So, I’ve been buying a lot of frozen vegetables, which is really helping, so I’m not wasting the fresh vegetables. But I’m still able to make sure that they’re at least, even if they’re not eating it, they’re seeing it on their plate. So, that’s how we’ve decreased it. We don’t eat out. We cook almost all of our meals at home. My husband gets to eat out a little more for work. But yeah, I don’t see it going down much more, to be honest.

22:23 Emily: Yeah. I have to say, there’s again a lot of similarities in spending patterns between the two of us in this area because our one-year-old is also like eating everything in sight right now. She’s going through some kind of crazy growth spurt, which is actually great because that means that food that other people don’t want to finish, we can give to her, and she’ll finish it. So, that’s working out well. I also do the same thing. If my three-year-old doesn’t finish something, I may pack it back into the fridge because, like you, when it was just me and my husband, I was like, “Yeah, we don’t really waste that much food. Like we’re pretty on top of food consumption. But then you have a child who throws food on the floor, and like there’s a lot more waste that happens. So, we try to reduce it where we’re able to.

23:05 Aubrey: Yes, exactly.

23:05 Emily: And yeah, same thing about formula, which I hope is not a forever expense for us, but it’s pretty expensive in the meantime. So, yeah. Thank you for that insight. Oh, and the diaper situation. Yes. We also potty trained before our second was born so that we would not have two in diapers at the same time. Although we cloth diaper. So, for us it was more about not having to buy more cloth diapers to add to the stash. Right? Which is kind of the most expensive part of that whole process. So, yeah. All right. Thank you for your insight into that category. So what is your fourth largest expense?

Budget Breakdown: 4th Expense = Car Debt

23:39 Aubrey: So, that would be my husband’s car payment, which is $300 a month. And then we usually throw extra money at that. And that is one of the fewer pieces of debt that we have. And we plan to have that paid off by the end of the year, actually. Because he does do recruiting and he sometimes gets those bonus paychecks, we have just been able to throw that at debt. So, like last month we were able to throw an extra $1,000 at his car that wasn’t in the budget. So, that is always really nice. But we actually just had to get him a car because he had a 2000 Subaru and it finally just died while he was driving one day with our three-year-old. And so, it was time for him to get a car.

24:33 Emily: So, you’ve really taken that drive-it-into-the-ground advice to heart. You know, mostly when I talk to people about cars or I think about cars, it’s like we think about that long period, the almost two-decade period when you’re driving that single car. I don’t know when he bought it exactly, but the many years. And people are a little nervous about the endpoint. So, can you talk to me about when it broke down with your three-year-old in the car and how you handled that? It seems that it was okay, right?

24:59 Aubrey: It was a traumatizing week for her because my car, which is actually only three years old, broke down two days before, and she was in the car and we had to call my classmate to come pick us up. And then she was driving with dad and they were actually stopping to get her a treat because she had been such a good big sister. So, they stopped at Starbucks and they were in the drive-through and it just died in the drive-through line. And he had to push it. And so, twice in one week, this poor kid was in a car that broke down. So, that was a little traumatic. And she still talks about it. And this was three months ago, maybe. So, he had to get out and just push it by himself. And she did this cute little reenactment of him doing it. And I had to come pick them up, so I had to get the baby woken up from his nap and then go get them. And his car sat at Starbucks for three days until we could get a tow truck out there. And our insurance luckily covers the tow truck expenses. And so, he tried to put it on Facebook Marketplace to see if anyone was good at fixing cars or needed parts, and he didn’t get any bites. And so finally he just went to I think like an impound lot or something. But yeah, we had one car for like a month, so I was driving him to work and that’s across town. And so we had to really navigate our schedules. And then I tried to convince him to just have one car because we were making it work, but he wasn’t going for it. So, that’s how we ended up with a car payment.

26:51 Emily: Yeah, thanks for that story because we are also currently driving a car into the ground. And I do think about when that final end-point is going to be and what exactly is going to happen. But usually it’s okay. It’s a little difficult in the short-term, but it’s kind of worth it, right? To keep a car for a long time.

27:09 Aubrey: Absolutely.

27:10 Emily: So, what is the fifth expense on your list?

Budget Breakdown: 5th Expense = Husband’s Student Loan

27:12 Aubrey: That fifth one is my husband’s student loan. And that is $219 a month. And that should hopefully be paid off by the end of the year also.

27:22 Emily: Yeah. Let’s talk about that next and sort of under the category of financial goals. So, you’ve mentioned two types of debt so far. And so, what is your strategy with repaying debt?

27:35 Aubrey: Yes. So, the car and his student loan and my student loans are the only debt that we have. And so, right now, his student loan is bigger than his car payment. So, the car is our first thing that we’re trying to prioritize. So, any of the VIPKid money that I get is going to the car. Basically, we’re doing that snowball [method].

28:00 Emily: Yeah, I think it’s that snowball method. I was just going to say, you live in Tennessee, so this is Dave Country. [Do you follow Dave Ramsey?]

28:07 Aubrey: It is Dave Country. I don’t, but I do follow a lot of debt-free, financial independence people who have done Dave Ramsey. So, that’s where I’ve picked up some of our ideas and stuff. So, we’re really just attacking that car payment, putting anything extra that he gets to it. We’ve got a lot of financial goals, and this is why we’re not exactly Dave Ramsey because we’re also trying to save for a house at the same time. And so, our goal is to be debt-free from car payments and his student loans by the time we’re ready to purchase a house. And then my student loans are just kind of this whole other thing that right now we’re just unfortunately avoiding because I’m still in school. And we’ve limited using any student loans while I’ve been in my program except for one year when the baby was born and we just wanted to have that extra cushion just in case we knew that he would probably go to daycare. And we just weren’t sure, because my husband’s income fluctuates so much, if we’d be able to afford it every month or not.

29:18 Aubrey: So, the months that he gets a bonus check, we pay daycare out-of-pocket. And we pay most of daycare out-of-pocket and then supplement with those student loans. And then everything else goes to debt that’s not covering daycare. And then like I said, the VIPKid or any babysitting that I do or like I adjunct sometimes also, so that money goes straight to the car. So yeah, that’s our goal. Again, we think we’ll have that tackled by the end of this year just with where his business is at.

Importance of Prioritizing Your Financial Goals

29:52 Emily: I really love the strategy that you’re using. And I’ll make it explicit again. So, you’ve decided what your priorities are–car, husband student loan, your student loan–and you’re making whatever minimum payments are necessary on those and throwing all your money that you come up within a given month to that top-priority debt. That includes side hustle money. And this is very “Dave” like to have this clear prioritization and to throw everything you can at your top priority. And the reason that it works really well–and then I’m really glad you’re using this–is because it does keep you motivated to earn extra money in whatever ways you can fit into your schedule. As opposed to just like, “Oh, I think I should be side hustling in general. My budget could use some more padding.”

30:43 Emily: It’s much better to tie it to a specific goal. In your case, it’s debt repayment. And so, it really keeps your motivation high for pushing yourself because it is hard to be a parent and be in a PhD program and have the work associated with that. So, you’re doing a lot obviously, but it’s clear that you know exactly why, right? And you know, it’s a limited-term thing. As Dave says, “Live like no one else. So later you can live like no one else.” Which means, live like no one else right now. You’re hustling. You’re throwing everything you can at the debt. And then later, living like no one else is when you are wealthy and comfortable and the picture is rosy. So, it’s like a short-term period of sacrifice to really turbocharge and get ahead. I wanted to ask about your house downpayment goal. So, am I right in assuming that you guys will be moving wherever you get a job?

31:37 Aubrey: Yes, we will be moving wherever I get a job. So, our goal is to hopefully purchase a house about a year after. Just so we can get a feel for that area first before just showing up and buying a house and then realizing we chose the worst area to be. So, we do have money in our budget dedicated to savings. Which was something that we hadn’t always done. We used to kind of just, “Oh, okay, we have $10 left over this month, let’s put that in savings.” Where now we dedicate at least $200 goes to savings every month. So, that is obviously for emergencies or for this house if we can. And then, once his car and student loan get paid off, then the rest of his paychecks and stuff will start going to that down payment. And again, we hope that we’ll have probably $10,000 to $15,000 by the time we’re ready to move, is kind of our goal.

32:38 Emily: Yeah, that sounds really good. I think you’re really, again, on the right track by planning on renting for a year, wherever you move to. Because I totally agree. It’s really difficult to make such an important decision like where you’re going to live, especially in your case. You guys already have kids, so you know your kids are going to be in school, and like there’s just a lot of considerations there–to take that time to really get to know the area. And of course, continue to save up more money, for the down payment or whatever, before jumping into that purchase. So, final question here. What is your best financial advice for one of your peers? Maybe another parent in a graduate program?

Best Financial Advice for One of Your Peers?

33:17 Aubrey: Yeah, so I think my best advice would be to just remember why you’re doing it. Because we have tried many times to live like this and it’s always just become, “Ah, whatever we don’t want to.” And now we’re very motivated, I think, because of our children. Like we want to give them a house and like a nice life. So that’s my “why” of why we’re doing it. Why am I waking up at 5:00 AM to teach kids in Beijing English? It’s so that we can have this hopefully financial independence and teach our kids what to do with money. And then my husband has a good saying that he’s told his friends who are just starting out having kids and they’re freaking out about not being able to afford things. And he tells them, “You’ll find the money for things that you prioritize.” And I think that’s so true. In the past, we didn’t necessarily prioritize our savings and so it was hard to find money for that. And now suddenly we’re prioritizing it, and we’re prioritizing extra payments. And it’s because we figured out where we can cut and what we don’t need to do.

34:35 Emily: I think you are so exactly right with those comments, and they’re so insightful. I totally agree that you have to establish the “why” for why you care about personal finance at all, why you should care about your own finances. And then, once you know the “why,” that tells you your priorities, right? Top, second, et cetera. So like, it does make it so much easier when you know clearly what your motivation is, I think. Yeah. You and your husband–I think you guys are doing great. Really. Like, yeah, it sounds really good. I mean, I’m so glad you’re on a clear plan and there’s like a timeline on it, and yeah. It seems like it’ll all coalesce within the next one to two years with, you know. Hopefully, you’ll have the job you want and be in an okay place to live. Not much choice on that necessarily, but hopefully you’ll enjoy it, and the debt will be done, and you’ll be taking out a mortgage, and that’ll be a whole other ball game, and yeah. Sounds delightful, actually.

35:29 Aubrey: Yeah. And I will say, we’re very fortunate with his job that allows him to get bonuses and stuff that lets us pay things off, which is why it’s kind of variable and all over the place. But it wouldn’t be possible without his job, so we’re super thankful for that.

35:48 Emily: Yeah, of course. Well, best of luck to you and your family. And thank you so much for joining me today.

35:54 Aubrey: Yeah, thank you for having me.

Outtro

35:56 Emily: Listeners, thank you for joining me for this episode. Pfforphds.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple podcast, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media or with your PhD peers. Three, recommend me as a speaker to your university or association. My seminars cover the personal finance topics PhDs are most interested in like investing, debt repayment, and taxes. Four, subscribe to my mailing list at pfforphds.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode! And remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is Stages of Awakening by Podington Bear from the free music archive and is shared under CC by NC. Podcast editing and show notes creation by Meryem Ok.

Can and Should an International Student, Scholar, or Worker Invest in the US?

December 9, 2019 by Lourdes Bobbio

In this episode, Emily interviews Hui-chin Chen, a Certified Financial Planner specializing in advising globally mobile professionals through her business, Pavlov Financial Planning. In the interview, Hui-chin answers the questions: Is it permissible for an international student, postdoc, or worker to invest while in the US, and if permissible, is it advisable? Hui-chin and Emily discuss several factors that could impact the answers to these questions: whether the person desires to stay in the US long-term, the type of visa they are on, what type of income they have (W-2 vs. fellowship/training grant), and whether they have access to a tax-advantaged retirement account, such as a 401(k), 403(b), or IRA. Listeners to this episode should come away with clear next steps to further evaluate whether and where to invest while living in the US.

Links Mentioned in This Episode

Teaser

00:00 Hui-chin: I would actually recommend the default is think about, well, if I had the extra money I can invest for the long term, I don’t really need the money — why not? So there has to be a really good reason why you don’t do it.

Introduction

00:21 Emily: Welcome to the Personal Finance for PhDs Podcast for higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season 4 episode 17 and today my guest is Hui-chin Chen, a certified financial planner specializing in advising globally mobile professionals through her business, Pavlov Financial Planning. In this interview, Hui-chin answers the questions: Is it permissible for an international student, postdoc, or worker to invest while in the US and if permissible, is it advisable? We discussed several factors that could impact the answers to these questions. One, whether the person desires to stay in the US long-term. Two, the type of visa they’re on, F-1, J-1 or H-1B. Three, what type of income they have, that is W2 versus fellowship or training grant. And four, whether they have access to a tax advantage retirement account such as a 403B, 401k, or IRA. I’ve wanted to help the international graduate students in PhDs in my audience think through these questions and scenarios for a long time and I’m so grateful to Hui-chin for giving us her expertise in this area today. Please consider sharing this episode with your friends and peers. Without further ado, here’s my interview with Hui-chin Chen.

Will You Please Introduce Yourself Further?

01:42 Emily: I am so delighted to have joining me on the podcast today Hui-chin Chen. She is a CFP. Her business is Pavlov Financial Planning. She is an expert in this area of international students, postdocs, workers living in the US and what can we do investment wise? I know this is a question of high, high interest in my audience. I get this question every single seminar I deliver at universities. Can I invest in the us? Should I invest in the US. What kinds of accounts can I use? So Hui-chin is here to help us answer these questions as best we can. It’s a very complicated and detailed area, but you know, we’re going to work through it over the next 30 minutes or so. So Hui-chin, thank you so much for, for joining on the podcast and please tell us more about yourself and your business.

02:29 Hui-chin: Well, thank you for having me Emily and I think you covered like all the high levels. Like you said, I’m a CFP, a certified financial planner and I focus my work on clients and international planning needs, whether they’re immigrants to the US, people who are temporarily working in the US that migh leave or US citizens that become expats. So sort of like your listeners who are technically expats from other countries. So I deal with international complexities day in and day out for my clients, so I’m happy to answer any questions you might pose today.

03:05 Emily: Yeah, I mean I have been searching high and low for an expert, just like you. Will you please mention your blog name, your website name.

03:12 Hui-chin: Yes. You can read more about just in general financial planning topics for global and mobile people on moneymattersforglobetrotters.com and if you want to learn more about my business or working with me, it will be on pavlovfp.com.

03:29 Emily: Great. And you have a YouTube channel as well, right? What’s the name of that?

03:32 Hui-chin: Yes. Well there’s no name because I just record more like a series of different topics. The most recent one I recorded, I call it “Welcome to the USA: personal finance edition”. I think some of you might be interested or your spouses who accompan you to the US while you study or work and they may or may not be able to. So it goes through a lot of the different steps of understanding the US system that will be helpful if you eventually do want to stay in the US.

04:04 Emily: Yeah, perfect. Tell me just a little bit more about yourself — when did you arrive in the US, where are you from, why did you come here and those kinds of things.

04:12 Hui-chin: I first arrived full time in the US in 2004 for my graduate degree in public policy and management. I did consider going into a PhD, but I did not eventually and I basically stayed. Since then, I found a job in the US, I continued my work and then I met my husband in grad school, but after working separately for a few years, decided to get married and he got a job posting overseas in different countries. So I also have a very personal interest in working with people from all over the world because, for example, right now, I’m actually not physically in the US, we’re somewhere else. So.

Investing in the US as an International Student

04:58 Emily: Okay. Yeah. Fascinating. Oh my gosh. I really hope people follow up with you about this. So what we decided to do with this interview was to answer two broad questions, which are the ones that hear during seminars. The first is am I allowed to invest in the U S is this permissible? Secondly, is it advisable for me to invest in the U,S while I live here? Now the second question is a lot thornier than the first, I understand, so we’ll kind of go through a few different, aspects of this question that might affect the first question or the second.

Is it permissible? Yes!

05:33 Hui-chin: All right, so you’ll have to prompt me later for all these different questions. I’m going to answer the easiest one which is whether, as an international student who is not a US citizen or a green card holder, can I invest through a US based account? The answer is yes. And the United States is one of the few countries that’s very friendly to foreign investors investing directly in the stock markets and the US also has one of the largest stock markets. A lot of foreign companies come to list in the U S. dot. Markets. So really, even if you were not in the US, even if you were just like live in your home country and you want to open a US brokerage account, you can actually do it.

06:24 Hui-chin: It’s not only permissible, it’s actually a sometimes recommended way to invest, especially if your home country gives you very little access directly to investing equity on your own. A lot of countries don’t even have what we call retail access, like in the US. In a lot of places you have to invest through insurance contracts or very expensive mutual funds. So investing directly as a retail investor, that means that you’re as an individual, not going through an advisor, just like open your own account and start investing, it’s actually a great opportunity to do so. Now you’re in the US, it’s a lot easier. It’s easier for you to find information like that instead of doing it in your home country and tried to find those kinds of information. So that’s the long answer. But the short answer is it’s definitely permissible to do so. Right now you’re in the US and you can invest no matter what kind of income that you have. We’re talking about just a normal broker brokerage account, so it doesn’t give you any tax advantages. It’s just for somebody who wants to buy some ETFs or even just stocks. For example, if you really like Apple, you want to buy Apple stocks, you’re totally permissible to open a brokerage account online and pressures that Apple stocks with whatever money you have, either from your work in the US, from your grants, from your fellowships, or from your wealthy uncle back home who wired you some money. Those are all possible ways to invest.

Opening a Brokerage Account

08:06 Emily: So I think there may be, you can tell me if this is the case, I think there may be a distinction between something being permissible under the law and being, will I actually find a brokerage firm who will work with me? Because what I hear from international students and scholars is, and I never know if this is the rumor mill or if it’s actually their own experience is, “well it’s difficult to find a brokerage firm to approach who will work with me.” Is that the case? Is it, I can walk up to any brokerage firm and you know, as an international student or scholar or worker and open whatever. Or is it like, Oh well some of them might, by policy, be excluding certain types of people from you know, opening accounts.

08:51 Hui-chin: That’s a good question. Sort of at the practically, how does that work? So the first scenario is that if you have, for example, if you actually pay social security, now you have a social security number and you’re technically getting your income and you’re an employee of your university, then, for example, if you go onto Vanguard, that’s all the information they ask for. So at Vanguard, if you provide those two types of information, you will be able to open the account and plus you have a US address because you’re currently living in the US, so you actually do not need to already be a green card holder or something in order to have it processed through it. It doesn’t mean that if you eventually decide to leave the U S and if Vanguard finds out, they will want to close the account. So that’s one scenario.

09:43 Hui-chin: The other scenario is that I know some people because their totalization agreements, they don’t even have a social security number or they choose not to have one in the US and so in that case, even though you’re physically in the US and you have a US address through your apartment or on campus, it’s basically you’re considered a foreign, like how you file taxes as a nonresident alien, you can be a foreigner. So in that case, if you still have pretty close ties with your home country and you do decide to go back, you can actually open an account like your just a person living overseas, but in that case it is pretty much dependent on the brokerage company being willing to work with you because every brokerage company, like Schwab or Fidelity or TD Ameritrade, it’ll have their own internal list of which countries residents they were willing to do business with. So you’re basically declaring to them, I am a resident of some other country, would you would do business with me? And then they may or may not. So that’s another way to go about it.

10:59 Emily: Got it. So, okay, an international student or scholar who does not have an SSN, when they actually try to go and open a taxable brokerage account, what should they say to customer service? I’m a resident of X country, but I’m living in the US currently, will you work with me? Is that the question that they need to pose?

11:22 Hui-chin: Yeah, the question will really be, I’m a resident of another country, because if that’s the case, you’re providing an address of that country. You may be able to provide a us mailing address, but that’s not the address that’s associate with the account. So if they know that you are foreign customer, they will have different tax reporting, different tax withholding. Instead of filling out a W9, you fill out W8-BEN, all the different things, so it’s whether you want to be considered as a foreigner to the US institution or somebody who’s a US resident.

12:01 Emily: Got it. So in the case where someone does have an SSN, probably because they’ve been employed W2 employee for at least part of the time that they’re here, would you say that it’s totally fine to then present yourself as a US person? Even if you’re still technically a non resident alien for tax purposes, even though you have the SSN, but let’s say you’re a nonresident alien for tax purposes, is it okay to go ahead and use that SSN and be like, I’m a US person?

12:26 Hui-chin: Well, that’s the tricky part because you are still for tax purpose, like your dividend capital gains interest will be taxed differently. So you do need to report, you need to write a W8-BEN instead of W9. So I would just give an example on how easy it is to actually open an account. For example, on TD Ameritrade’s website they actually ask what kind of visa you have. So I’m just saying that usually in those kinds of applications, if you have a SSN, you have a US address, you have a US employer, it’s most likely those online retail brokerage account, they will allow you to open the account. But you also need to make sure that they know that for tax purposes you need to fill out a tax form as a non resident alien.

Investing during Short-term vs. Long-term Stays in the US

13:17 Emily: Got it. Okay. I think that’s very clear now. Than you so much for going through that in detail. Okay. So then let’s go back to the scenario of “I plan to stay in the US long term, or hope to, not sure if it’s gonna work out” versus “I don’t plan to stay in the US long term”. We now know what’s permissible, but then what is advisable? Should a person who hopes to stay in the US long-term, has the ability to invest right now — is there any reason for them to shy away from doing that because they’re not sure about the longterm status? Let’s start with that question.

13:50 Hui-chin: So like I mentioned, I guess, eluded to earlier, because the US is such an attractive market, not in terms of return or performance, but in terms of access, you can invest in a broad index in so many different countries, so many different companies with such little cost, and it’s really hard to beat if you tried to do it in some other country. Usually there’s more brokerage fees more commission, there are more hurdles to jump through as an individual investor. So I would actually recommend the default is think about well if I have the extra money I can invest for the long term, I don’t really need the money — why not? So there has to be a really good reason why you don’t do it upon the US perspective.

14:38 Emily: Got it. And so maybe that person in that situation is thinking, “well, is it a good reason that I might eventually leave?” How would the investments that are in the US for the moment, do they to exit the country with that person? If the person ends up leaving, how does that work and how’s that handled?

14:57 Hui-chin: Yeah. So as I mentioned earlier, even for somebody who’s never been to the US, some custodians will be willing to open account for a foreign customer. So if you’re thinking about, “Oh, I’m just leaving after I finished my grad degree in three years,” if the country you’re likely going to is on whatever list that custodian posts, like it’s European EU country or it’s a relatively developed country or it’s a safe country, it’s not like a terrorist country that may be on the treasury list of “do not do business with”, then you’re probably safe to assume that you can continue to hold the account. But of course do your own research on the specific countries. It’s impossible for me to go into every single country.

15:46 Emily: We’ll link to a reference if you can provide a reference of that treasury list. We’ll put that in the show notes and check to see if your country appears on this list, in that case, okay, we need to tread more carefully. But let’s say, okay the country is not on that list, go ahead.

16:04 Hui-chin: Yeah, so basically what will happen is that for example, if you went the first route when we’re talking about opening an account, you open account with the U S address and everything, and let’s say you actually end up staying over five years or you actually got a job at under H-1B then leave, right? So you actually went from nonresident alien for tax purpose to a US person tax role, and then you’re leaving, so you’re going back to a non resident alien textual. So you do need to report to the custodian that you’re leaving this is my W8-BEN, this my new address. So of course you want to make sure the custodian does business with people at that address. And there is some other complexity in terms of what you can invest in. Some people from the EU countries might know there are some new regulations saying that the custodian is not supposed to sell ETFs that’s not registered in the EU to their residents. So that’s one type of complexity that may come up that whatever you invested in, you may or may not be able to add more to it once you leave. But whatever you have already invested in, there shouldn’t be any issue with keeping it there, as long as the custodian is willing to keep you as a customer.

17:30 Emily: Got it. So let’s say then that the custodian is not willing to keep you as a customer, for whatever reason. What happens in that scenario?

17:39 Hui-chin: It does happen. Over the last 5 to 10 years, even some US citizens are experiencing that, living overseas, it used to be okay that custodians know that they live overseas and now they’re not okay and custodians say please close your account. For normal brokerage account, of course the first step was if you want to keep your investment in the US, you can always find a different custodian to move your investment to. You actually do not need to sell those investments. You can do a transfer. It’s just whoever’s holding those stocks will transfer the certificate electronically to another custodian. It’s not like you’re selling and getting the money back. But if because where you’re going next or because of personal reasons, after investing in the US for five years, you’re willing to take the money and leave, you can go ahead and sell your investments, close the account, taking the money and leave. There’s no problem with that. There’s also some tax considerations there. For people who are considered a nonresident alien, getting capital gains while they stay in the US for over 183 days versus they do not. Because if, for example, if there is a tax year when you have a US based account and you have a lot of capital gains on your Apple stock because it increases in value a lot, but if you already finish your study and you’ve moved back to your country for two years you’re just wondering, well, will I be taxed on the capital gains? The question is, you actually do not get taxed on the capital gains, in the US. There could be also tax treaties that differs between the US and your country, but in general, the rule is the US does not tax and your country may or may not tax that. So that’s actually a good–

19:34 Emily: It sounds like in that situation, where you’re planning on moving the money out of the US, it sounds like that’s the time to consult a tax advisor in the country that you’ve moved to, right? How to execute this, when to execute this and the tax implications. Is that right?

19:51 Hui-chin: Yeah. So you’re definitely thinking about tax strategy, because, as opposed to the situation I talked about, if you sell the day you leave the U S for example, like “I’m just closing everything down, I’m moving back home.” And if you sell the stocks as somebody who has lived in US, even though you’re a nonresident alien but you were in the US as a tax home, when you sell the stocks, the capital gain is actually taxed at 30%, unless their treaty dictates differently as well. Like you said. So definitely talk to your tax advisor in your home country, as well to understand how the tax coordination works.

Taxable vs. Tax-Advantaged Accounts

20:33 Emily: Got it. And now, you mentioned earlier that all of that was for a taxable brokerage account. So let’s also throw in the scenario that the person has been using a tax advantaged retirement account — IRA, 401k, 403B — and they’re not going to leave it in the US, they’re are going to be moving the money out, what are the tax implications of making a withdrawal from whichever account type.

20:56 Hui-chin: Yeah, in that scenario, basically first of all, you should know that there is a penalty that applies if you take money out of and IRA, 401K, 403B. You should have known it before you put money in, but that’s the same rule that applies broadly to everyone, whether you’re a US person or not. Right? Because the reason is that the government gave you a tax benefit and it’s the incentive for you to keep the money there for retirement. They don’t want you to take the money out. So, if you need the money obviously and you think closing the account, paying the penalty and income taxes is still better going back home and doing it in a few years because of the different tax situation, of course that’s something you can consider. But knowing, with a penalty if you are not not going to need the money and it is eventually going to pay for retirement, one thing you also can consider is to leave the account open for a very long time and let it grow. Of course, you cannot keep putting money into it, but whatever is in there can continue to grow and you can consider taking the money when your income is lower and take the penalty, so the income and the penalty together is less of a hit, or you can take it out when you are 59 and a half, which is the current law of when you can take it out and then there won’t be a penalty but there is going to be taxes in the US and withholding as well.

22:42 Emily: It sounds to me, and this may be painting with too broad of a brush, but it sounds to me like you know, if you end up having investments in the US, if you’re eligible to keep them in the US, and you do leave, sounds like it’s a good idea to keep the accounts open. You won’t be contributing anymore, at least to the tax advantage ones, but it doesn’t sound like there’s a big reason to be closing accounts and moving the money out, unless it is that you are not permitted to keep the accounts open based on the custodian and the rules of the country that you’re going to, and how they deal with the US, is that right? It sounds to me like that’s the pattern. Like go ahead and keep the money here and then when you’re of retirement age in the country that you’re residing and then you can work on doing the withdrawals and dealing with taxes at that time. Is that kind of broadly what you recommend?

23:32 Hui-chin: I think that’s generally correct. Like I said, the main reason for that is because the US is such a individual investor friendly country to allow you to invest that way, so like I said, I would ask the question of why not. Of course everybody’s situation is different. If there is a legit reason that you think that you shouldn’t be keeping the investment in US, of course, you just need to understand the tax implications. Otherwise, keeping investing long-term in the US, not just — let me clarify this, not investing in US companies only, but using a US based account and custodian, who charges you basically right now no commission to buy and sell anything and with very low mutual fund costs, very low ETF costs, it’s a really good bargain compared to the other alternatives.

24:34 Emily: Yeah. So it sounds like whether an individual in the US, not on a green card yet, not sure if they’re gonna be able to stay long-term or planning to not stay long-term, if they have the ability to invest at the time that they’re living in the US, as you said, why not? Why not go ahead and open the taxable brokerage account or the IRA or the 401k or whatever it is and use it, because it’s sort of, as we know — we don’t have to go into about the power of compound interest — starting to invest earlier is fantastic. So basically don’t a waste or fritter away the time that you may be in the US, it might be longer than you expect. Go ahead and start investing and then deal with either moving the money out or keeping here or whatever later, once you know where exactly are you going to be living. I like that approach of why not. So whether the intention is to stay in the US long-term or to not, go ahead and use the time while you’re here. Use your access. Go ahead and open the accounts, again if you’re able to be able to invest.

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25:37 Emily: Emily here for a brief interlude. As a listener of this podcast, every week you hear strategies that another PhD has used to improve their financial picture. But listening and learning does not automatically translate into action in your own financial life. If you are ready to change how you think about and handle your money, but need some help getting started, I can be of service. There are two main ways you can work with me to create and implement a financial plan tailored for you. First, I offer one-on-one financial coaching, either as a single session or a series, as you make changes over the long term. You can find out more at PFforPhDs.com/coaching. Second, I offer a group program called The Wealthy PhD that is part coaching, part course, and part community. You can find out more and join the wait list for the next time I open the program at PFforPhDs.com/wealthyPhD. I believe it’s possible to succeed with your finances at every stage of PhD training and throughout your career. Let’s figure out together how to make that happen for you. Now, back to the interview.

Investing Under Different Visas

26:52 Emily: Okay. That was the first scenario to talk about. And then the second one was about visa types. So F-1, J-1 and H-1B. You’ve already said broadly it is permissible, but is it advisable? Are there any differences among people holding each one of those different visas that they should be thinking about? Or is it like, “no, the general consensus of it’s permissible, why not?” still applies no matter what visa type?

27:17 Hui-chin: I think that it’s not really only based on visa type, but the idea of combination of visa type, how long are you staying in the US — as, you know, F1 can turn from NRA to US person, J-1 as well, with different time frames. I would think about it as just, it’s very similar to what we were talking about before, like longterm or short term. Eventually, the main difference is tax treatment of if you’re staying, if you’re becoming a us person long-term, or even becoming a US citizen and we’re just going to pay US taxes forever versus at some point, in the future, it’s possible you will sever tax ties with the US, other than whatever investment you kept in the US. So overall investing in both scenarios are great. You just need to know the tax implication and the tax strategies, because if you’re switching from one to the other, there may be some opportunities for you to reduce taxes. And if you don’t think about it clearly or get the correct advice, you might find out, well I could have been taxed zero but now I’m getting taxed 30%.

28:28 Emily: Got it. So it’s not so much about the particular visa type, but rather at what point it flips to you being a resident alien for tax purposes, which is different on the different visa types. Okay, great! Quick one there.

Investing for Different Income Types

28:41 Emily: Third point that I wanted to talk about was the income type. So having W2 type income, or even self-employment type income, if that’s permissible, versus having this weird fellowship, training grant, non W2 type of income. This is very common for graduate students and also for postdocs. And so the general rule that certainly applies for US citizens and residents is if you have the W2 type of income that is taxable compensation for the purposes of contributing to an IRA. So let’s say in the scenario where the person does not have access to a workplace-based retirement account, they’re looking at can I open an IRA or not? Taxable compensation would be the W2 type of income. They can open an IRA and use that income towards it. If you go an entire calendar year and don’t have the W2 type of income, not taxable compensation, it’s all fellowship or training grant, and of course for international students, scholars, they’re not permitted to side hustle, they can’t have the second jobs and so forth, so there would be no possibility of having taxable compensation type of income. I guess the question is, whether they had access to an IRA or not, does it change the, we know it’s permissible, but does it change the advisable recommendation on whether to be investing at this time or not, knowing that in the one case with fellowship and training grant type income they wouldn’t be able to use an IRA but could be using a taxable brokerage account as we discussed earlier.

30:09 Hui-chin: I think that’s actually something we can just combine with the fourth one, so the tax-advantaged one. Like you said, eventually the main question is whether I have taxable compensation or I do not have taxable compensation.

30:23 Emily: Now, I want to jump in just to note that we’re recording this in November 2019 so the SECURE Act has not passed the Senate, yet. I am certainly hopeful that it will because what it does is it changes the definition of taxable compensation to include fellowship and training grant type of income, non-W2 income for graduate students and postdocs. So maybe when you’re listening to this, that law would have changed, and so certainly keep that in mind that we’re discussing this as what is the definition of taxable compensation. Basically, right now it does not include fellowship and training grant and come perhaps in the future it will, but right now it doesn’t. Okay, go ahead.

31:02 Hui-chin: I think at the very beginning you mentioned the whole connection to your personal service, right? So the idea of you can contribute to areas that you need to have taxable compensation and that’s related to the idea of it’s not just that it’s taxable, but it is a compensation for performing a service. If we’re just really thinking about why we’re using IRA, it is for the tax advantages. So even before you think about that, it’s like what would be the tax consequences or how much you save by using that kind of account and is that really helpful in your situation? I know, one question, you posed before is well, everybody wants a Roth IRA because they’re like, well, I’ll never get taxed in the future. I want to be able to contribute to that.” But a Roth IRA and traditional IRA have the same rule: the compensation needs to be taxable. So if it’s already not taxable, the government wouldn’t allow you to put money into something that’s never been taxed before. The Roth IRA is for the government to tax you up front, so it doesn’t tax you it in the future when you take it out.

32:26 Emily: Okay, let me, I just want to clarify this. This is a little bit new information to me. So when we have the two words, taxable and compensation, you have to have taxable compensation to contribute to an IRA. The compensation part of it is this, is it non-W2, fellowship and training grant type income? Okay, that’s not compensation. But now we’re also talking about the “taxable”, the first word there in taxable compensation. Your income has to be taxable in the US in the first place to be eligible to be contributed to an IRA. So maybe under certain tax treaties, your income for a time is not taxable in the US, that income would not be eligible to be contributed to an IRA. Correct?

33:05 Hui-chin: Yes.

33:06 Emily: Okay, great. Go ahead.

33:07 Hui-chin: Yeah, and the second one, we use compensation, but on the US-person side it’s called earned income. So if you look at IRS publications it’s always referred to earned income for US person related publications on contributing to IRA. Those two are equally important. It has to be earned income, so your compensation from service, and it’s taxable. The idea is that you will know whether you have that kind of income or not and if you have that income, meaning you’re getting tax in current year, so you’re thinking about, “Oh, if I contribute to an IRA or 401K, or 403B, I get taxed less. Or you contribute to it and now we get taxed, but in the future it won’t get taxed, which is the Roth side. In the first one, just the pretax contribution, it makes sense if you’re really high income. I think for the students, because if you’re on a 1040-NR, depending on the level of your compensation, because you may not have standard deduction, you may only have itemized deduction, some people can be at the zero percent, some people can be twelve percent or above, so you have to look at your tax situation of which bracket you’re going to be in to give you an idea of, well, maybe I want to do pretax instead. And the second one is, okay, so if I’m at a really low bracket, how about I just do Roths, but then the idea is you want the tax benefit in the future, right? But if you are going to move away from the US, how much more is that tax benefit versus simply using a taxable brokerage account, if you don’t get current year tax benefits. So those are the analysis that you need to go through, in terms of whether or not to use a tax advantage account, if you have the income type to do so.

35:20 Emily: Okay. Yeah. Let me see if I can summarize that. If you don’t have taxable compensation, can’t use a tax advantage account anyway, so go through the brokerage firm and go for the taxable brokerage account, if you’re able to use it, if you can set up that kind of cap. Okay. On the other side, we have eligibility for the 401K, the 403B, the IRA. If you want the tax deduction today for contributing to a traditional version of each of those accounts, great. Go ahead and take it and get a tax deduction today. Awesome. The money grows tax deferred, you’ll deal with the taxes in retirement or whenever you move the money out or whatever. For the Roth option, because of any of those kinds of accounts, because you don’t have the immediate tax advantage today, you really have to be asking yourself, does it make sense to put my money into a Roth IRA, no immediate tax advantage, but it will grow income tax free and then I can withdraw it income tax free in retirement versus can I just use a taxable brokerage firm, which is more flexible. And I think maybe the answer to that question, of course it will depend on the math in any individual’s scenario, but might come down to, again, what we talked about earlier, the expectation of staying in the US long-term or the hope, because really over the long, long term it is very advantageous to be using an IRA of any kind, Roth or traditional. But maybe if the time that you see yourself being in the US is on the shorter side, not to retirement or only five years or the length of your degree, then maybe it’s like, well why bother with the whole Roth IRA scenario? Let’s just go for the taxable brokerage account because if you are expecting to move the money out, for example, it’s kind of more of a pain to do so with a Roth IRA, because while you can withdraw your contributions, whatever gains have been in the account, if you try to withdraw those, then then the penalty comes into play. Is that correct?

37:12 Hui-chin: Yeah. And one big difference for people who eventually just move away from US and no ties in the US, I think I mentioned that before, you could qualify for 0% capital gains tax rate if you sell it, so it’s almost like the same, but the only difference is the dividend. So dividends are taxed at a flat 30% if your a NRA living outside of the US, but over the long term, if you’re investing in, for example tech companies, they don’t pay dividends anyway, and your main goal is for that capital gain growth for the next 30 years, then investing in Roth and investing in a taxable brokerage as an NRA living somewhere else is the same.

37:53 Emily: Gotcha.

37:53 Hui-chin: Why give yourself more ties to a Roth type account you can’t access and there’s more complexity.

38:01 Emily: I see. So really your investing strategy might change based on the tax treatment, if you’re no longer living in the US, of capital gains versus dividends. I actually do want to also add in for people who, I think this is still the case under post-tax custom jobs act, people who are the 12% marginal tax bracket or less, they have 0% federal tax on long-term capital gains and qualified dividends. So if you have a very tax efficient strategy, if you’re buying and holding, generally, as long as you stay in those lower tax brackets, you’re really going to see much or any income tax anyway. So why bother with the IRA, when you could be using a taxable account and not really having that much in the way of actual tax burden. Is that correct?

38:47 Hui-chin: Yeah. And just going back to definitely understand the tax treaty if you already know where you’re going to. Of course, most of the time you might think, well I’m just moving back to my home country, but then you get a job somewhere else and then you know, your life is not really as predictable, but at least understand the tax treaty between us and your home country, if you think it’s very likely you might end up there at retirement age when there would be IRA, 401k distribution consequences and compare that to, if I simply use a taxable brokerage, how does that change my dual country tax liability.

39:31 Emily: Got it. I think what I’m hearing mostly from this interview and the point that you just made about life being sort of unpredictable is, okay, here’s what you know. You know you’re in the U S right now. You have to be in the US for a few years, several years, maybe longer. Deal with what you know about right now, make the best decision you can for right now, and then if the situation changes later, you have to pivot. It’s possible to pivot. You’re not going to be losing your investments just because you’re leaving the country or whatever. It’s something that you can move with you, so you can adapt and change depending on, you know, the next step that you take. And hey, if you end up, if you do end up living in the US long-term, like until retirement age, it will be awesome if you started investing earlier and had started using an IRA or a 403B or a 401K earlier, as soon as you have access. Is that fair?

40:22 Hui-chin: Yeah. And I think those more specific questions and people questioning whether they should have account here. I think in my experience, I really mostly hear it from people from EU countries, Australia, Canada, because they feel like they have the same access when they move back. They don’t want the complexity of dealing with cross border things. And I totally understand that. And if you have good access to invest when you go back home, of course. But I think, what I know is being from a developing country myself is that most of the people who come to US see it as an opportunity and if you can have an investment in the US and don’t have to deal with turmoil that may be happening in your home country, most people jump on the opportunity. I don’t know that many people would say it’s a bad idea to open an account in the US.

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Where to Find More Information

41:26 Emily: Got it. I think we’ll leave it there. This has been fantastic. Thank you so much for joining me. Tell us again where people, can find you — your website, your business name and so forth.

41:35 Hui-chin: Yeah, sure. If you want to read more about what I just talked about, and this also how Emily found me, is on moneymattersforglobetrotters.com. It’s just a blog for reading. And if you’re interested in working with me, you can go directly to pavlovfp.com. That’s Pavlov Financial Planning.

41:54 Emily: Thank you so much for joining me today Hui-chin.

41:57 Hui-chin: You’re welcome.

41:58 Emily: Listeners, thank you for joining me for this episode. PFforPphDs.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple podcast, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media or with your PhD peers. Three, recommend me as a speaker to your university or association. My seminars covered the personal finance topics PhDs are most interested in, like investing, debt repayment, and taxes. Four, subscribe to my mailing list at PFforPhDs.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode, and remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is Stages of Awakening by Poddington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing and show notes creation by Lourdes Bobbio.

This Soon-to-Be PhD Is Facing Debt and Underemployment as He Goes on the Academic Job Market

December 2, 2019 by Meryem Ok

In this episode, Emily interviews Chad Frazier, a graduate student in history at Georgetown University who is about to complete his PhD and go on the academic job market. Chad’s career plans and personal finances have changed a lot during his PhD (and a master’s before that). When he received his stipend offer from Georgetown, he thought he had made it. But seven years later, the pay increases haven’t kept pace with housing prices in DC, and Chad has accumulated credit card debt. As he applies for faculty positions, Chad faces underemployment, and the grace period on his student loans from his undergrad and master’s degrees is quite limited. Chad argues that universities have a moral obligation to pay their grad students a living wage so that they can thrive academically. (Update: Chad successfully defended his PhD just prior to the publication of this episode!)

Links Mentioned in the Episode

Teaser

00:00 Chad: I just spent the last 10 years at an institution, and I’m now actually financially worse off than I was when I started. At times that makes me really scared and angry. And that wasn’t something that I imagined it would be like when I would get to this point.

Introduction

00:21 Emily: Welcome to the Personal Finance for PhDs podcast, a higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season four, episode 16, and today my guest is Chad Frazier, a rising eighth year PhD student in history at Georgetown. Chad and I discuss some really tough and even emotional issues in this interview including large student loan balances, credit card debt, underemployment, the difficult academic job market, and the feeling of being let down by your university. Chad shares quite openly the current state of his finances and career aspirations. We discuss what universities can do to alleviate financial stress among their grad students as well as what prospective grad students should think about when they look at a stipend offer letter. Without further ado, here’s my interview with Chad Frazier. You don’t want to miss this one.

Will You Please Introduce Yourself Further?

01:15 Emily: I am joined today on the podcast by Chad Frazier, who is currently a PhD student at Georgetown. And we’re going to be talking about the financial issues that arise, particularly as you’re getting close to the completion of a PhD. Right? You’re getting to to the end of graduate school, and what happens next and how do you handle that with your finances? It’s a really challenging situation for many, many, many PhDs. So Chad, I’m really delighted that you joined me today. And will you please tell the audience a little bit more about yourself?

01:46 Chad: Yeah, sure. First off, happy to be on the podcast, Emily. So just kind of a little background. I’m, like you said, just in the process of finishing up my PhD. I’m kind of planning to defend middle to late part of September. I focus on US history. Before that, I got my MA at Georgetown, which is the institution I’m currently at, BA at Dickinson. I guess those are kind of the broad highlights. I’ve been in the last couple of years, very active with the graduate union here at Georgetown. I’m part of the organizing committee and started getting more and more interested as part of that work in the last couple of years.

Evolution of Career Plans in Grad School

02:32 Emily: Yeah. Super interested here. Maybe not specifically about the unionization issues or your role in that, but just about your thinking around those issues as it relates to what we’re going to be talking about today. So, you’re almost done with your PhD. What are your current career plans, what you think you’ll be doing next, and also maybe how has that changed over the course of your degree?

02:54 Chad: Okay. Yeah. So when I started out the PhD, which would have been fall of 2012, the plan was generally that I was going to just tenure track, ideally at a liberal arts college. I was a peer writing tutor in undergrad and I really liked the experience of teaching. That said, I was kind of amenable to the idea of like maybe doing alternate career paths, kind of sidetracks, that led eventually to this final goal. But I can’t say that I really thought about them in any sort of depth. I think I figured, “Oh, I’ll just figure it out as I go.” So, like last year, I tried the academic job market for the first time, kind of a soft search. I didn’t get anything, which was not unexpected where I was with my dissertation. And then I’m going to try it again this year–be better, generally more competitive I think–and we’ll see what happens there. But over the course of the sort of last several years, I have just gotten more interested in other possible career paths. Because there are maybe some things about academia that I’m not always a fan of. And I think in particular, one would flag, like I mentioned, the unionization, maybe involvement with something to do with the labor movement, either as an organizer or researcher for a union. I’m also working with a professor here on building an online archive. So it looks at teachers in the labor movement. So it’s kind of up in the air.

When Does Your Graduate Student Position End?

04:18 Emily: Yeah. So it sounds like you’re getting other kinds of work experience. Right? Other kinds of, or not necessarily work, maybe it’s volunteer as well, but other kinds of experiences that’ll help you figure out what you want to do with your career and maybe you know, land, whatever that next job is. So you said you’re planning on going back on the job market again this fall. When does your position as a graduate student actually end or do you have an end date for that?

04:41 Chad: So I actually just put in paperwork with the graduate school. So the way this basically works is, I will defend, ideally late September. Once I do that, and generally, I am sure this is true for a lot of people, the assumption is that when you get in the room, you’re ready. Then there are revisions, which part of that is what your committee says, part of it is shaping it to the graduate school. And, as far as the university is concerned, when I’m in that mode, I’m still a student. And it’s just then once those are done, you file it with the graduate school, and then you apply to graduate, which for me the plan is to do that in December.

Plan for Income Until Graduation

05:24 Emily: And so as far as your income goes, in the meantime, do you have an assistantship that’ll still be ongoing, or what’s the plan for the income?

05:32 Chad: So the plan for the income by sort of Georgetown rules is basically after seventh year, which my seventh year technically concluded in May, I’m not eligible for any kind of assistantship, whether as a TA or an RA. So, the work I’ve been doing with the online archive is paid out of an Institute here at Georgetown called the Kalmanovitz Initiative. And I’m figuring out how many hours they will be able to pay me for that. But I’m also looking for sort of part time jobs. One of the advantages of being in DC is there’s a fair amount of work for research with journalists or stuff like that to kind of make enough money that I can make ends meet until I can have something more definite.

Are You Considered an Employee at Georgetown?

06:20 Emily: So, the position that you’ve had at Georgetown, not your assistantship, are you an employee technically or is that like an independent contractor position?

06:32 Chad: So, I’m an employee. It’s routed through sort of the student payroll office. It’s a little complicated just because the way the rules are here with PhD students, we have to estimate how many hours a week I plan to work and how many weeks. And then they are like, “Oh, this is his stipend.” And then that gets dispersed out in biweekly installments. They changed that recently. It used to be able to have been, oh, just hourly, as long as I didn’t exceed like some certain restraints, that would have been fine. Bureaucracy.

What is the State of Your Finances at this Point?

07:05 Emily: Yeah. So, it sounds like you have a part-time position that’ll be ongoing through Georgetown. And then on top of that you do need to work a bit more as well as actually finishing up your dissertation and doing the defense and all of that. So, it’s a lot going on at this juncture. It’s a time of transition and a challenging time. So, can you tell me a little bit more about the state of your finances at this point? It sounds like, well first of all, is that income that you anticipate making going to be enough to sort of keep your head above water or is that still a question mark?

07:43 Chad: So, the way it’s kind of shaping up is that income that I’m going to get from the job with KI, with Kalmanovitz Initiative, probably I’m hoping that’s enough to cover rent. And then the additional work–the idea is basically enough that I can feed myself and pay for Metro and sort of living expenses and hopefully get enough too that I can start paying down credit cards a bit more. Because I’m very cognizant of the fact that, six months after I graduate, the student loans are going to start coming due. And that’s going to drop like anvil from heaven, it feels like. So, I want to have hopefully something ready for that where I’m not getting hit from two sides.

History of Chad’s Student Loans

08:37 Emily: Yeah, totally. So, you’ve mentioned you have student loans. Do you want to share like the amount of that, or like which degree you accumulated them from?

08:47 Chad: Yeah, sure. So, I went to a private liberal arts school, Dickinson College, for my undergrad. And I got lucky. I got a pretty good financial aid package there that most of it consisted of scholarships and grants. And I only had to take out, I think, anywhere from 10 to 20,000 [dollars]. Most of the student debt I’ve accumulated was because of my master’s degree that I took before I started my PhD. And for that, I basically have to look through the records and that’s about 80 to 81,000 dollars. So that’s, yeah.

09:20 Emily: Yeah, that’s going to be a large minimum payment. Even if you go one of these income-driven routes, depending on what you’re doing the rest of the year, assuming you haven’t gotten like a full-time faculty position yet. Anyway, it’ll be a large payment, presumably. So, that sounds really, really tough, but it’s also pretty common as you might imagine. Okay, so you have the student loan debt from your earlier degrees, not from the PhD itself. And then you mentioned credit card debt. Do you want to share the amount of that, and how it was that you accumulated it?

Accumulation of Credit Card Debt

09:54 Chad: Yeah, because I’m not sure. I don’t think I can pull the dollar amount right off the top of my head. But it’s basically–so, a little background about how a PhD sort of works at Georgetown. I was admitted with a five-year package, which meant that for three years there was a service obligation, which I TA’d. Two years was non-service. And then basically, for year six through seven, the department was able to fund me kind of on a discretionary basis. I got a fellowship my sixth year where I got to teach my own class, and then I got a semester of non-service. And then this last year I was on service. And I got a decent enough job working kind of as an administrative assistant to a professor. But the big issue was, that fellowship when I was getting paid was only nine months out of the year, which is pretty common for humanities and social science students here at Georgetown.

10:55 Chad: And so that meant that like, I tried to set aside money so I could cover rent. I would basically always try to find an extra, some sort of job either during the semester where I could save up money or a job during the summer where I could kind of live off of that. Invariably, credit cards became the sort of go-to during the summer. And the usual MO is, in the summer months, pay them down during the year, and then in the summer months make minimum payments until–maybe a little extra if you can–you get back into the fall, and then start paying them down again. And that worked actually pretty well the first couple of years. It’s just in the last two, three years, cost of living has been going up in DC with rent. And also with like, you know, last summer I had three really close friends who got married, and I wanted to go to their weddings and I had to pay for that. And I went to a conference in November that I didn’t get reimbursed for that was on the West coast, which was expensive. And it’s been hard to sort of do that, pay it down this last year where, come June, they were all maxed out, and I just was boxed in.

12:15 Emily: Yeah. I think what you’re describing is super common for PhD students, for people in their twenties and thirties, generally. I mean the nine-month pay, of course, is fairly unique to our mode of work, depending on what kind of field you’re in. But yeah, I mean it sounds like you had the right idea, right? Save up during the year, so you’re cognizant of that in advance. You’re trying to plan for it in advance, save up during the year, live on that over the summer, plus you work a little bit. But it’s really hard to do that planning. It’s just a really, really challenging situation to be in. So yeah, it sounds like credit cards came into that for you as well as the whole irregular expenses thing, you know, going to people’s weddings. I also really value attending weddings.

13:00 Emily: I love being able to go, I always had to travel. It was a challenge, financially. And what you mentioned, of course, the conference thing. We all know inside academia that conferences either are not paid for at all for students, or the student has to pay upfront and then the reimbursements, and it’s months later. That can definitely get people into cycles of credit card debt as well. It’s a huge, widespread problem, I would say. So, I’m sure all of this sounds very relatable to the audience, and I’m really thankful to you for sort of bearing yourself this way and sharing this because it is a really difficult thing to talk about publicly. So, thank you so much for doing that. Is there any other debt that you’re dealing with at this point aside from the credit cards and student loans?

Any Other Debt Besides Credit Cards and Student Loans?

13:41 Chad: I think those are the two biggest sort of issues. Like, yeah, there’s nothing else really out there. I rent so I don’t have to worry about like a mortgage. I don’t like to drive. I don’t own a car. So, it’s public transit. So yeah, it’s pretty much just credit cards and student debt.

14:01 Emily: Yeah. And it sounds like, given that you don’t own a car–which is one of my very go-to suggestions for people trying to reduce their expenses–you live in an expensive city. That’s how it is. You pay a lot in rent. You don’t own a car. Rent’s been going up, presumably, as is almost always the case. Stipends do not keep up with rising rent costs and yeah, it’s just a really, really tough spot to be in. I’m curious actually what your thought process was about choosing–and maybe it’s not really like a conscious choice, but like you have been accumulating credit card debt over the past couple of years. You know, at first, you said you were in a cycle of, “Okay, I build it up and then I pay it down.” But as you said, the last couple years, it’s been more building up than paying down.

14:43 Chad: Yeah.

14:44 Emily: Why did you go that route instead of taking out additional student loan debt?

Why Credit Cards Over Additional Student Loans?

14:50 Chad: I think part of that was I was just being cognizant of the fact that I had a fair amount coming in from my master’s program in particular. I actually had this conversation with my mom a couple of times. Where she’s like, “Well you should just put in for FAFSA and try to get more. You should try to get another student loan or something.” And I was like, “But I’ve already got at least 80,000 perhaps up to a hundred thousand, and it sort of seemed like I would be mortgaging my future even more so than I did. In the early years of the program, kind of you brought up the whole idea of stipends not keeping up–throughout sort of my time here at Georgetown, usually the stipend has gone up in each year by about a thousand dollars, which in year one that meant I went from 22 to 23 thousand. That was like a 5% increase. And that I think helped keep ahead of a lot of stuff.

15:50 Chad: And then, more recently it’s like now that last year–the university introduced a wage freeze this year, but the year before it was like–that amounted about 3.5%. I don’t have terribly many expenses. I used to joke that I only allowed myself sort of three very basic luxuries, which was food, like going out to eat. Not that I go out anywhere very expensive. Booze. I like beer, but I like cheap beer. Weirdly enough. And then books. And those, even there, I’m like, “Oh, I won’t spend more than like 25 bucks.” So, it was like, “Oh, these are really small things.” And it’s not like I was going on trips to Europe or anything that expensive. So it was like, “Okay, the credit cards just seemed more manageable.”

16:48 Emily: It really seems like just mentioning those little luxuries that you allowed yourself–which again, like you just said, did not amount to a lot of money–it really illustrates for me how large a chunk of your income must be taken up by your necessary expenses. Because what you mentioned as discretionary expenses have not been outrageous by any means of course. So, it just for me really illustrates this like probably 60, 70, 80% of your income has probably been taken up by like your rent and your basic food and you know, basic transportation and all that kind of stuff, which is a really, really, really tough spot to be in. There’s a benchmark that I like to reference which is called the balanced money formula, which I don’t know if it was created, but it was definitely popularized by Elizabeth Warren and her daughter in their book from, it must be 10 plus years ago now, All Your Worth*.

[* This is an affiliate link. Thank you for supporting PF for PhDs!]

The Balanced Money Formula

17:43 Emily: And they introduce this concept of the balanced money formula. And in that, a person’s necessary expenses–so you know, stuff to keep you alive, housing, food, et cetera. Also, all the contracts that you are in, your insurance, that kind of stuff–that should amount to no more than 50% of your net income after-tax income. And that’s to live like a balanced life. On a sustainable basis, it shouldn’t be more than 50%. If you go above that, it’s like warning, warning, warning. This is not going to feel sustainable for you. It sounds like you’ve probably been in that warning zone your entire time you’ve been in graduate school most likely. And again, really, really common for graduate students, especially those who live in higher cost of living areas. So, that benchmark can feel really discouraging to people who have lower incomes. And it’s just kind of something that like, I don’t know, just you need to acknowledge. It’s going to feel really difficult to live on your stipend if you can’t fit your rent and your transportation and your food under that 50% figure. And is that something that’s worthwhile to attend the institution you want to attend and do the research and pursue our passions in our careers. It’s a tough spot to be in.

Commercial

18:59 Emily: Emily here for a brief interlude. As a listener of this podcast, every week you hear strategies that another PhD has used to improve their financial picture. But listening and learning does not automatically translate into action in your own financial life. If you are ready to change how you think about and handle your money but need some help getting started, I can be of service. There are two main ways you can work with me to create and implement a financial plan tailored for you. First, I offer one-on-one financial coaching, either as a single session or a series as you make changes over the longterm. You can find out more at pfforphds.com/coaching. Second, I offer a group program called The Wealthy PhD that is part-coaching, part-course, and part-community. You can find out more and join the waitlist for the next time I open the program at pfforphds.com/wealthyPhD. I believe it’s possible to succeed with your finances at every stage of PhD training and throughout your career. Let’s figure out together how to make that happen for you. Now, back to the interview.

Anything Else You Would Like to Share?

20:14 Emily: I wondered if you had any additional thoughts, feelings that you wanted to share regarding what we’ve been talking about. Your career transition upcoming, about the state of your finances right now. Anything you haven’t said so far?

20:28 Chad: I think in terms of sort of the way this has all been. Because again, I don’t come from money. My dad works as a supply manager at a college bookstore. My mom recently started working for Chick-fil-A. Like, working-class family. And there was even this weird stretch when I started the PhD in 2012, my dad who had gotten fired from his job like just after the financial crisis and just took the opportunity to go back to school himself, to finish first his undergrad degree. He could only find a job working part-time for a big-box retailer. And you know, there were moments where mom was calling me up and having to borrow little bits of money from me and then she’d pay them back to make their ends meet. And there was just this sort of sense of like, “Oh, I made it. I’m okay. Like this is not a lot, but it’s going to be kind of uphill, you know, all going up from here.”

21:35 Chad: And then now to be in this position where I kind of feel like at times I just spent the last 10 years at an institution, counting the same institution for both my MA and my PhD, and I’m now actually financially worse off than I was when I started. And I think at times that makes me really scared, and at times it really also bothers me–like now, my mom has to front me money for stuff like getting a new cell phone. Because my old one was four years old and couldn’t hold a charge for like a few hours–and angry. And that wasn’t something that I imagined it would be like when I would get to this point. I felt like it would be tough. There’d be an adjustment, but I didn’t think there would be quite this type of problem.

Supporting Family Members During Graduate School

22:27 Emily: Yeah. Thank you so much for sharing that. Yeah, just thank you for sharing the point that you’ve gotten to here. I think that graduate students supporting their family members to a degree–and it could be their parents, it could be a sibling, it could be a dependent child–is something that is, in my opinion, not really talked about that much openly. But it happens a lot. And your degree of like, you know, maybe short term loans to your family that happened over what seems like a relatively short period of time is a more brief, just smaller kind of support that you were able to provide at that time, which is awesome. And other graduate students support their family members for a significant fraction of their stipend for years.

23:19 Emily: And maybe it’s remittances they’re sending to another country. It could be within the US. That situation happens all the time, too. And so, I’m glad to share your perspective on the podcast of thinking, “Okay, I made it into my PhD program. I’m no longer taking out student debt. I have an income. I’m making it. I’m living in DC. The future ahead of me is bright. I’m going to be a professor.” And then, you know, seven years later coming to this point, like, “I’m not so sure what my career is going to be. I have a lot of student loan debt. I have consumer debt. I don’t quite know how I’m going to be making it from month to month starting in just a few months.” So, really, really tough spot to be in. But again, I don’t think it’s that uncommon for PhD students. What has been your observation about how your situation maybe compares to some of your other peers?

How Does Your Situation Compare to That of Your Peers?

24:11 Chad: Actually, I think you’re right. In talking with my peers, there are a lot of similarities. Like you were talking about grads supporting other grads. I’ve got friends in my program, other departments that I’ve gotten familiar with thanks to my involvement with the union, where they’ve got families–or like one of my really best friends in my cohort was from the Philippines and throughout the program he was sending money home to Manila to help his family out. And yeah, it is very common. It’s just, the more jarring thing about it is that for me, on one hand with history, more and more of an awareness of like, “Okay, the job market has sort of changed. Higher ed: We’ve seen this sort of adjunctification of labor. Okay, we need to start thinking about alternative pathways or career diversity.” Different labels get used for different fields. But there really has never been this sort of awareness about the financial dimension. I think the only time it’s ever come up in conversations with faculty are like, “Oh, the stipend’s enough, right? You’re doing okay.” Or, “You’re not having to take out loans for this, are you?” And I’m like, “No, I’m living within my means. I’m fine.” And part of it is, this stuff is kind of new-ish. It’s not necessarily out of the blue, but it is new-ish. And for a lot of faculty, this is wasn’t their experience and isn’t their experience now. So yeah, those are kind of two broad impressions.

Universities Do Not See All of Our Financial Struggles

25:45 Emily: Yeah. I think what I’ve observed from maybe more of the university perspective is they track things like amount of student loan debt taken out. And so, if they don’t see a lot of, let’s say, PhD students taking out student loans–like you have consciously avoided student loans because of your existing level of debt–then they may not be aware of the hardships that people are undertaking outside of the university system, like racking up credit card debt or like borrowing money from other sorts of lenders or from family members or whatever it might be to again sort of keep their head above water. And also, the whole side hustling thing, which is super, super common. And I’m generally a fan of side hustling, especially when it advances your own career, like what you’ve been doing with your other position. Like that’s exposed you to a new area of work and maybe you’ll keep going in that area.

26:40 Emily: So, what can be really beneficial in a lot of ways, but it’s something that can be distracting from the degree, especially if a student has a lot of other responsibilities going on too, like they have a family or whatever. So, it’s not great if a student has to side hustle. It’s okay if they want to and they can balance it or whatever. But it’s not a good situation when they have to do it to just keep their heads above water. So, all of that can be very stressful. Of course, of course it’s stressful and can affect career decisions. And I think what you’ve been talking about–that we’re specifically talking about transitioning out of graduate school–the idea that your stipend is enough to make it on like a month to month basis is kind of one thing. But is it enough to actually bridge you until you get to the kind of job that you’re supposed to have as a PhD?

27:27 Emily: And we know as you were just mentioning from the academic job market that it can take multiple cycles of going through this before maybe you get a possession or maybe you don’t. And what are you doing in the meantime? Are you adjuncting? Like that’s not a really solid situation either. So, it’s not only a stipend needs to serve you in getting, you know, from month to month, but it also should be enough that you can actually transition into the next position, you know, and not have to take on let’s say a bunch of credit card debt or whatever it is in the transition. Like to have to move and to have to have a lapse in employment and all the expenses as you enter the job market. Anyway, that’s me going on for a while about that. So, these challenges are definitely common. What do you think are some solutions or better practices that either the universities could be doing or individuals could be doing or anybody else could be doing to kind of alleviate this situation?

Solutions for Universities and Individuals

28:21 Chad: Yeah. Well, I think universities kind of start from the top and work down. Because I very much do believe in sort of this idea of agency and personal responsibility. But you have an obligation to make the best of the cards that you’re dealt. But you’re also not the one dealing the cards. And I think universities really do have an obligation–for PhDs or master’s students who are working– to pay them sort of a living wage. And there are definitely forces that are nudging them in that direction. Whether it’s like Washington DC, which has passed a referendum that I think will eventually set the minimum wage to $15 an hour which has started leading new improvements for friends that I know or master’s students who work hourly. Graduate unionization, kind of nudging for upped stipends. Also just, there’s the competitive angle of this, you know, trying to get the best recruits. I know with Georgetown we want to get the best people and we’re competing against universities like, for example, Emory or Vanderbilt that actually pay better and are also in cheaper cities compared to Washington DC. So I think universities have an obligation there.

29:40 Chad: I also think sometimes with just like master’s students, it’s a thing that is kind of maybe a joke or a truism, at least with the people I’ve talked to here, that, “Oh, master’s students, your job is basically subsidizing the PhDs or you’re subsidizing the department,” so you have an incentive to bring in more people. And it’s not necessarily going to be a funded program. And you know, okay, I paid in my $80,000. So as a PhD, I don’t always feel bad when I go into the department supply closet and be like, “I need a notepad.” But part of the function of some master’s programs is to recruit people, like identify people that would be good in PhDs. And I don’t know, the sort of like treating folks as a revenue source in that way. It’s just deeply unsettling. And not that I necessarily have an answer to that, but I think universities thinking of alternative ways to handle that or to control sort of tuition is important.

Are Students Primarily Producers or Consumers?

30:38 Emily: What I’m thinking about when you’re saying this is whether the student is primarily a consumer of what the university produces or a producer of that work. And scholarship is part of what a university produces, right? As well as the teaching and everything. So, for undergraduates I guess we kind of accept that they are consumers of the university, and they or the government or whoever should be paying for them to get this lovely education. PhD students we generally see as producers. They’re either teaching and spreading their knowledge and mentoring people, or they’re producing scholarship that is worthwhile. Master’s students I feel like could fall in either category and maybe are viewed mostly as consumers, yet as you were just saying, especially if they’re going onto the PhD level and producing scholarship of their own, even at the master’s level, maybe they should be viewed more as like producers.

31:40 Emily: But anyway, all of this is so, so complicated. And I’m really glad that you brought up like the unionization movement and how that’s affecting this conversation, as well as the competition thing. Of course. I was just thinking that, if we are going to view PhD students as producers of work, it makes a lot of sense to pay people enough that they don’t have to feel stress. Because if what the university wants is a product out of a graduate student, whether it’s a class or whether it’s a paper or whatever, it makes sense to give them an environment where they can produce a good product. And paying them enough that they don’t have to side hustle and they don’t have to take out debt and they don’t have to feel stressed, and it’s not a cloud looming over them all the time. It makes sense to me in terms of producing the best product out of those people as possible. I don’t know what your thoughts are on that.

Quality Work Requires Quality Pay

32:30 Chad: No, I absolutely agree with it. And I think it’s interesting because for me when I first got involved with the unionization effort here at Georgetown–it’s really funny if like, someone had tried to talk to me and get me involved by talking about how low my pay was, that wouldn’t have worked. It would have just been like, “Well no I make enough. It’s not a lot, but I make enough to just get by, and I have a little extra if I want to go out to eat with friends, I can do it.” For me the issue was sort of more transparency about things like job listings and responsibilities. But kind of over the last two to three years, as I have gotten closer and closer to the sort of end, it’s now much more about sort of money and like the awareness that, like what you were talking about earlier, a stipend that just allows earning a living in a livable wage that kind of also gives people a cushion. I’ve been lucky. I haven’t had any sort of serious medical problems or family issues that would’ve required like a massive outlay at one time. But there are a lot of people that don’t have that privilege. So, that’s for me like the big part of the unionization effort. Now it’s just like, we want people to do good, so we should create conditions where they can do good. Like, can do the thing that they signed up to do, whether that’s research, whether that’s teaching.

34:04 Emily: Yeah, absolutely. Thank you so much for that part of the discussion. I think we’ll just conclude the interview here by asking you what is your best financial advice for one of your peers? Maybe someone who’s anticipating the end of the PhD coming up fast.

Best Financial Advice for Your Peers

34:21 Chad: I think probably my best advice would maybe be more geared towards people earlier on, which is recognize that you’re going to change. When I started, I was 25 years old. $22,000 sounded like a lot of money. And like I said earlier, I felt like I kind of had made it. Recognizing that by about now I’m 31. I’ve had friends getting married and needs change. And seven years is a long time to be in one place. So, be aware of that, and when you’re starting out, make a plan kind of on that basis. You’ll hear some of the faculty here talk about, “You need to have like a 10-year plan for academic stuff.” Like when you’re going to publish and do all this sort of stuff. But I think also just the idea of having some sort of longterm financial plan, especially when you’re a graduate student and you’re dealing with pretty thin margins already.

Consider Long-Term Financial Goals and Changing Needs

35:17 Emily: Yeah. I totally agree and want to just underline what you said. To someone who’s in their early twenties or mid-twenties or something, that first stipend offer can seem great. Totally adequate. Fine. You’re looking at your rent, whatever it’s going to be fine. And then you get a few years down the line and your life changes and your career goals change and your responsibilities increase, often. I had another interview in season three with Scott Kennedy and he talked about getting married and having children during graduate school, which is not something that he had in his plan when he accepted that first offer letter. But it was, you know, over the years that he spent in graduate schools, something that came into his life. And so an amount of money that can seem workable at a younger age doesn’t necessarily seem so workable later. Not just because of the individual and your own life changes that you incur, but also as we were just talking about, because stipends don’t keep up generally with the cost of living and inflation, especially in these higher cost of living cities.

36:12 Emily: So, it could be that you’re actually falling behind in terms of an indexed amount of money as well as you yourself are getting older and having all these changes occur in your own life. So, it’s just an argument for prospective graduate students to be not accepting of something that seems “okay,” but really looking, as we were just saying, for competitive offers that will offer you well above the living wage for whatever area you’re moving to. Another thing which we didn’t discuss in detail, but tuition and fees–the responsibility that falls upon the graduate student for paying those–that can sometimes change. And universities who are facing funding shortfalls can change the package that you receive. So, hey, maybe your stipend doesn’t decrease or maybe your stipend goes up, as you were saying. Maybe it’s $1,000 a year, but maybe your fees are also going up by hundreds of dollars per year. That could easily be the case too.

37:04 Emily: And once you start in a program, you start feeling stuck and you’re invested, and there are sunk costs and so forth. And so, it’s just something to think about at the beginning to have more margin than you anticipate that you’re actually going to need because over five years, over seven years, whatever it is, a lot can change. So, Chad, thank you so much for this interview. It was really a pleasure to have you. Thank you for sharing so openly about your situation.

37:26 Chad: Yeah, thanks for having me. It was great talking with you.

Outtro

37:29 Emily: Listeners, thank you for joining me for this episode. Pfforphds.com/podcast is the hub for the personal finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple podcast, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media or with your PhD peers. Three, recommend me as a speaker to your university or association. My seminars cover the personal finance topics PhDs are most interested in like investing, debt repayment, and taxes. Four, subscribe to my mailing list at pfforphds.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode! And remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is “Stages of Awakening” by Podington Bear from the free music archive, and is shared under CC by NC. Podcast editing and show notes creation by Meryem Ok.