Personal Finance for PhDs

Live a financially balanced life - no Real Job required

frugality

The Best Kind of Frugality for a Busy Grad Student

by

When you live on a stipend, frugality is a way of life. You know you can’t live a freewheeling lifestyle on your grad student income, at least not without racking up massive debt. But the approach you take to frugality has an enormous effect on how restrictive you perceive your lifestyle to be and how much time you spend on spending less. When you have a dissertation to write, you don’t want to be spending hours each week scrimping and saving. Effective frugality for a grad student has to be automatic.

The best kind of frugality minimizes spending on what’s least important to you so that you can divert your money to what’s most important to you – without you compromising the time you’re suppose to devote to your studies. And practicing frugality doesn’t mean that you will feel deprived or be living paycheck-to-paycheck. You can use frugality to give yourself a leg up on wealth creation, even during grad school.

best frugality busy grad student

 

What is the best kind of frugality?

First, we recognize that the best kind of frugality is unique to each individual. Frugality is not a one-size-fits-all solution. Yes, there are popular approaches and strategies, but you still get to pick and choose which practices you will adopt. If spending money in a certain category enables you to live your values – and cutting back in that area would impede that – keep spending there. Move your search on to another category for potential cuts. Of course, the reality of living on a stipend may force you to revisit your valued category, but it should be last on the list for cutbacks.

Second, the best, most effective frugality preferentially targets your largest expenses. Third, once you do the work to reduce those expenses one time, your frugality keeps the expenses low in perpetuity, either because they are fixed expenses or because the frugal practice has become habit (ideally, an effortless habit).

Think of frugality as an 80/20 problem. You can get 80% of your total reduction in spending from 20% of your expenses, if those expenses are the largest ones in your budget. You can eliminate 10 small expenses that won’t add up to as much as one partial cut to a large expense.

Target your largest expenses first

When you’re searching for places to cut back in your spending, start at the top. Using your budget, any past spending data you have, or your memory, rank your expense categories from largest to smallest. Your largest categories likely include rent/mortgage, transportation, and groceries, and other possibilities are eating out/alcohol, entertainment, travel, utilities, childcare, and shopping.

Once you have your ranked list, process each spending category from largest to smallest, brainstorming ways you could reduce your spending in that area. Use resources like our Frugal Practices or frugality websites to target each spending category. Seriously evaluate if you can implement one of your ideas in each category.

Sometimes the prospect of reducing your spending on a very large expense is quite daunting. You may have contracts in place that limit your ability to change the expense for up to a year. Often, reducing a large expense will take quite a bit of work. People tend to be very psychologically resistant to change as well. But you have to focus on how much your quality of life can be improved in other areas by taking those steps.

There may be quite a delay from the day that you decide to reduce your spending on a large expense to the day that you accomplish it. Deciding to reduce this kind of expense isn’t as immediately rewarding as implementing a frugal strategy that you can benefit from immediately. But don’t let that deter you from planning and following through on your idea. While you wait out the contract or research the decision, keep track every month of how much money will be freed up by the change and imagine what you could be doing with it.

Reduce your fixed expenses

The best kind of frugality happens in the background of your life without you having to pay any attention to it whatsoever. When you reduce a large fixed expense, you practice that frugality without even noticing it. (The corollary is that fixed spending is easy to let inflate, as well, since it’s not an active decision.) If it was difficult to reduce that expense in the first place, like getting out of a contract, it’s pretty difficult to reverse the measure, too.

This is unlike any strategy that takes willpower or time to enact. In a tough or busy moment, you could easily forgo that strategy and return to your higher-spending ways. Reducing a fixed expense locks in that lower rate, at least for a period.

Make a habit of reducing your variable expenses

Some of your larger expense that are ripe for reduction are variable expenses, so you lose the benefit of locking in the lower rate like with a fixed expense, but they are still worth pursuing when you’re looking to reduce your spending.

The key to reducing a variable expense is to make your frugal strategy a habit. After establishing the strategy, you should automatically follow it unconsciously and without having to use willpower. Until you reach that point, you should use whatever prompting strategies work for you to remind you to follow the strategy. It won’t feel natural at first, but keep at it.

However, if you continue to chafe against the habit after weeks or months of trying it out, it’s probably not for you. Don’t use your limited time and energy forcing a frugal strategy that refuses to become a habit or takes up too much time or energy.

Join the Mailing List to Download Frugal Tips for PhDs-in-Training

The download includes 30+ frugal tips for PhDs-in-Training with links to video and additional written content.

You'll receive 1-2 emails per week to help you make the most of your money during your PhD training.

We won't send you spam. Unsubscribe at any time. Powered by Kit

Experiment

The best traits to cultivate with respect to your frugality are creativity and daring. Especially with respect to your variable expenses, ask yourself what you really have to lose by trying something new. If possible, give each frugal strategy a one-month trial. That should be enough time to get over your resistance to change, evaluate the strategy, and possibly create a new habit. If it doesn’t work out – and if you get really creative, not everything will – you can go back to your old ways. Of course, if a strategy requires becoming locked in or an up-front cost, do you research before leaping.

A PhD is a long haul in grad school. If you adopt the attitude toward frugality outlined above, think how many different frugal strategies you can try out over the years. Even if you only made habits of 20% of them, that could impact your spending enormously. One of the great benefits of living on a stipend is figuring out what is important for you to spend on and what isn’t. If you maintain the comfortable but low lifestyle you fine-tune in grad school after you start earning more from your real jobs – probably with a few judicious upgrades! – you can start making huge strides in increasing your net worth.

What fixed expenses have you reduced during grad school? What frugal strategy did you try out that eventually became a habit?


What Grad Students Can Learn from the FIRE Community

by

At first blush, graduate students and the FIRE community don’t have much in common. FIRE stands for Financial Independence/Retiring Early; it is a movement to retire or reach financial independence (working becomes optional) very early in life, often by age 30 or 40. FIRE aspirants usually have high-paying jobs that they wish to stay in for only a handful of years, whereas graduate students are taking a large (theoretical) pay cut to acquire training that will set them up for long, productive, not necessarily high-paying careers.

Further Reading: Early Retirement Isn’t for Us

However, I think there is a great deal that graduate students can learn from the FIRE community (and vice versa), financially and otherwise, even if they do not have the same goals.

FIREcommunity

1) They have a clear vision of what their future will hold.

FIRE people regularly fantasize about what they will do in retirement/upon reaching financial independence. They do so in detail. They have a plan for where they will live and travel, how they will fill their days, what skills they will use or learn, who they will spend time with, and how they will serve their communities. This detailed picture steels them for the sacrifices they are making in the present and motivates them to reach their goal on schedule.

Unfortunately, it’s fairly common for graduate students to apply because graduate school is the next step in their educational progression or because they haven’t been exposed to careers outside academia. Even those who matriculate with a career in mind (usually research and/or teaching) decide against pursuing it in the course of their training. This lack or loss of career focus usually results in students languishing during their training or wasting effort on projects or skill acquisition that won’t serve them later on – not to mention the time not spent on appropriate networking. The clearer the career goal, both for students pursuing academia and those pursuing alternative careers, the more effective the student’s training can be.

2) They have a roadmap to their goal and obsessively track their progress.

Another lesson along the same lines is that FIRE people have a detailed plan for how and when they will reach financial independence. They know exactly how much more money they need to earn, into what vehicles they will save and invest, and how they are going to maintain their lifestyles in the meantime. They track their financial progress on detailed graphs and spreadsheets.

Grad students do create, from time to time, plans for their research progress, but then the plan always seem to go awry or get delayed. That is the nature of research. But the more closely a grad student can stick to a detailed plan, checking off experiments or sources one by one, the better off she will be in terms of keeping her motivation and productivity high. There should be an increasingly clear picture of what the end point will be as time goes by.

3) They work their tails off.

FIRE people tend to be super hard workers. They often have demanding primary jobs, on top of which they might add one or more side income streams to get to financial independence even faster. FIRE bloggers additionally document their experience online.

There is no doubt that grad students can work hard, but many fall into a pattern of working in fits and starts, such as in advance of deadlines. The uncertainty of the progression through grad school exacerbates this tendency. It’s very difficult to push yourself to work hard when you’re not sure where the hard work is leading (see points above).

4) They are uber frugal.

When I jonined the financial blogging community and started reading about other people trying out frugal strategies and challenging themselves to no-spend weeks and months, I wasn’t very impressed. That version of frugality was just my normal life living on a stipend!

But FIRE people really know what they are doing when it comes to frugality – they are an extreme breed. The bar for frugality was set early on by Jacob from Early Retirement Extreme (a PhD scientist!), who lived in an RV for a time. While not many FIRE people go that far, they have become masters of lifestyle cost minimization in a variety of creative ways. Grad students looking for ways to cut their lifestyles further can take some pointers from other FIRE bloggers like Mr. Money Mustache and the Frugalwoods.

5) They save like mad.

There is no doubt that FIRE people understand the power of compound interest. They have taken it completely to heart. They are mad for investing and building up a large portfolio quickly so they can utilize the 4% rule to fund their lifestyles in perpetuity. Certainly many graduate students understand the power of compound interest as well. But some grad students I talk with just haven’t gotten around to starting to invest yet. Some think it’s not really worth getting started because they could only invest a small sum or a small stream. But the fantastic thing about compound interest is that, given enough time and a decent rate of return, it can turn even small sums into staggering ones. A FIRE person knows that putting away an extra $10, 50, 200 or whatever amount really does make an impact. Your savings rate is the most important factor in determining your ultimate portfolio balance, not the rate of return that you get on your investments.

Further reading: The 4% Rule and the Search for a Safe Withdrawal Rate; How Important Is Your Rate of Return?; Starting Down the Road to Financial Independence? Don’t Obsess Over Investment Returns, but You MUST Obsess Over This.

Graduate students really have stepped off the beaten path when it comes to education and career, even though it doesn’t feel like it inside academia. Sometimes it’s worthwhile to take a look at other unusual but highly successful communities to adopt their best practices. Grad students would certainly benefit from taking a few pages out of the FIRE community’s book, even if their objective is not financial independence and early retirement.

A Low Income Is a Blessing in Disguise

by

source
source

Believe it or not, the time you spend in graduate school earning a stipend – the very challenge that can make this period so infuriating – might very well become, in retrospect, one of most valuable times in your financial life. The value will not primarily be in the money you earn but rather the financial lessons you learn through the struggle.

(I am not calling an insufficient income – an income that doesn’t pay your basic expenses – a blessing in disguise. While it may teach you some valuable lessons, the bad certainly outweighs the good when you can’t buy food or clothing or you are racking up debt. In this post I am referring to low but sufficient stipends that are more or less living wages.)

In some cases, grad school can be a monetarily fruitful time, such as if you use your stipend to increase your net worth. But even without setting intentional financial goals, every grad student who is challenged by her stipend will learn financial lessons. These hard-won skills can be carried forward into your post-grad school life to benefit you immensely – whether or not you experience a big jump in income.

1) Budgeting

Every grad student with a low income develops a budget mindset, whether it is explicit or implicit. There is no out-earning poor spending decisions in grad school as there might be with a higher professional income. Many grad students become quite skillful with creating and sticking to an official budget, which is a wonderful habit. Even those grad students who don’t have written-down budgets naturally learn the limits of their income and how to stay within them.

2) Frugality

Living well on a stipend almost certainly involves a degree of frugality, whether or not the student knows that’s what he’s practicing. Frugality doesn’t have to look like extreme couponing or hypermiling or living in a van or any one particular strategy. It can be as simple as employing a couple easy tricks in one area to facilitate spending in another. Your limited stipend gives you the motivation to explore what frugal tactics work well for you and the time to make them habits. You won’t lose those habits when you move on to your first post-grad school job; you can choose which ones to continue with and which to conclude.

3) Discover the Fine Line Between Wants and Needs

Budget-ers usually think of needs as food, housing, transportation, utilities, clothing, etc. But those of us living on limited stipends discover that each of those types of expenditures likely involves both “need” and “want” components, i.e., some of your spending fulfills the basic need and some of it exceeds it. When you’re looking for ways to cut your spending, you become start putting expenses previously thought of as necessities on the chopping block. This is really tough to do at first, but just being aware of spending areas that you don’t truly need is immensely helpful if you ever return to a time when you have to cut back, such as during an emergency.

4) Combat Lifestyle Inflation

I think that “live like a grad student” is much better advice than “live like a college student.” I’m sure I’m not the only person to experience lifestyle deflation during graduate school. Many of our peers who went straight from college to a real job put themselves immediately on a treadmill of lifestyle inflation: every year as their income increases, their living expenses increase commensurately, so that their potential for growing their wealth or putting their money into their values is squandered or hampered. Those of us who are spending many years living on a (likely static) stipend experience a solidly deflated or non-inflating lifestyle. It’s difficult to live through, but intimately discovering this deflated lifestyle is incredibly powerful once your income increases post-graduate school. You will have an internal check against mindlessly inflate your lifestyle year after year. If you continue with your deflated lifestyle to any degree when your income is higher, you can make quick progress in building your wealth.

Further reading: Is “Live Like a College Student” Good Advice?; Earning More Does Not Cure All

The theme among all these advantages is that they confer lessons and skills over a period of time that is long enough to deeply learn but not indefinite. Of course, if your income remains low, you’ll need to keep using them. If your income jumps post-graduation and you employ the skills, however, you can gain much more satisfaction from your money than someone who doesn’t have the skills. You have the option of keeping your baseline expenses low while using the rest of your money in ways that are of high value to you.

Travel

by

airplanesunset
source

Grad students, like other young people, often have a desire to travel, whether it is to visit far-flung family and friends, to experience new adventures, or to immerse themselves in other cultures. While some grad students have a great amount of time flexibility to travel if they want to, they usually don’t have a lot of money to spare for this purpose. Fortunately, there are many low-cost or even free ways for graduate students to indulge their wanderlust.

Further reading: How to Spend Less When Attending Out-of-Town Weddings; 33 Travel Tips For Seeing the World on a Budget; How to Travel on a Budget and Still Have the Time of Your Life

Plan Combined Trips

One of the least expensive ways to vacate is to add a side activity to an already planned trip.

Grad students should attend at least a few conferences while they pursue their degrees, and these trips are often partially or fully paid from research grants, departmental funds, or conference scholarships. You can ask your advisor for the flexibility to extend your trip to more fully experience the city or country that the conference is in; in this case, you would likely only have to pay for the additional lodging, food, and entertainment costs as the transit itself is already paid for. You can employ the same strategy for other research-related travel you might need to do, such as visiting collaborators or accessing remote resources.

Even if you are paying for a trip yourself, look for ways that you can get the best value out of your stay. You may not be able to choose your destination for obligation travel, such as to weddings, but you can make the most of the trip by planning extra activities in the city you are visiting or traveling to a nearby attraction.

Spend Less on Transit

Getting to and from your destination is sometimes the largest cost when booking travel, but flexibility can help you reduce the price quite a bit. Slower forms of transit are usually less expensive than faster ones, so if you can take extra time away from work or work remotely you may be able to reduce your overall trip cost enormously. Look for carpooling options when your destination is within driving distance to avoid paying for individual seats. You can consider discount companies such as Spirit Airlines and Frontier Airlines; just be sure you calibrate your expectations for the lack of amenities and unusual fee structure.

Transit is also usually cheaper off of peak times, so consider weekday, holiday, and overnight travel. When you book your travel also can affect the price you pay. Booking well in advance (but not too far!) usually gets you a better price, and Tuesdays or Wednesdays are often rumored to be the cheapest days to book flights. Companies like MegaBus offer heavily discounted fares for the first people to book when a trip is listed.

Further reading: Secrets to Booking Cheap Flights: 12 Dos and Don’ts; Cheapest Days to Fly and Best Time to Buy Airline Tickets

Spend Less on Lodging

Once you arrive at your destination, you will have to find somewhere to lay your head. Crashing with friends or family is a great option if they are willing to host you as it is generally free and you get quality time with enjoyable company. Couchsurfing with strangers is also a free option, often facilitated by hospitality websites, but comes with risk. If you have to pay for lodging, look to lower-cost alternatives like hostels, camping, and individual renters like AirBnB or VRBO. If you want to stay in a hotel, book early and shop around for the best price. Booking hotels judiciously may help you spend less money in other areas of your trip, such as food (complimentary breakfasts) and local transportation (airport and nearby shuttles).

Further reading: Ditch the Hotel: 10 Cheaper Ways to Stay; 14 Ways to Save Money on Hotels for Your Next Vacation

Play the Rewards Game

If you are a frequent traveler, especially one who is brand-loyal, there is no harm in signing up for the rewards programs associated with the airlines or hotel chains that you use. You can build up rewards over time and ultimately score a free flight or free night’s stay.

If you are a responsible credit card user and have good credit, you may consider using travel rewards credit cards. There are general cards that give travel benefits of many types and also branded cards available for specific airline networks or hotel chains. Using these types of credit cards for travel purchases and sometimes everyday purchases helps you accumulate points or miles that you can redeem for free flights or lodging. Maximizing your rewards while minimizing your costs can be very time-consuming and tricky, requiring a lot of research and careful planning, but it becomes like a hobby for many enthusiasts. The rewards potential is there, even for graduate students who are often low spenders, but recognize the downsides of the time investment necessary and the potential for messing up.

Eating Out

by

source
source

To reduce your spending on eating out, you can either eat out less frequently or choose less expensive foods when you do. You choose the approach that is most consistent with your values.

Further Reading: How to Cut Your Food Spending – Scaling Back on Eating Out

Eat Out Less Frequently

If you are in the habit of eating out alone for convenience, it is simple to replace those meals with ones you prepare at home. On campus, you can still eat with your peers even if you brown bag your lunch. You could try to replace social eating out with hanging out with your friends in less expensive venues from time to time, or skip dinner and join them for the next activity.

Further Reading: Get Rich With: The Secret Food ‘Stash

Spend Less When Eating Out

When you have influence over where you eat out, choose less expensive restaurants. When ordering, pay attention to prices and consider ordering less expensive entrees or replacing an entree with an appetizer, soup, or salad. Skip or order fewer appetizers, drinks, and desserts. Take your leftovers home to replace a second meal. You could also choose to frequent restaurants that offer student discounts or accept coupons or discount gift certificates.

Further Reading: Sometimes I Don’t Eat. Is that Rude?; 10 Ways to Save Money Eating Out at Restaurants

Cooking and Meal Planning

by

source
source

Often, grad students are inexperienced with cooking and think that they don’t have time for it. The student who eats out frequently for convenience and buys prepared foods from the grocery store has great potential to reduce his spending on food by starting to cook and prepare his own foods. Students already experienced with cooking but looking to take it to the next level may find additional savings with batch cooking and meal planning.

Further reading: Give Yourself a Raise: Prepare Your Own Food Even with a Busy Schedule

As a beginner cook, you should start slowly with learning various techniques and recipes so as not to become overwhelmed. Try to master only one recipe at a time and choose simple recipes that involve a small number of ingredients and no difficult techniques. Cooking doesn’t always have to involve elaborate dishes or adding heat. To make this process seem less intimidating, think of it as food preparation or food assembly rather than cooking, e.g., salads, sandwiches. You also don’t have to eat something different for every meal out of the week. Having a few recipes that you rotate through for each of breakfast, lunch, and dinner, can take the pressure off of masting new recipes while still giving you some variety.

Further reading: 5 Tips for Saving Money on Weekday Lunches; 5 Ingredient Recipes; 39 Beginner Cooking Tips for Kitchen Scaredy Cats, Bargain Breakfasts

Batch cooking can be a major time-saver for busy students. Batch cooking is when you cook more than one meal at a time, which enables you to eat leftovers on subsequent days and spend a comparatively small amount of time reheating the food. You will likely have to be amenable to eating the same or similar meals multiple days in a row if you are cooking just for yourself. Freezer cooking is a form of batch cooking in which you freeze the meals you have prepared to be eaten weeks later. Batch cooking is also a frugal choice because you can spend less money on food by buying in bulk and using the ingredients you buy fully, and you will be less tempted to eat out for convenience if you have food already made.

Further reading: Eliminate Eating Out for Convenience with Batch Cooking; Best List of Easy and Delicious Freezer Meals

Meal planning can be valuable for reducing impulse purchases and waste. To meal plan, you simply decide what you will eat for each meal during a week or month, assemble a shopping list with only the food you need for the plan, and buy and eat that food. When you meal plan, you can make sure that you are buying exactly the right amounts and types of foods so that extra ingredients neither build up nor go to waste. Meal planning and batch cooking work very well in concert.

Further reading: Meal Planning: The Definitive Guide to Planning Your Meals Stress-Free;