Financial Goals

How This Grad Student Had a Baby, Landed a TT Job, and Defended Her PhD within Six Months

November 12, 2018 by Emily

In the last half-year of her PhD, Dr. Heather birthed her first child, completed and defended her dissertation, and landed a tenure-track job… all while caring for her infant alongside her visiting professor husband without any outside help. During the episode, we discuss many of the logistics that go into having a child during grad school, from arranging parental leave to conducting experiments around a nursing schedule. Heather shares how she learned to ask for the accommodations she needed and her advice for new academic parents.

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0:00 Introduction

1:26 Please Introduce Yourself

Dr. Heather works at a small undergraduate institution in the Midwest U.S. She and her husband both work as professors. She has a PhD in Chemical Engineering in the southeast U.S. Her husband’s background is in math and computer science.

They had her first child while Heather was finishing her PhD and on the job market. Heather was four years and one semester into her PhD when she had her baby. Her husband was a visiting assistant professor at the institution where she was getting her PhD. Both of them were looking for tenure track positions while Heather was pregnant. They found jobs at the same institution, and have been in their current position for four years. They had a second child and are expecting their third. They value commitment to family, so they don’t let their professional life deter them. Their jobs and finances are in services to their values.

5:10 What was your income when your first child was born?

In total, they earned around $60,000 per year from their primary jobs. Because her husband had a visiting assistant professor position, her husband’s salary was around $40,000 per year. Heather’s income was around $18,000 per year. In addition, they both had earned income from summer internships in private industry. They each made $16,000 to $18,000 for three months of work. Much of this money remained in their accounts at the time their daughter was born at the end of the calendar year. Their household income was lower the next year, because Heather took unpaid leave after having her baby and neither took another summer job for extra income.

8:55 How did you arrange your parental leave?

Heather did not find a formal university policy on parental leave for any type of employee, whether tenured faculty or staff or graduate research assistant. Without a university policy to go by, Heather looked to the Family and Medical Leave Act (FMLA) that guaranteed she would get her job back if she took off six weeks unpaid. She was paid by her research advisor’s grant, so she came to an agreement directly with her research advisor to take six weeks unpaid.

Because she gave birth during winter break, Heather had two weeks break in addition to six weeks unpaid, for a total of eight weeks off. Nevertheless, when her baby was one month old, Heather returned to work in the lab one hour each day. At six weeks, Heather worked four hours in the lab and worked on writing manuscripts. She did not work a typical 40 hour work week. Some weeks she’d work 12 to 30 hours, and others she’d work more than 50 hours on writing her dissertation. She had set her defense date, so she felt that her own progress was at stake if she delayed returning to work.

14:58 Did your partner take parental leave?

Heather’s husband did not take any official parental leave. He was teaching three courses in the fall while Heather was pregnant. During the spring, When they had their newborn child, he was teaching three courses. He had two or three afternoons each week when he was teaching class. However, he had every morning of the week unscheduled and two days a week unscheduled. Heather was able to work in the lab in the mornings while her husband stayed with the baby. Two days a week, Heather had the option of working a full day in the lab.

16:20 How did you use your health insurance?

Heather remembers she had the option to add her baby to her health insurance or to her husband’s health insurance. She had out-of-pocket costs and co-pays. In one case, she chose a medication that was significantly cheaper. Overall, she did not feel overwhelmed by the financial stress, but she found it confusing to plan for medical expenses. She used her savings from her summer internship to cover prenatal care.

21:39 What was your childcare arrangement and how was it different than other approaches?

Her husband’s schedule was fixed with class times, but Heather’s schedule was very flexible. They considered the baby’s needs and developed routines around the baby’s sleeping and feeding schedule. Heather would leave the house at 6am and try to be home by 10am because the baby consistently slept for this four hour time block. She used this plan to get her lab work done. Once the baby could use a bottle, Heather started to extend her time away from the baby and get more work done in the lab.

Heather and her husband were primary caretakers of their baby. Even after the first four to six weeks, they did not put their child in daycare or have other outside help.

25:20 How did the childcare arrangement change when the baby was older?

At the end of the spring semester, Heather’s baby was five to six months old. This was a stressful time for Heather and her husband. They set morning time to be “baby with dad,” and afternoon time was “baby with mom.” However, there were times when Heather’s husband would call to ask her to come home to help calm down the baby. Heather felt that if she kept pushing lab work off until the next day, she would not finish by her defense date.

During the summer, Heather’s baby was six to eight months old. Heather switched her focused to writing her dissertation, and stopped doing lab work. Heather’s husband did not teach during the summer, so he took the leading role to care for the baby. They approached childcare as a team.

28:05 What was your motivation to take on full childcare responsibilities?

Heather and her husband were eager to learn to be parents. They felt that having a baby was an exciting challenge that they could take on together. They were excited to be part of the baby’s life as much as possible. By caring for the baby themselves, they learned how to care for an infant. They valued the learning experience and they were wiling to make sacrifices for it. They now look back on that time fondly.

Heather and her husband had friends that also took on childcare while in graduate school. Seeing another graduate student parent couple made them hope they could do it too. When more people tell their stories of parenting while in graduate school, it helps others understand what it’s like to make this decision. Emily mentioned that in U.S. society, parental leave policies could be a deterrent to having a baby and detrimental to women. Because there is no mandate at the federal level, policies are inconsistent across the country. They often only allow for maternal leave and no paternal leave. Heather explained that she has an egalitarian relationship with her husband. They are a team, so it was their understanding that they’d take care of the baby together. They chose to balance childcare responsibilities in ways that made sense, not following gender norms. Heather and her husband both wanted to spend time with their kids.

35:02 What was your experience being on the job market with a baby?

Heather was applying to jobs while she was pregnant. She applied to jobs with deadlines in November and early December, then planned to take a break after having her baby and apply to more in the spring if needed. Heather was worried about having job interviews when she was pregnant. She sought advice from faculty who had also applied to jobs while they were pregnant. Heather was advised to tell her interviewers about her pregnancy, because the response would be a major indicator of her potential employer’s values. Heather found this advice to be very reassuring and useful.

Heather got a job interview when she was 8 months pregnant. She couldn’t fly to do the interview in person. She told her point of contact that she was expecting a baby, and she received congratulations and willingness to accommodate. They arranged a remote interview with every person she needed to talk to, and she got the job. Heather wanted to visit the institution before she accepted the job, so they gave her extra time to make her decision. Her husband got an interview at the same institution, so they visited together with their baby in the winter. When her husband got his offer letter from the institution, they both accepted their positions.

By choosing to disclose her pregnancy during the job application process, Heather had the power to reframe her pregnancy as a way to determine if the potential employer shares her values. In making her decision, Heather considered how family-friendly was her point of contact and the rest of the institution. Heather was accepted for the position at her top choice. She applied to a few and select positions, and coincidentally her top choice had an earlier timeline. Heather and her husband were also looking at industry jobs.

43:00 What advice do you have for other first time parents in the PhD process? How did you keep startup costs low?

Heather advises to keep it simple. She said they asked for clothes and gift certificates. They did not want big items as hand me downs or gifts. Because they lived far away from family, they avoided inheriting too much stuff. They had no nursery and no changing table. They used cloth diapers instead of disposable diapers. Heather breastfed her baby, so they didn’t buy formula or lots of bottles. Babies need very little when they’re very young, so it’s easy to keep costs low and buy only the basics.

Heather also says to surround yourself with people who have been through this before. She reached out to women who had babies in grad school. Also, she reached out to women in the community to get recommendations for doctors, caretakers, and prenatal classes. This is how she found what was available in the community. You also have to ask for what you need. For example, Heather was riding her bike to the only place on campus where she could pump. But when she asked for a private space in the building that she worked in, a space was arranged for her. She encourages young parents to get the confidence to ask questions and get information. Kind of like talking about finances, talking about parenting can feel taboo, but so many people have similar experiences and knowledge to share.

50:59 Final Comments

Heather was considering if graduate school was the right time to have children. She realized that there’s never a perfect time, but it’s always a good time. Finishing her PhD and having her first child was a big mental and emotional transition time in her life. It was a transition in family life and financial situation. Her life had major uncertainties, like what if they didn’t get those jobs? Being comfortable with uncertainty is hard, but it helps to know that plans you make are just guides. Uncertainty comes with any change in your life, but you can prepare the best you can and embrace it with excitement.

54:00 Conclusion

PhD Job Transitions Are an Opportunity to Break Negative Financial Habits

October 28, 2018 by Emily

Pursuing a PhD and post-PhD jobs usually means frequent professional and personal upheaval. Changing jobs/”jobs” and moving are typical for each stage of training and possibly career: posbacc programs or jobs, master’s/PhD programs, postdocs, and Real Jobs. Every time you change jobs or move, your routines and habits are upended, including those that affect your finances. The upside of these frequent transitions is that each time you give yourself a clean slate upon which to write new habits. That’s great news for anyone with a degree of dissatisfaction with their current habits.

I recently read Better Than Before* by Gretchen Rubin, which is about how to create and maintain habits. The quotes included in this article are from the chapter “Temporary Becomes Permanent: Clean Slate.” While it is not a financial book, the strategies included in Better Than Before can be applied to your financial life, and the Strategy of the Clean Slate struck me as particularly useful for PhDs.

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Why the Clean Slate Works

A great proportion of our decisions each day are not ones we make consciously but rather are part of our routine or standard responses to stimuli. This is great when you have cultivated positive habits or at least are not in any negative habits. But a negative habit can be incredibly challenging to break under normal circumstances.

Any beginning is a time of special power for habit creation, and at certain times we experience a clean slate, in which circumstances change in a way that makes a fresh start possible–if we’re alert for the opportunity.

Experiencing a clean slate – a wiping away of your previous habits in part or much of your life – can greatly benefit you if you had any negative habits or even a desire to start new positive habits. The old stimuli that prompted you into your negative habit are no longer there, and instead you can tie your new stimuli to positive habits. There is also an opportunity for a strong change in your self-conception, such as “In my new job/city, I am a person who ___.”

There’s a magic in the beginning of anything. We want to begin right, and a good start feels auspicious… Because we’re creatures of habit, the first marks on that slate often prove indelible. We should start the way we want to continue.

When you experience a clean slate for whatever reason, you should very intentionally start practices that you want to become positive habits and keep yourself from falling back into old habits. This will likely take some preparation in advance of the occurrence of the clean slate. You should devote some time to brainstorming the positive habits you want to begin practicing and the negative habits you want to drop so that you’re ready to hit the ground running when you have that clean slate.

I now pay very close attention to the first few times I do anything because I know those decisions will shape my baseline habits; to deviate from them will feel like a deprivation or an imposition.

Job Transition and Moves Are Perfect Clean Slates

The slate may be wiped clean by a change in surroundings: a new apartment, a new city, even rearranged furniture. Or some major aspect of life may change: a new job, a new school, a new doctor.

Job changes for PhDs come relatively frequently throughout training and sometimes following, and many or all of those job changes may very well involve a move. A new job in a new city is just about the cleanest slate you can get when it comes to your habits (not including changes in the members of your family): new home, new job, new co-workers, new commute, new city to learn.

Not only are you in a different environment with your old triggers and routines wiped away, but the people surrounding you are no longer reinforcing your prior habits and associating you with them. You have a chance to forge relationships without succumbing to any negative habits.

What Kinds of Financial Habits Should You Lose with a Clean Slate

Mindless Spending

The entire point of a habit is that it takes little to no conscious decision-making to carry out. If you are aware of any mindless spending that you currently engage in, resolve to drop it with your upcoming clean slate (if not before!).

Mindless spending is spending that you neither need nor even truly want to do. Perhaps it gives you some satisfaction, but it’s all too fleeting. You pick up a coffee every day during your commute because that’s what you always have in your hand on your way in. You browse a certain store and make a purchase on the same day of the week because that’s how you kill time in between work an an evening activity. You go out with the same people to the same bar/restaurant/club every weekend because that’s where you went when you first met them. Somehow these actions became habits even as your desire to do them faded. You may not have even realized the cumulative effect they were having on your finances.

With your clean slate, you have the opportunity to drop these old habits and begin how you want to continue, e.g., brewing coffee at home, taking a route that doesn’t pass any shops, and meeting people through fun and less expensive activities.

Living Beyond Your Means

In many graduate programs and at many places, limiting your spending to the means provided by your stipend/salary is not possible or at least not palatable. In those cases, accruing debt, usually student loan or credit card debt, is a necessary evil. Still more PhDs (in training) accrue debt because of a lack of sufficient motivation to avoid it.

Living beyond your means is a negative financial habit, necessary or not. When you start a new, higher-paying job, make a clean break with that habit. In your new job, you are A Person Who Lives Within Your Means. In fact, you should not only resolve to not accrue any new credit card (or similar) debt, but you should start repaying your accumulated debt. If credit cards were your debt of choice, stop putting new charges on them entirely.

Hiding Your Head in Sand

Sometimes a negative financial habit is simply the absence of a good financial habit. Your financial state during grad school or after can be so discouraging that you stop looking at it entirely. You might slip into being unaware of the balances in your checking and savings accounts, the balances on your credit cards, the total of your student loan debt, the value of your investments (if any!), etc.

At some point and after some healing, you’ll start looking at your finances again – perhaps when you have a higher income and the future looks rosier. With your clean slate, leave behind your habit of hiding your head in the sand and put in place a new habit of regularly looking over your finances comprehensively, even if it’s painful at first.

Keeping Up with the Joneses

Keeping up with the Joneses is a negative financial habit for anyone, but it’s particularly impossible for PhDs on trainee income. You don’t want to be in that habit when your higher income rolls in, as you might actually be able to make a go of keeping up. Do whatever you need to do to (leave/filter social media, stop watching HGTV) to keep the Joneses out of sight and out of mind.

What Kinds of Financial Habits Should You Implement or Maintain with a Clean Slate

The Strategy of the Clean Slate can help us launch a new habit with less effort.

With your clean slate, adopt a new identity as a person who practices positive financial habits and is actively working to improve your financial health.

Tracking/Budgeting Your Spending

Tracking your spending and creating a spending plan (a budget) are fundamental tools for managing your finances well.

Tracking can be done relatively automatically with software, so the easiest way to implement this habit is to sign up for Mint/You Need a Budget/similar, hook up your bank accounts, and check on your spending periodically (at least once per week).

After you have an idea of your expenses, you can start projecting them with a budget, which will help you be mindful about your spending in your trouble areas. You may have to update your budget frequently if you’ve recently moved, but after some time checking in with it once a month or more will become automatic.

Track Your Net Worth

When my husband and I transitioned to our first post-PhD Real Jobs, I started manually tracking our net worth. Yes, our Mint account has it, too, but I liked my own formatting. Once per month on the 1st, I copy all of our account balances into an Excel spreadsheet and update my graph. You don’t need to check frequently for the habit of tracking your net worth to be valuable. After all, “That which is measured, improves.”

Negotiating

That a candidate will attempt to negotiate a job offer is almost always expected. (Grad school offer letters are an exception, though some students do attempt to negotiate. Negotiating a postdoc offer is more common than you might think.) If your clean slate comes with a new job, be sure that you negotiate that job offer (and every one that follows). You may make an exception if the offer is clearly and objectively on the generous side of appropriate, but even then you can still try to negotiate some benefit. A raise gained through negotiation is the easiest money you’ll ever earn, and it compounds throughout your career!

Automatic Saving and Being “a Saver”

Post-clean slate and with a higher income, you are a saver, no matter what you were before. Enforce this positive financial habit by setting up automated transfers to your savings account, loans, or investments, depending on your goal. Incrementally increase your savings rate over time.

Investing can be very intimidating to someone just starting to get their finances in order. It’s doubly intimidating for someone who doesn’t have access to a 401(k)/403(b)/similar like a grad student and some postdocs. With your clean slate, put in place the positive financial habit of investing (if that’s an appropriate financial goal). If your new job offers a retirement account match, by all means take full advantage, and invest beyond that up to your goal amount. Never leave match money on the table!

It’s a shame not to exploit the power of the strategy of the Clean Slate when it presents itself. For instance, the time of moving introduces so much upheaval into our customary habits that change becomes far easier. In one study of people trying to make a change–such as changes in career or education, relationships, addictive behaviors, or health behaviors including dieting–36 percent of successful changes were associated with a move to a new place.

The Downside to a Clean Slate

While the clean slate offers tremendous opportunity for forming new habits, it can disrupt a person’s existing good habits by eliminating a useful cue or breaking up a positive routine.

To this point in the article I have largely assumed that you have some negative financial habits that can be eliminated by a Clean Slate, and I’ve suggested positive financial habits to fill the vacuum. But you also may well have positive financial habits that will be jeopardized by the Clean Slate. It’s understandable that you habits will be disrupted by a Clean Slate as dramatic as a move and job change, so as soon as possible (before you feel settled and ready) jump right back into your old positive habits so you don’t slide into negative habits in their absence. As much as possible, maintain monitoring your habits through your transition so you have an accountability system urging you to return to them as soon as possible.

Our $100,000+ Net Worth Increase During Graduate School

July 9, 2018 by Emily

I share my personal money story, which is how my husband and I increased our net worth by over $100,000 while we were in graduate school. We carefully budgeted our two PhD student stipends to consistently add money to our investments and pay for both our regular monthly expenses and irregular expenses such as travel. Over our seven years as graduate students, we accumulated approximately $75,000 in retirement savings, $20,000 in cash, and enough money to pay off my student loans plus an additional $5,000. I detail the five strategies we used that made the largest positive impact on our cash flow, which enabled us to increase our savings percentage over time.

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Timestamped Show Notes

0:00 Introduction and Outline

1:45 Background Information and Income

When we graduated from Harvey Mudd College, I had $17k in student loan debt and no savings, and Kyle had zero student loan debt and approximately $5,000 in savings. Kyle went straight into a PhD program at Duke University in Computational Biology and Bioinformatics. I spent one year in the National Institutes of Health’s postbac program before starting a PhD program at Duke University in Biomedical Engineering.

Our $100k+ increase in combined net worth occurred between 2007 and 2014 when we earned two graduate student stipends. My NIH stipend was $24k/year, and my Duke stipend went from $24k/year when I started to $28k/year when I finished. Kyle’s Duke stipend went from $25k/year when he started to $29k/year when he finished.

In the first three years, Kyle and I were dating and kept separate finances. We got married in 2010, so for the last four years of the seven-year period we kept joint finances.

4:00 How We Increased Our Net Worth

Saving and investing consistently throughout the whole period.
Budgeting intensively to keep a lid on expenses and funnel more money into savings.
Investment growth due to the bull stock market that started in 2009.

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4:51 High-Level Strategies to Increase Net Worth

Our programs paid us above the local living wage, and Durham, NC is also a medium cost-of-living city.
We identified our values, which included financial security and family/community. This meant that saving, including for retirement, was a top priority, as well as travel to visit family and friends. We reduced our spending on everyday expenses so that we could funnel more money to our top priorities.
We employed percentage-based budgeting. Right off the top, we paid our taxes, tithed (10% of gross income to our church), and saved for retirement and near-term expenses.
Any extra income we received, such as gifts, side income, and credit card rewards, went toward our financial goals instead of general spending.

7:38 Net Worth Breakdown

8:07 IRAs ($0 to $75k)

I started saving 10% of my gross income into my Roth IRA as soon as I started receiving a stipend and maintained that savings rate for 3 years. Kyle didn’t intentionally start saving right away, but allowed money to build up in his checking account. He opened and maxed out a Roth IRA in 2009, and maxed out a Roth IRA every year following.

Further Reading: My Biggest Financial Mistake and Why I’m Glad I Made It

Once we got married, we made a game of trying to max out two Roth IRAs each year. We never quite achieved our goal, but we did increase our savings rate from 10 to 17%.

What exactly we were invested in doesn’t matter as much as our savings rate, though I am happy to share my investment choice.

Details on Emily's Roth IRA

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12:11 Cash Savings ($5k to $20k)

Initially, I didn’t focus on cash savings. In 2007, I paid off a $1k unsubsidized student loan. When I started grad school, I bought a car with a $3,500 car loan. Later that fall, my parents gave me $10,000, which I used as a general savings account/emergency fund. I paid off my car loan, then repaid my “car payment” to myself to rebuild my savings. Kyle naturally lived below his means, and he continued to accumulate savings in his checking account.

The year we got married, 2010, was a financial reset point. From our cash savings, we paid approximately $10k in wedding expenses. When we joined finances, we assessed our combined balance sheet.

We each had money in our IRAs, and we also had $17k in cash. We set $16k aside to pay off my student loan balance and set up a $1k emergency fund. However, that left us with no savings for near-term expenses, just whatever we could cash flow.

We built up $20k in savings between 2010 and 2014 using targeted savings accounts. We were inspired to start using targeted savings accounts by several large irregular expenses that hit right around the same time and were difficult to cash flow: an expensive wedding season, two university parking permits, and season tickets to the Duke men’s basketball games and Broadway theater series.

Further Reading:

We decided to start preparing in advance for anticipated expenses over the next year. We started out with savings accounts for Cars, Entertainment, Travel. We set up budget for each account by anticipating when we would need or want to spend money and calculating a savings rate. Targeted savings accounts turn large, irregular expenses into small, fixed expenses that are easy to write into a budget.

By 2014, we had more savings accounts: Travel, Cars, Entertainment, Appearance, Electronics, Medical, Charitable Giving, CSA, Taxes, and Camera in addition to our checking and emergency fund accounts. We used Ally Bank, which did not charge us any fees or require minimum balances, etc.

We set up automatic savings rates into the targeted savings accounts, then manually pulled money back for each expense when it occurred.

We built up the savings in these accounts because we over-estimated what we would need in various areas, which caused us to over-save.

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20:43 Student Loan Payoff Money ($0k to $16k in cash savings, then $16k to $21k in investments)

By 2010, we had the money to pay off $16k in student loans. Instead of paying it off, we chose to conservatively invest they money to earn a small return. It was difficult to choose how to invest the mid-term money, and we wanted to be conservative so as not to lose it.

We decided to conduct an experiment on ourselves to find out what kind of investors we were. In 2011, we put a large fraction of the money in a CD, a small fraction in aggressive stock mutual funds, and a large fraction in conservative mutual funds (stocks and bonds).

We learned that we are committed to passive investing.

Further reading:

23:57 Our Best (Pain-Free) Money-Saving Moves

I started blogging at Evolving Personal Finance in 2011; learned a ton from my fellow personal finance bloggers and developed my own ideas about how I should manage my money. I published a post near the end of grad school on the best things we did to increase our available cash flow for saving and investing. This list largely explains how we increased our retirement savings rate from 10% to 17% savings and built up $20k in cash savings.

25:24 1. Moved to decrease rent twice (savings $2,340/year).

Initially, we lived in a great apartment, but one year the rent jumped up so we moved to a townhouse, decreasing our rent by $110/mo (what it would have increased to over the new rent). The next year, we moved again and decreased our rent by an additional $25/mo (previous year’s rent to new rent).

Through those two moves, we maintained our home size (1,200 sq. ft., 2 BR, 2+ BA). With the latter two townhouses, we actually reduced our commute to Duke, so the saving was even deeper than just the rent decrease. We did give up some amenities we had through the apartment complex, but that was acceptable.

Further Reading:

27:48 2. Cancelled cable TV (Savings: $1,208.16/year)

We cancelled our cable TV in favor of paying for internet only. We bought an antenna so we could still watch broadcast TV.

Further reading: How to Cancel Cable When You’re Addicted to a Show

28:47 3. Signed up for rewards credit cards (Income: $991.18/year)

We signed up for cash back rewards credit cards, both for good ongoing rewards and good sign-up bonuses. We looked for minimum spends that we could actually meet and timed application so that we could put our large irregular expenses on the new cards to help meet the minimum spend.

Further reading: Perfect Use of a Credit Card

30:00 4. Became a One-Car Family (Savings: $972.03/year)

After we got married, we started commuting to Duke together. Around that time, my car needed some expensive repairs, so we stopped using it. Our reduced expenses came from lower car insurance, dropping one parking permit, less gas used, half as much maintenance required, and less need to keep money on hand for repairs. We had to work out our schedules to be able to share the car and ended up spending a lot more time together, which was wonderful!

Further Reading: The Financial Implications of Dropping One Car

32:19 5. Switched to an MVNO (Savings: $544.34/year)

I started using Republic Wireless, paying approximately $25/mo for service. (Kyle has since switched to Google’s Project Fi.)

The best thing about these pain-free money-saving moves is that they don’t require any ongoing effort/willpower. Typically, we just had to carry out one-time decisions.

34:41 How Our Accomplishment Led into PF for PhDs

I had been blogging about personal finance for 3.5 years by the time finished grad school, and I also volunteered with Personal Finance @ Duke. After I defended, I decided to give my own seminar on personal finance for graduate students. I had the best time making and delivering the seminar and answering questions from my peers. I asked myself, how can I teach my peers about personal finance as my job?

The initial phase of my business was as public speaker; I gave seminars at universities all over the country. That first seminar I created is now titled “The Graduate Student and Postdoc’s Guide to Personal Finance,” and I have others on taxes, investing, budgeting, and starting grad school on the right financial foot. If you’d like to (figure out how to) bring me to your university for a seminar or workshop, please email me at emily at PFforPhDs.com.

In addition to speaking, I’ve added other aspects of my business, ebooks and online courses. I have two new initiatives launching later this year, an investing webinar series and a membership community.

38:31 Conclusion

How to Prioritize Financial Goals When You Can’t Do It All

June 11, 2018 by Emily

As graduate students, we can be overwhelmed easily by everything our stipends are ‘supposed to’ accomplish for us. If you read any personal finance material (including mine!), you will see that your income should go toward saving for retirement, paying off your debt, saving an emergency fund, saving for your short-term goals… oh, and feeding, clothing, and housing you, too! It can seem impossible to make any financial progress when faced with all these demands. Instead of trying to do everything at once, prioritize the various financial goals you might set based on both the math behind them and your personal disposition toward saving, investing, and debt.

A version of this post originally appeared on GradHacker.

In my opinion the first two goals you should accomplish with your stipend are obvious, and after that you’ll have leeway to choose among competing valid goals.

Goal 1: Pay for Your Basics

The primary purpose your stipend should serve each month is to pay for the basic expenses in your life, such as housing, utilities, food, and transportation. If that’s all your stipend can manage, it has served its purpose: providing you with enough money that you can fully devote yourself to your studies. Increasing your short- and long-term financial security will have to wait until after graduation.

However, keep in mind that it’s very possible for these basic expenses to inflate from “need” into “want” territory. “Want” aspects of these basic expenses include living alone, housing amenities (access to pool, gym, social spaces), a car/a car that’s worth a significant fraction of your yearly income, eating out, bar tabs, etc. That’s not to say that you shouldn’t spend money on those above-basic aspects of these expenses, but just be aware that you can’t justify that portion of the spending as “needs.” It’s easy for your large, fixed expenses such as housing and transportation to get away from you, so spending your stipend on the “want” aspects of your basics should be weighed against using it for your other possible financial goals (more on that later).

Goal 2: Save an Emergency Fund

Everyone should have an emergency fund, even if it’s small. An emergency fund is cash reserved only for emergencies. It’s basically money that will prevent you from going into debt when something unexpected happens. A full emergency fund is on the order of 3-6 months of expenses, but that shouldn’t necessarily be your first goal. A small emergency fund of $1,000 is a great start when you have other pressing financial goals, such as debt repayment. It’s not prudent to delay repaying high-interest-rate debt to save a larger emergency fund the purpose of which is to prevent you from going into high-interest-rate debt.

Start with a $1,000 emergency fund as your second financial goal, but after that let the math of your other choices and your gut help you decide whether to keep building the emergency fund or move on to another goal.

Accumulating Cash vs. Growing Wealth Mid/Long-Term

Cash savings has great utility. If your expenses are quite uncertain over the next year (such as when you near graduation), it makes sense to save up to be able to pay for the most costly scenario in cash. It’s also a good idea to keep cash on hand for irregular expenses, such as in a system of targeted savings accounts. As just discussed, a larger emergency fund can bring great peace of mind to certain people.

But you should limit your cash savings to the amount that you may well need in the short term (1-2 years plus any mid-term goal expenses like a house down payment or wedding). To increase your net worth in the long term and ultimately become financially independent, you need to invest for the long-term and pay off debt. As soon as you have sufficient cash on hand (by your estimation), you should start investing or paying off debt, but deciding when you have enough cash is largely about your comfort level.

It’s also fine to simultaneously invest/pay down debt and save additional cash, as long as you can accept that your progress toward each goal will be slower. For example, if you decide to save 20 percent of your income, 10 percent can go toward investing/debt repayment and 10 percent can go toward cash savings.

Investing vs. Debt Repayment

The earlier you get compound interest working in your favor, the better. You can accomplish that by investing or paying off debt. Deciding between investing and debt repayment is again a balance of math and personal disposition.

First, do the math. Put numbers on your various possible investing and debt repayment goals. Your debt repayment “rate of return” is the interest rate of the debt in question. The long-term average rate of return on your investments is estimated from your asset allocation. For example, a grad student invested 100 percent in large-capitalization US stocks could anticipate a 9-10 percent long-term average rate of return (before adjusting for inflation). Other asset allocations will have different expected long-term average rates of return. Mid-term investments should be more conservative, with a lower expected average rate of return but more muted peaks and valleys.

Compare your investing and debt repayment expected rates of return, giving a handicap to the debt repayment side of the equation because there is no risk associated with debt repayment as there is with investing. Given a certain expected rate of return for your investments, the math would argue that debt below a certain interest rate will be a lower priority. For example, if you expect an 8 percent long-term average rate of return on investing, any debt below about 5 or 6 percent might become low-priority.

Second, evaluate your personal disposition. If you feel passionate about one type of goal over another, that should have some influence on your decision. I believe that your passion for a financial goal positively correlates with the amount of effort (i.e., money) you will put toward achieving it. For example, if you hate your debt, you should pay it off, even if the math favors investing. If you are very excited to start investing, perhaps you could reduce the debt repayment handicap in your math to only 1 percent. Just don’t justify keeping high-interest-rate credit card debt because you want to start investing!

The one caveat I’ll make to allowing your personal disposition to hold sway over the math is for a very risk-averse person: you will have to start investing eventually, even conservatively, if you want to reach financial independence. You will automatically pay your installment debt off in time even if you just make the minimum payments, whereas there is no mechanism to force you to start investing. So it is acceptable to prioritize (non-mortgage) debt repayment over investing, but when you’re done paying the debt, be sure that you hold yourself accountable to take the next step to start investing.

Know that More Goals Means Slower Progress

The more financial goals or purposes for your money that you have, the slower your progress will be toward each of them. If you feel strongly about working on multiple goals at once, accept this knowing that you are making some progress in all the areas that are important to you. But if you are frustrated by slow progress to the point that you end up not devoting money to any goals, working on one or a small number of goals at a time is a better fit for you. In this case, set concrete dollar-amount goals that you can achieve within months or a small number of years and work toward them intensely. For example, set $4,000 as your goal emergency fund size, but once you achieve it, move on to something else. Paying off one debt entirely could be another concrete goal.

Living Your Life

Since our income is limited (unless we have a side income), any money that you put toward the above types of financial goals is money that won’t be used for your everyday comforts and living expenses. By no means do I suggest that you suffer through a Spartan lifestyle while you put every penny possible toward your long-term future. Everything must be in balance for you. A guideline like the Balanced Money Formula may help you work through what percentage of your income to use today and what percentage to put away for tomorrow.

My Choices During Grad School

When I was in grad school, the financial goal that most excited me was investing. Therefore, after ensuring that I could live within my means and establishing a $1,000 emergency fund, I started investing 10 percent of my gross income into my Roth IRA. Over time, I built up cash savings in my targeted savings accounts and also increased the fraction of my income that I saved for retirement. To devote more money to these goals, I reduced my living expenses by developing frugal practices. Paying off my remaining student loans was my lowest priority as they were subsidized during deferment. I’m happy with these choices given my personal disposition (not risk-averse), but if I were to do it over again I would have beefed up my emergency fund earlier, delaying increasing my investing percentage for a short time.

Bring Savings to Grad School

December 5, 2016 by Emily

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

Why Does It Take So Long to Get Paid?

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

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

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

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

Further reading: Why I’m Voting Yes

What Will My Expenses Be Before I Am Paid?

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

1) Normal Expenses

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

2) Moving Expenses

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

3) Housing Start-Up Expenses

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

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

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

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

4) Transportation Start-Up Expenses

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

5) University Expenses

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

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

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

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

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

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

How Should I Build Up My Savings In Advance?

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

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