Personal Finance for PhDs

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Financial Goals

How This Non-Budgeting PhD Accomplishes Major Financial Goals

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In this episode, Emily interviews Dr. Alana Rister, a PhD in chemistry and the founder of the Science Grad School Coach. Alana and Emily discuss two major aspects of Alana’s finances from grad school and her postdoc: student loans and a condo purchase. Alana’s main financial goal during grad school was paying down her variable interest rate private student loans, and the strategies she used will be very accessible to grad students who, like her, don’t budget. Alana and her partner took a gamble in purchasing a condo when they moved for her postdoc, and then sold it less than a year later when she left that position. Listen through to the end of the interview to learn the connection between that condo purchase and the Science Grad School Coach!

Links Mentioned in this Episode

accomplish major financial goals

Teaser

00:00 Alana: Let’s preface this with I am not a budgeter. I’m really, it very much stresses me out because I’ve never been at a point where I’m really financially secure. So I’ve never been at a point where I’ve made a reasonable budget and there’s been a positive at the end.

Introduction

00:24 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 10, episode four, and today my guest is Dr. Alana Rister, a PhD in chemistry and the founder of the Science Grad School Coach. We discuss two major aspects of Elena’s finances from grad school and her postdoc: student loans and a condo purchase. Alana’s main financial goal during grad school was paying down her variable interest rate private student loans, and the strategies she used will be very accessible to grad students who, like her, don’t budget. Alana and her partner took a gamble in purchasing a condo when they moved for her postdoc, and then sold it less than a year later when she left that position. Listen through to the end of the interview to learn the connection between that condo purchase and the Science Grad School Coach.

01:19 Emily: I have my first two speaking engagements of the 2021-2022 academic year coming up this week. Speaking live to and with graduate students and PhDs is my absolute favorite activity within my business, even in a remote format. I’ve built out a slate of offerings this year that I’m incredibly proud of. My flagship seminar is the graduate student and postdoc’s guide to personal finance. And it’s typically what I recommend to first-time hosts, as it covers a broad array of personal finance topics, which of course I discuss through the lens of the PhD experience. I also have four deep-dive seminars on financial goals, investing, debt repayment, and cashflow. I offer these in three formats, which is new for me this year. I can deliver this material as a one-hour live lecture and Q&A, a two-hour live workshop, or a flipped classroom model in which I give access to the workshop videos and individual exercises in advance, and then hold a live call exclusively for discussion and Q&A. I’m really pleased to be able to work with grad students and PhD is to create actionable steps to improve their finances in each of these areas.

02:31 Emily: These four deep-dive seminars work very well as a series, but can also be booked individually. If any of those seminars sound interesting to you, please recommend me as a speaker to your university, graduate school, graduate student association, postdoc office, or department. It’s super easy and relatively inexpensive to arrange a remote event with me. Ask the potential host to go to PFforPhds.com/speaking, or simply email me at [email protected] to start the process. I really, really appreciate these recommendations. They go very far to support Personal Finance for PhDs so I can continue to provide great content, like this podcast, for free. Without further ado, here’s my interview with Dr. Alana Rister.

Will You Please Introduce Yourself Further?

03:23 Emily: I am delighted to have joining me on the podcast today, Dr. Alana Rister of Science Grad School Coach. And it’s really exciting that she volunteered to be on the podcast. We are going to talk about some of her financial decisions from the past, a decision from grad school, a decision up from her postdoc, and I hope we are all going to learn a lot from her stories. So Alana, thank you so much for joining me. And will you introduce yourself a little bit further to the audience?

03:45 Alana: Yeah. So thank you so much for having me. I’m so excited to be here. As you said, I’m Dr. Alana Rister. I am the founder of the Science Grad School Coach. And I got my PhD in chemistry in 2019 from the University of Nebraska. And since then, went on to a postdoc at East Carolina University, and have since taken a few months off to you found the Science Grad School Coach. And that’s kind of where I am today.

04:16 Emily: Yeah. And, by the time this airs, you will be in a new position. Do you want to tell us more about that?

04:21 Alana: I will. So I’m actually going back to where I got my PhD from, and I’m going to be a metabolomics and proteomics research specialist. So I’m getting to go back into research. I’m basically doing a lot of working on doing metabolomics and proteomics for other professors. So I’m going to be a predominantly lab position getting to do fun research.

04:45 Emily: That sounds awesome. I always thought when I was going through my PhD process that I would love to be, I would call it a staff scientist. Is that a fair term? Yeah, I would like to be a staff scientist somewhere. Of course my career went in a different direction, but I find that kind of position to be really attractive. So congratulations!

05:02 Alana: Thank you!

Student Loan Situation at the Start of Grad School

05:03 Emily: Alright. So the first subject we’re talking about today is student loans. Everyone’s favorite. We’re actually going to focus on your private student loans, and we’ll get into why in a moment, but give us the full kind of picture of what your student loan situation was coming into grad school.

05:20 Alana: Yeah, so I actually went to a private undergraduate university. And I did that because it was actually the same for me to go there as my in-state public university, because I got a bunch of scholarships to the private and no scholarships to the public. So I went there, but I still had to rack up a lot in student loans, unfortunately. So when I entered graduate school, I have the numbers here. So I had $15,539 in subsidized loans, $35,418 in unsubsidized loans, and then a $13,000 private loan. So my freshman year was the only year I took out private loans in undergrad. And that was that $13,000 private loan. So altogether, if I did my math right, it comes out to $63,957 that I had in student loans going into graduate school.

06:22 Emily: Yeah. And how did you feel about that at the time?

06:27 Alana: So I was not great. I was really worried because I knew that I had all this kind of loan built up. And when you get to graduate school, you might not be thinking about your loans because they’re generally deferred. And so it’s something, oh, I don’t need to make this payment. I don’t need to worry about it, but I knew that that bill was going to come due and I knew when it was going to come due, I wasn’t going to really have the financial security to pay it off. So I was constantly looking for ways to figure out, you know, how can I pay these things off quicker? One, just because of trying to not pay as much interest, but then two, so that when I did get out of graduate school, I didn’t have, because I think if I would’ve left graduate school with all of that money, it would have been almost $800 a month that I would have had to pay back using like the government’s extended repayment. It would have been over a thousand if I like tried to pay it all back in 10 years. And I was like, looking at what postdocs got paid and what other things got paid. I was like, there’s no way I’m going to be able to afford this. So I was really worried in graduate school about how I was going to navigate after graduate school, even though it wasn’t a payment I needed to make at that time.

Which Loan Did You Target First?

07:48 Emily: That is so interesting that you were more concerned about your future self when the deferment was over, than you were about maybe how were you going to do it in the meantime, right? I mean, I think it’s really forward thinking, but I think it’s unusual, right? Because many of us, I think within our finances have a very like optimistic view. Like, my income is going to be so much higher later, and that we hope of course that’s true. But also don’t necessarily, when we’re younger, think about, well, yeah, my income might be higher, but also I might have some expenses that are higher when I’m older also. So, so interesting, but you, you noted, there were three different buckets of student loans for you, federal subsidized, federal unsubsidized, and private. And so was there like one of those that you were going to target first or that bothered you the most?

08:39 Alana: Yes. So my private loan definitely bothered me the most. And that is because it had the highest interest rate, is the first reason it bothered me. The second reason is, so COVID-19 has apparently happened. And through that time we’ve had a forbearance on student loans. That doesn’t apply to private student loans. And so I knew that private student loans generally aren’t as nice as well when it comes to, you know, forbearances or deferments for your situation. And so when I got my student loan, my interest rate was at 7%. And by the time I paid off that student loan, because I had a variable interest rate, because someone told me that was smart to do back then. It was at 11% interest rate. Yeah. It was literally going up every month in the interest that I was paying.

09:35 Emily: Wow. What a great note of warning for the listener regarding variable student loans. First of all, to have it at 7%, 7%, it’s like, okay. Yeah, it’s kind of a going rate, like, but to get up to 11? Wow. In an overall low interest rate environment. I actually also had a variable interest rate student loan, a federal one, actually. It might’ve even, yeah, it was subsidized, and then became this variable rate student loan once I came out of deferment. But because of the time period, and I think because it was federal and not private like yours, the interest rate, I think it was like at two-something percent, three-something percent. When it got up to four, I was like, you got to go, and we just paid it off. So I’m just like really balking at 11. So it was really, really good foresight again for you to say, to target that as like, oh, wow, this is variable. I don’t know which direction this is going. Like let’s work on this first. So was that like your main financial goal during graduate school is working on paying down that private student loan?

10:35 Alana: Yeah, so that was definitely the main thing I wanted to do was pay that off and then have that off my chest. Because I mean, I still had, you know, several tens of thousands more student loans that I needed to work on. So that became kind of my main goal and what I was putting money towards. I still did like other things as well. I planned for trips and stuff like that that I could go do. But that was definitely, my goal was I wanted to pay off all $13,000 by the end of my PhD. I didn’t get to that. I did $10,000, mainly because I graduated a year and a half early in my PhD, so I graduated in three and a half years. So I ended up paying it off by what would have been the end of my fourth year.

Strategies to Pay Off the Private Loan

11:23 Emily: Oh, wow. Well, that’s a great financial decision all on its own. Just get out of grad school faster. That’s awesome. I love that you identified paying off the loan in its entirety as like an ambitious goal. It’s the kind of thing that like, you know that phrase like, shoot for the moon, and even if you miss you’ll end up among the stars? Like paying off $10K, like you’re among the stars, like that’s amazing in three and a half years. That’s amazing. So let’s hear more about how you mechanically did that. Like what strategies were you using?

11:50 Alana: So I think there were probably like three, okay, let’s preface this with I am not a budgeter. I’m really, it very much stresses me out because I’ve never been at a point where I’m really financially secure. So I’ve never been at a point where I’ve made a reasonable budget and there’s been a positive at the end. So it like always stresses me out to just make a budget. So I’m just like in general, very conscious of spending money, and every time I’m spending money, I’m kind of like, is this really worth spending or not? So that’s kind of, I don’t know if that’s really a strategy, but that’s just kind of how I am.

12:27 Emily: Yeah. It’s like a predisposition, kind of.

12:30 Alana: Yeah. So probably the biggest thing that helped me to be able to do it was that I went to a graduate program in Lincoln, Nebraska. So location is a big thing when you’re choosing a graduate school, and I really wanted to go to a big city. Fortunately, I think, I didn’t get into programs in big cities. And so I came here and you can get, so my first apartment, I shared it with two other people. It was, you know, fairly new apartments, very modern. It was a $400 rent. So it’s just so much cheaper to live in a place like Lincoln. So I think my monthly stipend was $1,700 after taxes. And so that goes a lot further when your rent is only $400 of that 1700. So I think that’s a major factor is the fact that I was living in a much lower cost-of-living area.

13:29 Alana: And then what I would do is, so whenever my like bank account gets below $1,500, I like start freaking out. So I plan to every month to try and put $500 towards my student loan. So we get paid once a month at the end of the month. So right before my paycheck would hit, I would look at my bank account and I would say, okay, there’s this much. And if, you know, I had $2,000 left, I would pay $500 if I had below that I would pay until I hit that $1,500 mark. And so that was kind of my strategy in paying that loan off.

14:09 Emily: Yeah. I really like the way you articulated that and think it is probably really relatable for people who, as you said, are not budgeters or are not into that, but like you are kind of have a predisposition of, okay, I’m really going to kind of carefully weigh my spending and you have this target of $500 per month in mind. Yeah. Maybe you don’t hit that every month, but you’re going to be, when you’re drawing close to that and you’re starting to eat into that balance, you’re aware of it. So yeah, I think that strategy can be really relatable.

Take Advantage of Research Award Opportunities

14:36 Alana: The third one I did is I actually worked on getting a bunch of research awards. So I got a research fellowship that I think was right around $3,000 that was paid out over two years. And I put all of that money towards that private loan. I got multiple research poster awards. There was actually one poster session that was done every year that I literally just went to it to try and get the award so that I could put it towards my student loans. And I think I won like first or second place every year, which was like a 200 to 250 or $300 award. So it’s a nice, you know, amount of cash coming in. So I would do things like that, looking for fellowships, research awards, poster sessions, talk sessions and trying to do things like that, to be able to get some extra income and probably about $3,000 to $5,000 of what I paid towards my student loans probably came from the research awards and fellowships that I got.

15:42 Emily: That’s incredible. And what a boost for your CV, too, like so nice to have that double benefit if, you know, whatever your motivation is for going, you know, going after these things, going after awards, the outcome is great if you actually get it. And even if you don’t, it’s still worthwhile. So yeah, that’s great to hear. And so those awards, when you mentioned your stipend earlier, that’s all on top of that stipend. So you just kind of had a plan of like any windfall money, like that would go straight towards the student loans.

16:09 Alana: Yep.

16:10 Emily: Alright. Yeah. Anything else you want to share with us about how you made that work?

16:15 Alana: I don’t think so. I mean, those were kind of my biggest things. It wasn’t a very planned thing, but it was a thing that was like always on the front of my mind. Anytime I would look at my finances, I kept thinking, is there a way I can put more money to get this, you know, student loan paid down?

Current Status of Loans

16:31 Emily: Yeah. Well, let’s hear current updates. So you said you finished in 2019, we’re now in 2021. We’re recording this in April, 2021. So yeah. Where are your private student loans now? Where do they stand?

16:45 Alana: Yeah, so I paid off, so it was just one private student loan. I paid off all $13,000 March of last year. So three months after I graduated, I had the last $3,000 paid off on that one.

17:01 Emily: Incredible, congratulations!

17:04 Alana: Thank you!

17:05 Emily: Then, regarding the federal loans, we know what happened, just starting in March, 2020, administrative forbearance. What are your kind of plans around your payoff for that? Like, are you going to stick with an income-driven payment plan? Are you going to do it more aggressively?

17:19 Alana: So right now I’m on the standard, but the extended standard. So, because I had, I think it’s $25,000. Because I had over the 25,000, there’s an extended where they give you 25 years to pay it off instead of 10 years. So I’m on that right now. And my plan is that, once I start my new job and I have, you know, a little bit more money coming in, I paid some off as I’ve had, you know, extra cash in, but as I start this one, I’m going to start more heavily putting it on to those student loans. So I’m not going to change the actual plan I’m on because there’s no penalty for paying things off early. I’m just going to, you know, put extra income that I get towards my student loans to be able to pay those off more quickly, if that makes sense.

18:11 Emily: Yeah, it totally does. So you’re keeping that minimum payment low just for flexibility, but you still have that as kind of a primary goal. And you’ll still be doing aggressively and just because we are in April, 2021, what do you think about the possibility of student loan cancellation to any degree? Are you factoring that into your plan?

18:32 Alana: So I am not, I am a plan for the worst, hope for the best kind of person. So I’m not, I would be very thankful and appreciative if there was any form of cancellation because, you know, I have a partner who also comes with their student loans, but I’m not banking on it. I think that’s been in talks for a very long time with not really much coming of it. So the forbearance that happened in 2020 was actually a huge benefit to me and has allowed me to make a lot of decisions that I wouldn’t have been able to make had I not had the COVID forbearance. So I’m thankful for that, but I’m not going to, you know, make a plan that, you know, student loans will get canceled or partially forgiven.

19:23 Emily: Yeah. Well, this is a really exciting time. I’m so glad that we caught you right here at the cusp of your new job in that new phase. But again, congratulations on killing the private student loans, having them be completely gone.

19:34 Alana: Thank you.

Commercial

19:36 Emily: Emily here for a brief interlude. These action items are for you if you recently switched or will soon switch on to non-W2 fellowship income as a grad student, postdoc, or postbac and are not having income tax withheld from your stipend or salary. Action item number one: fill out the estimated tax worksheet in form 1040ES. This worksheet will estimate how much income tax you will owe in 2021 and tell you whether you’re required to make manual tax payments on a quarterly basis. The next quarterly estimated tax due date is September 15th, 2021. Action item number two: whether you are required to make estimated tax payments or pay a lump sum at tax time, open a separate named savings count for your future tax payments, calculate the fraction of each paycheck that will ultimately go toward tax, and set up an automated recurring transfer from your checking account into your tax savings account to prepare for that bill. This is what I call a system of self-withholding, and I suggest putting it in place starting with your very first fellowship paycheck so that you don’t get into a financial bind when the payment deadline arrives. If you need some help with the estimated tax worksheet, or want to ask me a question, please join my workshop, Quarterly Estimated Tax for Fellowship Recipients. It explains every line of the worksheet and answers common questions that PhD trainees have about estimated tax. Go to PFforPhds.com/QETax to learn more about and join the workshop. Now, back to our interview.

Real Estate Purchase During Postdoc

21:15 Emily: Okay, let’s talk about the next topic you wanted to bring up, which is about your real estate purchase during your postdoc. So let’s hear the whole story around that.

21:23 Alana: So I met my partner in graduate school, actually, the day before I started graduate school, I met my partner. And so he had a house. He had bought a house years before we met, and when we moved, he sold the house. So we had some money come in from that. And when I took a postdoc, I took a postdoc in Greenville, North Carolina. And it is kind of interesting because when I was looking for housing options, I had the option of paying around a thousand dollars a month for a one-bedroom, one-bath apartment, or I could buy a condo that I could pay $650 a month for a two-bed, two-bath condo.

22:12 Emily: Those numbers are very surprising.

22:14 Alana: Yeah. So real estate was really, really cheap there. And to get into a decent apartment that, you know, wasn’t bug-infested and had other problems, it was very expensive to do there. So we decided to invest and we bought a $85,000 condo, two-bed, two-bath condo. And you know, my partner comes from a family that has constantly flipped homes. So this condo looked very bad. It kind of looked like it had been run down from the seventies, but was built in the nineties. So it was kind of interesting, it had been a rental for years and we kind of transformed it. I think one of my friends said it looked like a modern New York City apartment by the time we were done with it. So it was kind of interesting because we worked a lot on the condo and made it look a lot nicer, but our main driving factor for buying it was primarily because it was so much cheaper. And it was going save us so much money in the long-run. Both because we were investing in something, and then also just because the monthly payment was so much lower when we bought something versus renting a place.

23:36 Emily: How did you fit such major renovation projects around your research schedule?

Renovations and Research

23:44 Alana: I think there’s like a couple things. So one, I didn’t do most of the work. I’m going to be honest. So my partner, Greenville’s a really small town, so my partner actually had difficulty finding jobs there. So he was unemployed for about half the time we were in Greenville, and he spent a lot of his time working on it. I was more the design person. So I was like, this is what we’re going to do. And then I did some of the renovations and it kind of became like our hobby. So I took a week off at the end of my PhD, went down to Greenville, and we did the initial renovation. So we redid the floors, painted the walls, made it at least livable. And that was kind of the bulk. And then we did one more bulk right before we sold the place.

24:30 Alana: That kind of put us over the edge on getting a higher price back. But I think kind of knowing what you’re doing helped because like some things we really didn’t know what we were doing and Googling a lot of things. But I think having someone that, you know, my partner knew a lot more what they were doing when coming to a construction project and then, you know, it kind of ends up being fun after a while. And so that kind of became where we put our free time when we worked on it together around my research schedule.

25:05 Emily: Yeah. That’s really good to hear. I always kind of wonder about how like sort of logistically that works. Anyway, so my husband and I just closed on our first house. It’s very turnkey, but there are like a few things we wanted to change. So we’re kind of in the midst of like this, how much do we outsource? How much do we DIY? What kind of capacity do we have to actually work on this house? Or, you know, those kinds of questions are kind of circling in my mind right now. So I’m just really glad to hear how you did it. So I have been consuming more real estate investing content recently, a little bit from BiggerPockets, and I know Mindy Jensen, who’s the co-host of the BiggerPockets money podcast calls, what you described, a live-in flip. So that’s what she does, like serially, she does live-in flips, one after the other. But that’s great. So you had that initial experience. Now, I think you said that your postdoc was pretty short term, is that right?

25:58 Alana: Yeah, so it wasn’t supposed to be. So I started January 3rd, I think 2020, and I ended it October 31st, 2020. So it was about a 10-month long postdoc. The initial contract was until March of 2021, and then I was supposed to extend it for like another year, but I ended up kind of cutting it short and actually moving back to Lincoln, Nebraska.

Is a Real Estate Purchase Worthwhile?

26:28 Emily: Yeah. And so I think this is something that’s really on the minds of people when they move for grad school, move for a postdoc, move for a first job is, how long am I actually going to be here, and is a real estate purchase worthwhile? So can you tell us your thoughts on that? Like, did you have that thought you first moved there? I mean, obviously the numbers made a lot of sense, but over what time period did the numbers make sense?

26:49 Alana: Yeah, so I definitely had that thought, especially because when you’re looking at buying or selling, there are a couple of things you have to, so I said, you know, it was $650 per month, you know, versus a thousand. So that’s like what, a $350 difference that I probably would have been paying. But then you look at your down payment. So my down payment on the condo was just under $5,000, which was a lot cheaper than a lot of real estate down payments. But if you spread that out through time, you would realize that that’s a lot more than the thousand dollars a month. And so there were a lot of questions that we had on whether this was going to be a smart purchase or not. We were expecting me to stay for about two years. And generally you want, you know, for, I think the advice usually given is five years to make a real estate purchase. You want to be there for about five years. But I think the biggest thing was just our comfort level. And especially with the lack of really good landlords in Greenville, we felt like we were more suited, we knew the real estate market. We knew how to sell houses. We knew how to do that stuff. So we kind of took a gamble. And we went that direction instead. And we were like, we might come out at a loss in the end, but we think our experience there is going be a lot better. And so it might be worth that loss in the end.

28:21 Emily: Yeah. I was going to ask how did it end up turning out?

28:25 Alana: Yes. So actually it was really good. One, we did flip it, so we bought it for $85,000. We sold it for $99,500. So a pretty nice, we actually got an offer for like $104K, but it didn’t appraise for that. So it was a pretty big, you know, good chunk of change, I think after all the sales commissions and everything, we came out, because we also sold all the furniture with the house. So we came out with about $15,000 in the end. But the biggest thing was, that we didn’t think about, is because we had bought real estate, we weren’t hooked into a lease. So we sold our place, we went under contract in September, which means we could leave, where if we had started a lease in January, by the time, you know, October came around, which is when we left, we left October 1st. So by the time that came around, we would have had three months left on our lease. So we have had to end up paying a lot more to get nothing just to break our lease. So ultimately it was kind of a good decision in that we were able to, you know, leave without having to worry about paying, you know, penalty fees.

29:36 Emily: Yeah. I’m really glad that, you know, you’re here to tell this story because I think, for me anyway, my mind more naturally goes to like the downsides of taking, you know, risky decisions. And I think everyone should of course be aware of the potential downsides, but just know that there are upsides also that you might experience that are just as, or maybe even more likely, than the downside. So like, yeah, clearly it was a risk, it was a risk at two years, it was more of a risk at 10 months or nine months or whatever. But it did work out, and the thing is, you didn’t have to sell. If that was not going to work out financially for you, you were not required to sell, you could have moved and rented it out. You had other options. Right. It’s just that, oh, selling did make sense. And so you went through with it.

30:21 Alana: Yeah. So we actually considered that. We were looking at actually either doing Airbnbs for it or doing a long-term rental. And we actually looked into it, and like right as that was happening, there was kind of a real estate bubble. Because of COVID, nobody was selling real estate. So there was a scarcity on the market, and suddenly condos that were usually priced at the 60 to 80,000 range were starting to go near a hundred thousand. And like, so we were like, okay, this seems like it’s a good decision. And we could have always denied a contract if we were like, okay, we’re not going to get enough out of it. And we kind of just wanted the peace of mind. We didn’t really ever want to go back to Greenville. So we didn’t want to have a place that we knew we would have to take care of, but it was definitely something we looked into. And if we stayed closer to the area, we probably would have done it for short-term rental or something.

Real Estate Flip Funded Science Grad School Coach 

31:16 Emily: Yeah. Well this is so interesting. I’m really glad to like kind of learn that it did work out positively in your case. And so when you volunteered for this, you said you wanted to tell how that real estate flip funded your Science Grad School Coach endeavor. So tell us about that.

31:34 Alana: So that $15,000 that we got from the sale of the condo, which knowing for like me and my partner, if it hadn’t been in the condo, because we, you know, put $5,000 down, it probably wouldn’t have been around by the time we got, because again, we’re not budgeters. So the fact that it was there and we had that money, it allowed me to kind of make the decision. My partner finally got like his dream job back in Lincoln. So we made the decision for me to go unemployed and work on building this business and for him to come here, and his job was not fully going to support us here. So the money that we got from the sale of our house actually made up for at least a year. We would have been fine for at least a year between the savings and then also, you know, his income.

32:30 Alana: And so that kind of started me having the freedom to really pursue starting the Science Grad School Coach and work on it. And then on the side, I kind of looked at applying to jobs and things like that. Because I was kind of sad to leave research. I still wasn’t exactly sure what I wanted to do. And now kind of right as things are starting to come into play with the Science Grad School Coach, I’m also starting a new job. So like in the end, it was a risky decision. And the only reason we could have taken that decision was because we bought a house and sold it and had that extra money leftover to then come here and have that time. And now I am employed, starting Monday, I will be employed. And so that’s going to give me the opportunity to kind of do both. Both the Science Grad School Coach, and then also go back into research.

33:24 Emily: Yeah, this just, you know, is another example of what I like to say is money gives you options, right? The option to pursue fun employment. The option to wait for a great job opportunity to come and not try to force yourself into one that’s not a great fit, et cetera, et cetera, et cetera. And I also had, I guess, somewhat of a similar story when I started Personal Finance for PhDs, which just in the sense that my husband and I focused a lot of our energy and our finances on retirement investing when we were in graduate school. And so by the time we finished, and I talk about this in season one episode one, by the time we finished, we had quite a good nest egg, and that made us feel comfortable to take risks with our careers. So he took a job at a startup, which we were very concerned about.

Where to Learn More About Science Grad School Coach

34:09 Emily: It happens to be that he’s still at that same position six years later, but we did not know at the time that it would be around for six years. So he took a job at a startup and I started my business, which, you know, low revenue, you know, initially. So yeah, it was risky, but we felt confident, not because we had a bolus of cash savings as you did, but just because generally we were doing pretty well on the retirement front and we, you know, felt like it was okay to take a risk. So just so interesting, like I’d just love to hear another example of how your finances, like, we all know that our careers can affect our finances, right? By what job we choose and so forth, but how your finances affect your career as well. And for you, your ability to start your side business. So yeah, I’m just, I’m really glad to hear that. If people are intrigued by Science Grad School Coach, where can they find you and you know, what are you doing there?

34:59 Alana: Yeah. So the Science Grad School Coach is kind of the business I developed to help people with pursuing research. So like I said, one of the ways I was able to pay off, you know, a lot of my student loans was because of getting research awards and research posters. And something I realized is I’m actually good at doing research. But I didn’t start out that way. When I started in graduate school, I was really frustrated because I felt like everyone expected me to know things, but nobody ever taught me those things. So I had to kind of, over time figure all these different things out from how do I create a research idea, to how do I write a paper, to how do I put a poster together? And so what I’ve done is basically I want to share that knowledge with other people.

35:50 Alana: And that’s what the Science Grad School Coach is. So if you’re interested, I do have a YouTube channel which is the Science Grad School Coach. And there’s where I share a lot of, kind of shorter videos on different topics around research and how to get better at research and do things like that. You can also find me on Twitter at @scigradcoach. And then I also have a full resource pages if you’re interested that I have several different resources on there from how to create ideas, how to write a paper, how to do your dissertation. And you can find that at sciencegradschoolcoach.com/resources. And so those are kind of three different places where you can connect with me and hopefully get to learn some of the things that I’m trying to share. And hopefully it’s helpful.

36:43 Emily: Yeah. I love that impulse and I wish that I had run across a few of those resources back when I was in graduate school. Maybe the information was there. I don’t know. I didn’t, I was not plugged into it if it was.

36:54 Alana: Yeah, I definitely wasn’t either. And I think people don’t realize that research can be easy, and then it’s just because we’re not taught how to do it and we’re just expected to, and then we have to deal with the frustration of being like, I don’t know what I’m doing, but I feel like I’m supposed to know. So I did something wrong. And it’s not that you ever did anything wrong. It’s just how the system is set up is not set up for researchers to do well, I guess. It’s set up to make you struggle when you don’t need to. Because like I ended up writing or publishing seven papers in my three years as a graduate student, but it didn’t start out that way, right? Because I like really struggled. And then I started learning where I can write a research paper. Once I have the data, I can write it, you know, in a day or two. And that’s just because now I know how to do it. And so that’s what I’m trying to share with other people.

Best Financial Advice for Another Early-Career PhD

37:47 Emily: Yeah. Excellent. Very worthwhile endeavor. Love it. Okay. I’ll ask you the question that I end all my interviews with, which is what is your best financial advice for another early-career PhD?

37:59 Alana: So this is probably not the best advice, but I think my best advice is to think a lot about the location you’re going to. That’s one of the reasons why I came to the university I came to was because I started looking up rent prices and saw how cheap it was. But something that you may not know is before, so I came back to Lincoln after my postdoc. But I actually got two different job offers before I came back to Lincoln. I got an industry job that was going to pay me $85,000 that was in a middle, kind of a higher than Lincoln, cost-of-living, but it was just not the right job for me. But then I got my dream job, which was a postdoc. It was doing the dream research I wanted to do in Seattle. And I looked at the living cost, and I said, I’m going to have to take on debt to go work a job.

38:56 Alana: And I refuse to do that. And so I actually went for unemployment because it was cheaper for me to come to Lincoln and be unemployed than it was for me to go to Seattle and work a job. And so that was a really hard decision for me to make, because I really wanted to do that research. But I think it’s important to think about the fact that even as an early PhD, like you are worth something, and if you’re not going to be netting positive while working a job, you really may want to reconsider taking those jobs because that really shouldn’t be a thing, especially after you have a PhD.

39:40 Emily: What an indictment, you know, of the salaries that we pay, both graduate students and postdocs. Absolutely. And it’s so unfortunate. I mean, it’s the academic loss, the research engine’s loss that you did that calculus and came on the side of, I can’t take this job because you simply don’t pay me enough. You made a rational decision in the face of that, you know, situation, but it’s just so unfortunate that things are set up that way. In any case, you have another wonderful job coming up now in Lincoln. And yeah, I totally agree with you. You have to be very careful about examining the cost-of-living versus salaries. You know, the salary numbers, if you’re coming from a lower or a middle, you know, cost-of-living city, moving to a high-cost living city, like maybe that initial postdoc salary looked to you like, Hmm, not bad, but then you had to actually look into it and say, oh no, Seattle, quite expensive. It’s not going to work. So I totally agree with you do that at every single, you know, any job you’re trying to take going forward. Is there anything else you wanted to add on that?

40:40 Alana: I think that’s the main thing. Yeah, and like Seattle, like that was my dream city too. Like that is where like I want to go retire. So it was like so tempting to take it. And then just to realize that you’re literally not paying me enough to even afford rent, really. And so this new job I’m taking is just slightly over that same salary, but it’s so much more livable because Lincoln is literally less than half the cost-of-living of Seattle. So making that kind of decision, I think it’s so tempting to think that if I take this dream job, it’s going to propel me to the next dream thing. And kind of after different situations in my life, I realized that that’s not always true, and it’s not worth either going through a toxic situation or a situation where you’re not making enough money to live for a hope of the next thing, because if you don’t get that next thing, you’ve screwed yourself.

41:41 Emily: Yes. Such an important message. I mean, we all know the abysmal hiring rates for of course faculty positions, but even as I said earlier, like we tend to be really optimistic about the whole salary situation in research. And Hey, we all hope it comes about, but you’ve got to look at the downsides, too. So it’s interesting that you’ve sort of illustrated in your story, a couple different gambles that we’ve been talking about and how you’ve made different decisions, you know, in the face of these. So yeah, I love that, you know, you illustrated those points. Thank you so much for joining me today. It was a pleasure to have you and to get to know you.

42:14 Alana: Yeah. Thank you so much for having me. And I hope that my story can be helpful to other people especially about, you know, thinking about student loans while you’re in grad school. Because the other thing is, unless you have subsidized loans, your interest is still building while you’re doing that. So just, you know, thinking about that and then kind of making smart decisions when it comes to, you know, gambles. So I’m actually, I’m not a risk taker. I realize that this sounds like I’m a risk taker. I’m really not. Like I weigh through the pros and cons of everything I do. And you know, there are some risks you have to take in life, but I try to limit those to those that are just absolutely necessary. So I hope that this can help people that sometimes it works well. And sometimes not taking an opportunity also works well in the end.

43:07 Emily: Yeah. Thank you so much for sharing these stories and for joining me.

43:09 Alana: Yeah. Thank you!

Outtro

43:11 Emily: Listeners, thank you for joining me for this episode. PFforPhDs.com/Podcast is the hub for the Personal Finance for PhDs Podcast. On that page are links to all the episode show notes, which includes full transcripts and videos of the interviews. There is also a form to volunteer to be interviewed on the podcast. 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 Podcasts, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media, with an email listserv, or as a link from your website. 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 effective budgeting. I also license prerecorded workshops on 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 by Lourdes Bobbio, and show notes creation by Meryem Ok.

How This Grad Student Plans to Contribute to His Roth IRA Using 529 Money

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In this episode, Emily interviews Ben Wills, who is starting a master’s of science at Georgia Tech at age 29. They discuss the interesting jobs and experiences that Ben had in his 20s and why he is now pursuing a graduate degree. Ben’s main financial goals for graduate school are to not accumulate any debt and to max out his Roth IRA each year, and he shares how those goals align with his values. Ben and Emily discuss how to remove money from Ben’s 529 account without penalty to supplement his stipend and keep him on track to reach his financial goals while living in Atlanta.

Links Mentioned In This Episode

529 Roth IRA grad school

Teaser

00:00 Ben: Have a little kind of metacognitive experience and, you know, watch your feelings, watch the stories that are in your head and just have, you know, a sense of curiosity like, oh, where did this come from? And how is this helping?

Introduction

00:18 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 10, Episode 1, and today my guest is Ben Wills, who is starting a master’s of science at Georgia Tech at age 29. Ben relays the interesting jobs and experiences that he had in his 20s and why he is now pursuing a graduate degree. Ben’s main financial goals for graduate school are to not accumulate any debt and to max out his Roth IRA each year, and he shares how those goals align with his values. We discuss how to remove money from his 529 account without penalty to supplement his stipend and keep him on track to reach his financial goals while living in Atlanta.

01:05 Emily: I’m excited to announce that with Season 10, we’re resuming a once-per-week publication schedule! Lots of great interviews are coming your way… which means I have to record lots of great interviews. If you are interested in being a guest on this podcast, you can do exactly what Ben did, which is to go to PFforPhDs.com/podcastvolunteer/ and submit your info there. I highly encourage you to volunteer now as I will batch record interviews over the next few months that will be published through April 2022.

01:37 Emily: If you’ve listened to at least a couple of interviews you know that they are pretty low-key and casual. Many of my guests have told me that this was their first podcast interview ever and that the had a great time! Don’t worry if you’re not super sure of the topic of your interview. A lot of volunteers type a few ideas into the form and then we settle on one over email. Again, now is the time to volunteer! Go to PFforPhDs.com/podcastvolunteer/. I can’t wait to speak with you! Without further ado, here’s my interview with Ben Wills.

Will You Please Introduce Yourself Further?

02:13 Emily: I am delighted to have joining me on the podcast today Ben Wills. He is entering graduate school in fall 2021. He’s going to be a master student, and is not quite a traditional student. He’s actually 29. And so we are going to be talking about his career-to-date, why he’s pursuing graduate school, and what his financial goals are going to be as a person with a little bit more financial experience than someone coming into graduate school right out of college. So, Ben, thank you so much for volunteering to be on the podcast. And will you please introduce yourself a little bit further?

02:42 Ben: Sure thing, thanks for having me. Ben Wills, again, I use he/him pronouns as you got right. I am 29. I studied cognitive science as an undergrad way back when, at this point, and basically since undergrad, I’ve done kind of a potpourri of fun, like life-building, resume-building sorts of experiences as I’ve kind of approached it. So I spent an AmeriCorps year in Juneau, Alaska working with men who committed domestic violence and betters intervention programs. Then I worked at a law firm doing disability law for a couple of years, and I got funding from my Alma mater to do some research in Australia with a research mentor. And then I got my current job, which is, I’m a project manager and research assistant at a bioethics think tank in New York. And I’ve been here for almost three years and coming to the end of my tenure.

03:34 Emily: Wow. Let’s discuss that further in a minute. That was exciting. What is the program that you’re going into and where will you be?

03:40 Ben: Yeah, I am going to be starting a master’s in science in the history and sociology of technology and science at Georgia tech.

Work Experiences Prior to Master’s

03:49 Emily: All right. Congrats. And that is a mouthful. My graduate degree has many syllables as well and many words that sort of trip people up who aren’t in the field. So that’s fun. Well, yeah. Tell us more about these work experiences and like maybe was there a direction you were going in or you were just kind of looking for that like interesting, fun, next thing? Like how did that go?

04:09 Ben: Yeah, I basically knew that I will probably end up in a career where it’s kind of my career. You know, right now I’m looking at kind of going into a law or public policy sort of space after this degree. And if I get really sucked into, maybe academia. I kind of saw opportunities and did what felt right at the time. So for the AmeriCorps program, I was in college, I was working on a senior thesis, and I was just so focused on me and my work that I really felt like I needed to kind of turn my attention outwards. And so doing a year where it’s called a service year and the particular program I was in we were living in an intentional community, all like working in social service organizations, and we had a very kind of structured experience. And it was really perfect for me.

05:00 Ben: After focusing on magnetic resonance imaging of people and researching what the self is with a neuro imaging scanner, such a thing can be done, to focusing on, you know, humans and what people’s needs are and kind of like social context. So that was really important and generative for me. And then after that, I moved back home to my folks and I’ve been interested in law for a while, and I was fortunate enough to be connected to someone who was looking for a legal assistant. And so I started working at a law firm downtown. And then yeah, my Alma mater has this kind of pocket of money that you can apply to called the Maguire Fellowship. And you can basically use it to, it’s a competitive fellowship, but you can use it to fund study or independent research abroad.

05:51 Ben: And I had read a book called Delusions of Gender by Cordelia Fine in college that was really cool to me because she was one of the first people that I had read who within science talked about, kind of like, the social construct of science. And, you know, if you have scientists with, you know, gendered expectations of what, you know, men and women and other people’s kind of reality is, then those expectations will be born out in their research methods and their results. And that kind of blew my mind and I wanted to work with her. And so, you know, I just emailed her and said, Hey, if I get some money, can I come work with you? And she said, sure. So I applied for it and got it. So I was in Melbourne, Australia for a year.

06:29 Ben: Then, yeah, I was kind of testing what does law look like? What does academia look like? What is the intersection of the two kind of in a public policy sort of facing academic sort of situation? That’s where I am now, which is a place called the Hastings Center. And I’d actually taken a class with one of the scholars at my school, Vassar. He had adjuncted there, and his name is Erik Parens, and I took a class with him on the post-human future which is all about, you know, gene editing humans and all this sort of wild cool stuff. And I thought it was great. And I kept that kind of organization in the back of my mind when I was in Australia, applied to a project manager research assistant position there and got it. So I flew back to Oregon, bought a car, and 10 days later, I was in New York, starting up a new job.

Decision to Pursue Master’s in Science

07:20 Emily: Wow. This is so exciting. And what brought you specifically to the decision to pursue the master’s in science over maybe a law degree or some other kind of further education that you might do?

07:31 Ben: Yeah, so I think, you know, at this point I’m really interested in kind of doing more of an applied kind of work. So, you know, compared to the kind of academic environment that I’m interested in, which is, you know, a little bit more social science, humanities, I’m interested, you know, in terms of topic areas that I’m interested in. I was interested in doing more of an applied thing and, you know, when you’re going to law school, when you’re doing a terminal master’s in public policy, for example, those are kind of like, you know, they’re vocational schools basically. You’re getting a degree and you’re learning skills, and you’re learning a way of thinking. And I still had questions that I want to answer and kind of ways of thinking and topics of exploring. I’m particularly interested in direct consumer telemedicine like Hims and Hers and Roman.

08:15 Ben: If you’ve ever seen subway ads with phallic cacti or on your Instagram feed, those are advertisements from these direct to consumer telemedicine startups that I’m interested in kind of researching their kind of ethical implications. And I want to explore this more and you can’t really do that, you know, in law school. But I didn’t want to commit to a whole PhD, and Georgia Tech’s program is interdisciplinary. They have people who are coming from history of technology, coming from sociology of technology, also medical sociology. They have folks, faculty there, and it seemed like a great opportunity to kind of learn more about what I’m interested in without having to commit to a whole PhD to do it. And also, I was lucky enough to get funding to do that, which was a real difference maker.

09:03 Emily: Yeah, I was just going to say, I think the funding, like it’s clear from your work history. Like you’ve had some, not really jobs, but they come with money, right? Like the AmeriCorps thing, the fellowship that you did, or whatever it was, in Australia. So you have found a way to get money, at least some, while you’re still exploring these different areas. And the masters seems to be an extension of that as well.

09:25 Ben: I think that’s fair to say. Yeah, I definitely wouldn’t have done this program if I hadn’t gotten funding. I’m only going to take on debt for something that has a little bit more kind of monetizable potential.

Shifts in Money Mindset: From College to Present

09:38 Emily: Well, yeah, let’s talk more about the money stuff then. Through these various different jobs and experiences that you had since college, or maybe even before then, you know, what do you know about money or what is your money mindset right now that you think is different than what it was for you coming out of college or going into college?

09:57 Ben: Yeah, that’s a great question. I think college is a really weird time for finances. If you have the privilege that I did going to school, you know, I had to go to a school that had really good need-based financial aid, but I wasn’t financially independent. I didn’t have to make sure that I could afford rent and stuff. I was living on campus. And so I didn’t quite know how money worked really. So, and then living in Alaska, we all kind of shared expenses. Everything was very structured. So it was kind of, you know, the kiddie pool version of understanding what it is like to be a person who lives in a world where everything costs something. And so I think it was about the time I was 24 that I started living on my own for the first time, got a lease with a friend, and I started learning how things work. But of course I had some kind of money mindsets that I came up with.

10:48 Ben: And some of those were things like, my folks are very frugal and they went through a pretty lean time when I was in middle school. And so I definitely have a frugal kind of ethic. And I don’t spend money that I don’t need to. And I, you know, learned things like, you know, take advantage of credit card intro offers, but don’t carry a balance ever, ever, ever, or it’s not worth it. You know? So I was really lucky to learn some pretty smart ways of thinking about money from my folks. And also my mom does kind of investing almost as a hobby. She gets really into, you know, managing my dad’s and hers, you know, retirement finances, and, you know, thinking about how, you know, the best way to kind of help them to retire. She’s 10 years older than my dad and close to retirement. So this is something that’s very much on her mind and I’ve learned a lot from what she’s been able to learn, which I consider myself very lucky. Because I think, you know, this kind of, what you don’t know costs you. And that’s not fair, but I’m glad that I know what I know.

11:47 Emily: I’m really interested in hearing more about your AmeriCorps experience in particular, because I don’t think I’ve interviewed anyone on the podcast who did AmeriCorps, we haven’t had a detailed discussion about it. But I, as a person who didn’t do it, kind of think about AmeriCorps as even more financially difficult than your average grad student situation, like living on less. And I understand a lot of it is like, it has to be subsidized like your housing and your food and so forth in many places. So how do you think that you having had an AmeriCorps experience in your past, how do you think that specifically affects how you’re thinking about graduate school and your finances in graduate school?

12:25 Ben: Yeah. Great question. I think, so the interesting thing is, so it’s an AmeriCorps program, but it was AmeriCorps-funded to an organization called Jesuit Volunteer Corps Northwest, which has existed since before AmeriCorps existed. And so they take funding from the federal government for that, but they, you know, they already have a house where I lived, you know, they put me with these other people. And you know, the house’s rent is like prearranged with the landlord. So there’s a lot of that sort of stuff, which is so stressful about moving to a new place and expensive about moving to a new place. You know, it’s already furnished. The house just gets, you know, new people every year. So that was great. But you’re right. We had very little money. You know, we had, I think like $180 a month for fun, a hundred dollars a month for fun total. That’s if you want a burger, if you want a beer, if you want to, you know, take an Uber, whatever. You know, and we were challenged to not access any money that we had saved, but to actually try to live within our means.

13:27 Ben: And so I know, you know, preparing me for grad school. I know that I can live leanly. We, I think our whole house lived, we were six people and we spent $80 a week on food. Like we ate a lot of rice and beans, and if it’s beans and rice then that’s two dishes. You know, so I don’t intend to be living quite as lean, but I know that like, you know, I know that I can do that. And I definitely have some kind of ethic about like, do I really, is it going to be that much worse to do the easier option and save a lot of money, you know, for any particular thing? One example of that ethic is, you know, when I flew from Australia back to Portland at the end of my tenure, it was like $400 cheaper to fly to Seattle and then take a train down.

14:13 Ben: And so I did that. And you know, it’s kind of looking for that sort of thing. I think that’s a little bit of a mindset that I’ve picked up with my family. It was reinforced with AmeriCorps. And just one more thing quickly on that, you know, there’s definitely some negative sides to, you know, I think I still have a little bit of kind of a food scarcity mindset, you know, I’m always like, Hmm, this fridge is looking a little bare. You know, because we did run lean, you know, so there’s positives and negatives as well, but that was all part of it. And I’m, I’m really glad for the experience.

Financial Goals for Graduate School

14:40 Emily: I can’t remember where I heard this from, but it was recently and it was some well-known personal finance personality who phrased it something like spending money, like this is this person’s default mindset. Spending money is a failure of creativity. Like you can get anything or just about anything for no money, little money. And it’s only a matter of, do you want to put in the effort to be creative and you know, maybe take some extra time or something? Or do you want to go, as you were just saying, the easy route, which is spending a little bit more money to get, you know, the convenient option. So I’m not, I mean, that’s a very extreme view, but I can see a little bit of that, you know, in, in what you were describing. So going into graduate school again with your stipend, do you want to share what your stipend is by the way?

15:28 Ben: Yeah, so the standard graduate stipend is about $18,000. I have a little internal fellowship on top of that. That brings me up to about 22 or 23. And then I can also work as a research assistant for a faculty member and also work a little bit over the summer. So my understanding is that I can make between 30 and up to $36,000 a year, most likely.

15:57 Emily: And are you, have you already arranged for that assistantship or do you know that’s coming or is it like a possibility?

16:04 Ben: It sounds like an “everybody who wants one can get one” kind of a thing, is my understanding. So I haven’t started that process yet.

16:13 Emily: Okay. I feel a little bit relieved because when you said 18, I was going, oh no, Atlanta. Wow. Okay. But no 30. Yeah. Okay. We’re getting into a reasonable range there for, you know, for a graduate student. And so knowing that stipend or that range that you’ll be receiving, you know, looking at that, looking at the cost of living and so forth, what are your financial goals, if any, for graduate school?

16:35 Ben: Yeah, I think I have two big goals, which is to not go into debt, and continue to try to fully fund my retirement. I think that’s maybe a big thing that sets me apart from just people who are just coming out of undergrad is I’ve realized and, you know, thanks to folks in my life who have impressed this upon me, how important it is to, you know, save for retirement. And if literally, if all you do is max out your Roth IRA from the time you’re like 19 or 20, you can probably retire comfortably. You know, if you just do that, or comfortably enough. And that’s huge. And I know, you know, that what I wasn’t contributing as a 20 or 21-year-old, it’s all the more important that I, you know, max out my Roth IRA contributions now. So when I talked about that with the graduate advisor, that was, you know, that’s something that certainly wasn’t on her mind for us. And maybe a lot of graduate students aren’t thinking about that, you know, but for me, I’m not expecting to come into a lot of money later in life, and I want to be financially stable, and I don’t want to work until I’m 95. So those are the two main things, I think. Also have little fun maybe.

Retirement Savings History

17:45 Emily: Yeah, well, fun can be frugal, but if you want to max out that Roth IRA, there’s a definite dollar sign attached to that. What’s been your history with retirement investing through these various different jobs? Have you been able to do some or has it been kind of patchy?

17:59 Ben: Hmm. Yeah, I think it’s depended. I have typically, I think after the AmeriCorps year, I have contributed at least some to my Roth IRA. With my current job, they have a fantastic 403(b) program, which is like a 401(k) for nonprofits, I think. And they do a match, too. So what I do is I do the minimum for the full match from them. And then I contribute because I like Vanguard better than TIAA-CREF. I contribute to my Roth IRA separately. So I’m doing the best now that I’ve ever done as far as that’s concerned, but I have been contributing you know, anywhere from a couple thousand to the cap for the past five years or so.

18:45 Emily: Yeah. That’s great. And I love that you have these two goals that you articulated, don’t go into debt and max out the Roth IRA. I mean, as you said, like just those two things alone, you’re going to be in such good shape. You know, if you can do that through your master’s program or if you decide to go on for the PhD as well. Those are two very, very strong goals. How do you think you’re going to make it happen? Like, have you done any projections about cost of living in Atlanta? And you said you’re moving from New York there, right? So it’s going to be a big cost of living difference.

19:14 Ben: Yeah, actually it’s interesting. So I’m in Beacon, New York right now, which is in the mid-Hudson Valley. And Beacon is not cheap. My current living situation with utilities is probably $750, $800 a month, a room in a house. And so I think it’s realistic to get about that in Atlanta, just from the little bit of Craigslist slewthing that I’ve done so far. So I haven’t done a lot of planning. For all the stuff that I know about what you’re supposed to do with money, I’m not very good at actually budgeting for, for worse. But I think my mindset is assuming that expenses are not going to be that much different.

19:55 Emily: Okay. And when is your, when are you planning on moving?

20:01 Ben: My family is going camping in mid-August. And so I think I’m going to try to move right after that, which will mean that I’ll be like moving into a place and starting school in like five days, or something like that, in the mid-August heat and humidity which will be a heck of a time. But that’s what I’m thinking about right now.

529 Tax-Advantaged Savings Account

20:20 Emily: Yeah, that’s great. We’re recording this in April, 2021. So you still have quite a bit of time to be planning and finding a place and finding that assistantship and so forth. And I understand as well that you have a 529 that you wanted to talk about. And so for the listeners who do not know what that is, do you want to explain briefly what a 529 is and how you got one?

20:42 Ben: Yeah. Correct me if I’m wrong, but my understanding of a 529 is it’s a tax-advantaged savings account specifically for qualified educational expenses. So you can put money in there and then, you know, there are tax advantages that I think depends on the state at least to what the tax advantages are, but then you can spend that money on things like tuition, room and board, fees, other sorts of things.

21:11 Emily: That’s exactly right. But just to add onto it, so the growth, so money that’s contributed to a 529, similar to an IRA, typically if you invest it, it’s going to grow. And that growth is tax-free as long as when you end up withdrawing it, it’s for, as you said, the 529 definition of qualified education expenses, which is like tuition and also living expenses for a full-time student. And it depends on what state you live in, whether or not there is a tax advantage on the contributions. So there’s no federal like deduction the way you could have for like a traditional IRA, but your state, depending on what state you live in, when you do the contribution, they might give you a tax break on their state tax for doing the contributions. And it’s most common for parents to do this for their children or their grandchildren or something like that. So it’s something that often people start when their children are very young, so there’s lots of time for the investments to grow.

22:02 Ben: Yeah. And to the second part of your question, in my particular case, my folks did this great thing where, you know, I was expected to contribute two or $3,000 a year to my education in undergrad that I made from working over the summers. And my folks said, we’re going to take that money, instead of sending it to Vassar, basically, I think, we’ll cover that. And we’ll just hold it in a 529. And so when you go to grad school, you better go to grad school, when you go to grad school, that’ll be there and have grown and be there waiting for you.

Commercial

22:39 Emily: Emily here for a brief interlude. These action items are for you if you recently switched or will soon switch onto non-W2 fellowship income as a grad student, postdoc, or post-bac and are not having income tax withheld from your stipend or salary. Action item number one: fill out the estimated tax worksheet in form 1040ES. This worksheet will estimate how much income tax you will owe in 2021 and tell you whether you are required to make manual tax payments on a quarterly basis. The next quarterly estimated tax due date is September 15th, 2021. Action item number two: whether you are required to make estimated tax payments or pay a lump sum at tax time, open a separate named savings account for your future tax payments, calculate the fraction of each paycheck that will ultimately go toward tax, and set up an automated recurring transfer from your checking account to your tax savings account and to prepare for that bill. This is what I call a system of self-withholding, and I suggest putting it in place starting with your very first fellowship paycheck so that you don’t get into a financial bind when the payment deadline arrives. If you need some help with the estimated tax worksheet, or want to ask me a question, please join my workshop, Quarterly Estimated Tax for Fellowship Recipients. It explains every line of the worksheet and answers common questions that PhD trainees have about estimated tax. Go to PFforPhds.com/QETax, to learn more about and join the workshop. Now, back to our interview.

529: To Use or Not to Use?

24:19 Emily: Yeah, so you have this nice little nest egg that’s available to you but is kind of specifically tied for education expenses. So what are your thoughts about that? Like, is it something that you want to draw on during graduate school or that you feel you have to, or what are your thoughts?

24:35 Ben: Yeah, well, it’s kind of a use it, or it just sits there sort of thing. So I guess if I didn’t use it, then I would have to be doing something like giving it to my sister if she just needs it or giving it to a cousin or something like that, I suppose. So I definitely want to use it. And one of the questions in my head is like, does it make sense to use it now? Or if I’m probably, but not definitely, going to something like law school or a public policy program or even a PhD, you know, I could definitely use it for those. So would it make more sense to use it now or later, is one question I have. That’s kind of what I’m thinking about. And the way I’ve thought it is, basically, it would be really hard to max out my Roth IRA while earning between 30 and $36,000 a year at the most. But if I have, you know, the 529 is worth about $12,000. If I pull $6,000 a year from the Roth IRA, or excuse me from the 529, that covers my Roth IRA contribution. So it would be as if I was making 36 to $42,000 a year and maxing my Roth IRA contribution. And that sounds pretty good to me. That sounds doable. So that’s kind of how I’m thinking about it is making that possible.

25:56 Emily: Yeah, I was thinking kind of the same thing, because you were phrasing it just now as like using the money in the 529, but I’m thinking about it more as getting the money out of the 529 in a reasonable way where you’re not going to be taxed and all the growth and so forth. Just getting it out so that you can use it for whatever, if that is your Roth IRA contribution, I mean, money is fungible, right? So it could be the Roth IRA. It could be anything else. It doesn’t really matter. But yeah, to give you that extra cushion, and then let’s say it was sort of a, it feels like almost direct, like withdrawal from the 529 and a contribution $6,000 to the IRA. All you’re doing then is making the money more flexible actually, right? Because in the first case, it can only be used for these well, without penalty, can only be used for these qualified education expenses, versus with the Roth IRA, well, you can withdraw your contributions at any time or you can leave it and let it grow for the decades and, you know, withdraw it tax-free and so forth.

26:50 Emily: So yeah, I really see it more of it as not using the money, but just transferring the money to some other place in an indirect way, which you can only do without taxes and penalties and so forth when you have qualified education expenses as you do in this upcoming phase of life. Another thing to think about, another twist in this is, and I don’t know, I haven’t looked it up for Georgia Tech, but some, especially public, universities do allow their graduate students who are employees to contribute to the university’s 403(b) or 457. So that’s also something to look into before you, again, make a final decision about what to do with the 529 is, do I have access not only to a Roth IRA, but also a 403(b) or 457? And could I even supercharge my retirement savings above that $6K per year level? Yeah. So something else to think about.

457 Retirement Plan

27:39 Ben: What’s a 457?

27:42 Emily: 457 is another tax-advantaged retirement account. It’s a little bit similar to a 401(k). So 401(k) and 403(b) are very similar to one another, as you said. One is in the private sector, one is in the nonprofit sector. A 457 was originally constructed, I guess, for like highly-compensated employees. And so it’s available usually in addition to a 403(b) or something similar. But in some cases, at universities, it seems that it’s often, if they have one, it’s sometimes available to any employee, not just, you know, C-suite or whatever. So just something to look into whether or not there is one, whether or not you’re eligible for it. And the 457 has some slightly different benefits than a 403(b) does. If I remember correctly, you can actually access the money more easily than you can in a 403(b), like you don’t have to be like retirement age necessarily to do it. So I’m speaking a little bit out of my like zone of competency here, but yes, it’s sometimes available to graduate student employees.

28:43 Ben: Cool. Thanks.

What Are Qualified Education Expenses?

28:46 Emily: The other thing that I wanted to hit on with this discussion of 529s is what are qualified education expenses. And, you know, longtime listeners of the podcast or readers of my other material know that that term, qualified education expenses, is something that we talk about a lot with respect to figuring out your income tax as a graduate student. Now, and if you have dived really deep into my material, you know that there’s a different definition of qualified education expense for each different tax benefit that you might be talking about. And so it turns out that 529s, or qualified tuition programs, have their own definition of qualified education expenses that is vastly different from the other ones. So you mentioned earlier that qualified education expenses include tuition fees. You know, we’re, we’re accustomed to those things being qualified education expenses, but in the case of 529s, that also includes your expected living expenses.

29:38 Emily: I can’t remember what’s the exact term the universities use, like cost of attendance, I think, which is inclusive of both the educational expenses and also reasonable living expenses, whether you would be living on campus or off campus. Cost of attendance is something that I think comes up a lot for undergrads, but not so much for funded graduate students, but it’s really relevant for our conversation of getting money out of a 529. And one really good episode to listen to which I did previously on the podcast is season two, episode nine, with Seonwoo Lee. And we’re talking about 529s in that episode as well, but it’s from a different, a little bit of a different perspective, but it’s still a conversation about what is a qualified education expense and what are the anticipated educational expenses that you can use to remove money from a 529 without penalty. And so in your case, have you calculated like how much you would be able to get out of the 529 per year using that anticipated cost of attendance?

30:34 Ben: Yeah, so I think the, you know, again I have about 12 and change thousand dollars in there. And the estimated cost of attendance I think is about just by happenstance, Seonwoo also goes to Georgia Tech. So he mentioned that it was about $10,000. So if those numbers are still good, then, tell me if I’m wrong, but I feel like I’m pretty in the clear. You know, I’ll probably take about half of the 529 out each of the two years I’m in the program and that’ll go underneath the $10,000. And even if I do the thing that he was talking about, contribute $2,000 into a Georgia state 529 and pull it out for the tax advantage, credit deduction, whatever it is that’ll still be under the total of $10,000. I don’t know if that’s how it works. I assumed that I couldn’t like, yeah, like pull $10,000 out and then add $2,000 at the Georgia one and then be over my cost of attendance. I don’t know, but I don’t think I would do that anyway.

31:35 Emily: Yeah, that sounds right to me. So the way that you calculate how much money you could get out of a 529 each year is you have to take the total cost of attendance, and then you have to subtract from that all of your tax-free money. So in your case, if you’re fully funded, it would be like tuition and fees and so forth. So the cost of attendance is going to be reduced to, again, if you’re fully funded, it’s essentially just the portion of the cost of attendance that is like your living expenses. And so, I don’t know, $10,000 per year sounds really low to me, but I would have to look at the numbers too. So whatever it is, as long as you don’t have tax-free funding that is already paying for that, then that’s your cap for removing money from the 529 for that given year. And anyway, all of this, I was just reviewing it before our conversation. All of this is in publication 970 chapter eight, which is called qualified tuition program.

529 is Typically NOT in the Name of the Student

32:30 Emily: Yeah. Anything else you want to talk about regarding 529s? It’s an interesting and unusual topic for me.

32:36 Ben: Maybe just, this might be useful for listeners is I just remember that my mom did something kind of tricky or clever with 529s where she had it like, in her name, not in my name, because if it was in my name for undergrad, they would’ve taken all that money. And if it was in her name, I guess they, you know, the financial aid office looked at it differently or something like that. I never got the full story from her, but is that right? Is that how that works?

33:08 Emily: I don’t know exactly the mechanics of it, but it is recommended that 529 money be in the name of the parent or the grandparent, whoever’s doing the contributing, not in the name of the student. And I do think it’s for those FAFSA type calculations that it’s again, weighted less heavily in the assets of the family if it’s held technically by the parent. And in a 529, you have to designate a beneficiary. So you’re presumably the designated beneficiary on this particular 529, but it’s very easy to switch the beneficiary. So the money still belongs to your parents, so they could, you know, yoinks it away from you if they wanted to, because it’s theirs until it’s actually, you know, removed for your qualified education expenses and so forth. But that’s why it’s really easy to just choose a different beneficiary and move the money from, you know, let’s say in the case of like my family. So I’m about to start 529s for my two children. And I don’t really care whose beneficiary name is on it because I’m just considering it for either child. And if the oldest one has some leftover, I would just switch it to the younger one because I’m thinking of it as my money, right? Until later on in life. So yeah, so it’s really easy to switch the beneficiary and it does make sense for the contributor or the parent or whoever to hold it.

34:20 Ben: Okay.

Best Financial Advice for Another Early-Career Grad Student

34:22 Emily: Yeah. Well, it’s been so much fun to talk with you, Ben, and it’s a very kind of different story for the podcast listeners. So I’m excited about that. The question that I end all my interviews with is what is your best financial advice for another early-career PhD or graduate student perhaps in your case?

34:40 Ben: I think of two things. One is to remember that like, money is real. And sometimes you feel like you can plug your ears and shut your eyes and it’s less real, but it’s still sitting there or not sitting there. So for me, it’s really helpful to try to develop a relationship with my money where I’m not, you know, checking my balance on my phone and going, you know, I just, I don’t want to have a contentious emotional relationship with money. You know, like, the world is structured to make us feel nervous about money. And I don’t think that it’s a healthy relationship to have if you have the ability to not be nervous about it in that way. So, you know, I try to check it more often, just, you know, just so I know what’s going on and there’s no mysteries, because it’s all internal to me, it’s all my own money.

35:33 Ben: And the other thing is there’s this really insidious idea that like, in order to feel like, like we’re told that we need to buy things for ourselves because we deserve it or because we need to like treat ourselves. And so people, you know, like I just saw this person who was like living in her parents’ house, not a lot of money, she’s like, should I buy like the iPhone, like 12, actually the iPhone 12, you know, gajillion or something like that. And like, you know, you do what you want with your money. I’m not here to like make moral judgements, but she was doing it in kind of the mindset of like, I want to treat myself or I deserve it or that sort of thing. And that is just a load of bologna that like marketers have worked really hard on for the past 20 years to be like, you deserve this meal, you deserve this trip, you know?

36:20 Ben: And like the more we can extract ourselves from like taking in that, like marketing lingo of like what we deserve and don’t deserve based on you know, like what is expensive or not expensive, if we can kind of like, you know, develop a more internal sense of like, you know, rewarding ourselves and not have it be based on how expensive something is. Like, you know, I love myself a lot. So I’m spending, you know, more on myself to get the nicer thing or whatever, you know, it’s like, I don’t know, it just makes me kind of sad. And so I guess my advice is to like, you know, kind of have a little kind of metacognitive experience and, you know, watch your feelings, watch the stories that are in your head, and just have, you know, a sense of curiosity, like, oh, where did this come from? And how is this helping me?

37:10 Emily: Wow. Yeah. I find both of those points to be super insightful. And actually we could probably do a whole other episode just on what you just mentioned about like observing feelings that arise in yourself when you think about money and so forth. I love that point, but it’s a great one to end on. And Ben, thank you so much for joining me today. It was really fun to talk with you.

37:28 Ben: Yeah, it was a pleasure. Thank you.

Outtro

37:31 Emily: Listeners. Thank you for joining me for this episode. PFforPhds.com/podcast is the hub for the Personal Finance for PhDs Podcast. On that page are links to all the episodes show notes, which include full transcripts and videos of the interviews. There is also a form to volunteer to be interviewed on the podcast. 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 Podcasts, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media, with an email listserv, or as a link from your website. 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 effective budgeting. I also license prerecorded workshops on 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.

This PhD Found Financial Peace through Pursuing FIRE

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In this episode, Emily interviews Dr. 50 of By 50 Journey, a federal employee who is pursuing financial independence and early retirement (FIRE). Dr. 50 came to the US after finishing college, but worked minimum wage jobs while she learned English until she could apply to PhD programs. She worked full-time to self-fund her PhD over six years. Ultimately the PhD was a game-changer for Dr. 50’s income, and within three or four years of finishing she was earning a six-figure salary. However, a higher salary was not the solution to her family’s financial problems. Dr. 50 describes her emotions at their financial low point, when they completed their debt repayment journey, and upon discovering the FIRE movement. Dr. 50 concludes the interview with an incredible insight regarding financial struggle and striving.

Links Mentioned in This Episode

PhD FIRE

Teaser

00:00 Dr. 50: And one day I was like, okay, this is it. I am making a six-figure salary and I couldn’t even afford a lunch at the cafeteria. And it’s like a wake-up call. I need to do something. We need to do something.

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 eight, episode 16, and today my guest is Dr. 50 of By 50 Journey, a federal employee who is pursuing financial independence and early retirement: FIRE. Dr. 50 came to the U.S. after finishing college, but worked minimum wage jobs while she learned English until she could apply for PhD programs. She worked full-time to self-fund her PhD over six years. Ultimately, the PhD was a game-changer for Dr. 50’s income, and within three or four years of finishing, she was earning a six-figure salary. However, a higher salary was not the solution to her family’s financial problems. Dr. 50 describes her emotions at their financial low point when they completed their debt repayment journey. And upon discovering the FIRE movement. Listen through to the end for an incredible insight from Dr. 50 regarding financial struggle and striving.

01:28 Emily: We’ve just passed decision day, April 15th, so I’d like to extend a massive congratulations to everyone who committed to a graduate program for fall 2021. This is an incredibly exciting period of time. As you dream about and plan this new phase of your life, keep your finances top of mind. You’ve already made the biggest financial decision of your graduate career by one, choosing to attend graduate school, and two, committing to a specific stipend and location. The next biggest decisions are housing and transportation, which presumably you will lock in over the next few months. Before making those big commitments, I recommend that you sketch a budget to figure out how much you can afford while ideally maintaining some kind of savings rate. If you would like some help with that process, join the Personal Finance for PhDs Community at pfforphds.community. Inside the Community, you’ll find my How to Draft a Budget From a Distance webinar and custom spreadsheet. We also have a forum and monthly live calls where we can chat more about your specific situation. I would love to assist you with this process in any way that I can.

Book Giveaway Contest

02:44 Emily: Now, it’s time for the book giveaway contest. In April, 2021, I’m giving away one copy of Walden on Wheels by Ken Ilgunas, which is the Personal Finance for PhDs Community book club selection for June 2021. Everyone who enters the contest during April will have a chance to win a copy of this book. If you would like to enter the giveaway contest, please rate and review this podcast on Apple Podcasts, take a screenshot of your review, and email it to me at [email protected]. I’ll choose a winner at the end of April from all the entries. You can find full instructions at pfforphds.com/podcast. The podcast received a review recently titled exactly what I was looking for. Quote, having read a lot of scattered news articles and attending college workshops, I still felt a need for expert advice on investment strategies for international students. I stumbled upon this podcast while doing my weekly finance research, and I can say that Dr. Roberts does a phenomenal job at it. PF for PhDs is one of the few resources I could find which has got something for every grad student trying to figure out personal finances. Highly recommend it to incoming and current students alike. End quote. Thank you so much for this review. I am focusing more energy in 2021 on serving international students, postdocs, and workers, and I’m so glad that is coming across. Without further ado, here’s my interview with Dr. 50 from By 50 Journey.

Will You Please Introduce Yourself Further?

04:19 Emily: I am delighted to have joining me on the podcast today, Dr. 50. She actually goes by Mrs. 50 on her blog, By 50 Journey, which is a FIRE journey blog. However, she does have a PhD. So, we’re going to call her Dr. 50 today. She has an incredible story to tell us about coming to the U.S. As an immigrant, speaking no English, having no money, and you know, pursuing a PhD and ultimately being on this path to financial independence and early retirement. So, really delighted to get her story today. Dr. 50, welcome to the podcast. And will you please tell us a little bit more about yourself?

04:55 Dr. 50: Thank you so much. That was a really great introduction. Yes. That was a long time ago. I would say like over two decades, I came to this country and I had nothing. I mean, it’s nothing. So, I was trying to get a job, but I didn’t get any, because of course I didn’t speak any English. I couldn’t even answer a simple question like, how are you, what are you doing? Because I could understand, but I couldn’t express myself. So meaning trying to get a job, even a simple job. I couldn’t get it. So I was thinking, ah, this is, this is tougher than I thought it would be to start spending my life in a new country with my new husband. And I was trying, okay, let’s go back to grad school. That way I have friends. I have professor, I have, everybody so I can practice on my English. Because back in the day I didn’t have any friends, I don’t have anybody, except just for my husband. Right?

05:59 Dr. 50: And years later, I got accepted into grad school. I was so happy, but on the back of my mind, Oh well, okay, now here I am, I didn’t have any money. I didn’t have any financial support. And then I was trying to get funding, trying to get an assistantship, fellowship, whatever that was available. I didn’t get it. So, my first semester I used my credit card to pay for the tuition. I was, Oh, this is not going well. I have to do it better. So I was trying to find a job on campus. But as a student, we couldn’t work more than 20 hours. I said, this is not going to be enough to pay for everything. And not even the rent. Finally, in my second year of grad school, I got a full-time job which was wonderful. I was so grateful and I worked my way and then time flies.

07:07 Dr. 50: I got my master’s and PhD in six years because I was like, okay, let’s get this done as soon as possible so I can get a job and make real money. Right after I finished my PhD, I got a very great offer, even though I finished in the year 2008. So, everybody knows 2008 was the financial crisis. So I denied that job offer. I don’t know why, maybe because of the years, years, and the struggle of the grad school, I didn’t want to get that job because it was so stressful. So I accepted, I was a post-doc for a year and a half. During that time I was trying to find a real job. So I got a great job offer again. And then I got that job. And then my income was increased significantly. I would say, like triple. But unfortunately that job, it was in the city and I was traveling 90% of the time.

08:11 Dr. 50: And I just had a baby. I was happy with my job, but the work-life balance was not great. So I quit my dream job and then I had to find a job that’s not in the city. And then I got that with a negotiation that I negotiated with them. I managed to get the same salary that I had in the city, but I would live in the country. So, which is great. So, the struggle that was in grad school and a great job offer and determination and then patience. So I would say this is from, didn’t speak English to have a career that I wanted because of my PhD, and I was really happy. So, I’m ready to go on to the next level.

Pre-Grad School Finances

09:12 Emily: Yeah. I want to tease out a couple other pieces of that stories so that I understand it correctly. And thank you for giving us that like overarching view of how your career has evolved. So, it sounds like when you came to the U.S., it was a few years in between when you first arrived and when you were accepted to graduate school, is that right?

09:33 Dr. 50: That is correct.

09:35 Emily: And so, were you ultimately able to find some kind of job? I know that you said that you struggled at first, but how were the finances for you and your husband during that pre-grad school period?

09:46 Dr. 50: Yeah, I had odd jobs washing dishes. I answered the phone. I worked in a Chinese restaurant. I worked in a factory. I worked night shift. I did everything that I could do to earn money. And back in the day, it was the minimum wage. I believe it was $4.75 an hour. And yes, we were struggling before I got accepted into school. Even though after I accepted into grad school, we were still struggling because okay, now I spend my time studying during the day. I didn’t have time to earn money, so it was zero, but yeah. And using credit cards to pay for living expenses, even to pay for rent.

10:33 Emily: Yeah. So, it sounds like you very clearly identified the PhD, having that credential, as the path out of these minimum wage positions, is that correct?

10:44 Dr. 50: Yes. Yes. Definitely.

PhD as a Path to Professorship

10:47 Emily: If you had stayed in your home country, do you think you would have pursued a PhD?

10:53 Dr. 50: Yes, because before I met my husband I had a fellowship lined up for me, which they would pay for my school expenses, tuition, and living expenses. And yeah, I was about to go to doing my masters at the time, but decision between, okay, stay here and pursue my dream of becoming a professor or go there and be with my husband, and the love all my life. So, it’s a life-changing decision.

11:28 Emily: I am glad to hear, though, that you were already oriented in that direction. You were already planning on doing the PhD. It’s just, you decided to do it in a different country and had to take a couple steps back and learn the language and so forth. But you still got to, in terms of doing the PhD, you still got to that same goal.

11:44 Dr. 50: Yes. I always wanted to be a professor. A university professor.

Making Ends Meet in Grad School

11:49 Emily: And one other question I had about kind of the finances during graduate school. You said that you initially started out financing, you know, you weren’t funded, so you were financing it through consumer debt, and ultimately you got, I think you said a full-time job, right? So was it the case that your PhD was never funded? You didn’t have an assistantship or a fellowship, but you worked aside from doing the PhD?

12:10 Dr. 50: Yes. I worked 20 hours at the university dining hall in the morning from 3:30 to eight o’clock. And then during the day I worked as a lab technician for 40 hours. So yeah, my week was full. I would get up at three o’clock and then wouldn’t come home until 11 at night.

12:38 Emily: So you were working 60 hours at jobs plus the PhD work?

12:45 Dr. 50: Yes. And I enrolled full-time because if I did it part-time, it would drag me to eight or 10 years. I couldn’t afford that. That’s too long.

12:57 Emily: Wow. Incredible. I can’t, I can’t even fathom how you got through that. And you said it took six years, right?

13:07 Dr. 50: Yeah. It took six years, a master’s for two years and PhD for four years.

13:11 Emily: And you kept up that, I mean, I’m just like flabbergasted, you kept up that schedule the whole time?

13:16 Dr. 50: Yes. And finally, when I did my research, I quit my dining hall job because it was, Oh, it’s early. And I had that job because I got free meals. So, to save money, so I got free meals for five days. So, that’s awesome. Finally, I didn’t have time to do my research, so I quit that job and then I just kept my full-time job.

Post-PhD Finances

13:45 Emily: Yeah. I think we’re getting a real picture of how your finances were, but what it took, the work it took to keep yourself afloat, you and your husband afloat, during that time. And you know, clearly why you had the motivation to do the PhD. So, I’m really glad to hear that element of the story. Thank you. And so, you told us a little bit earlier about, you know, having the postdoc position and then, you know, taking a couple of different jobs, post-PhD. Did you want to add anything in there about how your income has been or anything like that?

14:20 Dr. 50: Yeah, sure. So, during my grad school years, the part-time one was the dining hall one. That was minimum paid. So, it was like, six or $7 an hour for 20 hours. So, that wasn’t that much. My full-time job, I worked as a lab technician that was $15 an hour. Back in the day, that was, I’d say 15 years ago, that was a lot for me. So, I’d say that I earned the most was $34,000 a year. That was awesome. That’s great money for us. That allowed us to buy a house, this would be our first house, and I didn’t have to worry much about my school tuition. And during that time I was able to talk to my boss, have them pay for a couple of classes. So, that was great. And so, post-PhD I had a postdoc and that doubled my income. I earned $63,000. That was in 2009. I graduated in 2008. So, it was double wage. Our finances were starting to get a lot, a lot better.

15:42 Emily: I just want to ask there, what kind of setting was that postdoc position in? Because that sounds like a pretty well-paid one, especially for that time.

15:52 Dr. 50: I was in the federal agency.

15:55 Emily: Okay. Gotcha.

Money Mindset: Salary Negotiation

Dr. 50 (15:56): And I, again, I negotiated my salary. I always had this mindset, even though with the federal, we have to follow rules and although certain staff follow certain salary level. Yeah. I negotiated. So, actually, it started at, I believe back in the day, was like $51,000 and I was able to get $63,000.

16:23 Emily: I think that’s a really great tip for anyone else who’s looking to apply for federal jobs because you have the, it’s the GS system, is that right?

16:31 Dr. 50: Yeah, it’s the GS system. Even though you’ve been told, okay, this position will give you the GS level this or accept this, you can always negotiate with them. Even though they have the fixed table to follow, you always can negotiate. Yeah. So, after the postdoc, I got a really great job offer in the city. This is in New York city. I was like, Oh my God, New York city, that’s a high cost of living. But it was a job of my dreams. So, I took it and my salary was doubled again. So, I made a six-figure salary. So I came from making minimum wage and then making a six-figure salary within, I would say, three or four years after I got my PhD. So, it was very quick.

17:28 Emily: Yeah. And then you said you maintained that salary even though you didn’t live in New York anymore.

17:33 Dr. 50: Yes.

17:33 Emily: Yeah. That’s fantastic.

17:35 Dr. 50: I came back to the federal, and I negotiated with them again. Different agency. And then they said, yes. I said, Oh my gosh. Yeah. It was so wonderful.

17:46 Emily: And do you still work for the federal government?

17:47 Dr. 50: Yes.

Overcoming a Large Financial Struggle

17:48 Emily: Okay. Yes. Thank you so much. It’s an incredible income trajectory. Also in this period post-PhD, I understand you overcame a large financial struggle. Can you tell us about that?

18:01 Dr. 50: Yes. So, during my graduate school years, I mean, as I already told you guys, we didn’t have much. Plus I supported myself and my family, husband, because he was still trying to finish his college also. So, I’d been using credit cards to pay for my tuition. And I was trying to pay it off every month. Some months I did, and some months I did not. So, it’s accumulated from there. And also, when I got my first real job in the New York City, we had our first child and then baby came and husband still couldn’t find any jobs. So, he was unemployed for a long time. Plus, the daycare cost was like so high. So, it’s better for him to be at home and take care of the baby. And then I’ll take care of the financial side of it.

19:04 Dr. 50: And yes, during this time we have surgeries, hospital, car wreck, and everything you can imagine. So, we accumulated a lot of debt. And one day I was like, okay, this is it. I am making a six-figure salary, and I couldn’t even afford a lunch at the cafeteria. And it’s like a wake up call. I need to do something. We need to do something. So, I say to myself, okay, no more excuses. I don’t want to wait until he got a job or I don’t want to wait until the baby leaves the daycare and goes to school. Let’s start now. Let’s do it. Yeah, all of the frustration. I just made our plan, trying to pay off the debt and made a budget and started doing my excel sheets. And then we go from there. And then in less than six years, all the debt was gone, including the mortgage.

20:04 Emily: Wow. What was the total debt balance then? Between the mortgage and the consumer debt that you were working on?

20:10 Dr. 50: Yeah, we had one car payment that was $18,000 and credit card debt was almost $80,000 and the mortgage was $114,000. So, I would say that 230 to $240,000.

20:26 Emily: Wow. So, within six years you paid off 230, $240,000 of debt on $120k ish, it sounds like, salary. Plus your husband was not working or maybe started working at some point during that period?

20:43 Dr. 50: No.

20:43 Emily: Not working during that period.

20:45 Dr. 50: He was not working yet.

20:45 Emily: Okay. Home with the baby.

20:48 Dr. 50: Yes, home with the baby.

A Shift in Money Mindset

20:48 Emily: Yes, plenty of work there. But it doesn’t sound to me, I want to ask you a little bit more about that transition about that day you couldn’t buy the lunch, you were so frustrated. Because the things that you mentioned, you know, that got you into the debt, the medical bills and the car wreck, none of that was frivolous spending. So, what did change actually at that point?

21:13 Dr. 50: It changed because, it’s kind of embarrassing to say, but I spent hours, hours just to pay a couple of bills. Because I have to think in advance, okay, if we have enough to pay for this and that before the next paycheck comes in. So, basically, we were living paycheck to paycheck. We stressed ourselves financially. Okay, the baby crying, I was trying to pay the bills. And I spent a lot to pay a couple of bills. This is, something’s wrong here. It’s not right. So I was, yeah. From there. Okay. Let’s make a decision to tackle this issue from the cause. Yeah. I was struggling and sad, and then I had nobody else to turn to. And I would say, let’s do this. I don’t want to wait any longer. Let’s do it. Our lifestyle will change, no more shopping, no more eating out. Let’s do this. If we do this, we can do this in under 10 years. In 10 years, we will be a whole new person, a new family, and then life will be much better.

22:29 Emily: And is that how you felt when you, you know, sent off the last payment?

22:33 Dr. 50: I felt relief. Okay, I don’t have to make all these calculations and then try to predict the future if my paycheck will be the same or if we will have any unexpected expenses. But I was like, Oh, well, okay, now we are definitely, the debt is gone. I still, so surprisingly, I still felt the same. It wasn’t the financial that I was looking for. I feel I miss something. We were missing something, but I couldn’t put a word to it until I found the FIRE movement.

Discovering the FIRE Movement

23:16 Emily: Yeah. So FIRE, acronym for financial independence and early retirement or retire early. Would you please explain for my audience, you know, your version of what FIRE is and why that spoke to you, and why you decided to pursue it?

23:31 Dr. 50: Yeah. So, before I knew it was a thing I always, Oh, wait, I don’t want to work. I don’t want to do this for the next 40 years. I mean, I only get one take on this planet. I want to do something that really matters, really matters to me and to my family, and really matters, that I am passionate about. I don’t want to spend my 40 years doing this. So, but I didn’t know what that feeling was until I met the FIRE movement, which you already said stands for financial independence, retire early. So, at this point, I want to be financially independent. The retire early can come back later. So, to me, FIRE means that you don’t have to worry about money anymore, meaning you don’t have to be worried about making a living, making money to support your lifestyle, your life. I mean, you can spend your time doing what really matters. To me, I really have a passion about helping animals in need, dogs and cats at the shelter. So, I really want to pursue that.

Commercial

24:50 Emily: Emily here for a brief interlude. This announcement is for prospective and first-year graduate students. My colleague, Dr. Toyin Alli of The Academic Society, offers a fantastic course just for you called Grad School Prep. The course teaches you Toyin’s four-step Grad Boss method, which is to uncover grad school secrets, transform your mindset, up-level your productivity, and master time management. I contributed a very comprehensive webinar to the course titled Set Yourself Up for Financial Success in Graduate School. It explores the financial norms of grad school and the financial secrets of grad school. I also give you a plan for what to focus on in your finances in each season of the year that you apply to and into your first year of grad school. If this all sounds great to you, please register at theacademicsociety.com/Emily for Toyin’s free masterclass on what to expect in your first semester of grad school, and the three big mistakes that keep grad students stuck in a cycle of anxiety, overwhelm, and procrastination. You’ll also learn more about how to join Grad School Prep, if you’d like to go a step further. Again, that’s theacademic society.com/E M I L Y for my affiliate link for the course. Now, back to our interview.

Striving for Financial Independence

26:18 Emily: It sounds like when you were heavily in consumer debt and you had your mortgage, you were stressed out and you thought that it was because you were playing this paycheck-to-paycheck game, right? Which is super common, that you have to really figure out, you know, when things can be paid so you have money in the bank to do it and all that. But then, once you got out of that level of stress, you said you still kind of felt the same. And so it sounds like you realized that it wasn’t just the paycheck to paycheck game. It was that you had to have a paycheck at all. You wanted to be freed of needing to work to support your lifestyle.

26:53 Dr. 50: Exactly. Yes. I still felt the same. I was surprised. Oh my gosh. I should just be, feel very happy. Definitely I felt relieved, but it wasn’t the happiness that I was looking for. And then, yeah, I just don’t want to have any paychecks at all. I just want to have my money working for me instead of working for the money. I had been working for the money for a long time, and I don’t want to work for the money anymore.

27:19 Emily: I see. Can you give us a little bit of more of the technicalities of how FIRE works, at least in your example? Like, do you have a number that you’re shooting for, and what are the strategies that you’re using to get to that point?

27:31 Dr. 50: Yes. I have several options. So, because my older child and my husband had a chronic disease that the health insurance is the other issue, but yeah, I have a couple options here. So, the first option would be, we accumulate enough money that we can live off the investments, mainly to live off the dividends or the 4% rules. If you Google 4% rules, you will know what it is.

FIRE: The 4% Rule

28:03 Emily: Yeah. I’ll just say for the listener that there’s kind of a rule of thumb in the FIRE movement, which is that if you are supporting yourself through paper assets, stocks and bonds and so forth, the rule is that you save up, invest, 25 times your expected spending level in your retirement, or if that’s what you’re doing, and that you can withdraw 4% per year from your portfolio over the long-term without endangering, you know, that you’re going to draw it down to zero. That’s a really brief explanation. There’s a lot more underneath that, but that’s the gist of the 4% rule.

28:40 Dr. 50: Yes. So, the first option would just live off the 4% rules and everybody will be staying home and taking care of the kids. So, I just had a baby this year, so yeah, the FIRE just came back to me again. And then the second option would be like my husband keeps working. So, we will have the health insurance that we desperately need. And I would be at home and taking care of the baby. And then the third option would be to move to another country that has the universal health insurance. So, we would get that issue covered, and then we’d just live off of the investment.

29:20 Emily: Yeah. So, which one is your plan A?

29:23 Dr. 50: My plan A is the option two. So, have him keep working so we don’t have to move. And then, because by that time they’d be about to get close to the number. The younger one was still be in elementary school. So, would be just like six or seven years old.

29:40 Emily: Okay. And I think this, you know, this health insurance thing that you brought up is something that is such a big conversation in the FIRE movement in the United States, not necessarily elsewhere. And there are plenty of people who are keeping jobs, not because they need the money, but just because health insurance or the risk that you take, if you went on certain kinds of health insurance plans, is so great here. So, it sounds like either your husband will keep working, or maybe at some point we will have a universal option and then that’ll give you a lot more flexibility.

30:11 Dr. 50: Yes, that’s true. Yeah. If you have that flexibility, that would be great. He doesn’t mind working at all. He loves working. So, I’m really grateful for that.

Federal Retirement Benefits

30:21 Emily: Since you’re a federal government employee, do you have a pension? Or do you have like defined contribution plans, or what’s the deal with your retirement?

30:30 Dr. 50: Yes, I do have a pension that is very, very small. So, let’s say if I worked for 30 years plus if you meet MRA, MRA stands for minimal retirement age, if you meet 30 years at your minimum retirement age, you will get 1% of your high three of your salary. The high three is your last three years of your salary. Let’s say, to make the math easier, if you make a hundred thousand a year for the last three years before you resign. So, 1% of that, and times 30 years, so it’s only $30,000 a year, plus tax and all the deduction, it wouldn’t be much. And we have a 401(k), like any other industry, but what we call it TSP. TSP stands for Thrift Savings Plans. So, it works just like 401(k), but it’s just called differently.

Investment Changes Toward  Achieving the FIRE Goal

31:39 Emily: And since you already went through that massive debt payoff journey before discovering the FIRE movement, was there anything that you actually started changing in your finances once you had that identified as your goal?

31:52 Dr. 50: Yes. I’m glad that you asked that question. So, it changed dramatically. So, I’ve always been maxing out my 401(k), or my TSP, every year. Okay. So, we agreed as a family that we’re going to pursue FIRE. Let’s do something different. Because if I keep my job, if I still continue trying to do a traditional retirement, I would work into my MRA at 57 or 60 years. And if you want to pursue FIRE, we need to fill a gap between that because I cannot take the money out until 59 and a half. So that gap, we cannot draw our 401(k) or any retirement account. So, we opened a broker’s account and instead of maxing out my 401(k) and his 401(k), we just contribute to the match just enough to get the match from our employer. And then divert all the money from that into the brokerage account, the taxable account.

33:00 Emily: So, that sounds like you felt like your post-60 retirement was well-funded enough. And I mean, you’re still going to get the match, so there’s still more growth and a little bit more contribution there, but it sounded like you thought that that was well-funded enough. So, now you’re going to focus on those years between whenever you do stop working and when you can start to access those retirement accounts.

33:21 Dr. 50: Yes. It would be about 10 years. So, the “50” came from, I would like to retire by the time I turn 50. Yeah, so, 10 years I calculated it. All the expenses in the future. I came up with the numbers that we have to have at least $600,000, or $600,000 to be okay, that’s the lean FIRE. If you want to get more comfortable, I say $750,000. That will get up to be better than lean FIRE. Lean FIRE is just like, minimal, barely enough to live on.

34:00 Emily: Anything else that you changed aside from the destination of your investments?

34:05 Dr. 50: Yeah, that’s the one thing. And then we also, any leftover money that we can save, any activity that we cannot pass by, like re-doing our budget, do the meal plan. Budget system number one and meal planning, not going out, basically just frugal living. And then I started a side business. Anything that I can sell. And as a family we like, talk, okay, this is the goal that we want to do. And everybody was on board and yeah. Every little thing, side hustles, living frugally, anything will go to the FIRE account.

Lifestyle and Money Mindset Pre- vs. Post-Grad School

34:54 Emily: How does, how you’re living now–you know, frugally and so forth, saving a lot, working hard–how does that compare to that pre-grad school period, or even the time when you were in graduate school, and you had that heavy workload? I guess I’m asking, how does your lifestyle compare, and also how do you feel about your finances now compared to back then?

35:18 Dr. 50: I would say I feel a little bit better. Because back in the day, we were struggling financially trying to put food on the table, trying to pay rent and then trying to pay the mortgage. Right now, we’ve comfortably more than enough to pay all the expenses, living expenses and mortgage, everything is on auto pay. I didn’t have to worry about if we have enough money. If the bill comes in, if we have a roof leak, if we have a broken pipe, we have emergency funds. So yes, my feeling was much better, but financially I was still trying to meet my financial goal, which is the financial independence. So it’s a different feeling, but I would say a different feeling kind of between struggle and the finish line, I would say.

36:14 Emily: So, sort of like struggling to get off the starting blocks. Right? To even make it, you know, to have a tiny bit of financial security, versus now, like you just said, you can see the finish line. You’re striving and you’re racing for that finish line. And yeah, I would imagine that, even if your lifestyle is pretty low, like you’ve tried to like be pretty frugal and stuff, having that financial security of the, you know, X, many hundreds of thousands of dollars, you know, in the bank and the investments, it has to be a massive, massive relief on your mind.

36:49 Dr. 50: Yes. Yeah. It would be a relief because right now we trying, I would say we are in an accumulation phase trying to get as much money into the FIRE as much as possible, as soon as possible. But at the same time, I just don’t want to stress myself out. Because one thing that I learned from our debt-free journey, our debt journey was like, because at the end of the day, you just want to be happy, right? The money doesn’t make you happy. You just need to learn to live in the moment, even though you are trying to achieve something or aim for something, but overall you just want to be happy and just trying to live in the day. I just don’t want to stress out too much because during our debt journey, I was so stressed out. I just wanted to be out of debt so badly. I just didn’t want to spend at all.

37:47 Dr. 50: And I wasn’t happy. And when we were debt-free, I still wasn’t happy. Now, we are on the FIRE path, FIRE journey. I just don’t want to be the same. I just want to enjoy a little bit more of my life. I just want to stop and breathe and enjoy every single day. I just don’t want to wait, because if you wait, you will feel depressed. And if you ever feel like it will never come. So yes, I take it easy and just live in the day. And that day will come before you know it.

Was the PhD Financially Worthwhile?

38:24 Emily: I’m really glad to hear you say that. That’s a message I need to hear. I need to hear that and be able to focus on living in the moment more and not striving. And I’m really glad to hear you say that because I know that some people in the FIRE movement do stay very caught up in the end goal. And even though sort of the philosophy around FIRE would be to be living in the moment both while you’re pursuing it and once you’ve achieved it, a lot of people do fall into just thinking about the future and living for the future and you know, not taking the time to enjoy the time they have at the moment, which is all we have. Right? Really. So, I’m really glad to hear that you’ve, based on your debt free journey, you’ve already learned that lesson. And you’re now, you know, beyond that and into still enjoying your life even while you’re pursuing FIRE. So, I’m really pleased to hear that. Do you think the PhD was financially worthwhile?

39:14 Dr. 50: Oh, yes. In my case, for me. For me, it was worthwhile. I am glad that I made the right decision to pursue a PhD because it’s opened so many doors for us. If I were working at my minimum wage job at a factory, or I was afraid to take the risk of not having any paycheck and then just went straight to grad school without any backup plan. We wouldn’t be here today. Yes. It was very worthwhile. Yeah.

Best Financial Advice for an Early-Career PhD

39:47 Emily: Yes. I can see that clearly from the story now. And so, Dr. 50, I conclude all my interviews by asking my guest what is your best financial advice for an early-career PhD? That could be something we’ve talked about already. It could be something completely different, but would you please share that with us?

40:04 Dr. 50: Yeah, sure. I say, from my past experience as a PhD graduate, you feel like, Oh my gosh, I have a PhD behind my name now. I make a ton of money. Even though it’s not a ton, I would say, it’s increased your income. My one piece of advice would be trying to live the same. Don’t let the life inflation get you. Because if you do that, it will be never enough. I mean, it’s how much you make, how advancing your career brings you. It will not be enough. You just, if you just keep inflating your lifestyle. I’m not saying that you should be conscious as a graduate student, but on the back of your mind, trying to do like other peers are doing. I’m not saying like, you should live this way, but yeah. Lifestyle inflation, it really hurts your financial life.

40:59 Emily: Yeah. And it definitely sounds like you were there, you did that for a little while. I like to say, don’t inflate your lifestyle, but increase your lifestyle. Increase it intentionally, mindfully. But don’t, yeah. Don’t just let it float up to, you know, whatever your salary is.

41:16 Dr. 50: Yes.

41:17 Emily: Yes. I love that advice. Thank you so much. Dr. 50, it’s been a real pleasure talking to you. Thank you so much for joining me on the podcast.

41:22 Dr. 50: Oh, thank you so much. I’m glad to be here. And I’m so honored to be on this podcast. I am. I hope that my life lesson and experience will be helpful to you guys in some way, some small way. Thank you so much for having me here.

Listener Q&A: Financial Independence

41:42 Emily: Now on to the listener question and answer segment. Today’s question was asked in advance of a live webinar I gave recently for a university client. So, it is anonymous. Here is the question. Quote, can you start a journey to financial independence in grad school. End quote. Wow. It is awesome that this person is already thinking about long-term financial independence as a graduate student. The answer is, unequivocally, yes. In fact, if you’d like to think about it this way, you have already started your journey to financial independence in grad school, because you are making a long-term investment in your career, and presumably, your earning potential. While FIRE is achievable in theory by anyone, it’s definitely an easier road if you have a good salary. So, in that sense, if getting a graduate degree is going to put you on a road to a good salary, you’re already pursuing financial independence. Now, what can you do while you’re actually in graduate school to pursue financial independence?

42:46 Emily: No matter what your income, you can work on your mindset. You can learn more about personal finance. You can put strong habits into place, which you’ll definitely need during graduate school, like budgeting and frugality. Your income is always going to be rather low during grad school, but that’s not the only side of the equation when it comes to financial independence. Your expenses matter a lot as well. I would say, during this period of time, when your income is suppressed, you should take the time to master the controlling expenses side of the equation. But that’s not all. Even with a lower income during grad school, you can work on increasing your net worth. This is what I put a lot of focus on when I was in graduate school. Tactically, once you have your budget set up and hopefully a bit of free cashflow, you can put that towards saving, debt repayment, or investing, following, like I’ve talked about in recent weeks, the financial framework that I developed for PhDs.

43:43 Emily: Now, here’s one key concept that might not have occurred to you yet. While you’re in graduate school and you have this lower income, you also have a lower tax rate. Graduate students tend to, unless they’re married to someone with a much higher income, top out in the 12% federal marginal tax bracket or lower. And that means that it is a perfect time to use a Roth IRA for your retirement investments. Especially, again, if you anticipate a large income increase postgraduate school, this is probably the most optimal time in your life to be using a Roth IRA. And presumably it’s also the earliest investing you’ll do, so it has the longest timeline to compound and grow. People are crazy for the Roth IRA, and they will contribute even when they’re in incredibly high tax bracket. So, you really have, if you think about it, a great opportunity to be able to contribute to the Roth IRA without paying a high tax rate. And five years or so investing in a Roth IRA and then decades compounding after that, this will be a very big portion of your portfolio, ultimately, even if you don’t contribute in absolute numbers a lot of money during grad school. Thank you so much for this question, Anonymous, and I’m so glad to learn that you are already on your journey to financial independence. If you’d like to submit a question to be answered in a future episode, please go to pfforphds.com/podcast and follow the instructions you find there. I love answering questions, so please submit yours.

Outtro

45:18 Emily: Listeners, thank you for joining me for this episode. Pfforphds.com/podcast is the hub for the Personal Finance for PhDs Podcast. On that page are links to all the episode show notes, which include full transcripts and videos of the interviews. There is also a form to volunteer to be interviewed on the podcast, and instructions for entering the book giveaway contest and submitting a question for the Q&A segment. 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 Podcasts, Stitcher, or whatever platform you use. If you leave a review, be sure to send it to me. Two, share an episode you found particularly valuable on social media, with an email listserv, or as a link from your website. 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.

How This Grad Student’s Finances Changed During the Pandemic

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In this episode, Emily interviews Eun Bin Go, a PhD student at the University of California at Los Angeles. Eun Bin reflects on the financial changes she made during 2020, and which ones of them will stick post-pandemic now that she has developed more DIY skills. Emily and Eun Bin discuss Eun Bin’s housing decisions during her time at UCLA and why she moved out of subsidized student housing. Eun Bin shares the tricks she used to max out her Roth IRA for the first time in 2020 and how she discovered she can contribute to UCLA’s 403(b). The strategies Eun Bin uses to keep her finances and time management on track might be unique to her, but are a great example of how powerful it is to know yourself and find the strategies that work well for you.

Links Mentioned in This Episode

Teaser

00:00 Eun Bin: Honestly, things like IRA, investing, like 403(b), 401(k), all those things. Like if we are new to it, it can feel really overwhelming. Like if I read an article about this topic, like three years ago, I would be Googling like every other word, like, what is this? What is that? And it can be a lot of information. Just taking the time to digest through it slowly, I think, gave me the confidence to go for it. Because if you don’t know what it is, it’s hard to put your money into something you don’t know a lot about, right?

Introduction

00:35 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 eight, episode 10, and today my guest is Eun Bin Go, a PhD student at the University of California at Los Angeles. Eun Bin reflects on the financial changes she made during 2020, and which ones will stick post-pandemic now that she has developed more DIY skills. We discuss Eun Bin’s housing decisions during her time at UCLA and why she moved out of subsidized student housing. Eun Bin shares the tricks she used to max out her Roth IRA for the first time in 2020 and how she discovered she can contribute to UCLA’s 403(b). The strategies Eun Bin uses to keep her finances and time management on track might be unique to her, but are a great example of how powerful it is to know yourself and find the strategies that work well for you.

01:34 Emily: I was very excited to discuss the effect that 2020 has had on Eun Bin’s finances, as it’s not a topic I’ve covered much on the podcast over the past year. It’s difficult to speak about positive financial changes while so many in the U.S. In the world are grieving, sacrificing, and experiencing hardship. Yet, I think the financial course of Eun Bin’s year is likely relatable to people whose income has not faltered during the pandemic. The American personal savings rate spiked during the pandemic. According to the Federal Reserve Bank of St. Louis, the personal savings rate at the end of 2020 was approximately double what it was at the end of 2019. So what is a grad student whose income has stayed steady do with her extra cashflow, at least for the time being? That’s what Eun Bin shares with us in this episode. I hope you’ll use this listening as an opportunity for a retrospective on your own finances over the last year.

Book Giveaway Contest

02:36 Emily: Now it’s time for the book giveaway contest. In March, 2021, I’m giving away one copy of I Will Teach You to Be Rich by Ramit Sethi, which is the Personal Finance for PhDs Community book club selection for May, 2021. Everyone who enters the contest during March will have a chance to win a copy of this book. If you would like to enter the giveaway contest, please rate and review this podcast on Apple podcasts, take a screenshot of your review, and email it to me at [email protected]. I’ll choose a winner at the end of February from all the entries. You can find full instructions at pfforphds.com/podcast. The podcast received a review this week titled helpful advice to help you take action and optimize your personal finance. The review reads, quote, I share this podcast with all the academics I know. It is exciting to hear frank and relatable advice that can be actionable rather than just theoretical. A lot of the personal finance space doesn’t speak to the nuance of the academic life, but Dr. Roberts covers a wide variety of helpful topics. I found her work when I got a fellowship and was confused as to how to do my taxes, but I use the information across my whole financial life. A must-listen for every grad student. End quote. Thank you so much to AK for leaving this review. My subtle plot to lure grad students in with talk about taxes and then help them improve their finances overall seems to be working. Without further ado, here’s my interview with Eun Bin Go.

Will You Please Introduce Yourself Further?

04:11 Emily: I am delighted to have joining me on the podcast today Eun Bin Go. She is a graduate student at UCLA. We have been long-time Twitter correspondents. This is very exciting to get to talk with her live. And, you know, when she came to me wanting to be on the podcast, we kind of talked it over and decided on a theme of 2020, because Eun Bin decided that 2020 was the year that she was going to get her finances in order. And 2020 turned out to be a crazy year, as we all know. So it’s around this theme of kind of like pandemic life and stay at home order life and all of that, of course, that has extended into 2021. We’re recording this in February, 2021. Still going on. So it’s kind of still 2020, right. So, Eun Bin, I’m so happy to have you on the podcast and, you know, will you please introduce yourself a little bit further to the listeners?

05:05 Eun Bin: All right. Yeah. Thank you, Emily. It’s really exciting to be on your podcast after being an avid listener for about a year and a half. So thanks again. Thank you again. Hi everyone. My name is Eun Bin Go and I am a fourth year PhD candidate in biochemistry at UCLA. And like Emily said, this is a year or 2020 was a year that I really decided to be more intentional about my finances and how I invest, how I spend. And so I’m really excited to discuss that here today.

Housing Decision at the Start of Grad School

05:38 Emily: Yeah. So we’re going to go through kind of a few different financial areas in the course of this conversation. And the first one is starting with housing because as, well, we’re both California residents. I recently moved to California, but we all know that housing is a major, major, major expense in California. So how have you made different decisions around your housing in 2020?

06:00 Eun Bin: Right. So I started at UCLA in summer of 2017, and my first year of grad school, I just decided to go apply for the on-campus graduate housing at UCLA, reasoning being that I didn’t have too many months before I committed to UCLA and was about to start my program. So there wasn’t really much time to do all the research into different housing options. So that was like the simplest option for me, I suppose. And I thought, well, a lot of other first year, my classmates were also going into graduate housing. So I thought it would be a good idea to just go into graduate housing with my cohort members so that I can spend more time with them. And it was pretty close to campus. It’s about a three-quarter mile to my lab and because I don’t have a car, I don’t drive. Like I can’t drive, so I can’t live too far away. And so I thought, well, pretty close to campus. Like price was about like 15, like mid 15 hundreds, but apparently that’s a pretty good price for how close it was to campus. So I was okay with that. Sure, I’ll go with that. So that’s where I lived for about one year, my first year of grad school.

07:14 Emily: And did that housing choice live up to your expectations? Did it help you bond with your peers? And did you like living that close to campus?

07:21 Eun Bin: So living close to campus, I think had its pros and cons and the con is actually something I’ll mention later about why I decided to move a bit far away. I was okay with the price per se, like with grad school, like spending more time with my peers, because it’s not really like a dorm life as in like a college, like you live in your own room. I didn’t have a roommate. I was in like a one-room studio by myself. So that made it a bit harder to, I guess, connect with my fellow, like apartment-mates because I’m in chemistry and not all chemistry students were in the same housing. It’s really hard to connect with students from other departments, as you might know, if you don’t have any other connections outside. So that didn’t really work out, but it was nice that at least so it’s close to campus. And I just wanted time to settle in, focus on my first year of classes and research and not have to worry too much about housing stuff. So I think it worked out overall well. Yeah.

Housing Journey After the First Year of the PhD

08:24 Emily: Yeah. I think when it’s available to first years, it makes a lot of sense to them to move there. But you lived there for one year and then you moved somewhere else. So what was the choice you made after that?

08:35 Eun Bin: Right. So after my first year, so in the summer of my second year of grad school I have just been, not constantly like every day, but once in a while I would browse like the Facebook housing group and other like listings, local listings. I would constantly look to see if I can find something a bit cheaper that’s still in a reasonable distance now that I have settled it. And I like found my rhythm in grad school, if you will. So I did come across in the summer, July of 2018, exactly after one year, a listing for just one room in a house for $700. And that happened to be at a place that was pretty accessible via bus from just outside of my lab to the house. So I thought, Hm, it might not be a bad idea to move there.

09:32 Eun Bin: I mean, it’s about like seven, $800 cheaper. And this is, I guess, now is a good place to bring up one of the cons for me in terms of on-campus housing is that if I live too close to campus, I’m, it’s just me. Like, this is my problem, but I’m terrible at establishing like physical boundaries with lab. And it’s always so tempting to just go check in what’s going on in lab, even if it’s like 11:00 PM or 6:00 AM, like if I’m awake, I’m thinking about lab. I just want to get myself there. And that was not the best for like, just like work-life boundaries. And so that’s what made me, I guess, decisively move to the other place. In addition to the lower housing costs is that I wanted sufficient boundaries so that when I’m at work, I would be a lot more focused. And if I am far away and the bus doesn’t run anymore at midnight, I can’t just go to lab because I want to, for example. And I have to be sure to get my work done by the last bus so that I don’t end up having to like walk or Uber cause that also costs money and takes a long time. If I’m going to walk like four miles, it was a four mile distance if I were to walk that, for example.

10:50 Emily: Yeah. I think that’s an interesting like way to help enforce the boundary. I don’t know that I’ve actually heard of like, you know, distance from campus as a time management tool, but it sounds creative. And did it work out, you know, did it play out according to your expectations?

11:06 Eun Bin: Oh, absolutely. Right. So I was sure because the last bus stops after like close to 11:00 PM. So there were never times I could stay beyond that. And I definitely was more focused with the time that I had in lab in school, knowing that it’s going to take a lot more effort for me to find my way back home and then find my way to lab for example. Yeah.

11:33 Emily: Yeah. And how about the price? Because when you said that you were dropping your rent by about 50%, I’m thinking what is wrong with this place? Was there anything that you encountered like that?

11:44 Eun Bin: Not at all, no. It was just a one room. It’s probably just big enough to have a tiny desk and a tiny bed, nothing. It’s a tiny, tiny room, but that was honestly enough for me. I just needed a desk and a bed. Nothing else super fancy. And then there was a bathroom outside my room, but then there was only one other lady who lives in this house and then she had a master room with a bathroom inside. So that bathroom was pretty much mine. So it felt I had a lot of privacy. Good distance, nice roommate lady who rent me her room. So there were no issues. Yeah.

Additional Housing Moves During the Pandemic

12:23 Emily: But, you said you moved in 2020 as well. And so why did you give up that housing situation?

12:29 Eun Bin: Right, so only because of the pandemic when we got the notice that, Oh yeah, we absolutely cannot go into lab for however long it may be. I figured, well, do I hold my place here and keep paying rent while I can’t go to lab? Because there was no reason for me to like live in LA cause my family, my parents are in Orange County, in Fullerton, not too far away from UCLA. So if I were to move back with them, which I did, it’s like, is it worth holding onto this place? Because as you might know, like housing around UCLA is very, very competitive and I had a really nice deal, but that is a question I had to wrestle with. Do I keep paying rent and then hold this place? Or do I just give it up and then start over when we are allowed to go back to school and when will that be? We had no idea when it was February, March. We have no idea what time that would be. Right.

13:24 Emily: Yeah. I think a lot of graduate students have been in that exact situation this year. You’ve told me I can’t come back to campus. Why am I here? Why am I paying massive rent in this area? Okay. So, so are you still with your parents or have you found another living arrangement?

13:38 Eun Bin: Right. So I moved back to my parents’ place in March and I came back out to LA in June in 2020 when the school said, Oh yeah, we can let grad students work in labs now just under limited time. But, and the students have to come and shift, but still students can come in. So that’s when we got that notice, that’s when I started actively looking for a new housing arrangement because someone else, as I had worried about, moved into that place, so that place was no longer available. So I just had to find something else. And my priorities this time was I wanted something that’s in a walkable, reasonably walkable distance, just in case like I can’t take the bus, for example, it’s too dangerous to take the bus. I had to have a way to get to school and I can’t drive because of a condition that I have. So I had to find a place where I can walk. Yeah.

14:38 Emily: And so, where are you now and what rent are you paying?

14:42 Eun Bin: So right now I’m living in an apartment. My roommate is a lady whose children have all moved out of this house. So they had a room open and I was able to move in here. This is housing that I found from a UCLA housing Facebook group. And I’m paying now 1300, which is about 600 more than what I was paying in my earlier apartment, but it’s reasonably close to campus. I like the location, my roommate. And my roommate is also very generous with like her sharing her supplies in the kitchen and things like that. And sometimes she cooks for me occasionally. So that’s a nice bonus to have. Yeah.

How Did Housing Changes Affect Your Finances?

15:32 Emily: I feel like I’m experiencing like whiplash, like thinking about all these different amounts that you’ve paid for housing. How has this affected your finances over these last few years with these big swings?

15:43 Eun Bin: Mhm. Right. So like my first year of grad school, when I was living on on-campus housing I knew that based on talking to the grad students at UCLA, all I knew was that they, the pay is good enough for you to live in on-campus housing and be able to like eat and do a little fun things occasionally. So after hearing that, I thought, well, then I’ll just pay the rent that I have to pay. And with the rest, like feed myself and maybe go out once in a while. And so that’s the time in my graduate career where I did not think about money at all. I paid what I needed to pay and that was it. And whatever I had left, I did whatever I felt like kind of.

16:31 Emily: Yeah. Kind of a conventional grad student mindset. Right? All I have to do is pay bills. If I do that, I’m good.

16:37 Eun Bin: Exactly. Right. Yeah. And like, like retirement account, like what is that? Investing like, Ooh, do I even have enough money to give that a try? I didn’t really consider that seriously at the time. And so food, rent, and the remaining money, I just kept. Right.

17:01 Emily: And then when you moved to the much cheaper place, did you make any changes how you were managing your money?

17:07 Eun Bin: Ah, yes. The one big change I would say. So, even though I was paying less in rent, I still treated my life as if I were paying the equal rent that I was paying at the more expensive on campus housing. So with the 600 or so that I had left over every month, I put that into a high yield savings account. And that’s money like, that’s a way for me to just like put money away so that I don’t feel tempted to like just spend it all away immediately. So that was like my first real attempt at saving if you will.

17:44 Emily: Yeah. I think that’s a great little psychological trick is if you manage to reduce a bill, I mean, reducing it by multi hundreds, hundreds of dollars a month is very impressive, but whatever you can manage to do, as you just said, don’t think about that as now available spending money. Divert it towards whatever purpose is, you know, your real priority, which, okay. So you’re building up cash savings during that time. And then, and then you have this short period when you were living with your parents. And now that you’re back paying a higher rent price, how are things going? Are you still saving that little different, that smaller differential? Or how are you thinking about it now?

Weekend Side Hustle Toward Roth IRA Contributions

18:18 Eun Bin: Right. So I guess there are some things that have changed. I also, in addition to moving to a more expensive housing in 2020, I also got a weekend job that pays about 700, 800 a month. So I guess that kind of helps offset that a little bit, but again, I still treat my real rent in my brain as being in the mid 15 hundreds. So every like excess of my rents up to 1550, I just put away. Before I had my Roth IRA account, I just would put it in my high yield savings account. But now I just funnel that to my Roth IRA account for a regular contribution throughout the year.

19:07 Emily: Awesome. Yeah. Well, we will come back I think to the Roth IRA in a moment, but now I’m curious about this weekend job that pays so well. Is this something pandemic-related?

19:19 Eun Bin: No. So it’s like a high school tutoring and like mentoring job that I just do on the weekends, every Saturday. So it’s just helping students with various topics. Mostly I do like chemistry and calculus, high school level calculus, and just like providing peer support for high school students.

19:41 Emily: That’s very interesting. And is this a W-2 job or are you a contractor, self-employed?

19:46 Eun Bin: Yeah, it’s a W-2 job. Yeah.

19:49 Emily: Wow. Okay. That sounds fantastic. I also tutored for a little bit after college, it seems like it’s a kind of a natural job for a grad student to have, but it’s very interesting that you have it as a W-2 job. And how do you feel like that is like balancing with your role as a graduate student? Like, are you able to keep up, you know, good time management? Does your advisor know about this?

20:11 Eun Bin: My advisor, I may have mentioned, I mean, he does know that I go home every weekend and sometimes like, he takes me to the train station. Like before the pandemic, he would give me rides to the train station. So he is aware of the fact that I go home and I’m not in the lab during the weekends. And this is another one of my psychological tricks, I guess. I need to physically distance myself from whatever that I’m tempted to do, whether if it’s lab, I need to move myself far away so that I’m not tempted to like, keep thinking about it. Oh, should I go into lab and do this or not? So going home on the weekend is another way of like, enforcing like a work-life balance that works for me. Yeah.

How Else Has COVID Changed Your Spending?

20:50 Emily: Yeah, wow. Okay. So you definitely, weren’t going to be in lab anyway, so it’s not affecting that. That sounds really good. Okay. So what are the other ways that like COVID social distancing has changed your spending? I mean, I know it has for mine, but how has it affected yours?

21:05 Eun Bin: So because when I moved back into my parents’ place I did pay them a little bit, a couple hundred dollars just because they were feeding me and housing me, but not like what I was paying out here. But besides that, I really had no other expenditures really. I can’t travel. I can’t go out to eat in restaurants. And really, I would say besides housing, food, just eating out was a majority of my other non-housing expenses. So I naturally got to save a lot in that regard.

21:42 Emily: So you have been eating out less during the pandemic. Because I know that some people are still eating or, you know, getting takeout or whatever the equivalent is quite a lot.

21:50 Eun Bin: Yeah. Right. So, yeah, I pretty much like never ate out for like, at least the first month where it was like really picking up, like the news is like encouraging, Hey, people stay home. Like don’t do so many things outside. And so like early on, like I barely even left the house, for example. Yeah.

22:11 Emily: Okay. So yeah, you just had a lack of outlets for your spending. Like you know some people have been like shopping more, like shopping more online or like maybe they’re subscribing to a few more things for like streaming entertainment. Did any of that have an uptick for you?

22:24 Eun Bin: Yeah. I know a lot of people like signed up for a new Netflix account and stuff for like watching a movie, but I did not do that either. And I didn’t really notice any differences in spending online shopping necessarily. I mean, I didn’t do too much of that to begin with, and it’s not, it’s just not something that I started doing more necessarily, I would say. Yeah.

22:46 Emily: Okay. So you’ve just been stacking up your cash throughout much of the pandemic because yeah. The spending outlets don’t, don’t interest you. And what do you think, like in the future, at some point when spending opportunities are available again, are you going to go back to your prior level of spending or have you made any changes that you’re really happy with and you want to have stick?

23:08 Eun Bin: Yeah. So something that, some things that I realized as a result of, I guess, like my lack of outlets for spending is that I started cooking more at home and that, that truly led me to like I guess, meal options that are cheaper to prepare and also are healthier because I can actually pick what I decide to put in my food instead of if I were eating out, I can’t necessarily do that. And that’s something that I’ve come to appreciate a lot more, doing more cooking healthier. And I think just because I realize this doesn’t mean I’m never going to go out to eat again. Of course, if like friends come over or there’s a special occasion, of course, I will go out to eat once in a while. But I think I’ll try to be, I guess, more conservative in my spending on restaurant dining, I would say. Definitely. Yeah.

24:08 Emily: Yeah. So it sounds like the pandemic in that respect has given you an opportunity to expand your skillset, expand your repertoire of, you know, menu items and so forth. And so it’s really kind of, you sort of up-skilled yourself in the cooking department so that the eating out differential is not so attractive.

24:24 Eun Bin: Right. Mhm.

24:24 Emily: Yeah. Gotcha.

Commercial

24:26 Emily: Emily here, for a brief interlude. Taxes are weirdly, unexpectedly difficult for funded grad students and fellowship recipients at any level of PhD training. Your university might send you strange tax forms or no tax forms at all. They might not withhold your income tax from your paychecks, even though you owe it. It’s a mess. I’ve created a ton of free resources to assist you with understanding and preparing your 2020 tax return, which are available at pfforphds.com/tax. I hope you’ll check them out to ease much of the stress of tax season. If you want to go deeper with the material or have a question for me, please join one of my tax workshops, which you can find links to from PF F O R P H D s.com/T A X. It would be my pleasure to help you save time and potentially money this tax season. So don’t hesitate to reach out. Now, back to our interview.

Starting a Roth IRA in 2020 (for 2019)

25:34 Emily: So you mentioned earlier that at some point along this way, you started on a Roth IRA. Can you tell us about deciding to start that and what you did and also when that was?

25:45 Eun Bin: Alright. So honestly, so I have to say, I did not know about Roth IRA. I didn’t know what a Roth was, what IRA was, any of that term until I have chanced upon one of your articles describing compound interest, that was very informative and very eye-opening. So I’m very thankful for that.

26:03 Emily: We will link that in the show notes. I think you’re probably referring to…

26:06 Eun Bin: The $5,000 initial investment one, the compound interest.

26:10 Emily: Yeah, like what you can save during grad school has a $1 million impact on your net worth. Yeah. That’ll be linked from the show notes.

26:19 Eun Bin: Right. So when I first saw that I was like, no way that can be like seven-digit figure. Like, but when I actually did the math out, it’s actually true. I was like, wow, that’s amazing. And that was like the first catalyst I would say. And the second was when there was the announcement that the IRS has delayed the tax filing deadline to July of 2020 for the year 2019. And that also gave you more time to contribute to your 2019 Roth IRA if you desire. And honestly, that delay is what made me think, huh? Should I actually start this thing? It actually gave me time to think about, because that was not on my mind at all before that. And so after having done some more research, like seeing more articles that you had on Roth IRA, and I knew that I had W-2 income and that I had money in my savings account that I can just funnel over to a Roth IRA account when I realized that that’s when I decided here, let’s go for it and start contributing. Yeah.

27:26 Emily: Okay. So if I have the timing on this right, in 2020, you started contributing to your 2019 IRA. And for the listener, just anyone who’s not familiar, you can contribute to your prior year IRA contribution limit, which is currently $6,000 per year. You can contribute up through tax filing day. So, normally, April 15th. In 2020, it became July 15th. So you took, you saw that extra three months as an opportunity to reevaluate and have a little bit more time to fill up that 2019 IRA. So did you end up contributing like a lump sum or did you start dollar cost averaging or what was your strategy?

28:01 Eun Bin: Yeah, so I had about, about like two years worth of IRA contributions from just my savings in a savings account. So I actually had more than $12K in my savings account at the time. So I just, it was like a one lump sum deposit for both the year of 2019 and 2020 that I made in mid-2020 to my Roth IRA.

Roth IRA Contribution Strategy in 2021

28:22 Emily: Wow. All right. So you maxed out two years at once. You’re all set through the end of your, you were all set through the end of 2020 now we’re in 2021. And is your strategy the same? Are you saving up cash and doing another lump sum contribution or have you started contributing on a regular basis?

28:38 Eun Bin: Yeah, so I have a direct deposit set up where I put in about 500 every month into my Roth IRA account. And that should come out to exactly 6,000 in one year. Yeah.

28:48 Emily: Yeah. So you’re on track to max out in 2021 as well. Yeah. Incredible. And did you, so you explained how you went about this in terms of saving up cash and so forth. Were there any other like tricks you want to pass onto the listener about yeah, how to start this process of contributing to an IRA or how to contribute more than they have been before?

29:11 Eun Bin: Right. So, honestly, things like IRA, investing, like 403(b), 401(k), all those things. Like if we are new to it, it can feel really overwhelming. Like if I read an article about this topic, like three years ago, I would be Googling like every other word, like, what is this? What is that? And it can be a lot of information. But I think honestly your resources have been very helpful for me. You have a lot of resources regarding Roth IRA. And so going through them one by one, like slowly digesting, Hey, what’s an IRA, what’s Roth? What are the different types of investment, I guess, products available to you? Just taking the time to digest through it slowly, I think gave me the confidence to go for it, because if you don’t know what it is, it’s hard to put your money into something you don’t know a lot about, right? So I think part of the solution was just to spend the time to learn about this whole IRA, retirement savings investing. Yeah.

30:12 Emily: Yeah. I’m really glad to hear that you used some of my resources and that, that like worked well for you of course, in combination with some other things. Yeah, I agree. It can be really daunting. And I do correspond with a lot of people who, I have, if you subscribe to my email list, there’s a certain point in the sequence where I ask you, what’s your biggest challenge right now in your finances. And if I can help you, I’ll try to, and probably, I don’t know, at least 25% of the responses are, I want to open an IRA and I just don’t know what to do. Like I know it’s important, but what do I do to get from here to there? So I want to mention, I do have a resource available for people who are in that position.

30:48 Emily: I think you probably opened your IRA before I created this resource. So you didn’t actually use it. But it’s inside the Personal Finance for PhDs Community. So if you go to pfforphds.community and sign up for the community, there’s a challenge in there in the forum called open an IRA, or like open your first IRA, something like that. And so I wrote out like a seven-step process, like every sort of decision point where you need to, you know, figure out what you’re going to do and we need to learn about, and I have resources inside the community like webinars and things I’ve written that sort of support that. So step one, okay. Here’s what it is. Here’s a support item. If you’re not sure about this yet, go watch this or go read this. So I’ve had great feedback from people who have been through that seven-step process and have opened and funded their IRA at the end of it. So if anyone is still sitting on the sidelines, you have money like Eun Bin did, you know, this could be a resource available for you. So pfforphds.community, if you want to check that out.

31:41 Eun Bin: And if you don’t have, like, I mean, I made a lump sum because I had money saved up, but honestly it takes us a little as a couple tens of dollars to make the initial investment. You don’t have to contribute all at once, just little by little and you don’t necessarily have to max out. So do what you can. And I think like, as Emily writes in that one article, 5,000, that’s not even like a maximum of one year’s contribution, but compound interest can do a lot of great things to that 5,000.

Transitioning from NSF Fellowship to W-2 Income

32:08 Emily: Yeah. Thank you so much for saying that. I love talking about investing and I understand there’s actually been another exciting investment change on for you in 2020.

32:19 Eun Bin: Right. So in 2020 is also when I transitioned from my NSF graduate fellowship to TAships so just regular W-2 income. And after having learned about different like retirement savings options, I started looking into like, what retirement options does UCLA provide for its employees? And I did find that they provide like the 403(b) and so with this, I decided to also contribute like 5% of my pay to this 403(b) account. Honestly, this was, I mean, Roth IRA, I would say is like my primary retirement saving vesicle, but I just wanted to, I guess, try it out. That’s what got me into this. And this is also a way for me to, now that like restaurants are opening back up and there are more opportunities to spend, that’s just another way of me just putting money away so I can’t take it out. That’s how I deal with like managing my savings, I guess, like similar to, I need to physically move myself away from the lab so I don’t think about it. It works the same way for me with money as well. Yeah. So.

33:40 Emily: Absolutely, me too. I love the pay yourself first strategy. I use it myself. I recommend it everywhere. And it’s just because I’m a bit of a spender also. So like, I just want that money, like out. I’m a forced saver, but a natural spender. I think I’ll put it that way. I like saving, but I have to put systems in place to make sure that I do it or else I’m really not going to.

33:58 Eun Bin: I’m exactly the same way.

34:01 Emily: Yeah. That’s so exciting that like you had, you know, you found out that you had the 403(b) access. And this is a good tip for anyone else at UCLA or anyone at any of the UCs, I would imagine. And also just anyone anywhere to check to see if you have access because you know, I don’t think many graduate students can, you know, save the full 6,000 for the IRA and then be looking for their next like savings opportunity. But you have, especially with this like awesome side job, I mean, it seems like you have, you know, plenty of pocket money already, so yeah. So it’s worth looking into, sometimes you’ll be surprised and the answer will be, yes, you do have access to the 403(b). And switching from fellowship to being on W-2 has also come with some tax changes, right?

34:44 Eun Bin: Right. Right. So when I was on the NSF, I know this is a very hot topic that you talk a lot about Emily, like quarterly taxes and filing. So for me, because my parents also run their own businesses, they have to do their own quarterly taxes. Thankfully, like, the CPA who helps with my parents’ finances, they were kind enough to help with mine as well. So that made it a lot less stressful for me. And in terms of like saving, because I know you mentioned in one of your articles, like have a designated savings account for your quarterly taxes. But what helped me in that regard was my actually side job that I had. Because of that excess income I didn’t necessarily, I guess, have to withhold my own taxes, I suppose and whatever I had to pay, I could just pull that from my weekend job money that I had. Yeah. That was enough to cover all my taxes. Yeah.

35:46 Emily: Yeah. So it sounds like you, with that additional income, you had enough sort of flexibility in your cashflow to be able to pay that somewhat larger tax bill in a given month. That’s awesome. It’s definitely not the case for most grad students. And that’s why I think that saving up in advance strategy is so critical for, I mean, for most people, right? All these strategies are, if it works for you, great. If it doesn’t like move on from it. And I think one of the themes that, you know, you’ve identified in this interview is that, you know yourself, you know your psychology, at least in a few of these areas, right? You know, what’s going to work for you and you set up systems that help you stay within the boundaries that you, that your like higher thinking self wants you to be in.

36:27 Emily: Whereas like in the moment you might not make that decision, but that’s why you have the boundary in place. So I think that’s an awesome takeaway for the listener to kind of figure out what those tricks are that, you know, are going to work really well for you. They may not be the same as what other people do. That’s okay.

Best Financial Advice for Another Early-Career PhD

36:41 Emily: So as we wrap up Eun Bin, thank you so much for this interview, it’s really interesting to hear what’s been going on in 2020 for someone else. I feel like I haven’t had that many interviews that sort of acknowledge that we are in the middle still of a global pandemic. So as we’re wrapping up, would you please tell us your best financial advice for another early career PhD? And it could be something that we have already touched on that you want to emphasize, or it could be something completely new.

37:04 Eun Bin: Yeah. So I think based on my experiences, my advice for early career PhD students is number one, do this before you apply. Sign up for Emily’s website, they are very helpful. I wish I had discovered them way earlier in my career. Definitely. And second, like if this is like your first time making like regular income, which it was for me until after I graduated college it can feel very overwhelming to have just a lot of cash than you’re normally used to. So make a budget of like your essential I guess like costs that you need to pay and then like just develop a budget for yourself. And what I did was whatever that was above that beyond the budget, I just put away into a savings account that I can’t touch. But I guess Emily did mention also, but be open to, I guess, experimenting a little bit with your finances and figuring out a strategy that works for you.

38:11 Eun Bin: And do take the time to learn about like saving and investing. I know when you first get into it, for me, it was like, Oh, like investing in like the stock market or like mutual funds. Like what are those things like? How does it work? And like, are you sure that I won’t lose my money this way? I had a lot of these concerns, but I think there’s a lot of really informative articles. I like the one Investopedia, for example, they have a lot of really informative articles that are friendly to beginners and combined with Emily’s various articles. I think it is a steep learning curve but it is something worth putting your time into, I would say. Yeah.

38:53 Emily: Yeah, I totally agree. And the thing about learning about investing, especially learning about passive investing is there is an initial upfront investment of time of a few hours or 10 hours or 20 hours. Maybe if you want to be really like in depth. But after that, it’s very, hands-off like, it is not something that you have to continually be learning about and maintaining for the rest of your life. You make this initial upfront investment of 10 hours. Read one book, you know, read a couple of my articles, whatever you’re probably going to be pretty set for like a very, very long time on just that amount of information. And that’s the nature of passive investing. And so you have to find the time to make that initial push, but once you’re over that, it’s like, it’s like smooth sailing. It’s so easy after that point. Yeah. Great. Well, Eun Bin, thank you so much for joining me on the podcast today. It’s been a pleasure having you.

39:39 Eun Bin: Yeah. It was a really great time talking about these things with you, Emily. After being a listener for a very long time, it was really exciting to be a guest on this podcast. And I hope this would be helpful for the other listeners.

Listener Q&A: Making Smart Financial Decisions

39:56 Emily: Now, on to the listener question and answer segment. Today’s question actually comes from a survey I sent out in advance of one of my university webinars this spring. So it is anonymous. Here is the question: quote, what smart financial decisions should every PhD student be making with their money? End quote. This is an amazing question. So thank you anonymous for contributing it. I have to acknowledge upfront that not every PhD student is going to be able to make the decisions that I’m about to list as smart financial decisions. And that’s okay. I hope in those cases, that being in a PhD program overall is a smart financial decision for your longterm career. Maybe it’s not a short-term smart financial decision because you’re not being paid that well, but I still hope it is a longterm smart financial decision. Okay. First smart financial decision over the course of your graduate degree is backup, before you get into graduate school, choose a PhD program that will support you well financially so that you can do the rest of things that I’m about to list.

41:05 Emily: Okay, one smart financial decision that you should make as a grad student, but it’s certainly not unique to graduate students is to not abuse your credit cards. Use your credit cards, if you use any, exactly as you would use a debit card and never put a charge on it that you could not immediately pay off with cash from your checking account. That certainly means not carrying any credit card debt, but it also means not giving yourself an advance on your next paycheck through floating charges on a credit card. For further explanation of why this kind of use of credit cards is dangerous and how to get out of it, listen to my episode last week, season eight, episode nine with Elana Gloger. Another smart financial decision during grad school is to prioritize your savings rate. You might direct that savings rate toward different purposes throughout the course of graduate school.

42:00 Emily: Maybe it’s going to be cash savings. Maybe it’s going to be investing. Maybe it’s going to be debt repayment. But whatever it is, getting that savings rate higher, maybe even in the 10 or 20% or higher ranges, that’s a really smart financial decision. And you can work that savings rate up to those levels that I just mentioned by attacking both sides of the equation, both the earning more and the spending less sides. Now of course, an individual graduate student might have more opportunity on the earning more side, might have more opportunity on the spending less side. It depends on your personal situation, but you can reevaluate both sides. Start with the easier one for you, but eventually get around to thinking about how you might do the other one. On the earning more side, you know, I think you should be consistently applying for outside fellowships that might increase your stipend or for smaller grants that will add on to your stipend or your funding package.

42:59 Emily: Grad students can also try to generate a side income. In many cases, that’s not to say necessarily a side job or a side hustle, which are not accessible to all graduate students, but some kind of side income. On the spending less side, a lot of people are attracted first to tweaking and cutting back in the small and variable expenses in their lives. But that’s actually not where I recommend that you start. I think you should start with the big three expenses that most Americans have, which are housing, transportation, and food, specifically your grocery spending. But start on the fixed side of that. So start with your housing expense to reevaluate is there a way that I can pay less on a monthly basis for housing? Yeah, it might take months or a year to work into that next housing situation, but it’s very worthwhile if you think there is room for reduction right there. On transportation, any fixed expense you can reduce would be amazing. You know, if you own a car, if you have a car payment, how can you reduce or eliminate that? If you presumably pay for car insurance, how could you reduce that expense?

44:03 Emily: Food is the last one of the big three to address. And I suggest that you make long-term sustainable changes to your habits around shopping and eating rather than trying to use willpower in the short-term to reduce your spending. Okay. There are obviously many other budget categories to address after those, but I think you should start with the big ones. Another smart financial decision would be to work the steps in my financial framework. I have an eight-step financial framework that kind of toggles back and forth between building financial security in the form of cash and working to improve your net worth overall through debt repayments and investing. But these things have to come in a certain order.

44:45 Emily: If you go out of order, you can take on more short-term risk. If you want to read more in a lot of detail about my financial framework, you can join the Personal Finance for PhDs Community, pfforphds.community, or sign up for coaching with me, pfforphds.com/get-coaching. The last smart financial decision that I’ll recommend is to not languish in your graduate program. Get out as soon as you can. Really overall, the best thing you can do for your finances is finish that PhD and move on to a higher post-PhD income, whether that’s in a post-doc or a real job. I know there are good reasons to stay in grad school longer related to publishing, related to applying for tenure track jobs, but it’s not a smart short-term financial decision. So again, if you think that the extra year or whatever it is in your PhD program is worth the long-term investment, that’s great. But if you don’t see that ROI on the horizon, just get out as quick as you can. Thank you so much to anonymous for submitting this question. If you would like to submit a question to be answered in a future episode, please go to pfforphds.com/podcast and follow the instructions you find there. I love answering questions, so please submit yours.

Outtro

46:11 Emily: Listeners, thank you for joining me for this episode. Pfforphds.com/podcast is the hub for the Personal Finance for PhDs Podcast. On that page are links to all the episodes show notes, which include full transcripts and videos of the interviews. There is also a form to volunteer to be interviewed on the podcast and instructions for entering the book giveaway contest and submitting a question for the Q&A segment. 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 Podcasts, Stitcher, or whatever platform you use. If you leave a review, be sure to send it to me. Two, share an episode you found particularly valuable on social media with an email listserv or as a link from your website. 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.

Be a Fly on the Wall During a Financial Coaching Session (with Elana Gloger of Dear Grad Student)

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In this episode, Emily conducts an initial financial coaching session with Elana Gloger, a PhD student at the University of Kentucky and the host of the Dear Grad Student podcast. Emily and Elana talk through Elana’s balance sheet and identify several strategies she can implement to pay off her credit card balance and stop needing to time her bills to her biweekly paychecks. They also go over the first few steps in Emily’s Financial Framework, from saving a starter emergency fund to investing for retirement, as the recommended sequence of financial goals for Elana to accomplish prior to finishing grad school. Once you finish this episode, head over to the Dear Grad Student podcast to listen to Emily’s interview with another guest on individual and institutional financial matters in grad school!

Links Mentioned in this Episode

financial coaching grad student

Teaser

00:00 Elana: And I think so many other students are in my position of: “Where do I start? How do I do this? It’s not possible with my stipend.” And, you know, we’re all in different levels of privilege in terms of finances, but there are little things that all of us can do and certainly steps that we can start with. And I think that this is going to be great for anybody at those beginner steps or living similar to me, which is just on that cycle of the clock of a paycheck and rent and paycheck and rent, and credit card and all of that.

Introduction

00:29 Emily: Welcome to the Personal Finance for PhDs podcast, higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season eight, episode nine, and today my guest is Elana Gloger, a PhD student at the University of Kentucky and the host of the Dear Grad Student podcast. Elana is just starting out with handling her finances intentionally. So we decided to conduct an on-air financial coaching session. This was a really enjoyable episode for me to record, and I think you’ll get nearly as much out of it as Elana did. We talk through Elana’s balance sheet and identify several strategies she can implement to pay off her credit card balance and stop needing to time her bills to her bi-weekly paychecks. We also go over the first few steps in my financial framework — from saving a starter emergency fund to investing for retirement — as the recommended sequence of financial goals for Alana to accomplish prior to finishing grad school.

01:26 Emily: Once you finish listening to this episode, head over to the Dear Grad Student podcast, to listen to a three-way discussion between me Elana and Tyler Hallmark, a grad student who advocates for financial policy change at his university. We discuss what institutions can do to better financially support their graduate students. You may be surprised by the number of solutions we identified to help graduate students out of tough financial spots at both the personal and institutional levels. It was a fantastic conversation that I learned a lot from.

01:58 Emily: If you haven’t listened to Dear Grad Student, before you are in for a treat. I’ve been so impressed with what Elana has built in just the past half year, and it’s been wonderful to collaborate with her on these two episodes. Hit subscribe to dear grad student while you’re there. And for any Dear Grad Student listeners who have come to hear Elana’s coaching session, welcome, I’m glad you’re joining us. Please hit subscribe to Personal Finance for PhDs and let us know on Twitter what you think of this episode. I challenged Elana at the end of our session to follow through with a few specific steps by the time the episode publishes, so let’s give her the accountability she wanted.

Book Giveaway

02:37 Emily: Now it’s time for the book giveaway contest. In March, 2021. I’m giving away one copy of, I will teach you to be rich by Ramit Sethi, which is the Personal Finance for PhDs Community book club selection for May, 2021. Everyone who enters the contest during March will have a chance to win a copy of this book. If you would like to enter the giveaway contest, please rate and review this podcast on Apple podcasts, take a screenshot of your review and email it to me [email protected]. I’ll choose a winner at the end of February, from all the entries you can find full instructions at pfforphds.com/podcast.

03:19 Emily: The podcast received or review this week titled “Informative and Inspiring”. The review reads: “I love this show and this is the podcast that got me interested in personal finance. Thank you, Emily, for letting me know that even graduate students can start our journey to build wealth. Great podcast!”

03:36 Emily: Thank you so much to the reviewer for this wonderful comment! I’m so glad the podcast has served as a gateway to building wealth earlier in life than you expected. Without further ado, here’s my coaching session with Elana Gloger of Dear Grad Student.

Will You Please Introduce Yourself Further?

03:57 Emily: I have joining me on the podcast today Elana Gloger who is the host of the Dear Grad Student podcast, and a current graduate student at the University of Kentucky. And we’re doing a really special episode today. Actually, we’re doing a swap, so after you listen to this episode, go over to Dear Grad Student, listen to an interview that I did with Elana and another guest on finances and graduate schools. Okay, so listen to both the episodes, but in this episode we’re doing something that I’ve never tried before, and I’m really excited for it, which is to start off a coaching session. So the podcast is only supposed to be about half an hour long. Usually my coaching sessions are an hour, but Elana thought it would be a good idea to kind of show people what coaching with me would be like, and of course get some coaching herself. So Elana, I’m really excited to try this out and thank you so much for suggesting this format for the episode. And will you please introduce yourself to the audience?

04:50 Elana: Absolutely. Yeah. Thank you so much for having me. I had just listened to your episode about financial shame and I thought, no shame here, let’s go for it. Let’s talk about finances and make this happen. So yes. Hi, I’m Elana host and dare I say, producer of the Dear Grad Student podcast. I’m a fourth year PhD student at the university of Kentucky and I’m getting my PhD in health psychology. I do research with psychology and the immune system. So right at that intersection of psych and biology, and I’m super happy to be here today and happy to show people a little bit about grad school finances and what it feels like to have some negative net worth, but we’ll get to that in a second.

What is Money Coaching

05:31 Emily: Yes, we will. So I want to say a couple of preliminary remarks about kind of what the coaching relationship is. As a financial coach, as a money coach, well, one, I’m not a certified financial planner or anything similar to that. So we’re not talking specific investment advice, we’re not talking specific tax advice. This is kind of about budgeting and saving and cash flow and debt and things on kind of that level of finances. That’s one part of it.

05:56 Emily: Another is that as the coach, I’m not in charge of your financial life. These decisions are entirely up to you. I’m here as a resource. I’m here as an educator. I’m here as someone who can maybe prompt you into thinking about things a new way, and maybe help you strategically think through some decisions, but ultimately for the client, everything is up to you and I’m not managing anything for you. There are a couple of notes about that, that relationship.

06:22 Emily: As a preliminary exercise with you, as I do with all my clients, I asked you to fill out a balance sheet and a balance sheet is basically just a record of all of your assets. That’s every dollar in your checking account. That’s any property that you have that has value. Those are on the asset side of the equation and also all of your liabilities, which is all of your debts — credit card, debt, student loans, medical debt, all these kinds of things, and the spreadsheet breaks all that out.

Let’s Talk About Net Worth

06:50 Emily: So Elana the first thing I always ask my clients when we start a session, open up that net worth spreadsheet, the calculation that you did — by the way the net worth is the assets minus liabilities — is how did this exercise go for you? Did you learn anything? Did anything strike you in a new way?

07:08 Elana: I think the first thing, so I filled out assets first and so that’s going to be my checking account, my savings account, the $100 I have in a Roth IRA because I started that after listening to your podcast. But I looked at that and I kind of laughed at what my positive net worth was before putting in loans, because it’s just so small. I mean, just thinking about what that could buy in real life just felt like nothing. It’s interesting because I do regularly use things like credit karma, so I had a general sense of exactly what my debt looked like, but putting it all together and seeing that large negative number as my net worth, mostly I just laughed. But it was helpful to put this all in one place and also to learn that there are lots of different ways that I could have assets. Like there are three different kinds of investment accounts you have listed. And I’m like, I don’t know the difference between any of them. It was also informational, because it definitely gets me thinking there are areas that I have to grow and learn about my finances, above and beyond just knowing like what I literally have or don’t have at this point.

08:18 Emily: Yeah, thank you for saying that. For your spreadsheet, which I’m looking at, you have I would say a relatively simple financial life. There’s not a lot of different kinds of accounts going on. There’s not a lot of different categories of things. The spreadsheet itself is very catch-all, like let’s think of everything we could possibly put in here and throw it down on the sheet, but you — I don’t know how old you are — you’re a grad student and you have a simple financial life as of now. So that is perfectly in line with what I would kind of expect of someone who’s in your position.

08:49 Elana: Yeah, and I’m 25, turned 25 last June, so I’ve only been an undergrad and then a grad student I’ve never dare I say, held a real job. So there’s not a lot of complexities to have gained, I guess, at this point.

Managing Cash Flow

09:06 Emily: If you don’t mind, let’s talk through, we don’t have to use the specific numbers, but let’s talk through kind of the categories that you have filled in here and just make sure that I understand everything that’s going on. It looks like you have what I call cash equivalent — so balances in checking accounts, balances in savings accounts, money market accounts. You have some cash on hand, but you shared with me just before we started, how you sort of operate your cash flow. How does that work on a monthly or whatever paycheck frequency you have; your cash flow, that is?

09:38 Elana: Great question. I have my paycheck for my university as a graduate student, come into my checking account. I’m paid bi-weekly by my university and I am paid year round at the same rate and then taxes change over the summer or if I am not enrolled in full-time classes for a certain period of time. When that money comes in, I essentially have dates in a spreadsheet somewhere deep in my computer of when I am charged for my car payment, my phone payment, different things like that. And I have that all coming out of my checking account because what I don’t want to do is accidentally rack up a credit card debt because that is a little bit too easy for me to do. So when I have cash flow coming in from my paycheck, I have bills pulled out from my checking account and then depending on the timing of the month, I’m either throwing whatever is left over onto my credit card to pay that down, or I’m putting it towards rent. And I do split rent half and half with my partner or just about half and half. My credit card is where I do my spending — grocery trips, Chipotle runs, whatever it might be, that’s done on my credit card. I do that mostly for points and cashback and to build credit because again, 25, don’t own a house, will not own a house for many years. That’s kind of what my cash flow looks like. What we’re both looking at essentially is I keep my checking under about $100 at a time, because otherwise I’m throwing it into credit cards, or $50 a paycheck or so into savings.

11:09 Emily: Okay, got it. And I think what you just described there is like super common for Americans. That’s not to say that I love the system, so I’m going to make a suggestion here for how you can shift that. Let’s talk about the other side of the cash equivalents, which is the credit card balance. What I’m looking at is a credit card balance that exceeds the amount that’s in your checking account right now. Tell me if this is true, but what this says to me is that you are sort of using credit cards to give yourself a little bit of an advance on your next paycheck, is that right? Will you pay off this credit card entirely after your next paycheck arrives?

11:45 Elana: No.

11:46 Emily: Okay, so this is a true credit card balance that you carry at least sometimes at some points out of the year.

11:52 Elana: Yeah, it is usually little bit lower than this. What you’re seeing is I recently bought a domain for my podcast and website services, so it was a little bit higher than normal. It’s usually kept, I would say under about $500, in terms of regularly. And I will say too, as an aside, my stimulus check never arrived, so I was also kind of expecting that. This is also part of what you’re seeing, but I guess I’ll find wherever that is eventually.

12:17 Emily: Yes. And for those of you listening, I think many people are in the same scenario. This is the second round of stimulus you’re talking about, right?

12:24 Elana: Yeah, I got my first one right on time, but not the second.

12:27 Emily: Yeah. The same thing happened to me actually. So we’re recording this in February, 2021. I also was direct deposited my first stimulus check. So totally smooth. That was great. The second one, for whatever reason, the IRS chose to mail the cards, if you’ve heard about those like debit cards, whenever there. They chose to mail the debit cards, but I moved in 2020, so they went to my old address, went back to the IRS, then they had to send them to new address. So anyway, it took a little bit while longer. But if you never received the stimulus check and if anyone listening, never received the second one or the first one, and you believe that you were supposed to, you can claim it on your tax return. So you’ll add it into your tax return. It’s what’s called the recovery rebate credit, and then you’ll get it as an addition on the tax refund, if any, that you would have already received. So it’s just going to be straight added to the money that you receive as a refund from the IRS. So the sooner you file your tax return, the sooner presumably you will get access to that money. And actually we happened to be recording on February 12th, which is the first day that the IRS is accepting returns. So by the time the listener hears this, returns will already be being processed by the IRS.

13:37 Emily: Okay. That was an aside. Ideally, in an ideal world, here’s how I would love to see your cash flow functioning. And the way to get from where you are right now to this ideal world is it’s a little bit confusing because of how you and many other people use credit cards, but it’s very simply saving. You just very simply have to save more money and it’s not going to even look like you’re saving money because your checking account balance is not necessarily going to get bigger for a little while, or your savings account balance, but the debt balance on the credit card will get lower and lower and lower.

Treat Your Credit Card Like a Debit Card

14:14 Emily: The first issue I’m seeing here is just that you are using your credit card, like I said earlier, as an advance. You’re paying for things that you would not be able to pay for it with a debit card. The very, very first step is use your credit card as a debit card or stop using the credit card. And the most extreme response to being in the situation that you are in right now is to stop using the credit card. Even though it gains you points, even though it’s a boon for your finances, but to stop using the credit card until you can kind of train yourself to only use debit. And I want to know what your reaction is to this, because I’m thinking that you might be thinking, “that sounds great, Emily, but I’m living on a grad student stipend, where’s the savings going to come from?” What do you think?

15:00 Elana: I mean, part of me thinks that, except a couple of years ago, I started just automatically shoving money into my savings account every month. And I don’t even notice it. I don’t even feel it. So part of me recognizes that this is possible. I think the other part of me is thinking a lot about, there’s not much going towards a credit score right now. And not that I necessarily need — I bought a car about two years ago, so I’m not about to make a big purchase. I’m not about to get a mortgage. But other than paying off my car loans, my student loans right now are deferred as I’m a graduate student. That is kind of a thing that I think about — what happens to my credit score when there’s nothing contributing to it, except this credit card and that car loan essentially?

15:41 Emily: That’s a really, really good question. You said you use credit karma earlier, so you do have access to your credit score on it. Is your credit score — maybe I’ll just ask you like the range, is it like 740 and up?

15:57 Elana: Yes.

15:57 Emily: Okay, so that is in the great range. Credit scores can go up to 850, but like it’s very rare even to get that higher, even over 800 is like, “Whoa, you’re really trying here.” Your credit is already in a great range and that is because you have the student loans, even though they’re deferred, they still contribute in some capacity to the credit score. The car loan especially contributes to the credit score because that’s an installment loan, so you’re making the exact same payment, or at least what the payment that’s required is the exact same, every month or whatever it is over time.

16:28 Emily: The revolving debt on the credit card, that is to say credit cards are a revolving kind of debt. There are different kinds of debts. They do contribute to your credit score, but you do not have to carry a balance to do that. And even if I’m telling you, “Hey, why don’t you stop using your credit card or at least tries you for a few months”, taking that kind of a small break, maybe even up to six months. I really don’t think it’s going to have any impact on your credit score, but if you did see your credit score drop or something you were concerned about, you could do something like put one recurring charge on the credit card, $20 or less, something like that, and know that that’s part of your budget and build that in and just pay that every single month, but not use it for any of the other variable kinds of expenses.

17:13 Elana: Yeah. That makes sense. I think I could do that. I think my podcast hosting, different things with the podcast are put on my credit card, but real life, I don’t know why I don’t put the podcast in real life, but real life bills are coming from my checking account. That’s really interesting to think about that maybe I already have recurring payments that are going to keep up that credit card use at a low rate, which I also know contributes to higher credit score anyways, that maybe I just need to stop making excuses.

17:41 Emily: I mean, what you just pointed out is another really, really good point is that having a utilization ratio on your credit card, which is the amount of credit, it’s the balance at whatever point in the month the credit bureau is choosing to check. So it’s not like on your statement ending date, it’s not another date you pay. It’s just whatever point in the month they try to check, the balance versus the total amount of credit that’s been offered to you. And so that percentage is your utilization ratio. 30% or less is good, 10% or less is ideal. I don’t know what your credit limit is on that card, but carrying any kind of balance is going to contribute to that utilization ratio being a little bit higher. So yeah, paying it down. Good idea.

18:27 Emily: Now, when you mentioned earlier that some years ago you started, I call the strategy paying yourself first, you, you took money from checking into savings automatically, you never missed it. Do you think that if you stopped using your credit card, you would be able to get by okay? Is there room to naturally adjust your spending down or is this like, Oh no, we need to put together an intentional plan because no, my spending will not naturally reduce, like I need this credit card right now?

18:58 Elana: Yeah. I think I could probably be more intentional. When I think about what I’m really paying my partner every month, I think what I come up against is more timing of when I’m paid versus when bills are due. Part of my issue is that I get paid the same every paycheck, but the first half of the month, almost all of my bills are due, so I am usually coming up against that kind of wall. But I’ve also put myself in that corner because what will happen is, is that all those bills are being paid, so I use my credit card and then I’m paying off my credit card, so then I don’t have money and all the bills are being paid. I’ve kind of gotten myself stuck in this cycle where if I could wean myself down a little bit, I do think that I could manage it. I do think the credit card gives me a little bit of wiggle room to say, I don’t need to check this every day, which I know is a big no-no. It gives me a little wiggle room to say, I don’t need to be typing in to the cent or the dollar amount exactly what I’m spending, because I’m fine. But I think that that’s just financial avoidance, so I think I could probably be more intentional, a little bit more type A, but it’s hard because it’s technically worked out fine so far. I mean, I’m not drowning, so it’s hard to motivate myself a little bit when it’s been fine.

20:19 Emily: Again, I think that sentiment is super, super common. Now, so you do carry at least at some points, a balance on the credit card, so you are being charged, whatever, probably 20% interest on it. It’s crazy high, I’m sure. That is damaging you financially.

20:35 Elana: Yeah, that’s true.

20:38 Emily: But there’s another category person and this is also where you may fall at some points in the year when you don’t have a balance on the credit card, which is “I use my credit card, but I always pay off the balance in full, how is this damaging to me that I’m taking an advance on my next paycheck,” because it is not literally financially damaging you when you’re not paying interest, but I still think it’s a dangerous practice because perhaps this has happened to you is very easy to slip from, “I will get my next paycheck and I will pay off the credit card” to “Oh, no. Something else came up” and hopefully it’s not your income being lost, but maybe it’s just some large expense that was unexpected and “Oh yes. Now I’m not able to pay off their credit card in full.” And it’s such a thin line between those two like scenarios and then you are starting to be charged.

Stopping the Paycheck-to-Paycheck Cycle

21:25 Emily: I’m really glad that you brought up the timing of the paychecks and the timing of your bills, because that was the other thing I’m going to talk about. Because once again, this is like the way I’m pretty sure that most Americans live is timing their bill payment based on their paycheck. And like you, many Americans are paid biweekly. I think that’s probably the most common for proper employees, or maybe they’re paid bi-monthly. But being paid monthly, for example, which is how I was paying in graduate school, is pretty uncommon, and actually people get kind of sensitive about it. Yes, like you’re making a face right now, for the listeners.

21:56 Elana: That sounds very stressful.

21:57 Emily: Okay, but here’s the thing — my like future vision for you and your cash flow is to operate on a monthly basis instead of on a bi-weekly basis. And once again, the solution here is to save up. Basically what I would love for you to have is going into day one of the month, you have a full month’s worth of pay available to spend throughout that next month. You need to get basically two weeks back from where you are now. Essentially what I’m asking you to do is save up one paycheck and have that available in your checking account. Then that second paycheck hits and you’re going into the next month, the next budgeting period, fully funded, fully flush. There’s two stages of this: there’s completely paying off the credit card and not using it for advancing on next paycheck. And then having the discipline to operate on this monthly system instead of on the bi-weekly system. That way you will never worry about the timing of your bills. You always have the money for the entire month in advance available. How does this strike you?

23:00 Elana: Well, first I love that you have a vision for my finances at all, someone needs to. But I think the other thing, when you say that, I’m like, yeah, that sounds amazing because it felt kind of like a weight lifted off. And then I started thinking about the logistics of, okay, well, what cycles are already in motion that I need to start kind of not backpedaling on, but sort of unwinding? So paying that credit card down, I know that also probably means maybe trying to find the stimulus check even before getting the tax return, if possible and then going from there. And I know that the solution is paying from my checking account. Like even when I’m paying off my credit card, I’m like, I wouldn’t have to do this if. It sounds good and I think it just will come down to me planning it out, in terms of what I need to do month to month over two or three months maybe, to officially make that happen, in addition to paying down my credit card. But I think it’s a good strategy.

23:56 Emily: Yeah. So the amount of money that we’re talking about, essentially for you to “find”, to somehow save up and again, it won’t go into your savings account, so it’s not going to feel like savings, but it’s going to feel like your checking account being a little bit bigger and it’s going to feel like your credit card balance being completely eliminated. This is effectively the current balance on your credit card, plus one paycheck. That’s the amount of money that we’re talking about to completely unwind the situation. And it may take months and it may take a year to get this done, maybe faster once you find the stimulus check. But that’s the level of money we’re talking about. So it’s not massive, massive, it’s the credit card balance and one paycheck. But when you have gotten into this situation that you are in right now of timing the bills and of paying off the credit card, I know that it’s not trivial to find that kind of money.

24:48 Emily: I think, I’m not sure we’ll have time for it during the session, but I would love to talk with you about a plan for how to find that money either, maybe it’s some short-term fasts in your spending. To just say, this is not forever, but until I get this under control, I’m no longer going to spend on this or I’m going to reduce this by this amount, and/or increasing your income, which is kind of a whole other conversation, very difficult to do as a graduate student, but would be another solution. If the expense side is too tight and too difficult already, then we can turn to the increasing income side of the equation. I know how hard you work on your podcast and I’m so like I’m cringing even saying like, “you need to do some more work Elana and make more money,” because I know that you’re working so hard on that already, but I think that you should keep in mind that financial relief that you felt when I like express that vision and know that it’s not going to take forever to do this. It’s a limited term project, to find the money in one way or another.

25:45 Elana: Yeah. I think that that’s absolutely true. And you know, you and I have talked, you know, off the record a little bit about podcasting and how that goes, and I think it was a newer concept to me that I could make money off this and how that felt weird, then I got over that really quick. But I think that it really comes down to, you know, I don’t really spend money on clothes that often anymore, there’s already things as a grad student, I’ve had to cut back on, but in doing so I was totally fine. And I know that there are things that I can cut back on and be totally fine.

26:15 Elana: When I think about my life as well, my partner is about to finish up nursing school. He graduates in April God-willing and will have a real person job that will also mean that the little things like a date night or what have you that I don’t mind whatsoever picking up, I also know won’t necessarily come out of my spending or might be a little bit more half and half when he’s not making zero income. I do also know there’s a light at the end of that tunnel in terms of eventually he and I will get married as well. Little things like that, I know that this is possible, but wow, what would it be great to go into him having money and us getting married, with a little bit of a better sense on finances, especially as we talk about, and I know your podcast talks about really building wealth.

26:59 Elana: I want to be able to have investments and know what the heck I’m doing with them and as grad students likely know, I’m not contributing to a 401k. For right now, at least any wealth or investments or retirement, anything is on me to contribute and build up to, and the first step of that is everything that you’re saying. I totally recognize how important it is and it’s just one of those, I hate to say, I’m having a quarter-life crisis this whole year being 25, but it’s just one of those things that I’m like, it’s just time and it’s hard and no one taught me this and that’s okay. I just need to kind of kick my button gear and be like, it’s just time man, stop buying Chipotle three times a week. You can do it.

27:43 Emily: I think the other thing that will come out of this focus for a few months on cash flow, is not only hopefully the zero credit card balance and the flush, going into the month with all of your money in place already. But also as you were just saying some habits and some practices that are going to serve you super well throughout the rest of your life. Because again, most Americans live this way. If you continue in the same pattern and the paychecks get bigger after grad school, but the expenses also get bigger, sometimes the problems can get bigger too, and the trouble that you can get yourself into, if you’re not, as I was saying earlier, disciplined, and strict about the cash flow issue. I think having the best practices in place right now, when things are, as we said earlier, simple, the cash flow amounts are smaller, it’s going to serve you really, really well once you get to those later stages too. And then you won’t have to be like, okay, my entire first paycheck is going to my mortgage payment and maybe even more than that, that whole game. I just want you to not play that game. I don’t like timing games, no more timing games.

28:47 Elana: I don’t want to play this game. I just kind of fell into it and I’m like, okay, this is fine, but it’s not fine. And I don’t want this problem with bigger or more zeros after. Right now, what we’re looking at at my savings account, you and I, that’s really the amount we’re talking about essentially. And my laptop is six years old, so that’s going towards a laptop. It can’t go towards what we’re talking about cash-flow-wise, because it’s truly unbelievable that this thing is still running. But it’s an amount of money that I can manage, and it’s an amount of money that I much rather be saving up this much and not twice as much or three or four times as much because I don’t get it together until I’m 35 or 40 or however old. So yeah, I know you’re right. And it’s also good guidance because I think it’s exactly what your financial framework talked about, about like, it’s okay that you don’t know this and it’s just taking those little steps along the way.

29:43 Emily: Exactly.

Commercial

29:48 Emily: Emily here for a brief interlude. This announcement is for prospective and first year graduate students. My colleague, Dr. Toyin Alli of The Academic Society offers a fantastic course just for you called Grad School Prep. The course teaches you Toyin’s four step Grad Boss method, which is to uncover grad school secrets, transform your mindset, up-level your productivity, and master time management. I contributed a very comprehensive webinar to the course titled “Set yourself up for financial success in graduate school”. It explores the financial norms of grad school and the financial secrets of grad school. I also give you a plan for what to focus on in your finances each season of the year that you apply to and into your first year of grad school. If this all sounds great to you, please register theacademicsociety.com/Emily for Toyin’s free masterclass on what to expect in your first semester of grad school and the three big mistakes that keep grad students stuck in a cycle of anxiety, overwhelm, and procrastination. You’ll also learn more about how to join grad school prep, if you’d like to go a step further again, that’s theacademicsociety.com/Emily for my affiliate link for the course. Now back to our interview.

Going over the Financial Framework

31:15 Emily: I’d actually like to spend our last few minutes talking about the financial framework, which is what I use with my coaching clients, if they want to, it’s not like super dogmatic, but if they want some suggestions from me on where to go with the finances I use the framework, which I sent to you in advance, so you know a little bit more about it than a typical client would going into a conversation, but just for the listener, we’ll kind of talk through at least the first couple of steps and kind of figure out where you are here.

Step 0: Cash Flow

31:41 Emily: Now, I know where you are because we already identified the cash flow is an issue. That’s actually step zero on the framework, is to get on time with the cash flow and to get, as I said earlier on a monthly basis for budgeting, instead of on this like paycheck by paycheck basis. That’s really the step that you’re on, but I’m wondering, we can talk through this, do you have, sometimes people have other assets that they can throw towards, for instance, credit card debt that they just haven’t been, for some reason. We can talk about the reasons behind that. Let’s just walk through that at least the first few steps and kind of figure out if you’re doing any steps now that you should be waiting on or that kind of thing.

Step 1: Starter Emergency Fund

32:16 Emily: I have just a simple graphic here of the eight steps of my framework, so we’ll just talk through this. Step zero, as I said, is like the cash flow, are we on time with the cash flow? Step one is to save a starter emergency fund. And I think that you do not have an emergency fund right now, right?

32:36 Elana: So my savings that is going to be going towards a purchase of a laptop, I think can be prioritized to an emergency fund if need be. And I’m still contributing money to that. My goal is to be over the cost of the laptop, so I’m not going down to zero when I buy it. I know that that will be possible based on when I’m planning to purchase. However, it will not be a thousand dollars over. So yes, right now; six months from now, no.

33:06 Emily: Yeah. And by the way, you’ve mentioned the savings account for the laptop, and this is a perfect expression of what step three of my framework is, but I’m really glad you’re doing it already. It’s totally okay to do it before step three, which we’ll get to in a moment. But this is very, very great strategy for graduate students to be using, to save up for large purchases like this in advance, because really in your case, the alternative is if you didn’t save up, it’s going to go on the credit card, 20% interest. This is a really great strategy that you’re using.

33:34 Emily: Okay, so you have maybe some cash savings. We’ll see how much once the laptop purchase goes through, but it’s not up to a thousand dollars, which is the bare minimum that I recommend for the starter emergency fund. And you could go anywhere up to two months of expenses. And I kind of say, this depends on how large your financial footprint is. If you’re a renter, you don’t need as large of emergency fund as a homeowner does. If you’re a non-car owner, you don’t need as much as a car owner does. If you don’t have dependents, smaller than if you had dependents. Where do you feel like you fall? Once you’re ready to start on that goal, once the laptop purchase goes through and so forth, where do you want to be? Do you think a thousand dollars is enough? Do you want to go a little bit higher than that in the starter emergency fund.

34:15 Elana: That’s a really great question. I am not a home owner and I do own my car, but I bought it new and I don’t have any dependents. When I think about all of those pieces and the fact that I live with a partner who, by the time the laptop purchase will go out, we’ll be making a decent job pay as a nurse, I do think a thousand is probably comfortable, maybe $1,500 just for any additional wiggle room. I know I’m not spending $1,000 a month, and even including rent most likely, or I’m like right at a thousand, so yeah, maybe $1500.

34:51 Emily: Okay, so one month’s expenses or so. Yeah, that sounds good. Whatever feels comfortable for you because you know, the car thing, I’m glad that you haven’t had any issues with the car so far, but you never know. You could be in an accident. You could pay a deductible on your car insurance. You could pay for a windshield crack, this kind of stuff.

Step 2: Pay Off High Priority Debt

35:09 Emily: Okay, that’s the starter emergency fund, that’s step one. Step two is to pay off all high priority debt. In your case, I would definitely include the credit card. Getting on time/paying off the credit card — getting on time is step zero, paying off the credit card completely is step two. That is to say, if you stopped using the credit card, like you stopped adding new charges to it, that might be your first step towards getting on time, but then you’ll have this balance sitting there/growing a little bit, and then it’s time to pay it down in step two. I see that you have two other types of debt listed here, the car loan and student loans. Does either one of those fall into the high priority debt category. Generally this is debt that’s somewhere between 6-8% interest and higher, not including student loans that are in deferment.

35:53 Elana: Yes. I’ll say two things. First, my student loans are in deferment and they’re all subsidized, so they never gathered interest and are still not gathering interest. My car loan is at 6.6% only because that financing, let me get money off of the car when I purchased it. Now, I am outside the window of how long I have to hold onto that before refinancing, so the smart thing to do would be refinance it at a lower interest rate. I think I can get somewhere like 2.99%, again, my credit score is pretty good, and then just continue paying at the rate that I’m at. I haven’t, because right when I hit that leeway or that grace period, COVID hit and I just was not prioritizing that, but that is sort of my next step. I think I got a 72 month loan at 6.6% because I was going to be in grad school the whole time, the timing made sense, and it was totally fine to get the money off that I did. That is certainly next step in terms of refinance at a lower interest rate and then just keep paying the same amount to make that happen quicker.

36:53 Emily: Okay, I love that you came up with that solution. Great idea! Do you know —

36:55 Elana: My boyfriend came up with that solution, I’m not going to lie.

36:59 Emily: Do you know if the refinancing will cost any money upfront or is it completely rolled into the cost of the loan?

37:07 Elana: Good question. I financed with the car dealership. So I have a Hyundai and I financed with Hyundai financial or whatever it is, and I was planning to refinance with my savings account holder, which is Ally Bank. I don’t know if it costs money to refinance, mostly because I just haven’t taken that next step. But when I did purchase the car, that was a conversation I had. I just had to have the loan for four months and after that, from what they told me, a young female in a car dealership, that it shouldn’t be an issue. So I guess we will see if that is true as I sort of take more steps towards that and look into it more.

37:45 Emily: Yeah. I would say just double check with them, make sure. I think what they’re saying is it will be an issue is that if you try to do it earlier, they would charge you some kind of fee, an early account closure fee or something like that. This actually happened to me when I took out a car loan. Anyway, so just make sure that that won’t happen and then go ahead and refinance, but the thing you just mentioned, keep paying at the same higher rate, that’s actually not what I would suggest that you do, because what you’re going to do is take that debt from being step two high priority debt and bring it down to step five medium priority, or even maybe step eight low priority. Taking that step, the credit card debt is still in that high priority category. And then there are some other steps before we get to five. Are you expressing that you are maybe a bit more debt averse than I, who created the framework is? Is this something you would like to have off your balance sheet?

38:37 Elana: You know, I think when I looked at the numbers, it was something like over a five-year period, I would only save $600 total, if I paid at the rate of the loan and the lower interest rate. For me, rather than paying for the same amount of time and in total saving $600, I guess my thought was, I would rather just have it paid off earlier. I don’t know what the savings comparison is if I paid at the same rate, with the lower interest rate in terms of just that interest differential, but it was just $600, just felt trivial over five years, but maybe that’s not trivial, but it just felt so small that I was like, well, I can just keep paying what I’m doing and that’s fine, but I don’t know.

39:21 Emily: I see this primarily as a cash flow, a boon to have this lower interest rate right now because this is really the first step you should take. Make sure it’s okay, but give this refinance to go through it because whatever you’re going to lower that payment to that’s money, you can get into your checking account that you can get onto the credit card balance. Your money can basically work harder for you in these other areas of your finances, and pretty soon, we’ll get there in a step or two, but pretty soon you’re going to be investing. That definitely, well, I shouldn’t say definitely because the stock market is quite volatile, but over the long-term we can very confidently say, you’re going to earn more in the stock market than you will paying that car loan down.

40:03 Emily: Now your balance is not so egregiously high that I think you need to take however much you refinance for, like another five years or something. I don’t think you need to take that full time, but I’d love to see you getting started with some of these other areas before you return your attention to the car loan. Maybe that’s going to be a step five medium priority debt for you, so you can get it cleared, but I would love to get the investing going first.

40:27 Elana: Yeah. Yeah.

40:29 Emily: Okay. So basically you just made a really big leap, I mean, once you carry out the step, but refinancing is going to be a big leap towards the cash flow issue that we talked about earlier. That is awesome! And really it’s just an interest rate change.

40:42 Emily: Then the other type of debt you have on here is student loans. You mentioned that they’re kind of double subsidized. They’re subsidized student loans, plus we have a federal pause at the moment on interest, so that is at 0% interest and that makes it step eight low priority debt. Just for my own curiosity, do you have any particular plans for how you’re going to repay that once you’re done with grad school. For instance, do you think you’ll use an income driven repayment plan or just straight pay them off? Or what are you thinking?

41:11 Elana: You know, I have not put a single thought to it and I’ll be honest about why. Once my friends started to do that, I was already in grad school and I knew that being enrolled in grad school for six plus years meant that they were automatically deferred and they weren’t collecting interest. It was actually a thought of mine that, Oh, do I start paying that down now, because it won’t make a difference now versus when I’m a postdoc making what maybe, $10,000 or $15,000 more years. Is that really going to feel like anything? I think it’s going to depend on once my partner and I are married, what that financial situation looks like, and if I’m being really honest, I think it’ll be interesting through this presidency to see how much debt I have left after that, because we just really don’t know if and what kind of debt canceling they may or may not do. For now, I don’t have a plan just because it’s really hard to predict. What am I going to make? Will I be married? What will he be making? Will we own a house? It’s just really far in advance and I feel it to be low priority and just helping my credit score with the length of account open kind of thing.

42:13 Emily: Yes. I’m in total agreement. I think that you should not really consider paying anything down in these loans while they’re in deferment while they’re subsidized. Wait until you know what that next job is going to be, the paycheck. Whether or not you’re working for a nonprofit and might be eligible for PSLF or not. And as you said, what your family situation and family income is at that point, there’s just so many unknowns right now. And it said 0% interest. And your balance, we won’t say what it is, but I’m looking at it and it’s small enough that you will be able to take care of this, I think pretty easily, once you have that post-graduate school kind of job. It would be very difficult to handle it right now, during grad school, but later on, it won’t be a snap, but you’ll get it paid off pretty quickly, if you want to. Or if you want to stretch it out and take 10 years or whatever, if that makes sense, you could do that too.

43:03 Elana: Yeah. I qualified for a Pell grant as an undergrad, so I basically was just having it paid off at undergrad that is with Pell grants and then a couple thousand every couple of years that I had to take as well, just as the buffer to cover anything that Pell grant didn’t. Right now this is about what I make in a year, but in a little bit, a couple of years, hopefully it’s a quarter of what I make in a year.

43:28 Emily: Yeah. And that’s the rule of thumb for the amount of — who follows this? — but the amount of debt you’re supposed to not take out any more than for at least for an undergraduate degree is one year’s worth of post degree salary. You actually manage that for even your grad student stipend, which is great, but certainly once you have that post PhD income, it’s going to be a smaller fraction of that one year’s worth of salary. Not a concern right now, I’m in total agreement with you.

43:54 Emily: Okay. So we talked about the credit cards, w talked about the student loans, we talked about the car loans. Was there any other debt that you saw on your balance sheet?

44:02 Elana: No. I don’t have a mortgage. No medical debt. I hope I don’t have IRS debt, but I don’t think so. They haven’t told me about it, so I’ll say not.

44:10 Emily: I think they would tell you. One thing I did notice that you did not include the value of your car on the assets side of the balance sheet. That could be because you don’t know the value of your car, because it’s a hard thing to know, but your net worth would look a little bit rosier if you did include that on the asset side.

44:29 Elana: I actually do because Credit Karma tells you what your car is worth. Part of the reason I didn’t put it, there is because every month it goes down by a little bit as your car gets older, but I have no problem. My car is worth about $13,000 per Credit Karma’s estimation, so that helps with the net worth a bit. I guess I’m not leasing it, so I guess it is truly an asset of mine since I financed it and I own it.

44:53 Emily: Yeah. And because the value of your car, at least supposed value is pretty significantly greater than the amount that you owe. If you were in a situation where you needed to free up some money, you could sell that car, pay off the loan and have a balance leftover to do what you wanted with it. So it is truly an asset, yes. If you want to include that there, your net worth will look quite a bit better doing that.

Step 3: Saving Up for Short Term Expenses

45:16 Emily: Okay, so we’ve talked about the step two, high priority debt. Step three, we don’t have to go into a lot of detail about, but it is saving up for short term expenses, which as I said, you’re already doing in case of this laptop purchase, which is so smart. Recently I published a whole podcast episode on targeted savings, which is what I suggest, especially for grad students that you start doing in step three, so we’ll link to that in the show notes. But I’m just wondering, have there been any other large irregular, which is to say less frequently than monthly expenses that have kind of plagued you in the past that have maybe contributed to the credit card balance that you, as we’re getting this cash flow situation under control, once you’re in step three, that you would start thinking about to prepare for?

45:58 Elana: Yeah. That’s a really great question. I think about the podcast when you say that. Not so much that there are big expenses coming up. I have the seven year old mic I’m working with, my zoom account is with my university, so I’m doing a lot of things to mitigate that, but I definitely think as things get more exciting with the podcast, and I don’t know, people have talked about merch or what have you, a lot of that comes from me first, even if I end up getting sort of reimbursed by people, paying for things or whatever. think about that kind of growth, but in terms of, you know, I bought a car two years ago, my laptop situation getting figured out, I do live a pretty simple life. I have like pet insurance for my cats in case anything comes up there. I feel like I’m being pretty safe with things. And I will say, in an emergency situation, I did get in a car accident a couple years ago, and that was a situation where family was able to help out and then I was able to pay them back. There is a little bit of that if it was going to run me bankrupt, or if it was truly something that I could not help. Like I said, I qualified for a Pell Grant, so it’s not like I have this big buffer, but I definitely have people around me that if need be in an emergency situation, I would be okay, if that makes sense. So not any big purchases, and emergencies seemed mostly covered.

47:23 Emily: That to me, relying on family as a potential backstop or at least partial backstop for a larger emergency is a reason why you could feel comfortable holding a maybe slightly smaller starter emergency fund and not getting to the full emergency fund until step six in my framework, which is where it falls. But I still think it’s a great idea to prepare for any irregular expenses that you may have. It sounds like there’s maybe not a lot, but anything related to your university, or just your graduate progress, like for instance conferences, anything that has to come out of your pocket for fees?

47:58 Elana: This is a great question. My university actually provides grad students with a thousand dollars a year for travel fund, and we do it off the university credit card. I actually don’t even need to worry about reimbursement. It’s a huge plus of my program. I’m extremely grateful. The one thing is that every semester we are charged a $250 fee. Despite the fact that they pay for our health insurance, we have to pay a student health fee because we’re students and we have to pay a fee for the university gym that I’ve never stepped foot in and they will not prorate it, so they won’t just fold it into my monthly or bi-weekly spending. And it is very annoying because that is a very large chunk of what I am paid bi-weekly. That is the, three weeks into the semester, getting the emails of please pay this fee, that I continuously come up again. There’s that. I hate it. I hate this fee, Emily. I hate it.

48:55 Emily: Yeah. So while you are working to somehow get this fee eliminated or reduced or whatever, for your own personal finances side of things, it’s something you can prepare for in step three. You’ve already mastered one aspect of step three, which is saving for large purchases that are upcoming, but the other part is saving for these recurring expenses. Another one that’s really common for car owners is car insurance. Do you pay that monthly right now?

49:21 Emily: Yes I do.

49:22 Elana: Yeah. Once you get to step three, this could be something you could consider paying for in advance, if it will give you a significant rate reduction. This is one of those ways that “frugality is expensive”. Great frugal ideas, like buying in bulk or paying for stuff in advance for a lower rate — yeah, it’s possible if you have the cash for it, but then it compounds upon itself. You had the cash to make the investment, then you get a return on that investment in lower expenses or whatever it is going forward, and then it just cycles and cycles. Somehow we need to step onto this treadmill of getting some of those kinds of deals. That would be one possible area if it seems like it’s a significant rate reduction. For now, for the cash flow problems and stuff, paying for it monthly is a great idea for you for the moment. But once you get to step three, that could be something to reconsider. In step three, you might not have a whole lot of different kinds of expenses, but there may be one or two that you want to prepare for. Maybe your cell phone, for example, another thing that people finance, but they don’t necessarily have to.

Step 4: Starting to Invest for Retirement

50:21 Emily: Step four is where I get really excited because that’s when we start to invest for retirement. And I noticed that you do have an IRA listed on your balance sheet. Can you tell us about that?

50:33 Elana: Absolutely. I listened to your podcast right before you, and I sort of reached out to each other to make this happen and the episode coming out on my podcast happen, and it was an episode where you had asked, or I should say it was an episode where you answered a Q&A question where someone talked about how do I invest when I make pennies? And you just had this really great advice about who to invest with in terms of like Vanguard versus Fidelity. And you talked a lot about just opening the IRA and putting in a little bit. And things like mutual funds and just being able to just throw something at it, build over time. It just really spoke to me. I threw $100 in there. I think I’m throwing in like $50 bucks additionally a month. I’m just sitting here in grad school and I think about the money I was able to save in that savings account over about two years. I could do that with an investment account that even if it’s just building a couple of dollars here and there, that by the time I’m out of grad school, I might have a decent sum that I can truly then contribute to, and then, hey, I can start investing right off the bat and actually maybe making a little bit more. Or just solidifying my wealth as a person, which I think it just brings down the anxiety a little bit. It kind of helps set me in this world of like, I can be functioning and I can have a little bit of money. And once again, I qualified for Pell Grant and that’s just not a situation I want my kids to be in. It’s nice that I can start that now and make a difference and kind of frustrating that universities don’t provide retirement accounts for grad students, but we don’t have to get into that now.

52:07 Emily: Yeah. I would listen to the partner podcast, the swap podcast on Dear Grad Student for, I think a little bit more about that. As much as it pains me to say, I think you should pause on the retirement contributions. Don’t reverse them, but pause in the contributions because this is step four, right? We still need to get through step zero. Step one, step two, step three. If this is motivating for you, if the investment piece is motivating for you, hold that out as the carrot, the step four carrot, once you get through those first few steps to get back to it, because I too just like am chomping at the bit to get started investing. I was in grad school. I want that for the people in my audience, but you need to do it from a position of strength. And you’re just not quite there yet.

52:52 Emily: I can see that you are going to be there. You’re going to be there very soon, a few months, a year, maybe, but you’re just not quite there yet. What I really don’t want to happen is for you to again, have some kind of emergency occur. And again, you don’t currently have that much in emergency savings. Maybe you don’t want to turn your family or your family helps you to degree and then can’t anymore and you come to a situation where you have to withdraw what you’ve already contributed, just to get that little bit more cash on hand. And that’s, that’s a really painful situation to be in.

53:19 Elana: What I want you to do is keep the money that’s in there, let it grow hopefully, or maybe it will decrease in value over the long term, grow, and work on the other cash flow stuff and work on the steps and hold that out as like, I really want to get started investing, so I’m going to power through these next few months of doing X, Y, and Z things that are a little bit uncomfortable because you really want to get to that step. I hate saying it, but it is the way I think things should go.

53:45 Elana: You’re so right. I think it’s a theme for me. I get so excited for the next step that I’m already moving that far forward and it’s super beneficial in grad school, don’t get me wrong, beneficial for the podcast, but I think you’re absolutely right. If I can come at it at a place of I’m feeling strong and I’m not doing out of anxiety, like, “Oh, I need to start doing this because I’m a grad student living on pennies”, but rather, “Oh, look, you know, my credit card has paid down, my car loan is getting paid on at a lower interest rate, I have some cashflow in my checking account and wow, it’s fun to throw this into my IRA because I’m solid.” Not because I’m on thin ice and nervous for the future and scared. That there’s a much better place and much better way to be throwing money at an IRA or anything.

54:30 Emily: And I think by the time you returned to this in a little while, you’re going to be able to contribute much more than $50 per month, because you’re going to have adjusted things about your cashflow. Either, you’ll have found some long-term ways to reduce your spending, or maybe you’ll have found some long-term ways to increase your income. You won’t be paying interest on the credit card anymore. Maybe you’ve refinanced the car. All the things that we’ve been talking about. It won’t be $50 a month at that point, maybe it’ll be $200 a month. Maybe you’ll be able to get up to the, so I recommend a 10% a minimum. Basically that’s just to say start wherever you are, but on step four, work up to 10% before you move on to starting to repay other debt in step five. So maybe you’ll be able to get to that 10% level before the end of graduate school. And again, that’s a real position of strength to be in, as you were saying earlier for having that wind at your back in terms of the investments compounding on themselves.

Next Steps and Things to Work On

55:19 Emily: I think we need to stop here because we’ve basically gone for pretty much a full coaching session length, a little bit longer than we expected, but I’m glad we got through what we did. Do you have any, first of all, any thoughts or reactions, anything you haven’t brought up yet regarding this conversation?

55:35 Elana: No, nothing. I feel like we were really thorough and I kept it as concise as possible. I know I’m a talker, I’m a podcast host. But I think this is super helpful and I think so many other students are in my position of where do I start? How do I do this? It’s not possible with my stipend. And we’re all in different levels of privilege in terms of finances, but there are little things that all of us can do and certainly steps that we can start with. And I think that this is going to be great for anybody at those beginner steps or living similar to me, which is just on that cycle of the clock of paycheck and rent and paycheck and rent and credit card and all of that. This was incredibly helpful. I hope it was helpful for everyone listening as well.

56:11 Emily: Yes, absolutely. I agree. If anybody wants to have your own coaching session with me, the way you do that as well, you can just email me and we can get the conversation started that way [email protected]. Or you go to my website, pfforphds.com and there’s a “Work with Me” tab at the top. Go to the individual section, click on coaching, and you can read a little bit more about the coaching process. You can book a call with me through there. Whatever way you want to get in touch is awesome.

56:37 Emily: Elana, okay, we’re recording this, as I said on February 12th, it’s coming out on March 1st. What step are you going to take between now and March 1st that we can tweet you about?

56:50 Elana: Oh my goodness. I love this. Yes, please come back at me with receipts. I think the first thing that I need to do is look at my monthly spending, see what is extra and what I can cut back on to start paying down the credit card. And I’ll add on the stimulus check. I need to find that because then paying down that credit card is going to be easy to do in a paycheck. So stimulus check and seeing what expenses I can start cutting down on and throwing that money at the credit card instead.

57:21 Emily: Okay. Great idea. So are you thinking that you have a physical check somewhere in your home that you have missed?

57:27 Elana: No. We don’t check the mail every day because our mailbox is really far. So I’m like, maybe it’s there. Maybe I just need to go to that one website online to see where it’s at, who knows. I need to probably do some investigating into it.

57:39 Emily: Okay. If you aren’t able to find it, as we mentioned earlier, the recovery rebate is the solution there. Since you’re on my podcast, we’ll mention — I have a tax workshop, you are an affiliate for that tax workshop, and so if there’s a grad student in the audience who is saying to themselves, “I need to get that stimulus check, I need to get that recovery rebate credit, but oh no, I have no idea how to handle my fellowship income and my qualified education expenses.” Why don’t you share your affiliate link for that course and that that’s where they can go and sign up.

58:08 Elana: Yeah. So you’re going to go to pfforphds.com/dgsreturns. That’s Dear Grad Student, D-G-S return. And you can go ahead and sign up for Emily’s tax return workshop, or just tax workshop, I should say. I don’t know anything about taxes. Emily and I talked about this. My mom works for like a legal firm that does taxes, so she will do my taxes, but I think this year will be the first year I’m going to do them, Emily. I’m going to do them. I will. My mom says thank you in advance.

58:39 Emily: And hopefully if you do need to claim the recovery rate credit, you’ll see that nice fat return that’s going to come your way. Last, last note, I totally agree with reevaluating cash flow. I totally agree with finding the stimulus check and/or just filing your taxes as quickly as you can, but the third thing, you don’t have to take the action on it, but I want you to look into the refinancing on the car loan, because I think that’s going to make a bigger impact than you may be thinking right now, to have that big 5%, no, it was like 3% or so interest rate reduction.

59:09 Elana: Yeah. I’m at 6.6% now. And I think with my credit score, I qualify for 2.99%, so pretty decent.

59:15 Emily: Yeah. So DGS listeners, those of you following along with us, let’s check with Elana and see how far she’s gotten on this. That’s three homework pieces, so that’s a lot, but they could all make a big impact. Thank you so much for volunteering for this different kind of episode.

Best Financial Advice for Early Career PhDs

59:31 Emily: Very, very last question is one ask of all my guests, which is what is your best financial advice for another early career PhD?

59:38 Elana: Great question. My best financial advice is to listen to the Personal Finance for PhD podcast. No, but truly I think my best advice is don’t avoid your finances. Just because it’s working for you month to month and things are fine, so hey, I’m not going to check, look at your finances. Don’t be afraid of your own spending and don’t be afraid of the changes you need to make financially, even if it’s a little bit scary and it’s such an unknown. There are so many resources out there, certainly, you know, Emily’s podcasts and Emily’s website. But there’s also other students who have likely done it before been through it, so reach out to that community of students, whether it’s online or wherever, but don’t be afraid of your finances.

01:00:16 Emily: Yes. Thank you so much. And I also appreciate your work on the Dear Grad Student podcast, making finances a topic that is on the table, okay to talk about. Once again, I’m on the podcast today, March 1st, so go ahead and listen to that episode with another guest and we’re talking about all things grad school related to finances. So that should be really interesting conversation. Elana, thank you once again, so much for joining me.

01:00:40 Elana: Thank you so much for having me. This was a blast, so happy to have been here and thanks to all your listeners for listening.

Listener Q&A: Making-Up for Low Income in Grad School

01:00:44 Emily: Now on to the listener question and answer segment. Today’s question actually comes from a survey I sent out in advance of one of my university webinars this spring, so it is anonymous.

Question:

01:01:02 Emily: Here is the question: “How do I make up for years of making little money as a grad student?”

Answer

01:01:10 Emily: Thank you so much for this question. I actually have a five-part answer, so I’m going to move really quickly through the different points and refer you to a few other episodes for further listening.

01:01:21 Elana: First of all, if you are able to, to any extent, start working on your finances during grad school, because it’s not about how much money you make, it’s about how much money you keep. Of course, what you keep depends on how much you make, so for some people, it is completely out of the question to do any saving, investing, or debt repayment during grad school. But don’t let just the simple fact that you are a graduate student, keep you from considering how you might be able to save, invest and repay debt. If you spend the bulk of your twenties as a low paid graduate student, as I did, but you’re able to save and invest a small percentage of that as you go along, as I did, you are financially better off at the end of that than someone who made a much higher salary, but saved, invested none of it. So keep that perspective. It’s not about what you make. It’s about what you.

01:02:19 Emily: Two, work really, really hard on getting a well-paid job right after your PhD. I’m not saying you have to abandon your career plans or change them in any way, but just really research what the salaries are in the career track that you’re going for. Apply widely, understand the market that you’re going into. And of course negotiate that starting salary and benefits. What I’m saying is stick with your career path, passion, but get paid as much as you can within that track. To the extent that your subsequent salaries are based on that first salary, which they very well might be,iIf you stay at the same company, it’s so worth it to do this legwork and get into that highest salary band that you can, because this will compound over time, as you receive raises.

01:03:13 Emily: Point three, once you have that well-paying job, don’t inflate your lifestyle. You are accustomed to living on a small amount of money as a graduate student. I absolutely expect that you will spend more on your lifestyle once you have a post PhD job. But what I’m saying is don’t let your spending mindlessly increase to the level of your new salary. Intentionally choose certain types of expenses, levels of expenses that you will increase your spending to, because you know that you’re going to receive a lot of value from that type of spending. So don’t inflate spending across the board, intentionally increase it in the areas that mean the most to you.

01:03:55 Emily: Point four, manage your debt intelligently. I’m particularly speaking about federal student loan debt here, so if you do have federal student loans from earlier degrees, I highly recommend you listen to season seven, episode 13 with Meghan Landress, who is an expert on federal student loan repayment, and really make the best decision that you’re able to on whether you’re going to go for an income driven repayment plan to lower your payments and extend them out over a longer term. Maybe combine that with public service loan forgiveness to have them forgiven after 10 years of on-time payments. Or pay them off just, you know, more quickly than that. Each of those valid approach for a person in a slightly different financial situation, but try not to pick the wrong one, try not to pick the wrong path. And that’s what I mean by managing debt intelligently. Really look at the numbers. Don’t just try to lower your payments as much as you can, or don’t just you say to yourself, “Oh, I hate being in debt. I have to get out of debt so quickly” because in either case your money might be working harder for you doing something else. So be really strategic about that federal student loan debt. If you have other types of debt, be really strategic about that too. Look very carefully at the interest rate, at about what type of debt it is, who the lender is and so forth and decide whether you’re going to make it a priority to pay off that debt or whether you’re going to put it on the back burner while you work on some other things.

01:05:21 Emily: Lastly, five here is the real key. Invest. Once your finances are ready for that, once you have some savings in place, once you have the high priority debt paid off, invest, especially for retirement, but perhaps for some other goals as well. Put as much money away into your workplace-based retirement account as you can. Definitely meet the match if you have a match, but consider maxing out that is a reasonable possibility, if you’re making much more money post PhD than you did during graduate school, if you haven’t inflated your lifestyle. Also use an IRA, if you can, to get a little bit more contribution room. Investing is how you really make your money work for you and grow your wealth quickly. Now, if you are starting to invest a little bit later, like after graduate school, instead of during graduate school, it’s very hard to make up for that lost time, so you are going to have to do that by having a slightly higher savings rate than if you had started earlier.

01:06:21 Emily: But I want to give you some hope that this is very well possible. Dr. Sean Sanders gave me a wonderful interview in season six, episode eight. This is exactly his story of really through grad school and his post-doc not making much money, not being able to save at all, or invest for retirement. And finally, once he got that post PhD job, being able to save at that point, invest at that point, and he invested not only in stocks and bonds, like I mostly talk about, but also in real estate. And he just talks about how over the last one to two decades, his wealth has grown so much and he’s actually on track to retire in his fifties, so a little bit early. And it’s just such an inspiring story that even with a late start, the moves are possible. You can still retire early, if that’s your goal. You can still accomplish these other wonderful things with your finances.

01:07:11 Emily: Another episode to listen to is season two, episode seven, with Dr. Brandon Renfro. We talk about some of the strategies I just mentioned, like about how to kind of make up for lost time if you aren’t able to start investing until after grad school.

01:07:24 Emily: I hope those points were helpful to you start early if you can, but it’s absolutely possible to build wealth later on, if you can’t start during graduate school. If you would like to submit a question to be answered in a future episode, please go to pfforphds.com/podcast and follow the instructions you find there. I love answering questions so please submit yours!

Outtro

01:07:48 Emily: Listeners, thank you for joining me for this episode. PFforPhDs.com/podcast is the hub for the Personal Finance for PhDs podcast. On that page are links to all the episodes show notes, which include full transcripts and videos of the interviews. There is also a form to volunteer to be interviewed on the podcast and instructions for entering the book giveaway contest, and submitting a question for the Q&A segment. 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 podcasts, Stitcher, or whatever platform you use. If you leave a review, be sure to send it to me. Two, share an episode you found particularly valuable on social media, with an email list serve, or as a link from your website. 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. 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 Grad Student and Her Family Lived on Her Stipend While Banking Her Spouse’s

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In this episode, Emily interviews Dr. Jacqueline Kory-Westlund, who recently completed her PhD in the MIT Media Lab. During their five years in Boston, Jackie and her husband lived on her grad student stipend and saved and invested all of his income. Jackie and Emily discuss the frugal tactics Jackie and her husband used to keep their expenses low, even after having their first child. Saving and investing Jackie’s husband’s income gave them a sizable nest egg by the end of grad school, which they used to purchase a home in cash in a low cost of living area of the country. Jackie and her husband have designed their lifestyle around location-independent work so they can live where they want to while they expand their family, which is now an option for more workers made remote during the pandemic.

Links Mentioned in This Episode 

Teaser

00:00 Jackie: We started out with a generic retirement fund, and then at some point later that year realized we could probably get better returns if we were more selective about what funds we invested in. So then we switched to some market index mutual funds and over the course of the next three years made almost $40K.

Introduction

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 eight, episode eight, and today my guest is Dr. Jacqueline Kory-Westlund, who recently completed her PhD in the MIT Media Lab. During their five years in Boston, Jackie and her husband lived on her grad student stipend and saved and invested all of his income. We discussed the frugal tactics Jackie and her husband used to keep their expenses low, even after having their first child. Saving and investing Jackie’s husband’s income gave them a sizeable nest egg by the end of grad school, which they used to purchase a home in cash in a low cost-of-living area of the country. Jackie and her husband have designed their lifestyle around location-independent work, so they can live where they want to while they expand their family.

01:18 Emily: It’s a model that is now an option for many more people whose positions went remote during the pandemic. This interview is a wonderful example of how an early, intense focus on a lofty financial goal can often result in financial freedom within a short time. Financial freedom means something different to everyone, but it could include leaving, or not taking in the first place, jobs that are unsuitable to you, location independence, working part-time, starting a business, staying home with a child, full-time travel, or just living your best life. Even if it is a bit unconventional. Financial freedom means choices. And this freedom can arrive quite a bit earlier than full financial independence, which is when you never have to earn an income again. We’ve had many stories on the podcast of guests working on or accomplishing a financial goal that seems outlandish for their career stage.

02:10 Emily: Some examples, which are linked from the show notes include Dr. Jenni Rinker paying off over $60,000 of student loan debt during grad school, Beth Moser clawing her way out of financial ruin during the great recession, Jonathan Sun and Dr. Matt Hotze house hacking during grad school, Courtney Danyel growing her freelancing writing business to over $100,000 per year, and Dr. Rachel Blackburn investing for retirement, despite her $1,000 per month grad student stipend. There are even more examples than that in the archives. Even my and my husband’s own story of increasing our net worth by over $100,000 during grad school qualifies. I can tell you that I appreciate my past self for being aggressive about frugality and retirement contributions more with every year that goes by. I don’t this to wag my finger at anyone who has not been working on a lofty financial goal. Personal finance is personal, and we all have different things we value. I just say it because I had no idea when I was in grad school and racking my brain for ways to increase our savings rate by another half a percent, how sweet financial freedom would taste just a few years later. If you’re looking for motivation to push yourself with your own finances, dream about what your best unconventional like might look like.

Book Giveaway Contest

03:28 Emily: Now, it’s time for the book giveaway contest. In February, 2021, I’m giving away one copy of The Simple Path to Wealth by JL Collins, which is the Personal Finance for PhDs Community book club selection for April, 2021. Everyone who enters the contest during February will have a chance to win a copy of this book. The Simple Path to Wealth has quickly become the go-to text in the financial independence community to explain passive investing, which is the style of investing that I practice and teach. It sometimes comes as a surprise that the most effective form of investing is both low cost and low maintenance. If you’ve been sitting on the investing sidelines, this book will almost certainly motivate you to get started by showing you how simple successful investing really is. If you would like to enter the giveaway contest, please rate and review this podcast on Apple Podcasts, take a screenshot of your review, and email it to me at [email protected]. I’ll choose a winner at the end of February from all the entries. You can find full instructions at pfforphds.com/podcast. Without further ado, here’s my interview with Dr. Jacqueline Kory-Westlund.

Will You Please Introduce Yourself Further?

04:55 Emily: I am welcoming to the podcast Dr. Jackie Kory-Westlund, and she’s a recent graduate of her PhD program. And we are going to discuss her finances during her PhD and how she accomplished a massive financial goal, right upon completing her PhD, which was purchasing a home in cash. When Jackie emailed me about this prompt, I literally misread it because I could not believe that anybody would possibly do that. So this is going to be really exciting to figure out. But Jackie, why don’t you tell the audience a little bit about yourself first?

05:28 Jackie: Hi. Yeah. I did my PhD at MIT in the MIT Media Lab with Dr. Cynthia Breazeal. So I worked on small, cute fluffy robots that helped kids learn stuff. And I, let’s see, I finished in 2019, so I’m currently an independent scholar, writer, artist. I do not have a full-time job because I’m staying home for the most part, hanging out with my kids. My husband is a software guy so he works from home, has his own startups and all of that going on. And we had our first kid during the PhD. So that’s relevant to our finances and our financial goals.

Jackie and her Husband’s Finances at the Start of PhD

06:08 Emily: All right, let’s dive into it. This is such an exciting story. Okay. So please give me a snapshot of your finances when you started the PhD. If your husband was in the picture at the time, include him, too.

06:20 Jackie: Right. So when I started the PhD, this was back in 2012. I was one year out of undergrad. So I’d spent one year kind of doing a research internship thing. So I hadn’t made a lot of money at that point. My husband and I, we were not married yet at the time, but we both moved to Boston for MIT at the same time. I had a used car that was probably worth $2,000. We had a couple thousand in our bank accounts that we used for our first month of rent in the rental deposit and the realtor fee and a couple of thousand in student loans. And that’s about it.

06:56 Emily: Alright. Yeah. Almost zero, close to zero. It sounds like. And then what was your stipend?

07:04 Jackie: My stipend was about $30K a year. And MIT paid for healthcare for me, not for my husband. We had to add him to the plan later, once he couldn’t be on his parents’ plan anymore, you know, hitting 25 years old there. And that stipend increased slightly year to year because MIT made cost of living adjustments. And it also went up slightly when I switched from the master’s program to the PhD program, but it was never more than like 32K or so.

07:33 Emily: Okay. So from 30K, in 2012, when you started to about 32K, when you finished, you said 2019, right?

07:39 Jackie: Yeah. Though, actually for the PhD. So we actually moved and got the house the year before I finished. I finished up the last bit remotely.

07:49 Emily: Okay. Okay.

07:51 Jackie: Because I was just writing at that point, so we actually moved in the middle of 2018.

07:55 Emily: Okay, great.

07:56 Jackie: And at that point I stopped getting the stipend because I wasn’t on campus.

08:01 Emily: Oh. So you, you left the stipend behind in 2018 and finished self-funded after the last month or up to a year. And how about your husband’s income during that period?

08:11 Jackie: So initially, for the first couple of years in 2012 through about 2015 or so, he was working on a couple of startups and as a contractor, primarily working on his self-funded software startup. So was not making a huge salary, probably around $50K a year in the last couple of years. And throughout the entire time I was in grad school, our combined income never went over about $80K on our tax returns.

Strategies to Decrease Expenses During PhD

08:39 Emily: Okay. So that gives us a range to think about over that period. So pretty low at the start a little bit better by the end, but again, we’re talking about Boston, so yeah, pretty high cost of living area. So $30K is a pretty decent grad student stipend, but in a high cost of living area, it’s still really challenging. Okay. So that’s your finances when you started the PhD. So as you’re going through the PhD, I’d love to talk about, you know, both sort of frugality, like how do you keep a lid on your expenses? And also did you increase your income in any way? You just told us what the total was, but were there any, you know, methods that you used to increase it? So let’s start on the decreasing expenses side. What, you know, what were your strategies? What were the things that worked out best for you in terms of controlling those expenses?

09:21 Jackie: The biggest thing is we both just kind of by default are fairly frugal people. Neither of us like tend to eat out much. You know, we don’t usually buy that much stuff. We ate a lot of rice and beans. Probably were in the range of only about $250 a month on food. Probably the entire time we were there. I’m the one who started the trend in my lab of people packing their own lunches to bring to the lab.

09:46 Emily: Great influence.

09:49 Jackie: So we primarily lived on my stipend of about a $30K a year. And two thirds of that was rent. And our vehicle expenses tended to be pretty low because like we did have the car, but we didn’t use it that much. I took public transit and walked to MIT and that was half subsidized by MIT. And the other big thing was we had an awesome landlady who did not increase our rent.

Housing and Rent

10:13 Emily: Wow. Okay. Well, you just hit kind of the big three expenses right there. You hit housing, which at $20,000 per year is yeah. It’s a bit expensive on that grad student stipend. Really admirable, by the way of structuring your budget so that you would live just off the one income and save, presumably, the higher income. That’s really, really impressive. So you hit housing. Now was it luck that you found someone who was not going to increase rent, or was there any strategy involved in finding that place?

10:42 Jackie: That was entirely luck. When we were moving up to Boston, we spent about a week there prior to moving looking at places. And we talked to a realtor who was like, Hey, I’ve got this landlady who just needs someone. We just got lucky that she just had this policy on her own where she just didn’t like increasing rent too much. And she’s a nice old lady, lives downstairs, you know?

11:04 Emily: Yeah. I mean, actually that’s, you know, it could be luck for you, but it might be strategy for someone else. I wonder if there is something there around being neighbors with your landlord and like cultivating a positive relationship, because I think it’s definitely harder to raise rent on someone whose face you see like multiple times per week, rather than some, you know, unknown number or whatever in some system. So, yeah. So it sounds like you were living in a duplex kind of situation?

11:28 Jackie: Yeah. It was one of those three-story, three-family homes.

11:32 Emily: Triplex.

11:32 Jackie: Yeah. Triplex, that’s the word I’m looking for. Yeah. And my husband and our landlady, they both went to the same church, so that maybe was a relevant factor there, you know.

11:43 Emily: Yeah, any kind of connection you can make.

11:45 Jackie: Yeah. Yeah.

11:46 Emily: That’s awesome. Okay. So, you know, housing expense is clearly number one, but managing to get a place, you know, by luck probably that didn’t increase the rent is an incredible advantage because that, you know, the rate that rent often rises at is higher than, you know, what you’re getting in your salary increases for cost of living. So you hit housing, number one. You also mentioned transportation. You know, it’s a city life kind of thing. Like you don’t have as much need for like the car usage. And did you have one car or two?

 Sharing a Car, Reducing Food Costs

12:14 Jackie: Just the one.

12:15 Emily: Just one. Okay. So sharing a car as well, another great strategy. And you mentioned, you know, the food expenses. So not eating out very often and also, I mean, $250 per month in food is like really keeping a lid on things. You mentioned rice and beans. Presumably you’re cooking a lot. Do you have any other like, tips in that area around like managing the grocery? Both the budget and like the time that goes into cooking and meal prep?

12:40 Jackie: Well, I kind of have a hobby of cooking, so we did a lot of the crock pot full of a big dinner on Sunday, and then eat leftovers all week to reduce time cooking. Buying things in bulk, instead of popping out to the store every couple of days. We tended to go for beans over meat, which decreases expenses. You look for what’s on sale, you know. That kind of stuff.

13:05 Emily: Yeah. Do you have any like Boston specific tips, like a grocer that you really liked for good deals or something?

Roberto’s Produce (in Boston)

13:11 Jackie: Ooh, let’s see. Actually, we lived about half a mile from a produce store that had way cheaper produce prices than the main grocery store that we drove to.

13:22 Emily: And what was the name of it?

13:23 Jackie: That was, let’s see, what was it called? It was Roberto’s. Roberto’s produce. Cute little place. Just, just produce.

Financial Goals with Savings

13:30 Emily: Yeah. We actually frequented a little shop like that in Seattle as well and had great prices. You mentioned earlier that you actually bought your home prior to finishing your graduate program and that you had been, I think, saving your husband’s salary during that whole period. What were your financial goals during that time, aside from you said, living on just your income, what were you doing with your husband’s salary?

13:56 Jackie: So, in about, I think 2015 was when we realized that we had some money in the bank, we should probably do something with it, which was about my third year of grad school, I think. So we took all of our extra money and put it, invested it primarily in the stock market using Vanguard. We started out with a generic retirement fund, and then at some point later that year realized we could probably get better returns if we were more selective about what funds we invested in. So then we switched to some market index mutual funds, and over the course of the next three years made almost $40K just from having money invested, which is like free money! It’s just so cool. It was like, when we first started doing that, we were like, wait, we just get money from having our money sitting here? Like it’s pretty cool when you figure out how that works.

14:49 Emily: It doesn’t always work out like that over the short-term.

14:53 Jackie: It’s true, we got lucky with which, which years we were investing there.

14:57 Emily: Yeah. I felt that way too. I started investing basically in 2009, like at the nadir of the market and just the last decade has been incredible with, you know, a few hiccups along the way, but overall, obviously really, really strong. And was that in like retirement type accounts or was it more just taxable accounts that are accessible to you?

15:17 Jackie: We had a little bit in some IRAs and the rest of it was just like a generic account that we could move money around whenever we wanted.

Having a Child Motivated the Goal of Home Ownership

15:27 Emily: Okay. So you’re basically living on your stipend, investing your husband’s salary or whatever income he has during that period. At what point did the goal of home ownership materialize?

15:38 Jackie: About the same time we had a kid. So it was in my fourth year of the PhD. That’s when I started thinking, Hey, you know, we’ve got a baby now, at some point I’m going to finish this PhD and where are we going to go? What are we going to do? So that’s when we started doing a lot more life planning and getting a house with a yard somewhere for kids to play. And that’s when that started being like really on our radar.

16:01 Emily: Yeah. We glossed over the whole having a kid during grad school thing. How did that work out with like, did insurance cover pretty much everything? Like, how did the finances of the having a child work?

Health Insurance and Parental Leave

16:13 Jackie: MIT’s healthcare program like yeah. Insurance covered pretty much everything. We paid probably $200 total to have a baby.

16:19 Emily: Amazing. And did you get any leave?

16:22 Jackie: Yes. MIT was good about that as well. And the Media Lab gave me an extra month. So MIT had a policy of two months paid leave for any parents. And then the Media Lab gave me an additional month and that was all paid leave.

16:35 Emily: Amazing.

16:35 Jackie: So I had three months off and then last thing on that was my advisor was awesome. And my lab was awesome in that they’re all very supportive of this and I could work remotely a lot more and was at a point in the program where I didn’t have to go into class anymore because I was just able to just research stuff. So a lot of, a lot of things went into that being, not that bad, like being like a reasonably doable thing. I know it’s not for a lot of women. It can be difficult.

Did You Also Pay for Childcare?

17:06 Emily: So I think about three big expenses when it comes to having a child. We just covered two of them, health insurance and the leave. And then the third one is childcare. You just mentioned working from home, but did you also pay for childcare?

17:18 Jackie: We did not, actually. My husband and I split that.

17:21 Emily: So interesting.

17:22 Jackie: And just managed to work that into our work schedules. That was part of why he was doing such flexible work at the time. And then my lab was flexible. So we just squished childcare and somehow, you know, did lots of work when the baby was napping kind of thing.

17:36 Emily: Yes. I remember those days very well. I have two kids as well, and I’ve actually done one other interview on the podcast from season one. So if newer listeners haven’t seen this one yet, but you’re interested in having a child during graduate school, check it out because I interviewed another graduate student mother married to another PhD father who also did the same thing. I think for the first six months after their first child was born, they completely split childcare and I did not pay for any outside services in that regard. And yeah, she talks about how she managed to you know, complete her dissertation and get a TT job and have the baby. And it’s kind of a really crazy year for her. But it’s incredible that, you know, you took that on and then were able to accomplish it. Was that motivated by finances? Was it motivated by, we just wanted to spend time with our child a lot of time or, you know, what was the reasoning behind that?

18:29 Jackie: All of the above. So, childcare in Boston is ridiculously expensive. But also a lot of you want to spend time with this baby. Like, why would you have a kid if you don’t want to spend time with it? And there are some philosophical things around how we wanted to approach raising our kids and actually being around a lot of the time. I was homeschooled actually growing up. So that’s probably very influential in how I’m thinking about how to raise my kids.

18:57 Emily: Yeah, so a familiar model for you.

18:58 Jackie: Yeah.

How Did You Choose Where You Wanted to Live?

19:00 Emily: Gotcha. Okay. So got the baby, but we’re not paying for childcare or the other associated expenses. MIT did a good job providing you with the appropriate benefits. Okay. So then you said that home ownership became a goal. Once you had the child and you were like, we want to get out of the city life, how did you choose where you wanted to live?

19:19 Jackie: So we decided based on kind of two factors. One, we were not tied to any particular location first. So we could kind of pick anywhere because of the kind of flexible job situation that we’re setting up for ourselves. And then we wanted to move nearer to some of our family. We were like, we’re having kids. We’d love to have some grandparents around. We’d love to live near some family finally, because it’s been a long time since we’d done that. It was really nice. So my husband’s family is in North Carolina. Mine, a lot of them were in Idaho, North Idaho. So between the two of those, we were looking at the different areas and ended up picking Idaho for a variety of reasons. I mean, both places had a lower cost of living. It’s hard to get a higher cost of living than Boston, New York, or San Francisco. Lots of nice, pretty lakes and mountains up here.

Commercial

20:15 Emily: Emily here, for a brief interlude. Taxes are weirdly unexpectedly difficult for funded grad students and fellowship recipients at any level of PhD training. Your university might send you strange tax forms or no tax forms at all. They might not withhold your income tax from your paychecks, even though you owe it. It’s a mess. I’ve created a ton of free resources to assist you with understanding and preparing your 2020 tax return, which are available at pfforphds.com/tax. I hope you’ll check them out to ease much of the stress of tax season. If you want to go deeper with the material or have a question for me, please join one of my tax workshops, which you can find links to from P F F O R P H D S.com/T A X. It would be my pleasure to help you save time and potentially money this tax season. So don’t hesitate to reach out. Now, back to our interview.

Location Independence

21:21 Emily: Sounds like you know, you have intentionally chosen a route that not many PhDs do. You know, a lot of PhDs feel that they have to be geographically flexible to have the type of job that they want. And you’ve gone another direction and said, my primary goal here is to be in certain locations in the country and the job is going to be, it sounds like the job is going to be secondary to that in that you want to work in a way that is flexible to live wherever you want. You want to be location-independent. Is that right?

21:52 Jackie: Yep.

21:53 Emily: And that’s what you’ve done and your husband has done.

21:55 Jackie: Yes. Yeah. That’s one of the main reasons he was working on his smaller software startup was so that he would be able to work from anywhere and not be tied to someone else’s you have to work in this location. And I was not looking at the end of grad school to get an academic job, necessarily. I mean, there’s a university here, but I’m not looking for an academic job or a full-time job currently because I wanted to be able to spend time with my kids and also work on some part-time things.

22:25 Emily: Yeah. I see actually, a lot of similarities between your story and mine actually. I mentioned to you when we started the call that my husband and I recently became location-independent. He still has a job job, but it’s just remote now. And I would imagine a lot of people are in that situation and going forward, a lot of people are not going to be going back into offices and labs and all of that. So depending on the nature of the work that you do, a lot, I think more people in my audience are going to have location independence in their future.

22:54 Emily: And it’s really, it’s exciting, I was telling you too, but it’s also a little bit intimidating to figure out where exactly do I want to live.

23:01 Jackie: We made spreadsheets, we made spreadsheets.

23:05 Emily: You went the direction of going to a lower cost of living area, which is known as geographic arbitrage in the financial world. We are actually choosing to live in a very high cost of living area because we love it and want to be there, but have to make the finances, you know, work out to have balance in that area too. So, in different ends of that spectrum. Okay, so you chose based on, you know, more personal factors where you wanted to live and then comes this, you know, huge accomplishment of buying this home in cash. And I think we’ve already heard how you saved up for it, right?

23:39 Jackie: Yeah, pretty much.

How Much Money Did You Have for Home Buying?

23:40 Emily: So do you want to share like the numbers around that? Like how much money you had to work with by the time you did buy?

23:46 Jackie: Yeah. So when we decided to move, we had about $150K from our non-retirement accounts. We also emptied our IRAs for the most part which was about $25K. So we had around $200K to work with when we were buying a house up here. And relevantly because I no longer had the stipend from MIT when we were moving and my husband’s startup had, like no long-term proven history of income, we wouldn’t have been able to get a loan. So that was also relevant in us deciding to get a home in cash. So we had about $200K to work with and the market up here was moving very quickly at that time. So we came out to Idaho for about two weeks that summer with the plan of when we leave, we will have a house.

24:39 Emily: That’s an incredible story. You say, now you couldn’t have gotten a loan or it would have been, Oh my gosh. So, so difficult, so much paperwork or something. Did you know that that would be the case, like looking forward when you started that taxable savings, savings and investment, or was it just more about having flexibility at that point?

24:59 Jackie: Well, when we first started saving money, we had no idea what we were going to do with all of it. And then we were like, Hey, we should buy a house when we move out of here. And then when we started looking into, how do you buy a house? How do you get a loan? How, how much money do you have to put down on a house? How expensive are houses in the different areas that we’re looking at? As I said, we, we did spreadsheets for a lot of things and calculations about how much money might we have and how much money would we need for this kind of house in this area. And having provable income for getting a loan from just about any bank seemed to be pretty relevant. And because my husband’s business was not quite off the ground yet, it kind of got off the ground a lot more in the year right after we moved, there was relatively little income that we could prove at that point in time, which was, you know, fine for how we lived, because we didn’t need much income to live off of.

25:51 Jackie: But for the purposes of buying a house would have made getting a very expensive house difficult or getting one with a smaller down payment more difficult. And maybe, maybe there was a bank that if you talked to the guy and explained all your situation in lots of detail, lots of paperwork, maybe, maybe they could work something out. But the other factor, I guess, that I should probably talk about was our goal of being debt-free when we moved as well, because we only had a couple of thousand in student loans and we paid that off before we went for the house. So as soon as I was done with grad school I was like, all right, pay off student loans, get rid of any other debt that we have.

Challenges of Mortgages for Fellowship Recipients

26:31 Emily: Gotcha. I probably know a little bit more than I should about getting a loan at this point because my husband and I are anticipating buying a house soon. My brother is a mortgage loan officer, so he sells mortgages. So I’ve talked with him quite a lot about this process. And thirdly, he’s actually helped me quite a bit. We’ll link in the show notes to some episodes I’ve done before on how people receiving fellowships during grad school or a post-doc can or cannot ultimately get a mortgage because a lot of times they’ll be just flat, turned down right away. There is sometimes a way to get a mortgage, but it’s really tricky. So we’ve done all that in these other episodes, but to your point, self-employment income is another really kind of dodgy form of income. I know because that’s what I have that is going to be looked at a lot more carefully and you have to prove a lot more than, you know, you would for like a W2 type of situation.

27:24 Emily: So, yeah. It sounds like, you know, you, you started the savings investing for whatever, you know, because you were in a position to be living on just the one salary and saving the other, and it turns out that it helped you accomplish this like major goal. So now, you know, sounds like you have little housing expense, it would just be like insurance taxes, this kind of stuff, very minor relative to what a mortgage would be, correct?

27:51 Jackie: Correct. Yeah.

What Are Your Future Financial Goals?

27:52 Emily: Yeah. And so what are you thinking now about your finances? Like your, you know, your living expenses must be quite, quite low. So what are you working on next?

28:03 Jackie: So for what’s next we like the idea of having a bigger house with acreage around it. Because up here, we have, you know, the small neighborhood house on, you know, maybe a quarter acre, you know, enough space for a garden, a lawn. But we really liked the idea of having some more acreage out here because this is a great area for that. And then be able to keep this house and rent it out as side income. We would like to keep increasing our income enough that we can increase charitable giving, investing in the local economy and community, that kind of thing. Relevantly, we got our house for about $210K and it’s now worth over probably over $300K, just in the last two years because of the increased, this area is growing a lot. So we liked the idea of maybe being able to get something else soon and then maybe get into more real estate in this area. It seems to be growing a lot.

29:01 Emily: So what would be the plan for the next house? Would you try to take out a mortgage given the change in your husband’s income or in whatever you have going on or is it saving up more cash?

29:12 Jackie: That’s still up for debate. Kind of depends on what kind of house we want to have. Yeah we still have been talking. So that’s been actually a fairly recent conversation. We’re like, okay, we’ve been here for a couple of years now. Like jobs are working out better, you know, one is increasing, income’s increasing, like what are we doing next? So that’s something we’ve actually just been talking about a lot recently is like, what kind of house would we want next? And would we want to do that in cash again, or not? Because now we could deal with a mortgage payment, you know, we could do that now, but not sure.

Best Financial Advice for Another Early-Career PhD

29:46 Emily: Yeah. So still under development. Well it sounds, I don’t know, really lovely. It sounds like a real, you know, you’ve really done lifestyle design, I guess is the way that, you know, it’s kind of put in like the entrepreneurship community of figuring out how you want to make money, where you want to make money, where you want to live getting your expenses down very, very low, if you want them to be. And then maybe even turning this house into an income producing asset, ultimately. Wow. Like what a story. As we wrap up this interview, is there, what’s your best financial advice for another early-career PhD?

30:21 Jackie: Probably to actually have long-term financial goals. Because having something you’ve got your sights on helps a lot when you’re coming up with like, if you’re, if you’re trying to stop spending money or trying to budget and keep to a budget or whatever it is, having something in mind that you’re going for helps a lot. Because we got a lot more conscious about what we were doing with money when we were like, Oh, we have a baby and we want to move and we want to get a house. We started paying a lot more attention to what we were doing with our money. As the second thing, don’t actually be afraid of investing money in the stock market or mutual funds because in a good year, that can actually make you quite a lot.

31:01 Emily: Yes. We also made some investments in a taxable account that has grown quite a bit in the last decade, I guess. It’s actually part of our house down payment of money. Now it’s been allocated in that direction. I of course like need to say like past performance is no indication of future return. So like this was a great, you know, three or so year period where you got to do this, it’s been a great time for me investing, but you know, this ride is not going to continue forever. And so I think what you were just saying, like if you have a specific goal for your money, like think about the timing and think about how much risk you want to take with it. And if you’re flexible about it, like the house was not necessarily quite, you know, a goal on your horizon yet, it makes sense that you would, you know, invest at that time. But once you have the goal in mind, like really think about, okay, do I need the money, do I need to take it out of the market now, do I need to, you know, go a little bit more conservative in the investments because you can hit a bumpy period and then not have the time you need to write it out. But if you’re flexible, keep the money invested, then you know, you can go for the higher return over time.

32:03 Jackie: Yeah, we actually lost about $10K right before we bought the house because Trump started a trade war with China. We were like yeah so I guess we should pull this out of the stock market.

32:13 Emily: It’s really, really hard to time the market. Yes. Well, great lessons here and thank you so much for sharing, you know, again, the lifestyle design, the frugal living, the goals. I think it’s, you know, a wonderful story and well illustrated for my audience. So it’s really been a pleasure talking with you Jackie.

32:29 Jackie: Thanks. Thanks for having me on.

Listener Q&A: Tax Claims

32:36 Emily: Now, on to the listener question and answer segment. Today’s question actually comes from a survey I sent out in advance of one of my university webinars this spring. So it is anonymous. Here’s the question. Quote, how do I do my taxes? What can I claim on my taxes? Can I claim a laptop that I needed for school as an expense? End quote. So this is a really big question. Obviously not one I can answer in a few minutes on this podcast. So the best place to go for further resources about your taxes, especially as a funded graduate student, is my website pfforphds.com/tax. That’s my tax center from which I’ve linked all of my relevant podcast episodes and articles and videos and so forth. This answer is even too big for a set of articles. So I have created an entire tax workshop to help answer this question. The workshop comprises 11 videos, two worksheets, and one Q&A call per month throughout tax season. So if you’re interested in getting into the workshop and having a full exploration of this question, please go to pfforphds.com/taxworkshop.

33:55 Emily: Okay. The part of the question I do want to tackle on this episode is the last part. Can I claim a laptop that I needed for school as an expense? There are four higher education tax benefits. However, one of them is virtually always used by funded graduate students. This benefit is called tax-free scholarships and fellowships. I’ll tell you whether or not you can use a laptop or a personal computer as a qualified education expense for the purposes of making scholarship and fellowship income tax-free. I won’t comment during this episode on whether or not you could do it through one of the other three benefits. So how tax-free scholarships and fellowships generally works is that you have some income as a graduate student, for example, the scholarship or waiver that pays your tuition. If me mentioning scholarships as income shocks you, please go check out my further resources.

34:59 Emily: On the other side of the ledger, you also have some higher education expenses such as tuition. Now, tuition is always is considered a qualified education expense for the purposes of making scholarship and fellowship income tax-free as long as you are enrolled in a degree program at an eligible educational institution. So in the case of tuition for a fully-funded graduate student, how this usually works is that the tuition charge and the tuition scholarship or waiver exactly equal one another. And so basically use the qualified education expense to make the scholarship tax-free. So they cancel each other out. The income, the scholarship, has no net effect on your taxable income. You’ve made it tax-free. And furthermore, you can’t use that tuition charge to take any of the other higher education tax benefits because you’ve already used it for this one. Okay. So that’s generally how the benefit works.

36:00 Emily: The question that I’m drilling down to is, is a laptop or a personal computer considered a qualified education expense for the purpose of making scholarship and fellowship income tax-free? Now, please note, to get down to the question of whether your laptop or personal computer is a qualified education expense, you have to have some scholarship and fellowship income to cancel against it. If you’ve already canceled all of your scholarship and fellowship income against other qualified education expenses, like tuition and required fees, then you would not have any additional scholarship and fellowship income to try to cancel against a laptop. So this benefit wouldn’t apply in that situation. However, there are lots and lots of funded graduate students who have scholarship and fellowship income that exceed the tuition and required fees and so forth. So this question would apply to them. So is a laptop or a personal computer, a qualified education expense for the purpose of making scholarship and fellowship income tax-free?

37:04 Emily: I’m pulling up IRS publication 970 because I’m going to read the definition of a qualified education expense. Quote, for the purposes of tax-free scholarships and fellowship grants, these are expenses for tuition fees required to enroll at, or attend an eligible educational institution and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction. End quote. The definition goes on to specify some types of expenses that are not qualified education expenses, laptops and personal computers were not included in that list. So we go back to the second half of this definition of qualified education expenses regarding supplies and equipment that are required for the courses at the eligible educational institution. They must be required of all students in your course of instruction. So the question is, does a laptop or personal computer fall under that definition? Here’s my opinion on the matter, this is not tax advice, by the way. If you can prove, if you can show in writing that a laptop or personal computer is required of every student in your course of instruction, that could be an individual course that you’re taking.

38:27 Emily: That could be the degree program that you’re enrolled in. That could be everybody in the graduate school. At whatever level, if a laptop or computer is required of all the students, then it can be considered a qualified education expense. I know that we both know that pretty much a laptop or a personal computer is required of every PhD student, especially in the time of COVID. However, you and I knowing that it’s a tacit requirement is not the same as it being an official requirement that the IRS would accept. The theory is that you, as a graduate student can go to the computer labs provided on campus and do all your work there, I guess, which obviously is ridiculous. But in my opinion, for this to work as a qualified education expense, it needs to be down in black and white somewhere that having your own computer was required.

39:29 Emily: Now I went searching to see if I could find some of these in-writing requirements. So I did a few different Google searches. Does X university require students to own their own computers? Obviously, you would do the search for just your own university. I found a really clear example at Iowa State University, page titled Computer Requirement, quote, beginning in fall, 2020, all students at Iowa State University will be required to own or obtain a laptop computer or other device appropriate to their discipline. End quote. The page goes on explaining why this requirement is in place, but having this page, you would be able to show to the IRS, Yes, I am required as a student at Iowa State University to have my own laptop or computer. It is a qualified education expenses for the purpose of making scholarship and fellowship income tax-free. Super clear. However, you will not find this kind of requirement or clear language everywhere.

40:25 Emily: For example, on the computing and information technology page on Brown’s website, it says, quote: Brown does not require students to own a computer. End quote. Of course, there’s more text on that page, but there it is, you’re not required to own a computer as a student at Brown. So unless you can find maybe something more specific to your course or your graduate degree that says something else, this would probably apply. So you would not be able to say that your laptop or personal computer is a qualified education expense. Now, as I said earlier, you know, there could be a university-level requirement. It could be a graduate school level requirement that could be, you know, for your individual department or program, even for an individual course, you know, you might find a requirement, any one of these levels. So please do look at all of those levels to see if you can find in black and white, this kind of requirement.

41:13 Emily: So for example, I searched out Georgia Tech, and I found their page titled, Required Computer Ownership, quote, all undergraduate students, entering Georgia Tech are required to own or lease a computer. End quote. So I could find that requirement for the undergraduates, you would have to search and see if they had a similar requirement for the graduate school or, you know, your degree program. I couldn’t find that. So I think that’s what it comes down to. Can you find in black and white that a laptop or a personal computer is required for you at some level by your university? If you can, it’s a qualified education expense, and you can use it to make some of your scholarship and fellowship income tax-free that was not already made tax-free by other qualified education expenses. This question showcases really well why you can’t rely solely on your 1098T to provide you with information about your qualified education expenses.

42:06 Emily: A laptop that you purchase from a retailer that’s not your university would not be reflected on your 1098T, yet, as we’ve seen under certain circumstances, it can be a qualified education expense for the purposes of making scholarship and fellowship income tax-free. There are other examples like this of qualified education expenses that don’t show up on your 1098T. So you cannot trust your 1098T alone. You have to really think holistically about what your higher education expenses were for the year, and then figure out whether they can be considered qualified education expenses. So I know that was a lot to follow, especially if you’re new to my tax material and you’ve never heard me talk about how your fellowship scholarships are part of your potentially taxable income. Again, if you want more resources, pfforphds.com/tax is the best place to go for articles and podcast episodes and so forth. But you’re going to find the really in-depth information in my tax workshop. Again, pfforphds.com/taxworkshop. I answer questions like this one once per month during our Q&A calls. The next Q&A call is coming up on Sunday, March 14th, 2021. Thank you so much to Anonymous for submitting this question. If you would like to submit a question to be answered in a future episode, please go to pfforphds.com/podcast and follow the instructions you find there. I love answering questions. So please submit yours.

Outtro

43:34 Emily: Listeners, thank you for joining me for this episode. Pfforphds.com/podcast is the hub for the Personal Finance for PhDs podcast. On that page are links to all the episode show notes, which include full transcripts and videos of the interviews. There is also a form to volunteer to be interviewed on the podcast, and instructions for entering the book giveaway contest and submitting a question for the Q&A segment. 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 Podcasts, Stitcher, or whatever platform you use. If you leave a review, be sure to send it to me. Two, share an episode you found particularly valuable on social media, with an email listserv, or as a link from your website. 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.