Podcast

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

December 2, 2019 by Meryem Ok

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

Links Mentioned in the Episode

Teaser

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

Introduction

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

Will You Please Introduce Yourself Further?

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

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

Evolution of Career Plans in Grad School

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

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

When Does Your Graduate Student Position End?

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

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

Plan for Income Until Graduation

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

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

Are You Considered an Employee at Georgetown?

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

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

What is the State of Your Finances at this Point?

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

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

History of Chad’s Student Loans

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

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

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

Accumulation of Credit Card Debt

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

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

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

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

Any Other Debt Besides Credit Cards and Student Loans?

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

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

14:43 Chad: Yeah.

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

Why Credit Cards Over Additional Student Loans?

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

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

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

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

The Balanced Money Formula

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

Commercial

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

Anything Else You Would Like to Share?

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

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

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

Supporting Family Members During Graduate School

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

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

How Does Your Situation Compare to That of Your Peers?

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

Universities Do Not See All of Our Financial Struggles

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

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

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

Solutions for Universities and Individuals

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

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

Are Students Primarily Producers or Consumers?

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

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

Quality Work Requires Quality Pay

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

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

Best Financial Advice for Your Peers

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

Consider Long-Term Financial Goals and Changing Needs

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

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

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

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

Outtro

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

This NDSEG Fellow Prioritizes Housing and Saving for Mid- and Long-Term Goals

August 5, 2019 by Jewel Lipps

In this episode, Emily interviews Lourdes Bobbio, a graduate student in materials science at Penn State and NDSEG fellow. Lourdes breaks down the top five expenses in her budget: housing, food, taxes, utilities, and subscription services. She explains the financials systems she has put in place to reach financial success during her PhD: targeted savings, automated transfers, quarterly estimated tax, high-yield savings accounts, and taxable retirement investments with a roboadvisor. Lourdes has decided to prioritize her housing within her budget, but still balances that expense with plenty of saving for her future wedding and retirement.

Links mentioned in episode

Teaser

Lourdes (00:00): Being able to pull some money from my fun fund instead of from my budget for the month is kind of nice because I can still have a nice experience but not have to worry about that taking away from like going out to dinner with my friends or going on a date night with my boyfriend or something like that.

Introduction

Emily (00:20): Welcome to the personal finance for PhDs podcast, a Higher Education in Personal Finance. I’m your host, Emily Roberts. This is season three, episode 11, and today my guest is Lourdes Bobbio, a graduate student in material science at Penn State and NDSEG fellow. In this budget breakdown, Lourdes lists her top five expenses, details her financial goals and their underlying systems, and gives her best financial advice for her peers. She shares with us how she has successfully navigated the challenges of quarterly estimated tax, irregular expenses, and her lack of IRA access. You won’t want to miss her concluding insight into the psychological benefits of budgeting. Without further ado, here’s my interview with Lourdes Bobbio.

Please Introduce Yourself

Emily (01:07): Thank you for joining me on the podcast today. My guest is Lourdes Bobbio, who is a grad student at Penn State University, and I’m just delighted to hear her budget breakdown today. So we’re gonna dive into that right now. Uh, Lourdes, would you please introduce yourself a little bit further to the audience?

Lourdes (01:24): Sure. Uh, thanks again for having me, Emily. I’m really excited to talk with you about my finances as a grad student. Um, so like you mentioned, I am currently a fourth year grad student at Penn State University, which is located in State College, Pennsylvania. Um, and I am in the material science and engineering department at Penn State.

Emily (01:45): Yeah. Excellent. Are you single? Your household is just you?

Lourdes (01:48): Yes, I currently live alone by myself, so.

What is your income?

Emily (01:51): Okay, excellent. Just wanna get that structure upfront there. Um, so with the budget breakdown episode, I’m basically gonna ask three super high level questions and we’re just gonna dive into those and see where it takes us. And the first one is, what is your income?

Lourdes (02:08): Um, so I am currently on the National Defense Science and Engineering graduate Fellowship, so I make $38,400 a year, which breaks down to $3,200 a month. Um, so yeah.

Emily (02:23): Yeah, very nice income for our grad student and congratulations on winning that, winning that fellowship. That’s excellent, okay, so that’s your income. Um, I imagine it goes pretty far in state college.

Lourdes (02:35): Yes, it does.

What are your five largest expenses each month?

Emily (02:37): So yeah. So tell us about your five largest expenses, what you’re paying for each one of those so that anyone else can get some, you know, local insight.

#1 Expense: Rent

Lourdes (02:45): Yeah, so yeah, like you mentioned, state College is a college town, so the cost of living is fairly low compared to any of like the major big cities. Um, I grew up in near Washington, DC and then went to my undergrad in Boston, so I’m kind of was very accustomed to the more high cost of living, so coming here was definitely a big change. Um, um, so for my five largest expenses, I would say my top one is definitely rent. Um, I live in the downtown area of state college, so I pay a little bit more in rent and I also live on my own, um, with no roommates. And so that’s something that another sort of factor that factors into the higher cost of rent. And um, it’s something that I determined that I valued a lot. I valued being close to campus, being able to walk, um, to work every day, um, being close to like the restaurants and stuff like that. And then also being able to live on my own. Um, and so one of the reasons why I did choose to live closer to campus is because I don’t have a car, so I actually don’t have any car payment or insurance that I have to spend money on. So sort of the money that I would normally spend on that, I sort of put it into the, my sort of rent budget category.

Emily (04:05): Yeah, that makes a lot of sense to me. Um, so first living near DC and then Boston. Have you ever owned a car?

Lourdes (04:12): No, I have never owned a car.

Emily (04:14): Okay. So this is a kind of a natural choice for you to say, okay, I’m moving to state college, I don’t currently have a car. You know, did you ask yourself, how can I set up my life so that I don’t need a car? Is this a common thing for grad students not to have a car?

Lourdes (04:27): No. I would say a majority of the grad students do have cars here. Um, I don’t think it makes it a little bit easier. Um, just in terms of, since state college, if more, if you wanna get out of state college, I would say because state college is small, there is sort of a limited amount of stuff to do that’s within walking distance and within the public transportation sort of, um, area. Um, so if you wanna sort of go away for the weekend or something, then having a car is a lot more useful. Um, but I have never had a car, so I didn’t feel the need to get one. And there’s an abundance of housing close by to campus and like I mentioned, there is a fairly good bus system, um, throughout the local area, um, that I can use if need be. So

Emily (05:15): Yeah. Um, a couple more specifics about the place that you live and did I catch, did you say the amount of money that you’re spending on rent?

Lourdes (05:22): No. Um, so I spend about $1,500 on rent a month. So it’s definitely the higher.

Emily (05:28): Sounds a little high to me. <laugh>.

Lourdes (05:29): Yeah, it’s definitely on the higher end. The apartment I currently live in, um, is a one bedroom with like, it’s called an office space, so it’s like a smaller, can be a second bedroom. And there have been times when I’ve contemplated maybe getting a roommate, but I really value having that sort of space of my own. And, um, so the reason that, um, this sort of came about is because when I first got here, so the way, because this is a college town, it runs very much on the school schedule. So as a grad student, sometimes when you get accepted and then finally learn about like, you know, finding housing and such, the big cycle of finding apartments is kind of over like, that really happens in like October, November, December. And so when you’re figuring out your grad school decision, that’s more in the spring.

Lourdes (06:19): And so there was, when I was first looking at a place to live, there was sort of a limited number of like, number of places downtown that I could live. And since I wasn’t gonna be bringing a car, that’s something that was important to me. And so, um, I did find this place. I’ve lived in the same place for my whole time in grad school. Um, and so for the first year when I wasn’t on a fellowship, my parents actually were helping me out a little bit, paying for rent. Um, and they also lived close by, um, in the DC area, so they would come to visit a lot and they liked having that sort of like that second office space bedroom to be able to stay over. Um, and then when I did get my fellowship, I sort of evaluated, um, that also came at a time for my parents when they were no longer gonna be able to help me just because of some of their own personal finance issues. And so, um, I sort of had to evaluate whether or not I wanted to move or not, and I sort of decided I liked where I was and with my fellowship I could afford it. Um, so I decided to stay where I was.

Emily (07:24): Yeah, definitely your decision making process makes sense to me. And the thing is that if you hadn’t won that fellowship, I mean, I think you would’ve had to move, right? Like it’s compared to a, you know, base sort of stipend. Yeah, it is quite high, but hey, you won it and it’s working out and you can afford it. Um, that’s, yeah, that sounds lovely. And so the reason I’m asking a little bit more about the transportation issues, um, is, is because it’s really sometimes the trade off makes sense to not own a car and then to to pay more in rent, um, but to have the proximity and to have the access to public transit and all of that stuff. So, um, I’m sort of lumping together your, like what we would talk about under transportation, under like the housing stuff. So one more question about that is, you know, you mentioned it’s, it’s easy enough to get around town. Um, what do you do about getting out of town? Like, do you not go or do you only travel with other people or do you rent a car or like, how does that work?

Lourdes (08:21): Um, so I have a, uh, long-term boyfriend. We’ve been dating for a couple of years, so usually when I go anywhere, we go together and he has a car. Um, so that’s usually how that works out. Or sometimes with friends, uh, I would say maybe half of my friends have a car, so we’ll plan group trips together and go places I hardly ever go anywhere just on my own. Um, so

#2 Expense: Taxes

Emily (08:43): Yeah. That makes sense. Um, okay, so let’s move on to your second largest expense.

Lourdes (08:50): Yeah, so for that I would say sort of, I’m not sure if I categorize it as an expense necessarily, but um, because I’m on a fellowship, um, that doesn’t take taxes out, I sort of charge myself the taxes that I would have to pay on my fellowship at the end of the tax year. Um, and so that’s sort of one of the next biggest expenses on my list of expenses and something that I take into account at the beginning of the month when I get paid, I make sure to take out that money right away and set it aside in a savings account so that when I do have to make those quarterly estimated payments, um, I have that money set aside, I don’t have to worry about trying to scrounge it out from somewhere. So,

Emily (09:27): So you just mentioned several really important things, right there for, um, fellowship recipients to consider. So first, uh, PSA <laugh>, if you’re receiving a fellowship, it’s fairly likely that your university is not withholding tax on your behalf. Mo- vast, vast majority of universities work that way. So you are withholding tax essentially for yourself instead of relying on your employer who is not your employer, um, to do that for you. So awesome system. Can you tell me a little bit more about how, you know, mechanically you actually do that? Logistically?

Lourdes (10:01): Yeah. So, um, do you mean in terms of calculating or actually set, setting aside the money? Okay. Yeah. So when I first got my fellowship and sort of realized that no taxes were gonna be withheld, I sort of had to go through the whole process of, um, I think it’s the 1040, um, es worksheet to, uh, where you input your income and it sort of takes you through the steps of sort of figuring out how much you’re gonna owe at the end of the year. And so, um, I did that and got the total amount that I would owe. And then since I also read that you would be paying these quarterly, um, divided by four, or I guess I divided the whole thing by 12, um, and then would set aside that amount of money per month. And so the way I do this and the way I do all my budgeting is on a spreadsheet.

Lourdes (10:58): Um, and so I have this budgeting spreadsheet, um, that has the entire year sort of planned out for me. So I do like a 12 month, um, overview of the year where I plan. And since I know how much I’m gonna make every month, it’s very steady. Um, I have that amount sort of as the top line, and then from there I take out taxes and then any my savings and then utilities, those types of, um, bills, um, that I know I’m gonna have to pay. And then, um, sort of from there calculate how much leftover spending money I have. But that’s effectively, so I calculated how much I would have to pay, um, each month if I were getting with like basically how much I had to pay the whole year divided by 12, and then put that into my budget spreadsheet to calculate, and then I set it aside in a high yield savings account so I can, can earn a little money off of that, um, until I have to pay it each quarter, um, to the irs. So

Emily (11:59): Yeah, I just, that’s just a perfect embodiment of, of how to handle this, the, the way that, that I think is the best way too. So I’m glad we both came to the same conclusion there. I mean, from, I’ll just review a couple things. So one, you figured out what your quarterly estimate tax would be by using Form 1040-ES, which is, um, for those of you who don’t know, it’s not something you ever have to submit to the federal government, but it just helps you figure out how much the IRS does expect you to pay throughout the year. Um, if anyone needs extra help with that, I do have a workshop on it that’s available year round, and so I’ll link that in the show notes. Um, so you use that to figure out how much you need to set aside every single month, and it’s just, it’s just another line item in your budget as you were describing.

Emily (12:42): Yep. And you have, I I would expect an automated transfer set up, um, like after you’re paid, it automatically transfers to a separate, as you said, high yield savings account. Yeah. And sort of the, the upside to paying your own quarterly estimated tax is that you do get to build it up for a few months before you send it into the IRS, uh, compared to the timing of, you know, withholding. And so, hey, you get, you know, month two, three extra of that little, you know, 2%, you know, interest rate or whatever you get on your savings account. So, um, I love that idea. Do you mind sharing who you bank with to find that high yield savings account?

Lourdes (13:16): Yeah, so, um, I bank with Discover Online Bank. I also have a credit card with them, so it kind of makes it easy. Um, and then I’m also, so that’s sort of where I put a lot of my long-term savings. And then I have a, uh, checking account with just a local credit union. Um, and that also has a savings account that has a little bit more of my, my short term savings goals, um, which I think I’ll talk about a little bit later.

#3 Expense: Food

Emily (13:39): Yeah, sounds perfect. Um, okay. Ready to move on to the next item?

Lourdes (13:43): Yeah. Um, so next item would definitely be food. Um, both groceries and going out to eat. Um, I definitely spend more on going out to eat than I would like, but I don’t necessarily feel bad about it because I generally budget for it and I know how much I can spend, so I don’t, it usually evens out in that the amount of, if I’m not buying groceries every week and going out, it’s a little bit more than I wouldn’t spend if I were buying groceries. But because it’s sort of budgeted into my overall budget, I don’t necessarily feel guilty about going out to eat.

Emily (14:19): I, I really love that I also experienced that same like, sort of psychological side effect of budgeting, which is before I kept a budget, I would maybe feel some guilt about discretionary spending, going out, making, you know, going shopping, things like that because I didn’t really have a good idea about how we would fit into my overall, you know, cash flow. And I’d be like, okay, well did I just like overdraw myself for like the end of the month? So budgeting really for me ended up being, um, a freeing exercise and something

Lourdes (14:50): I agree.

Emily (14:51): Not experience guilt anymore because as long as I knew it was in balance and I stayed within the budgeted amounts, I didn’t have to feel guilty anymore about the discretionary spending. So I’m really, really glad you mentioned that.

Lourdes (15:01): Yeah, and for me it’s also like a way, um, to get together with my friends. Generally at the end of the week we’ll go out to eat or go out for drinks and it’s just a way to unwind, um, with, and like a way to socialize. So again, it’s something that I definitely, I value, I place importance on that, so

Emily (15:21): Yeah, absolutely. Did you tell us the amount, the amount you spend on food?

Lourdes (15:24): Yeah, so I usually spend about $200 a month on food between groceries and going out to eat. Um, maybe 200 to 300 depending on the month,

#4 and #5 Expense: Utilities and Subscription Services

Emily (15:35): So. Yeah, it seems pretty reasonable even with a healthy, you know, eating out, uh, budget in there. Uh, okay, so what’s the fourth expense?

Lourdes (15:43): Uh, so honestly, aside from those major expenses, I don’t really have, oh, utilities obviously, um, utilities and, um, subscription services. Um, I’ve recently cut down a little bit on my subscription services, um, just because, um, I realized that there were some that I wasn’t using utilizing nearly as much as um, I could. And so I’ve cut them out, but I spend usually about, um, 30 to $40 on electricity, um, per month. And I have it budgeted as $40 because that’s usually the highest it ever goes. It’s usually in the thirties range. And then my subscription services, I think amount to about $25 a month, um, between Netflix, Spotify, the typical ones you’d expect. <laugh>,

Emily (16:34): Um, yeah, I was just gonna say what made the cut. Okay, so Netflix, Spotify, anything else?

Lourdes (16:38): Um, audible actually made the cut. It was one of the higher ones and I realized that I, I love to read and audio books for me are a great way to, um, be able to read while doing lab work very easily. Um, but I realized I was accumulating five, six credits that I just wouldn’t spend. So that’s almost, uh, it’s about $15 a month and I was like, I’m clearly not using this. I realized that sort of every year at the beginning of the year, I sort of evaluate my budget again, and that’s when I decided that I’m clearly not using this. I haven’t used it for the last six months, it’s, it’s gotta go. So, um, that helped cut that, cut that down a little bit. Um, so yeah.

Emily (17:20): Yeah. I just love that you mentioned that you do have a periodic reevaluation of your expenses. Um, and, and even, you know, earlier when you mentioned, you know, your rent, like after your first year of graduate school, you reevaluate and said, okay, is it worth being here? I mean, whether or not you decide, yes, it’s worth it or no, it’s not, it’s the reevaluation that’s so valuable and needs to happen over and over again. Just make sure that you’re still happy with your situation in every, every which way. So I’m glad that you, you know, sort of have it in your, in your calendar, in your mind, um, to happen every single year. So that’s awesome. Um, yeah. So is, is that all the five expenses? I think we got through them, right?

Lourdes (17:57): Yeah, so, um, I’m lucky that my apartment complex actually has internet and cable included. Um, and so I don’t have to pay for those. I probably wouldn’t have paid for cable anyway, just ’cause I don’t watch that much tv. Um, but it is nice to have the internet included ’cause that can get pricey. Um, especially since here there’s really not, there’s two major internet companies and not much competition, so it gets pretty pricey. Um, so it’s nice to have that included.

Emily (18:27): Yeah, good to know that that is included in that rent. So it, it sounded high at the, at first, but then, you know, breaking it down, it definitely makes, uh, more and more sense.

Commercial

Emily (18:38): This summer I’m putting forth extra support for PhDs undergoing career transitions into grad school, a postdoc or a real job. If you’re moving on to the next stage in your career or thinking about it, please visit pfforphds.com/next to check out my articles, webinars, and coaching program allow me to come alongside you during this transition to ensure that you set yourself up for financial success.

What are you currently doing to further your financial goals?

Emily (19:08): Okay. So we’ve talked about your spending. Um, let’s talk about financial goals.

Lourdes (19:13): Yeah. Um, so I have short-term, midterm and long-term goals and, um, the way I sort of, um, break these down, um, I have sort of two different savings accounts that I use to break these down. Um, so I have a savings account that’s with my credit union, um, that’s connected to my checking account. So I put a lot of the money that I save for my short term goals in there, and then my more midterm and long-term goals go into the high yield savings accounts. And so, for example, some of my short-term goals, um, I have, uh, just a general travel fund since I don’t have a car. If I wanna go home, um, to visit my parents, I take a bus that takes me straight to DC um, but I save up some money, especially near the holidays, it can get kind of pricey. So sort of saving up throughout the year for that. Um, I put maybe like $15, $20 a month towards that fund. Um, and then I have a, um, gift fund as well. So, um, mainly for Christmas, but also for any gifts that come up come up throughout the year. Um, definitely getting to the age where I get invited to weddings quite frequently, so having that sort of there means I don’t have to dip into my just general daily monthly budget and can have a separate fund for that. Um, and then I have what I call a fun fund, which is for more higher price fun experiences. So we have a lot of times Broadway shows come through, um, state college, um, and, um, those are usually a little bit more expensive. They’re like 60 to $70. So being able to pull some money from my fun fund instead of, um, from my budget for the month is kind of nice because I can still, um, go to have a nice experience but not have to worry about that taking away from like going out to dinner with my friends or going on a date night with my boyfriend or something like that. Um, and also most recently, um, I also really like to bake. And so I saw a deal online, it was like a one day deal for a hundred dollars on a KitchenAid mixer, which is a pretty good steal in my opinion. Um, ’cause I’ve been like, I’ve seen the prices for those, they can range like three, $400. So I was able to sort of buy that and take advantage of that deal without sort of having it impact my whole budget. Um, so that’s sort of what my fund fund is for. And those are some of sort of my short term financial goals, I suppose.

Emily (21:47): Yeah, let’s, I I just wanna say, you know, I, I love this system. Um, I talk about it frequently. I call it, um, a system of targeted savings accounts. Another term is sinking funds. That’s more of an accounting kind of term. Um, but yeah, the idea is just, uh, projecting as best you’re able, what your expenses are going to be irregularly, right? So something that comes up once a year, a couple times a year, um, and starting to save up in advance for those different categories. And it sounds like you’ve both, like you’re, you both have expenses that you can pretty well anticipate, like you mentioned travel, okay, it’s gonna happen around the holidays. I know approximately what amount it’s going to be in. You can save up for that pretty easily, but it also sounds like you have, um, with your fun fund <laugh>, that’s a little bit hard to say with your fun fund. Um, you have like, okay, it’s, it’s just something that you have the money there, there’s a certain amount of it that you’re saving every single month. And it’s more like as opportunities come up and you’re like, yeah, I wanna do that, this is the fund that you can draw on. Um, so again, it’s not impacting your monthly cashflow, it’s not necessarily something you’ve planned out, but it just is something that allows you to capitalize on opportunities when you see them. Like when you saw this sale for something, you’ve been thinking about buying for some time and tracking the prices for. So I really love that you have both like a, a proactive, like predictive element of this as well as a reactive like, okay, I know there’s just gonna be things that I wanna do, so let’s plan. I don’t know what it’s gonna be, but I’ll be able to do it, you know, when you see it, right?

Lourdes (23:14): Yeah, exactly.

Emily (23:15): So let’s talk about those, um, mid and long-term saving goals now.

Lourdes (23:19): Yeah, so some of those, um, so my boyfriend and I, we’ve been together for about three and a half years. And so, um, he already graduated from grad school this past, um, just this past week actually.

Emily (23:33): Oh, Congratulations to him.

Lourdes (23:35): Yeah, and I’ll be graduating in a year. So we’re thinking about, um, getting married soon and so sort of planning for a little bit ahead for a wedding since I know those can get quite expensive. Um, just putting away like a a hundred, a couple hundred dollars a month, um, towards that. And then also more long term a house is something that I definitely would like to purchase in the future. Um, this is definitely, like I said long term, um, but putting a little bit of money away each month for that and just seeing that sort of fund grow. Um, I really like having that. I have a little tracker in Excel, just a little graph that, uh, like you can see it sort of grow and it’s nice to see that and sort of gives me a goal to work for in the future, just like continually working and not having to worry about it, like when it becomes a shorter term goal.

Lourdes (24:23): And so those are some of sort of like my mid and long-term goals also, um, because I am on a fellowship, I have to pay out of pocket for my health insurance. Um, and while my fellowship does reimburse it somewhat, um, it’s not as much as if I were a regular like on a, uh, research assistantship. Um, and so it’s still quite expensive, but obviously very important. This is actually something that just, um, came up in terms of like my financial life last August because I was gonna be, um, taken off my parents’ health insurance and so I needed to sort of figure that out. And, um, thankfully at the time, I have an emergency fund as well, aside from these sort of sinking funds, um, I have an emergency fund of about, uh, $12,000, um, just set aside. And so I was able to pay for my health insurance no problem.

Lourdes (25:19): And there was some issue in getting reimbursed by my health insurance, um, which could have been an issue if I hadn’t, like if it was money that I needed to live on, but thankfully it was just money that I had set aside for this exact purpose where it’s something that I hadn’t exactly planned and hadn’t really thought of, um, but was able to pay for. And so, um, now knowing that and knowing I’m gonna have to pay for my health insurance in this upcoming August is when we have to renew it. Um, I’ve been saving aside money for that every month as well, so I can pay for that. So.

Do you have long term goals?

Emily (25:55): Yeah, what a perfect use of an emergency fund. Um, I, I kind of, I thought about what exactly is the definition of an emergency, you know, before, and to me an emergency is something that is both totally necessary, a necessary expense and also, um, unanticipated. So you knew you were gonna come off your parents’ insurance, but you did not know I would imagine what the premium was gonna be and that there were gonna be these issues with the reimbursements and so forth. So, and of course it’s a necessary expense has to be paid on time, you can’t mess around with that. So it’s just wonderful that you have that, um, fund already available for you. So do you have any other long-term goals?

Lourdes (26:31): Yeah, so I actually am also currently saving for retirement. Um, and so I was able to for one year max out my Roth IRA, um, before I, I was on my uh, fellowship. Um, but since then and since at that point I learned that I was no longer eligible to contribute to my Roth ira, I have been investing in just a general taxable brokerage account. Um, and I haven’t been contributing as, um, much as I would’ve probably to my Roth IRA just because I know that is tax deferred, but I still do try to put in a hundred or $200 a month into that, um, as sort of a very long-term goal and to try to keep that investment going even though I don’t have the tax advantage vehicle of the Roth IRA.

Emily (27:21): Yeah. So just to expand on that for another moment because this is something that, you know, I get plenty of questions about. Um, so first of all, your eligibility for an IRA depends on you having what’s called taxable compensation or earned income, which in terms of grad student pay means W2 pay, which is usually termed as an assistantship, uh, TA, RA. So you having the NDSEG fellowship, um, doesn’t count as taxable compensation or earned income. Now at that point, a lot of people who I talk with, um, throw out their hands and say, oh, well I have this higher income, I don’t have access to an IRA, I guess I won’t say for retirement. And obviously as someone who’s very, very pro investing and especially for retirement and especially at a young, as young and age as possible, um, I’m like, no, no, no. Like you can, you can go ahead, it, it can’t be inside an IRA, but you can still do it. And so I’d really love for you to talk a little bit more about how you, um, came to this understanding and found, you know, the, the way that you’re, you know, you’re using a tax taxable brokerage account, but a lot of people don’t even know what that is. So like how did you find out about this and how did you decide you know, where to open and so forth?

Lourdes (28:33): Yeah, so when I was sort of, when I got my fellowship and when I sort of learned about all the implications of that in terms of like taxes and um, investing for retirement, that’s when I also learned that um, I would have, if I wanted to invest it would have to be in a taxable account. And so I did a lot of research, um, in terms of um, I guess what brokerage I wanted to invest with. And because at the time I didn’t feel very knowledgeable about um, picking funds or ETFs or anything. I had money in a Roth, IRA, um, with Vanguard, they make it easy to have target date accounts, but I wanted to try to see if I could try something else, um, and decided to go with a, a robo-advisor, an online robo-advisor. So I currently invest with uh, Wealthfront and um, have enjoyed the experience so far, um, and just find it a very easy way to get a broad, um, a broad portfolio in terms of the different stocks that I’m invested in.

Lourdes (29:38): They sort of, um, you take a little quiz with a risk assessment and sort of I’m a little bit on the higher end and just because I’m young I know I can have that risk factor, um, and sort of um, went that route. Um, but I did a lot of research in terms of sort of what I felt would be good for me, um, and how much time I was willing to put into it. And I think maybe in the future I might move this money to somewhere with um, lower fees. I currently don’t have to pay any fees because I’m under a certain amount of money, um, which is nice. Um, but if I ever were to continue to um, uh, add money to this account and I went over that uh, threshold, I might decide to move it to somewhere where I would have, I wouldn’t have to pay an advisory fee.

Emily (30:24): Yeah, I’m really glad you you provided that detail because I learned something new. So these roboadvisors, I’ve looked into a few of them. Wealthfront is one of the prominent ones. Um, and people often ask me about using roboadvisors, so I’m really glad that you can speak to this a little bit. Um, and as you said, it’s a really, um, easy solution. You answer a few questions about yourself and they come up with a portfolio recommendation. I do in general think that it’s kind of overkill, especially for someone who is investing inside an IRA, um, and is just going for retirement and sort of a simple thing what you were already doing inside your IRA, but to me it actually makes a lot of sense once you switch to using a taxable investment account that, um, an advisory service with a little bit more of a hands-on approach can do some tax optimization for you.

Emily (31:11): So it actually makes a ton of sense to me. Um, and it’s great news actually that, you know, for now you are not being charged an advisory fee because that is really the main, as I’m sure you learned in your research, the main downside to using a RoboAdvisor or any other sort of slightly more expensive service is the fees. The fees don’t sound like very much, you know, maybe 0.25%, something like that doesn’t sound like a lot, but it adds up quite a lot over time. So it’s really exciting to me that you were, you know, able to do this without a fee. I mean, that’s kind of the best of all the worlds, right? Do you mind sharing what is that ceiling under which they don’t charge the advisory fee?

Lourdes (31:45): Um, I believe it’s $15,000. Um, and then if you refer people it, they will as a bonus, they’ll, um, increase it. I don’t know by how much, um, for each person you refer, but I think that is just the base, um, baseline ceiling for a no fee.

Emily (32:05): Yeah, that is awesome to know. Do you want to share your referral link?

Lourdes (32:11): Um, can I send that to you?

Emily (32:13): Yeah, absolutely. Okay. So we’ll pop that referral link into the show notes and you’ll help Lourdes and you’ll help yourself if you are already interested in wealthfront, Hey, why not? She’s giving you a tip about not having that advisory fee at the lower balances. So win, win, win, I would say all around.

What is your best financial advice that you’d share with your peers?

Emily (32:28): We will just conclude with me asking you what is your best financial advice that you would share with, um, your peers, whether that is another grad student, another fellowship recipient, someone else living in state college, anything along those lines?

Lourdes (32:42): Um, I would definitely say sort of speaking to what you mentioned earlier is not be afraid of having a budget. I know a lot of people think of having a budget or something constricting and something that will make you not like spend, not be able to spend money because you’re, you’re on a budget, but really it’s a very freeing thing, especially as a grad student where you’re on sort of a limited income. Um, being able to see where your money is going and sort of be in control of that, um, definitely makes you feel more free in terms of the things you can do on a day-to-day basis or, um, on even like a longer term. You sort of get this sort of freedom that, um, I think is really valuable and makes finances just seem less scary.

Emily (33:32): I’m in total agreement with you about the benefits, the psychological benefits of budgeting, as well as the actual, uh, financial benefits. So thank you so much for sharing that and uh, for joining us today. I’m really, really glad that you, uh, yeah. That you came on the podcast.

Lourdes (33:46): Yeah, thank you so much for having me. I really enjoyed speaking to you

Outro

Emily (33:50): Listeners. I’m so glad you joined us For today’s episode, pfforphds.com/podcast is the hub for the personal finance for PhDs podcast. There you can find links to all the episode show notes, a form to volunteer to be interviewed, a survey, and a way to join the mailing list. I’d love for you to check it out and get more involved. See you in the next episode. The music is Stages of Awakening by Poddington Bear from the Free Music Archive and is shared under CC by NC Podcast. Editing and show notes creation by Jewel Lipps.

How to Make Money without Working: Credit Card Rewards and 529s

May 13, 2019 by Jewel Lipps

In this episode, Emily interviews Seonwoo Lee, a PhD student in electrical engineering at Georgia Tech. Seonwoo has mastered two methods to earn extra money without “working.” Emily and Seonwoo discuss in detail their experiences with garnering credit card rewards and give both beginner and advanced tips. Seonwoo also explains a 529 hack he discovered to reduce his state tax bill that is applicable in as many as 30 states. They also briefly touch on several other methods to make money without working that are readily accessible for early-career PhDs.

Links mentioned in episode

0:00 Introduction

1:14 Please Introduce Yourself

Seonwoo Lee is a PhD student in electrical engineering at Georgia Tech. He did his undergraduate at Cornell. He pursued a number of ways to make money without actually having a second job.

1:48 Why have you tried to make money without working?

Seonwoo says that if you do it right, you can make more money per hour than working a traditional job. He says it gives you more flexibility, since you can do as much or as little as you want.

There is some effort involved in pursuing these strategies, but it’s not as much time you would put into working if you had a second job. Additionally, some people are prevented from officially working in other capacities, either by the terms of their contract or by their student visa. The strategies they’ll talk about are probably available to any PhD student or postdoc.

3:07 What are the two topics that we’ll go into detail discussing? What are some other strategies?

Seonwoo will discuss credit card rewards as well as banking sign up bonuses. Second, he’ll talk about the 529 trick to save money on your state taxes.

Emily mentions other ways to make money without working.

Emily has sold items when she’s moved as part of a downsizing process. She has sold items on craigslist.
Another option is Ebates *. Here, you make purchases through the Ebates platform and you are selling your information in exchange for money.
Emily presents short term investing in taxable accounts as an option to make money without working. She and her husband paid off student loans through mid-term investing.
Other options are receipt apps like Ibotta, where you upload your receipts and you sell your information to get cash back.
Also, there is the strategy of “car wrapping,” which is wrapping your car in an advertisement and you receive money based on how much you drive. Emily recommends listening to the How to Money podcast for more information on car wrapping.

* This is a referral link. If you sign up and spend $25 through Ebates, you’ll receive a $10 bonus to your account and I’ll receive a referral fee. Thank you for supporting Personal Finance for PhDs!

7:19 How do the credit card rewards and sign up bonuses work?

Seonwoo begins with the caveat that if you can’t manage credit cards responsibly, you should not pursue credit card rewards in any form. If you pay any interest at all when you do this, you are likely not going to reap the benefits of rewards. Emily adds that you already need a good or excellent credit score to pursue these strategies. If you carry a balance on your credit card, this strategy is not for you. Emily says make sure you are using your credit card like a debit card, and if you are you can consider this strategy.

Further reading: Perfect Use of a Credit Card

Seonwoo says that plenty of credit cards offer sign up bonuses. These require you to spend between $500 and $4,000 within the first three months of signing. The bonuses will vary from credit card points to straight cash. The offers will range from $100 to $500 in cash or 30,000 to 100,000 points. Seonwoo says there are ways to meet these minimum spending requirements without spending more than you normally would.

Emily talks about fitting these credit cards into your normal spending. She signed up for a credit card with a minimum spending requirement of $3,000 over three months. She had to put everything she was purchasing on that one card. She picked a time of year when she had to pay for car insurance and flights. She timed signing up for the credit card with when she knew she had above average expenses. Reaching the minimum spend requirements is a hurdle for people with lower income.

Seonwoo says you can see if you can pay your rent with a credit card. He says the fee may be 3%. If that is the only thing stopping you from pursuing a sign up bonus, do the math to see if the rewards are worth it. You can see if you can put tuition or fee charges on the credit card. You can see if you can pay your bills months ahead of time. He says you can buy grocery gift cards to get the charge on the credit card, but then you can spend that gift card over a longer period of time.

Emily says that someone new to this can try it with existing spending, then they can try manipulating their spending.

13:00 Is cash back or points more valuable to a graduate student?

Seonwoo says that cash back is much easier to start with and understand. There are only so many cash sign up bonuses. If you like to optimize things, credit card rewards will be more valuable if you use the rewards for travel.

Emily says that there are cards with a regular cash back rate, like 1-2% back on spending. She says that is a good way to start. Then the next level would be switching to actively pursuing credit card rewards. To make rewards lucrative, you have to be able to redeem them. She explains that in Durham, North Carolina, she couldn’t be loyal to any one airline. But in Seattle, Washington, she makes use of the Alaska Airlines credit card and its reward system.

16:18 What are the pros and cons of the annual fee situation?

Seonwoo says a lot of cards that have sign up bonuses waive the annual fee in the first year. Seonwoo’s strategy is that he signs up for the card, meets the minimum spend requirement, and by month 11 he has decided he won’t pay the annual fee and he will close the card. He says some cards are worth the annual fee, but he wouldn’t recommend keeping the annual fee card to people with lower income.

Seonwoo says that if you cancel within 30 days of being charged the fee, you can often get a refund. Ideally, set up a spreadsheet and reminders to track your credit cards.

18:54 How much money have you made using this strategy?

In his best year for strictly cash, Seonwoo has made about $2,200 to $2,500 from sign up bonuses. He says he has more credit cards and points than he knows what to do with. Most of his rewards have been in credit card points.

Emily says when she was in graduate school and pursuing cash sign up bonuses, she and her husband together made about $1,000. This can alleviate budgetary stress.

20:38 Anything else you want to add on this topic?

Seonwoo brings up how this affects your credit score. In general, when you apply for a credit card, there is a small hit because you have an inquiry on your report. He emphasizes that the point of your credit score is to help you get low interest rate loans or good rewards credit cards. If you’re not applying for a loan in the near future, you can use the credit score for new credit cards. He applied for cards until he started getting denied. He waited a few months, then tried again and got approved. He says people stress out a bit too much about their credit score. He says people should recognize the point of the credit score.

Emily points out that there are positive affects of having several credit cards. She also mentions some cases where you need to keep your credit score high, like when you apply for a new residence or take out a mortgage.

Further reading: How to Establish Credit in the US

24:24 How do banking sign up bonuses work?

Seonwoo says that the main difference is that instead of requiring you to spend money, banking sign up bonuses require you to already have money. You sign up for a new checking account, get a couple of direct deposits in there and keep it open for at least six months, and sometimes make some transactions. You can get between $100 or $350 for signing up for that account. Some have fees, but the bank may waive the fee for students or on other terms.

Emily mentions minimum balances, and Seonwoo clarifies that high balances requirements are usually for savings accounts. Checking accounts have minimum balance between $1500 and $3000, and the percent return is 10% to 20% in six months. This is a good option for your emergency fund.

Seonwoo recommends the blog Doctor of Credit, who has several blogs on these topics.

28:54 What is a 529? What are the benefits of it?

Seonwoo explains that there are two types of 529 plans. One is a prepaid tuition plan, which he is not talking about. The other type is an investment plan. At both the state and federal level, it is not taxed when you withdraw it for education expenses. Emily compares this to an IRA, where you are not taxed on the growth of the money if you use it for retirement. Seonwoo calls it a Roth IRA for education.

Seonwoo says 30 states and the District of Columbia offer a state income tax deduction for contributing to your 529 plan. Most states require that you have a plan with that state, but they don’t require a net contribution for the year. He says you can contribute the money to get a deduction, then pull it out to pay for your expenses.

Emily says cost of living expenses can be considered qualified education expenses for the 529 plan. She explains that you can put money into a 529, then take it out to pay rent, and then you get a state tax deduction or credit. Seonwoo says even if your living expenses are $0, you can still do this. The amount is set by the university’s financial aid office room and board estimate of the cost of attendance.

Seonwoo explains his specific example at Georgia Tech. The financial aid office lists the cost of attendance estimate for room and board as more than $10,000. In Georgia, a single taxpayer can deduct up to $2,000 of a 529 contribution. His marginal tax rate is 6%, so a deduction of $2,000 saves him $120 per year in state taxes. So, he contributes $2,000 to the 529 plan and leaves it in there for 10 days, then he takes it out. This is all it takes to get the tax deduction.

36:37 Where can we go for more resources?

Seonwoo says he learned about this by going through his state tax return to look for deductions. On his blog, he has a college tag and he has a post about the 529. The site Saving for College is a good resource for 529 plans.

Emily says this is a strategy that you need to investigate for your own state. Seonwoo mentions that there are other education credits and deductions available, but you can’t double count expenses. This 529 trick makes use of the living expenses, because this is unique to this tax benefit.

Seonwoo recommends printing to PDF the page from the financial aid office that documents the cost of attendance. This is documentation to keep if you’re audited.

40:50 Final Comments

This episode is about ways to alleviate budgetary stress by leveraging your assets and optimizing your usage of financial accounts.

41:17 Conclusion

Making Ends Meet on a Graduate Student Stipend in Los Angeles

March 25, 2019 by Jewel Lipps

In this episode, Emily interviews Adriana Sperlea, a PhD student in computational biology at the University of California at Los Angeles (UCLA). Living in Los Angeles is financially challenging to say the least, and Adriana has found ways to improve her cash flow over time, such as by doing a summer internship, moving into subsidized graduate housing, living car-free, and budgeting intensively. She has even recently started contributing to a Roth IRA! Adriana and Emily additionally discuss how Adriana discovered that she owed a large tax bill on her fellowship income and how she paid those back taxes and started paying quarterly estimated tax.

Links mentioned in episode

0:00 Introduction

0:54 Please Introduce Yourself

Adriana Sperlea is a PhD student at the University of California, Los Angeles. She is studying Bioinformatics through an interdepartmental program. She is an international student from Romania. Her stipend is about $32,500 and she says it goes up a little bit every year. Each month, she receives $2,400. She is in her fifth year of her program.

3:03 How do you live within your means in Los Angeles?

Adriana says that getting outside financial support wasn’t an option for her. Her family doesn’t have the means to provide her financial support. As an international student, she doesn’t qualify for subsidized loans. After her third year of graduate school, she had a summer internship that provided an income on top of her graduate stipend. This is the only extra income she has been able to receive outside of her stipend. Due to regulations on visas, international students cannot work side hustles. It is illegal for international students to be employed outside of the university. Emily says that international students are in a tough financial position because they don’t have access to options to loans or side income that U.S. citizen graduate students can access.

Adriana was on a training grant that required her to do an internship. It was the Biomedical Big Data training grant. She received pay for her internship and continued receiving her graduate student researcher funding. She lived in San Diego for her internship. San Diego is cheaper than Los Angeles, but she still had to pay her portion of rent for the apartment she shared with her partner in Los Angeles.

6:56 What is your approach to budgeting in Los Angeles?

Adriana says that before she created your budget, she had to figure out your housing costs. She lives in graduate student housing, which is subsidized and affordable, but there’s not enough available for all graduate students at UCLA. In Los Angeles, you have to shop around a lot and hustle to make housing costs work with your stipend income. Many people use Craig’s List. Finding housing that costs 30% of your income is not feasible in Los Angeles, but housing that costs 40% of your income could be feasible.

Adriana explains that the subsidized housing at UCLA is available through a lottery system. Those who get into the subsidized housing are allowed to stay for seven or eight years, basically as long as needed to complete the graduate program. The leases are month-to-month, so people move out at any time of the year. Adriana says there isn’t enough available, so she pushes for more student housing. She lives in a junior one bedroom, which costs $1,300 per month. She pays $650 for rent because she shares the one bedroom. It helps lower housing costs to share a one bedroom, but for many people this is not an ideal situation.

Adriana says that housing and transportation are the two big items for the budget. She doesn’t have a car, but she shares one with her fiancé. She says to find affordable housing, you need to spend time looking for uncommon offers, start early, and have patience. You may need to sacrifice certain amenities and quality, but look for places livable and clean. Ultimately, there is only so much you can do.

13:30 What is the system that you use for budgeting?

For her budgeting system, Adriana uses a manual spreadsheet. She inputs her income and monthly fixed payments first. Then she divides the remaining income by four, for four weeks of the month. This sets her variable spending income for each week. Whenever she buys something, she inputs it. She always has a sense of what she spends. She buys groceries on the weekends and cooks her meals, so she doesn’t go out to eat during the week. She doesn’t spend anything Monday through Friday. Often, she has about $100 leftover to use on the weekends for fun.

Emily recaps Adriana’s budgeting system. Adriana subtracts her monthly bills from her monthly income. With the remainder, she divides by four for each week. She uses it for groceries first, then doesn’t spend money during the week. She has wiggle room for miscellaneous and money leftover for the weekend. Adriana adds that if she sees something she wants to buy, she puts it on a list. At the end of the month, she looks at her list and ranks the things she wants. This reduces impulse purchases and formalizes the practice of delayed gratification.

17:30 What do you do about large expenses?

Adriana has a savings account with $2000 to $3000. She has this savings because her rent decreased since she moved into subsidized housing and she received extra income during her internship. She uses this savings account for big expenses that are necessary, and then she gradually fills it back up. She says that before her internship, it was really tough to make big purchases. For example, she didn’t go home to Romania often because she didn’t have enough for flights.

Emily recaps that Adriana got a boost from her summer internship. This helped her get ahead. She repays herself into savings instead of using a credit card. Adriana says she has credit cards for maximizing rewards but she does not spend unless she actually has that money. She has a healthy fear of credit cards.

20:16 Any other comments about your budget or how you make it work in Los Angeles?

Adriana has loosened the reigns on herself. She says she has gotten a sense of it after manually managing her budget for so long. Emily says Adriana has internalized her budget. Her budget is in her mind, so she is less dependent on the spreadsheets. Emily says that if you go to a new city, you get thrown. If there’s a big shift in your life that’s a good time to start carefully tracking again.

22:00 Can you talk about saving for retirement?

Adriana shares that about one year ago, she asked her fiancé’s dad about investing. Her fiancé’s dad talks a lot about investing, so she asked to learn more. He recommended the book A Random Walk Down Wall Street*. Adriana realized that investing is not rocket science and super simple. She thinks there is a weird culture around investing to make it sound more complicated than it is. She says that it’s easy, there’s a low risk way to do it, and during graduate school is the best time to invest. She thought that you have to worry about the market, but she jokes that the best strategy is to forget your password.

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

Adriana uses a Roth IRA. This account pays taxes on her money now. She says this is better because during graduate school, this is the lowest tax bracket that she’ll ever be in. It’s the lowest tax bracket that exists, so this is a good time to invest. She puts $200 in every month. She can budget that now because her rent costs are low. Adriana likes to check in and see she’s accumulated money. Emily writes about investing on her blog and agrees investing is easy.

25:54 Can you tell us the story of your big financial mistake from your second year?

When Adriana started graduate school, she was taxed as an international student. As an undergraduate, she went to college in the U.S. She always had taxes withheld and she never had to worry about taxes. But after Adriana started graduate school, Adriana’s residency status changed from non-resident alien to “resident for tax purposes.” This means the U.S. can tax her like she’s a resident. This tax status changed in June of her first year of graduate school, but it was retroactive for the whole calendar year. She had never heard about this issue from anyone else. In June when her status changed, the IRS refunded her about $3,000 that was originally withheld from her. At the time she didn’t fully understand why she received this money, and she spent it. But when April came and she had to do her taxes, she learned that she owed about $3,000 in taxes. It was pretty scary for her.

Emily says this tax mistake is pretty common. For the first full calendar year that you’re in graduate school on a fellowship-style stipend, you’re supposed to pay quarterly estimated tax. Most people don’t know about this.

30:28 How did you pay the tax balance?

Adriana only had about $1,000 set aside. She feels a bit lucky that she was disputing with the IRS for money that she hadn’t gotten back due to a treaty between Romania and the U.S. that provides for international workers to get their taxes back from first five years from working with non-resident alien status. This dispute got resolved at the same time as her large tax bill. She also applied for a payment plan with the IRS. Anyone can do a payment plan with the IRS if you haven’t done one in past five years and your balance is less than $200,000.

Emily says that many people are intimidated by the IRS, but it sounds like Adriana had a good experience. Adriana says she spent a lot of time on hold. But if you’re a graduate student and you realize you can’t pay your tax bill, the IRS is a place to turn to and get a payment plan with no interest.

34:40 Final Comments

Adriana says budgeting can be tough and time consuming, and a little bit stressful. She says it’s worth it because it’s more stressful to not be able to pay rent. Emily says that it’s better to fess up, face up to reality of the situation, and engage with it. Don’t try to run and hide, because that compounds the problems.

35:18 Conclusion

Purchasing a Home as a Graduate Student with Fellowship Income

March 11, 2019 by Jewel Lipps

In this episode, Emily interviews Jonathan Sun, a second-year PhD student at Yale University. Jonathan purchased a house in New Haven after his first year in graduate school. He shares the process he used to search for and ultimately go under contract on a home, including applying for various incentive programs. But his home ownership goal was nearly derailed; his original mortgage lender pulled out because his fellowship income isn’t reported on a W-2, and he had to scramble to find another lender at the last second.

Links mentioned in episode

Tax Center for PhDs-in-Training
Volunteer as a Guest for the Podcast
Mortgage Originator Specializing in Fellowship Income
Contact Sam Hogan via email: [email protected]

0:00 Introduction

1:02 Please Introduce Yourself

Jonathan Sun is a second year PhD student in Pathology at Yale University in New Haven, Connecticut. His stipend is $35,000 and it increases annually. When he moved to New Haven, he started by renting a two bedroom, one bathroom apartment with his girlfriend. He was paying about $1,500 monthly for rent.

3:10 What made you think that it would be a good idea to buy a home as a graduate student?

When he began his PhD program, Jonathan had in mind that he would want to buy a home. He thought between his first and second year would be the ideal time to buy. At this point in his PhD, he would know if he would be staying there for five or six years. Emily mentions that it’s a good idea to learn about the neighborhoods before buying a house. Jonathan agrees that it was a good idea to get to know the city and neighborhoods. He shares that if he had bought a home when he first moved to New Haven, he would have chosen a less convenient or less desirable neighborhood.

Further reading: Should I Buy a Home During Grad School?

5:11 Was your interest in buying a home specific to New Haven or anywhere you moved to for your PhD?

The idea of buying a home occurred to Jonathan when he was interviewing at Johns Hopkins. He saw that homes were affordable near Johns Hopkins. He realized that homes could be affordable even on a graduate stipend. When he chose to attend Yale, he did some housing market research on New Haven and saw he could afford homes there.

When Jonathan was interviewing for PhD positions, he met a current graduate student at Johns Hopkins who owned their house. He didn’t meet any graduate student at Yale who bought a home. Jonathan says owning a home as a graduate student is not that common in New Haven. Emily shares that when she was a PhD student at Duke University, it was fairly common for grad students to own home.

7:20 How did you prepare your finances in the months leading up to buying a home?

Jonathan worked on improving his credit. He says that good credit is definitely important. To get a mortgage at a decent rate, or even to get a mortgage at all, he had to have good credit. Jonathan also searched for incentive programs around New Haven. He says he saved about $10,000 with incentive programs. He shares that while Yale University offered incentive programs for employees, he could not qualify for them as a PhD student. He relied on incentive programs instead of savings because he was paying expensive rent in New Haven.

To research incentive programs, Jonathan talked to a real estate agent who pointed him to incentive programs. Shortly after Jonathan arrived in New Haven, he started working with an agent. Jonathan didn’t have connections to an agent when he started to process. He simply dropped into a real estate office and met an agent there.

9:54 What were the steps you went through to buy a home?

Jonathan started looking for houses with agents about three months after he moved to New Haven. He didn’t start seriously looking until six months after his move. He says that even if you don’t have intention to buy right away, it is important to familiarize yourself with the neighborhoods. He was looking at four different neighborhoods around Yale University. He got an idea of price range for homes and who are the neighbors. This process gave him a firm idea of whether he wanted to rent or buy. Most of the time, he looked at houses through private showings with his agent. He went to just a few open houses without his agent.

During Christmas break, Jonathan thought carefully about whether he should pursue buying a home or not. He talked to his friends and family, and it seemed like the right thing to do. He asked his family if they could help with his downpayent, and made sure to have open communication with his family.

Buying a home took at least two months of seriously looking. Jonathan went through some experiences of making an offer but not getting the house. He recalls three homes that he made an offer for, and there were some other situations where he almost made an offer. He didn’t want to settle for a house that he wasn’t satisfied with. However, his offers were outbid or made too late, and this added to the challenge of buying a home. Emily shares that in Seattle, she hears stories about bidding wars and people struggling to get the house they want, then they end up settling for a home that wasn’t all that they wanted.

13:54 How did you balance the process of buying a home with your first year of graduate work?

After his offers on homes were rejected multiple times, Jonathan felt demoralized. He had lowered his standards for a home. But then when he was browsing an online resource, he found a house that looked perfect. This house ended up being the one he bought. He says it was challenging to balance his graduate work with buying a home, but he was glad he did this in his first year rather than in his second year. He shares the example that on the day that he gave his offer, he was giving a presentation on a paper. He barely read the paper because he was so tired, but he still managed to give a compelling presentation. Right after he finished the presentation, he ran off to give an offer on the house. Much of the stressful part of home buying is waiting to get a response on the offer.

16:01 Tell us about the house that you ultimately purchased and live in now.

Jonathan was browsing online on the day before his presentation. He noticed the house was ten minutes away from where he was living. The house had just gone on the market that day. He pushed his agent to get a showing the very next morning. He got to meet the owner and exchanged contact information directly. The owner was a Masters student, and they had a connection. About two hours after the tour of the house, Jonathan gave an offer of $2,000 over the asking price. This was right after his presentation. He asked to receive a response in one day. The next day, someone else made an offer of $5,000 over the asking price with full cash. Jonathan raised the offer to $2,000 over the other offer. Jonathan’s offer was accepted, and he says that meeting the owner in person helped him get the house.

19:06 How was the process of getting a mortgage?

Jonathan didn’t have his mortgage ready until after his offer was accepted. He did have a pre-approval, but this didn’t work out for him. The lenders didn’t understand his financial situation as a graduate student with a stipend. The pre-approval came from a lender with connections to multiple banks. When you make an offer on a house, it is important for the seller to know that you can afford the house. For a pre-approval, the lender does a very brief credit check on you. The pre-approval shows that you can take out a loan of a certain amount. The pre-approval shows the seller that you can take out a loan for the house. Pre-approvals are very superficial, since they do not ask for a W-2. The lender asks for monthly income and proof that you reliably pay rent.

After his offer was accepted, Jonathan first explored incentive programs. He found an incentive program that stipulated if he stayed at least five years in New Haven, the program would pay at least $2,000 per year and contribute to the downpayment. The application for the incentive program took a while. Jonathan says that ideally the application should be done before submitting an offer. The seller wanted to move out three months after the sale, so this gave Jonathan the right amount of time to sort out the finances.

Jonathan qualified for two incentive programs, but he was happy to get just one because the programs were slow to respond. The incentive programs have a list of lenders that you have to use for a loan. The lenders were local banks in Connecticut. Everything seemed like it would work. He submitted all his documents, but about three weeks before closing, he got a phone call saying that they couldn’t pre-approve of his mortgage because the university wouldn’t be able to provide W-2. The university wouldn’t submit a form indicating that his stipend is guaranteed for 3 or 4 years.

Emily explains that there are different types of pay for graduate students. The W-2 is provided for assistantships and this represents a more typical employment situation. Jonathan says he doesn’t know the name of his pay. He gets the 1098-T, and he simply calls his pay a graduate stipend. Emily says that the 1098-T usually means you are funded through an award or outside fellowship. Lenders get confused by fellowship income. Jonathan says his acceptance letter from Yale says his stipend is guaranteed for several years, but the lender wanted the university to sign a form. The university was unwilling to compromise on signing that form that indicated the stipend is guaranteed. Emily says this “guarantee” of income is strange, because even with a W-2, the typical job is not guaranteed for multiple years.

28:15 How did you resolve the problems with the lender?

Jonathan was calling Yale’s financial office daily. He asked for help from the Dean. He started looking at the other banks on the incentive program’s list, because he had a feeling it wouldn’t work with this bank. There were a few banks around the university, so he went in person to the bank. He talked to a mortgage broker in person. They sat down together, and Jonathan filled out the form during the meeting with the mortgage broker at the new bank near the university. Jonathan resolved the situation because he found someone who was willing to work with him through his unique financial situation.

Jonathan said that this bank offered their own portfolio mortgage with their own requirements. It was harder to qualify for, but it came with a lower interest rates. He had little debt and good credit so he could qualify. It was a different type of mortgage than the first lender offered.

Jonathan was really caught of guard by the phone call from the first lender. It seemed fine, then suddenly he got the call, with no easy way to resolve the issue. Closing got delayed from Friday to Monday, but the closing went very smoothly with the new lender.

32:29 How does it feel to be a homeowner and to be a graduate student?

Jonathan says it feels good to come back to his own house. He can rent out some of the rooms. If he rents out two bedrooms of the three bedroom house, he can cover a good chunk of monthly mortgage. He says this is a great financial decision for him. The mortgage is less than what he paid in rent, plus he has the potential to rent out rooms. Two months after he moved in, he started renting out the rooms. He has two tenants and they are covering good fraction of mortgage payment.

Jonathan has to stay in the house for at least five years. He says that in five years, he will definitely be in a better financial situation from buying instead of renting. He bought in a very good location, in the up and coming neighborhood near Yale. He thinks the market value of the home will increase.

35:25 Have you thought about what you will do when you finish your program?

Jonathan says he has two different options after he finishes his PhD. First, if there’s a good market value to sell the home, he can sell it. Second, the location near Yale University will make it very easy to continue to rent the rooms in the house. He doesn’t see himself working in New Haven after his PhD unless it’s for an academic position.

36:24 Final Comments

Jonathan shares that he had a huge budget for his move, but he didn’t spend very much. He estimates he spent less than $1,000 to move into the house. He moved during the summer, so everyone was getting rid of furniture for free. He used his Toyota Corolla to pick up furniture, and hardly spent any money to furnish the house. He is replacing pieces over time as he saves money. He recommends overestimating expenses for a move.

38:44 BONUS INTERVIEW with Sam Hogan, mortgage industry professional.

Emily chats with her brother, Sam Hogan, who works in the mortgage industry. She asks him about solutions for graduate students and postdocs who are receiving fellowship income but want to buy a house.

Further listening: How to Qualify for a Mortgage as a Graduate Student or PhD, Even with Non-W-2 Fellowship Income

Sam Hogan is based out of Northern Virginia. He works for PrimeLending (Note: Sam now works at Movement Mortgage) and he is licensed in all 50 states. He explains what lenders look for in the risk profile. They are looking for the ability to repay, and to see verification of history of the type of employment as well as the likelihood of employment to continue. Sam says that ten years ago, anyone could get a no document loan. This meant anyone could verbally verify their finances, but this practice led to many foreclosures. Now, lenders require written verification of employment.

Sam explains that in Jonathan’s case, the lenders sent a form for verification of employment to the university. On the form, there is a tiny check box that asks if employment is likely to continue. It is a yes/no checkbox. Universities won’t check this box because technically a PhD candidate could discontinue their PhD by going into the workforce or transferring institutions.

Sam shares that the best approach is to document likelihood of continuation of income. This may be in the fellowship offer letter. Conventional loans look for at least three years of guaranteed income. When it comes to approving loans, it is all about the presentation of the buyer. Sam says to work with someone goal-oriented like yourself, who will be able to over-document your income. For example, you can write a letter about why you got the fellowship, and include that even after your PhD you will have income. This approach ensures you have good presentation to the underwriter. Loan approval comes down to one person’s decision, a human’s opinion. He says to work with underwriters who are flexible and will give you personalized attention.

Emily recommends that PhD students and postdocs work with Sam because he understands fellowship income situations. Sam can be contacted by cell phone at 540-478-5803. He can be emailed at [email protected]. His national licensing number is 1491786. He has a Zillow profile under Sam Hogan.

46:28 Conclusion

This Postbac Fellow Saves 30% of Her Income through Simple Living and a SciComm Side Hustle

February 25, 2019 by Jewel Lipps

In this episode, Emily interviews Maya Gosztyla, a postbac fellow at the National Institutes of Health in Rockville, MD who saves approximately 30% of her income from her stipend and freelance science writing income. Her goals for funding her PhD program applications and upcoming move to grad school and wedding motivate her to keep her expenses low and sustain her side hustle. Maya gives great financial advice for PhDs in transition into and out of grad school.

Links mentioned in episode

0:00 Introduction

1:15 Please Introduce Yourself

Maya Gosztyla graduated in May 2018 from Ohio State. She majored in Neuroscience and Molecular Genetics. She started as a postbac at National Institutes of Health (NIH) right after graduation. She is mainly focused on drug discovery research. Her interests are in neurodegenerative diseases in particular. She is applying to PhD programs, with intent to begin her PhD program in Fall 2019. Maya is relieved that she does not have to balance undergraduate coursework with time spent on graduate applications. She also has more time for the interview weekends, which Emily says can be a fun experience.

2:33 What is your income? Where do you work and live?

Maya’s postbac annual salary is $30,000. She works at NIH location in Rockville, Maryland. The cost of living in this location is fairly high, because she is in the Washington DC metro area.

3:26 What was your financial situation coming into your postbac position?

Maya didn’t have any student loans. She says she treated filling out scholarship applications like a full time job, so she was able to fund her entire junior and senior years of undergraduate education. She didn’t spend all of her scholarship stipend during senior year. She has emergency savings fund of about $7,000 since she graduated from college.

4:25 Do you apply the same mindset from your undergraduate scholarships to your graduate school fellowship applications?

Maya says she has been applying to many graduate school fellowships. She applied to the National Science Foundation Graduate Research Fellowship Program (NSF GRFP), the National Defense Science and Engineering Graduate Fellowship (NDSEG), and one example of a school specific fellowship is the Knight-Hennessy Scholars at Stanford University. In addition to her graduate school applications, she has been sending in many applications to go after award money in full force. Emily assures that this strategy is a great idea, because you are certain that you will get paid for your graduate work.

5:58 Where did you move from? How did you manage your finances during your move?

Maya’s rent during college was $350 per month. In Rockville Maryland, her rent is $850 per month. Maya says what helped her most during her move was making a really detailed budget. She used several cost of living calculator websites. Additionally, she doesn’t have tax withdrawn from her postbac stipend, so she had to estimate quarterly tax.

She was in shock when she moved from the inexpensive Ohio city to the much more expensive DC area. She thought she needed to spend as little as humanly possible. For instance, she first moved into a bedroom in a three bedroom apartment. Her portion of the rent was $700 per month, which is the cheapest she could find in the area. She had an hour long commute, and she had to leave the apartment because of a cockroach infestation. Maya advises that people not to choose the cheapest apartment, but to take into account other factors. She says it can be worth more rent money to be closer to work for a shorter commute, and to live in a quality apartment.

Maya used cost of living calculators to get a sense of the maximum expenses she would have in the DC area. She says she spends less than suggested by the calculators. She talked to people who are in the NIH postbac program, because these are people in her age group and income level. At this early career stage, people are willing to share information about income and rent.

10:04 What is your savings rate? How are you saving this amount each month?

Maya is averaging around 30% of her gross income, pre-tax, going into savings. She emphasizes the importance of setting targets and timelines for what she is saving for. One of her specific goals was to pay for PhD program applications, which was well over $1000. She wanted to start an Individual Retirement Account (IRA), since she’s not sure she can have an IRA while she’s in graduate school. Another financial goal is to get married next summer! With her partner, she wants to take a couple of weeks vacation in Europe. She wants to do all of this without tapping into her emergency fund, because she wants to use this fund for her move to graduate school.

Maya has several frugal strategies. She doesn’t have a car, which is unnecessary in DC and major cities. She takes a bus to work, which she says is reliable. NIH will pay for public transit, so she gets reimbursed for her bus expenses. Maya says eating out is really expensive. She cooks almost all of her meals, and she meal preps. She goes out to eat with friends, as a social experience, it’s important to eat food to bond with people. This happens two to three times a month, and they don’t go out for drinks that much either. She views her eating out expenses as paying for access to space and people, and eating food isn’t the purpose. She set a rule for herself that she won’t eat out alone.

She goes to work, gets groceries, finds free stuff to do, and she doesn’t spend on entertainment. Also, she has a side source of income. Maya does science writing as a freelancer. It’s not easy work, but it’s not incredibly technical. She can pick and choose when and what kind of assignments she wants to accept.

15:27 How did you get connected to opportunities for freelance science writing?

Maya started a blog about Alzheimer’s Disease while she was in college. She wasn’t making money from the blog, but she started getting cold emails from people who liked her writing who would commission her for articles. She uses Upward, the freelancing website to find clients. Upward has a fee of 30% from every writing, so she charges more to make sure she doesn’t undercharge for her work.

Emily recommends the academic blogging network on Facebook (now called Gradblogger Connect) as a great resource for people interested in blogging and podcasts.

She doesn’t see science writing as her career. The variable income makes her feel anxious. She’d like to keep writing on the side, because she believes it is important for scientists to write about research for the public. Emily says that a side hustle during the PhD training is useful to figure out if this is what you want to do for your career.

20:37 Do you consider yourself having a financially quiet life?

Maya says that she applies a KonMari method to her purchases. She asks herself questions like, “will getting take out actually make me happier?” She does spend money on flights, because her fiancé lives in Ohio and she travels to see him. Maya observes that people spend money because they feel like they have to. She says it’s not a sacrifice for her to not go out every weekend, because she doesn’t really like alcohol. Emily says that it’s very interesting to apply Marie Kondo’s method to finances, and ask “does this spark joy?” Maya has gone through the introspection to consider what is bringing her high value. When you have low income, you can’t just default to the kind of consumerism you see around you.

23:30 Have you started thinking about how you’ll financially manage the transition to graduate school?

Maya is applying to high cost of living areas, so she feels more prepared for that move. Since she’s lived in the DC area, she will have a better idea of expense in places like Boston and San Francisco. She’s trying not to touch her emergency fund, because she needs it for her moving expenses. She is also trying to make sure that fiancé and her are comfortable in their current low income lifestyle, she wants to avoid the lifestyle creep. Graduate school will be a transition, but Maya will also experience the life transition of combining her lives with her partner.

25:02 Do you have any advice for someone looking at a transition out of college or into graduate school?

Maya says the first thing you have to do is look at what you have and where do you want to be in a month, or year. There is no way to set a savings rate if you don’t have something you’re aiming for. She gives the example that she wanted to save $4,000 for their honeymoon, then she could create a budget with that goal in mind.

She also says don’t forget about taxes. She had lab mates who didn’t know this. They weren’t setting aside money for tax season, and ended up owing. She says you can set up a separate savings account to set aside taxes. Emily says that this blindsides a lot of people. She has created resources on her website to help people estimate their quarterly tax.

Maya says you need to buy things that actually make you happy. She offers the caveat that if something is actually important, like you don’t need to get the cheapest apartment, get one you want. You can keep stock of what you actually care about. Maya wonders if people really know the taste of expensive wine, for example, or if it’s more about expectations. Emily says we may need to shuck the expectations. You have to figure out if something is right for you, if it “sparks joy” for you, and it’s not an expectation that others put on you. Maya says that others don’t pay attention.

Finally, Maya says to keep a really detailed spreadsheet. She used to use Mint, but now she uses a manual spreadsheet, and inputs once a week. She customizes it for her needs.