housing

Learn From This Poor Kid-Turned-PhD Student’s Different Perspective on Frugality and Debt (Part 2)

March 16, 2020 by Lourdes Bobbio

In this episode, Emily interview ZW Taylor (Zach), a PhD student in Educational Leadership and Policy at the University of Texas at Austin. As a child, Zach identified as a “poor kid” and never thought higher education was for him. His upbringing and winding path through community college and his bachelor’s and master’s degrees taught him lessons about money that he has carried into his life as a PhD student – for better and for worse. In this second half of the conversation, Zach gives detailed and unique financial advice to prospective and rising graduate students on evaluating stipend offer letters and selecting housing. He was determined to not go into debt during his PhD, so he thoroughly investigated his stipend offer letter and the socioeconomic layout of his new city before accepting the offer. Finally, Zach shares his vision for the future of his finances once he’s done with his PhD and earning a significantly higher paycheck.

Links Mentioned in This Episode

Teaser

00:00 Zach: If they want you and they offer funding, then in a different side of the same coin, they should be able to tell you specifically what you’re getting, because how can you budget, how can you plan without knowing what your income is? I mean, it’s incredibly important. So to your point, encouraging PhD students to be their own best friends and their own advocates and be very clear about what you’re getting before you go.

Introductions

00:29 Emily: Welcome to the Personal Finance for PhDs podcast, higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season five episode eleven and today my guest is Zach Taylor, a PhD student in educational leadership and policy at the University of Texas at Austin. Zach has such a unique perspective and so much wonderful advice that I’ve split our interview into two episodes, last week’s and this one. In this episode, Zach gives detailed and unique financial advice to prospective and rising graduate students on evaluating stipend, offer letters and selecting housing. He was determined to not go into debt during his PhD, so he thoroughly investigated his stipend offer letter and the socioeconomic layout of his new city before accepting the offer. At the end of the episode, Zach shares his vision for the future of his finances once he’s done with his PhD and earning a significantly higher paycheck. Without further ado, here’s the second part of my interview with Zach Taylor.

Financial Advice for Early Career PhDs

01:30 Zach: You know, in terms of advice for other early career PhDs, in terms of saving money and thinking about going to grad school, especially with the kind of frugal mindset is I was not going to go to grad school one, if I had any debt. That was just something that I had always thought to myself that if I’m going, again another childhood lesson, if I’m going to pay for it, I’m going to pay for it in cash and I’m not going to take out a loan. My best advice for early career folks who are thinking about the PhD is if you can work before you go to grad school and pay down any undergrad debt you might have. I know it’s not possible for some folks, but try your best to get some work experience and pay down that debt.

Further reading:

02:18 Zach: And then when you’re thinking about doing the PhD, do some of the same leg work that I did. Investigate the city — where is public transportation? Where are groceries? How can you get around? Talk with other folks who have been there for a couple of years. You know, one reason I came to UT Austin is that everyone was eager to give me their perspective. I mean, when I asked people how do you like living? How much do you spend? Where do you live? How do you get to school? No one held information back from me. Everyone was so willing to share because I think you want to help other folks out. So ask questions and be inquisitive and see where you can make it work financially. But then when you make that choice, I made the choice that I was going to go to a funded PhD program. I was going to work through. I wasn’t expecting just to not have to have an assistantship. I’ve worked all the way through, but I’m also not gonna have to take out any loans. And I think if you have the right combination of work experience and academic experience in certain fields, you can find those programs that are very, very low cost or no cost and be able to work through.

03:27 Emily: I just want to add a couple of comments on those pieces of advice, starting with your most recent one. So in the STEM fields and engineering, where I’m coming from, there’s this advice I guess, that people sometimes say to a prospective graduate students, which is that an acceptance without funding is a tacit rejection. Like if you are not offered funding along with your offer of admission, they don’t really want you there. And that’s typical in those kinds of fields. And at a certain, I’ll say tier of university. Not every graduate students — I mean some people do either take, you know, fully pay for their PhDs on their own, like there’s no funding package offered or they go into a situation where they know, okay, sometimes there’s going to be funding, sometimes there’s not going to be, or okay I’m going to have funding to a degree but I’m also going to have to do X, Y, Z to make up the deficit.

Emily: It’s really hard for me to ever say something as blanket as don’t go to a PhD program if you have to take out debt, because I just, I want to allow for individual situations. But I mean it sounds like from your perspective, even being in a totally different field than I’m coming from, you were still determined, I’m not going to go to graduate school if I have to take out debt. It’s just not going to happen under those circumstances. So you were very selective about where you applied slash the programs that you were actually considering going to, to make sure that you could make it happen in that way, even though it did in your case involve outside work as well.

What to Research When Choosing a Program

04:59 Zach: Absolutely. And one thing that I really insisted upon before I came and I don’t, know of too many other young PhD prospective PhD students who do this, but you really have to push the graduate coordinator or someone in financial aid. Know exactly what you’re getting. It’s really easy to say you’ll have an assistantship and it’ll provide a stipend. After taxes and benefits, how many specific dollars am I getting? When in the month am I being paid? Am I being paid biweekly or monthly? Am I paid over the summer? What are the opportunities for employment over the summer? As someone who is going to embark on a five or six year journey, they owe that to you. They have the information, they can provide that to you.

Zach: Before I came I was very, very explicit in saying, if I’m going to leave this job that I know that I like and I’m going to forego wages for five years and give up a salary and not be able to save any money, what am I specifically getting? What are the specific opportunities? And then matching them up with the area and saying, okay, I can make this sacrifice for four or five years. Yes, I’m going to forego wages and a savings, but I’m also not going to be in so over my head or I’m going to feel pressured to make choices that I wouldn’t normally make. And you know, Emily, to your point, it’s absolutely been the case in my experiences and other classmates that there have been times where they’re unclear about their funding package because it wasn’t made specifically clear when they were admitted. Kind of that tacitly, if you’re not fully funded, we don’t fully want you. If they want you and they offer funding, then in a different side of the same coin, they should be able to tell you specifically what you’re getting, because how can you budget, how can you plan without knowing what your income is? I mean, it’s incredibly important. So to your point, encouraging PhD students to be their own best friends and their own advocates and be very clear about what you’re getting before you go.

07:10 Emily: Oh my gosh, I’m so glad that you made this point even more explicit because it’s one that I talk about frequently during admission season. Check the show notes, if you are a prospective graduate student because there will be links there to further articles and workshops and resources that I have on that exact topic of figuring out exactly what your offer letter is saying to you and asking questions when there’s a lapse in information in the offer letter. And I mean, to your point, pay frequency. I mean that’s not even something that you would necessarily think about, but it’s really important once you’re actually on the ground and doing that budgeting. I’m super glad you brought that up.

Further reading/listening/watching:

Emily: But to go back to one earlier point would you mentioned which was paying off debt and working potentially before starting graduate school. I totally have to concur on this because, now student loans I’ll put in one basket, okay, because student loans can be deferred while you’re in graduate school, but other kinds of debt — credit card debt, car debt, any other kind of debt that you have to be making payments on during graduate school — do everything within your power I would say to clear that before getting into graduate school because the stipend is already so meager, you don’t want to have ongoing payments that you don’t have to, once you’re in that situation. And then of course the student loans in another basket, if it’s at all possible to pay down part or all of them are maybe the ones that the highest interest rate or just to make some kind of progress on that student loan debt, if you’re carrying a lot of it, before you start graduate school. It’s an amazing step to take. It’s a gift to yourself. Me personally, I had some student loans coming out of undergrad. I was sure to pay off all of the unsubsidized student loans before I started graduate school. The subsidized student loans, they’re not going to garner interest during that time. At that point, wasn’t caring about that so much, but I got the unsubsidized ones wiped off before I started graduate school. Just wanted to emphasize that point as well. Please go on with your other other advice for early career PhDs.

08:59 Zach: Yes. So this is more about where you’re planning to study and how you can kind of network beforehand. You brought up a great point that I want to hit on again about where you’re living and how much you’re paying and understanding kind of the socioeconomic context of not the university, but the city. Austin, like you said, is really rapidly growing and I applied across the country. I applied to Indiana, Vanderbilt, Stanford, Michigan, Princeton, Cornell, all over the place. But I was really specific about researching Austin when I got in because I knew how rapidly Austin was growing. And to give you an idea of the cost of living increase and how much graduate students are actually paid, I moved into this current one bedroom apartment back in the spring of 2017 for $960 a month and I am a one hour commute from campus. So I’m one hour away for $960, with utilities it’s about $1200 a month. That was a sacrifice I made. However, these apartments now go for $1310. So they have increased almost $400 in two years. And I’m still one hour from campus. If I was arriving to Austin today and having to sign a lease today, I would pay almost $400 more than I would have paid just two years ago. Now you had talked a 10% increase — 30% increase, 40% increase. And these are not….we don’t have a garage. We don’t have a private yard. We don’t have too many amenities. It’s a pretty standard one bedroom apartment with air conditioning, but it’s also an hour away from campus.

10:53 Zach: I always host PhD students in the spring who are prospective students. And I always, when I show them apartments, I ask not only for the current rent because a lot of major cities have market rent, which means it changes, with the ebbs and flows of moving season throughout the year. Don’t only ask for the rent now and move in, but ask for it three years prior because they have records of all the leasing contracts and all of the, um, leasing and rental agreements. So you can see how rent has changed and gone up or gone down in a certain area. And actually I just helped a friend from Michigan move in just the other week and he and his partner made a very specific decision to go to a certain complex and neighborhood because the rent had been somewhat stable over the past three years and had only gone up about $180 over three years. Whereas my neighborhood is in a different kind of more developing area of Austin and it is growing like crazy.

Zach: Especially when you’re moving into a new city, getting an idea of historical trends and then do the exact same thing for the stipend. How much was the living stipend, how much was the assistantship five years ago? What does it now and do you anticipate a cost of living increase and is that going to be compensated by the university? Something that UT Austin recently did was dedicate new money to try to keep up with cost of living and try to develop some new graduate student housing, which we haven’t really talked about, but always inquire about graduate student and subsidized housing because some universities still do have it. Even though in a very landlocked, city locked university like UT Austin, there’s not a lot of room for expansion anymore, but always ask about the cost of living increases in historical rent in the city, how that relates to the stipend from the university and then what the university is going to do to keep up with that cost of living. I couldn’t agree more.

12:56 Emily: Yeah. I’m so glad you made that point.

Commercial

13:02 Emily: Emily here for a brief interlude. Tax season is upon us and while no one loves this time of year, it’s particularly difficult for post-bac fellows, funded grad students, and postdoc fellows. Even professional tax preparers are often thrown for a loop by our unique tax situation. And don’t get me started on tax software. I provide tons of support at this time of year for PhD trainees preparing their tax returns. From free articles and videos, to paid at-your-own-pace workshops, to live seminars and webinars for universities and research institutes. The best place to go to check out all of this material is pfforphds.com/tax that’s P F F O R P H D dot com slash T A X. Don’t struggle through tax season on your own. Visit my website for the exact information you need in the most efficient form available. Now back to the interview.

Understanding The Role of Cost of Living Increases

14:05 Emily: Really, a new idea for me is actually asking about those historical rents and seeing the increases. This might be a silly question, but does Austin have any rent protection in place? Like increases can only be a certain amount over time, like in terms of laws in place?

14:21 Zach: Not that I am aware of and it doesn’t seem to have translated to people who have actually been into leases and stayed multiple years. Our rent has only gone up $60 in two years, but for the same apartment, for new leases, it’s that new elevated price. However, and this to me was just absolutely ridiculous, I was actually outraged by this, that we have a valet trash fee that is mandated. That we have to pay $14 a month to have somebody pick up our trashcan outside the door and take it to the dumpster. Now the dumpster is a half a block away and I don’t want to pay for valet trash, but I have to because it’s part of the lease and it’s an industry that Austin supports. So there are some fees — you know I’ve heard a lot about the fee creep and higher education where you might have a tuition freeze, but you can keep charging student fees and those add up. The same thing happens with amenities and fees in Austin. The trash fee has gone up, water has gone up, electricity has gone up. It used to be that we would come in a close to $100 over the summertime for air conditioning. Now it’s closer to $140 or $150, and it’s a dramatic increase. So not only understanding the rent, but really understanding what fees you have to pay, what are mandatory, what are optional, and then how those feeds are going to be adjusted over time, because in some big cities they’re just mandated and you just have to bite the bullet and pay for them even if you don’t want to. But those really add up just in fees. We pay an extra $95 or $100 a month just in fees.

16:09 Emily: Yeah. What I’m getting from this part of our discussion is just the importance of interrogating every single component of your offer, of what your living expenses are going to be. And all the time that you put into researching these different components before you actually move to the city that your graduate school is in, or after graduate school, same story, it’s really going to be worth it. It’s going to pay off when you do this research, because the less you have to learn on the ground once you’re there and make changes, the easier it’s going to be. If you can find a place you want to live for several years right from the beginning, it’s a lot easier for you. I did want to go back to make one other point from what you said earlier about asking about the historical stipends. I definitely think you should and can ask a graduate program that, but I wanted to plug my own website, which is PhDstipends.com and also I have another one for postdocs, postdocsalaries.com. PhD Stipends has been around for five years now, I think. And people enter which academic year, the stipend their listing is for. So if your university has enough data in there, you definitely can look back, even potentially at your own department and see what they were paying five years back to compare it to what’s in your offer letter.

17:24 Zach: Yeah, absolutely. And to your point about having that access to data and actually seeking that out, now that you mentioned that, I don’t know anyone else who did that when they came. A lot of folks were really excited just to be able to come to Austin and to be in a PhD program. It’s a very highly ranked program. It’s very prestigious around the country, so a lot of folks were just happy to be there. But then down the road they really kind of regretted not understanding where they were going to live, how much they were going to make. Also the time crunch in making a decision. I had to make my decision in a series of three or four weeks. I mean really in graduate student visits when I was admitted to PhD programs, I the beginning of February really until about mid-March to visit places, do my research. So also understanding how that’s going to affect whatever job you have at the time.

Zach: When you’re exploring PhD programs, it is a serious time commitment. I mean just finding a PhD program in a city that fits you and your budget and that you can continue to maintain your expectation of living whatever that is, is like a full time job. It’s like being on the job market and people should take it with the same seriousness and explore all of those resources that they can because like you said, I have been very, very fortunate. It was some good planning, but I’ve been very, very fortunate not to have to move every year, not to have to sublet. That means my computer workstation has stayed the same. I have a routine. I’ve been able to write. I’ve been able to travel because I haven’t had to worry about where I’m going to live, how much money I’m going to make. It’s all very budgeted, all very meticulous and I think that has really made the PhD program a much more fulfilling experience, because like you said, I have gone through those hoops initially to make sure that I was in a place that I could afford and I would feel comfortable in.

Final Words of Advice

19:24 Emily: Yeah, absolutely. I’m so glad that you brought up that point as well. Any final advice for other early career PhDs?

19:31 Zach: Yes, so I guess lastly, and it’s kind of more of a philosophical point, is I did make the choice not to go to a PhD program that wasn’t going to financially support me. And I think, most people who pursue a PhD, it’s right in the prime of their earning potential, right? So you’re talking early twenties to anywhere in the late thirties like that 10 to 15 year period, you can make a lot of money during that time of your life and pay down a lot of debt. You have to understand that going and getting a PhD, you’re going to forego wages and you might take on debt. It’s such a double edged sword because you’re losing money on one hand, and you’re kind of having to borrow more money. So really, really committing and making that sacrifice, because understanding how many hundreds and thousands of dollars you may be foregoing in the future, and having to pay back debt, and having lost wages.

Zach: The sacrifices I made were having a very compromised social life and a very kind of frugal living down here because I knew it’s going to be four or five years of just extreme sacrifice. I am not going to go out. I am not going to go out to eat very often, I have only gone out for drinks three times in three and a half years and all three times were for professional networking, and to work on projects. I just don’t do it. A margarita is $12 and that’s my food budget for almost an entire week. I have made that kind of level of commitment to stay out of debt and to do it frugally. Not everyone can do that, but if you can commit to doing that, you can get out without debt or with very low debt and 10 or 15 years down the road, you’ll really thank yourself, and you’ll look back and you’ll realize, you know what? I think that sacrifice was worth it.

21:27 Emily: Yeah, I think so. I mean your point about opportunity cost is a very, very important one and not something that people, I think think about enough going into PhD program. For me, it’s another reason to work before you go into a PhD program because you have a better idea of what you are giving up on the one hand in terms of salary potential during that time. And you also have more context for your PhD work. What is this going to do for me on the career side?

Financial Plans After Grad School

21:51 Emily: I’m gonna surprise you with one last question, Zach. This is not what I prepared you with, but what do you think you’re going to be doing with your finances once you’re done with the PhD? And hopefully, you have a job you enjoy that pays you much better than whar you’re being paid right now. Do you see yourself shedding some of these mindsets and habits that you’ve carried with you to this point? And if so, how? How can you even step away from this since it’s been going on for so long in your life now?

22:22 Zach: Yes. It is such a lifestyle. I cannot emphasize that enough. I have thought about what I want to do with my money when I graduate and get a job and now I don’t have debt and the money is mine to spend. I don’t want a larger than two bedroom house because I’ve never lived in a place larger than that. I wouldn’t feel comfortable in a four bedroom house in the suburbs. That’s just not me. I would not feel at home there or comfortable. I could never buy a new car. I could never do that. I would not feel comfortable driving in a 2019 anything. I’ve always bought used cars. I wouldn’t even feel comfortable doing that. If you remember actually from HEFWA, though, what is really, really important to me is donating. I wanted to stay out of debt and get a PhD and have the earning potential to donate to certain programs that I was a part of as a kid and that really helped me out. I think when people are asked about “why do you save money?” I saved so I can give more. Since I’ve been a PhD student, I have been able to donate about $700 to my alma mater and a mentoring program that they have going that I was a part of when I was there. For me, that is such a better use of the money instead of going downtown a couple of weekends and having drinks. I feel so much better about it.

Zach: I think having an understanding of the kind of money I will make when I’m done and then how I’ve grown up, it’s going to allow me to do a lot more good and amplify a lot of the philanthropy that I’ve started doing, and that is really how I’m going to be spending a lot of my expendable income as you could say. I’m going to start a savings account. I’m going to start a 403B or a 401k or some employer sponsored a savings account. If there’s a state pension program, I’ll participate in that. But it’s really going to free me up to spend money where I think it needs to be spent, which is education and low income kids. And like I said, I’m going to look back on my time at UT and Austin and say, maybe I was able to send some kid to community college because I didn’t go out. I was able to help some kid get their associate’s degree because I made those sacrifices and I will trade that any day of the week.

24:56 Emily: I’m so glad to have that incredible perspective from you on the podcast today. It sounds like a really bright future and happy for you that you’ll be finished quite soon, and you’ll get there before too long. Zach, it’s been an absolute delight to have you on the podcast today. Thank you so much for joining me.

25:16 Zach: Absolutely. Thanks Emily.

Outtro

25:18 Emily: Listeners, thank you for joining me for this episode. PFforPphDs.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple podcast, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media or with your PhD peers. Three, recommend me as a speaker to your university or association. My seminars covered the personal finance topics PhDs are most interested in, like investing, debt repayment, and taxes. Four, subscribe to my mailing list at PFforPhDs.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode, and remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is Stages of Awakening by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing and show notes creation by Lourdes Bobbio.

This Grad Student Defrayed His Housing Costs By Renting Rooms to His Peers

June 10, 2019 by Emily

On today’s episode, Emily interviews Dr. Matt Hotze, an administrative director at Rice University and co-host of the Helium podcast. When Matt moved to Durham, NC for his PhD, he immediately purchased a 3-bedroom house and rented the two extra rooms to his labmates. The rent Matt collected from his two housemates covered nearly all of his mortgage payments during his years in grad school, though he had some financial bumps in the road as well relating to house repairs and his dual relationship with his housemates. Ultimately, his decision to sell the property also hinged on his personal relationship with his tenants. Matt shares the overall effect this investment had on his finances and his three key pieces of advice for another early-career PhD considering this route.

Links Mentioned in the Show

CEREGE (European Center for Research and Education in Environmental Geosciences)
Helium Podcast
Rent vs. Buy Calculator
Financially Navigating Your Upcoming PhD Career Transition (/next)
Personal Finance for PhDs Podcast Home Page

Would You Please Tell Us More About Yourself?

Matt has a PhD in environmental engineering. His advisor moved from Rice University to Duke University near the start of his PhD. He purchased a home in Durham when he moved there in 2005. After he finished his PhD in 2008, he did a postdoc in France and then another postdoc at Carnegie Mellon. Subsequently, he had a career in publishing with the American Chemical Society, serving as the managing editor for four journals, where he learned the business side of science. Currently, he works at an engineering research center at Rice with 80% of his time, and the other 20% of his time is dedicated to the Helium Podcast.

How Were You Able to Purchase a Home During Grad School?

It is no mean feat to buy a home during grad school!

Further reading: Purchasing a Home as a Graduate Student with Fellowship Income

First, Matt was “blessed” to not have any debt from undergraduate degree.

Second, when he started grad school in Houston, lived with his parents for most of his first year and banked much of the stipend. Living with his parents in the suburbs was cheaper because the distance from home to campus impeded going out and spending on entertainment. His motivation to save money was due to his upbringing; since he was able to save, why not do so? He expected there to be some use for it eventually, though he didn’t have specific plans to buy a home when he started. Saving the money wasn’t a big sacrifice as living with his parents was comfortable.

Third, in 2005-2006 the houses in Durham were not that expensive. This was after the dot com bubble burst in early 2000s and the housing crisis hadn’t hit yet. Matt hadn’t necessarily planned to buy, but he saw that the nice, recently built apartments were rather expensive to rent.

Though Matt had enough money for a 20% down payment, he still needed his parents to co-sign his mortgage because his income alone wasn’t sufficient to support the mortgage payments. He bought a modest 3BR home and rented out the other two bedrooms for below market rate. The purchase price for the home was approximately $200,000.

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

Matt bought the house even before he moved to Durham, so he never rented there. He felt he was on a time clock to own the home for long enough during his PhD to make the transaction costs worthwhile. He decided he would either buy right when he arrived in Durham or he wouldn’t do it at all.

Emily had a similar thought process a few years into grad school when it might have been possible to buy, but since she was already a couple years into grad school she decided against buying due to the time clock.

Matt’s first tenants in Durham were the other grad students in his lab also moving with his advisor, which also influenced his decision to purchase right away.

What Were the Pros of Renting Out Rooms to Peers?

1) Matt had almost zero housing expenses as the rents from the two bedrooms basically covered the mortgage each month.

2) Matt’s house became the gathering spot for his grad school friends, so instead of spending money going out they would drink beer and play board games at home. (Emily had a similarly inexpensive social experience in grad school.)

3) Didn’t have any issues with the great majority of his tenants.

What Were the Cons of Renting Out Rooms to Peers?

1) Once Matt moved on from his PhD, he didn’t know his tenants quite as well. One of his tenants asked to pay his rent late a couple times. It wasn’t possible to handle this completely professionally because of the social ties between him and his tenants. This did end up working out, but it was stressful to handle this, especially from afar. Matt was especially concerned about being fair to all his tenants but not establishing a precedent that it’s OK to pay the rent late. The rental agreement between Matt and his tenants was helpful in this case, not only the legal components but also to set expectations.

2) The home inspector didn’t catch some flashing around the chimney, so a water leak developed soon after the purchase. Matt used some additional cash he had on reserve (~$500) for this repair, so it was a good thing he hadn’t used all his cash on the purchase. Another time, the water heater exploded. Thankfully replacing it didn’t cause an issue because Matt already had cash built up for these kinds of repairs. Emily references the 1% rule: You can expect to pay 1% of the home’s value in maintenance/repairs each year – but that’s only an average! It can be much higher or lower in any given year.

Why Didn’t You Sell When You Left Durham?

When Matt left Durham for his postdoc in France, it was not a difficult decision to keep the property. He still had tenants in place who would take a couple more years to finish their PhDs, and with three rooms rented out the property was now earning money above expenses. One of Matt’s friend-tenants served as the property manager so he didn’t have to hire a professional company.

At the end of grad school, Matt had a good amount of savings built up, and after the postdoc he had even more saved. This really set him up to be financially successful in subsequent stages of life. He lived in Pittsburgh for his second postdoc. When Matt married his wife and combined their finances, he was able to significantly contribute to their nest egg. It was great to not have to worry about (non-mortgage) debt.

All of this financial success came from the germ of financial parental help during college and that first year of grad school. Good financial fortune and bad financial fortune early in life do not guarantee any particular financial outcome, but certainly put momentum behind your finances one way or another.

How Did You Decide When to Sell the House?

When his friends finished their PhDs at Duke, Matt no longer felt able to hold on to the property. He didn’t have the bandwidth at the time while working in an intense postdoc position and applying for faculty positions to figure out how to hire a property management company from afar. Deciding to sell was really a trust issue. If he didn’t trust his tenants through personal relationships, he didn’t want to be a landlord any longer. It’s not always about numbers, sometimes it’s more about your feelings!

Matt ended up selling in 2009, which was pretty bad timing with respect to the national economy. He sold the house for just about the same price that he bought it for. Even without the property appreciating, the financial benefits he experienced through those years made it a good financial decision. Even though he didn’t make any money on the house, he defrayed all his housing costs when he lived there and continued to make money afterwards.

What Advice Would You Give to a Grad Student or Postdoc Who Is Considering Buying a Home and Renting Out Rooms?

1) Use a calculator to figure out whether buying and renting out rooms in a home makes sense financially in terms of the costs you will incur and the rental prices.

2) Are you OK having uncomfortable conversations with your tenants? Someone will inevitably not pay rent or break something or something stupid in the house. This will happen whether you know the renters or not!

3) Are you comfortable making basic repairs on your own? It’s expensive to outsource it all the time! Are you able to talk with vendors and negotiate? This is a needed skill.

4) What’s your gut feeling on owning rather than renting? You’ll make a good decision!

What Is the Helium Podcast?

Christine and Matt co-host the Helium Pocast. They help early-career researchers – senior grad students to early faculty – navigate the transition from grad school into first faculty position, from landing the position to navigating the position to advancing within the position. They bring on interviewees to talk about career transitions. Check them out! New episodes come out every Tuesday.

Moving to a High Cost-of-Living City on a Postdoc Salary

April 22, 2019 by Jewel Lipps

In this episode, Emily interviews Dr. Sushmitha Vijaya Kumar, a postdoc at the Scripps Institution of Oceanography. Sushmitha recently completed her PhD at the University of Tennessee, Knoxville, where she lived comfortably on her graduate student stipend. However, living in San Diego on a postdoc salary is a whole different level of financial challenge. Sushmitha shares her story of finishing up her PhD, finding housing, and moving from a lower cost-of-living city to a higher cost-of-living city, including the resources she used and the pitfalls she nearly fell into.

Links mentioned in episode

0:00 Introduction

1:06 Please Introduce Yourself

Dr. Sushmitha Vijaya Kumar is a postdoc at the Scripps Institution of Oceanography in San Diego. She is originally from India, where she studied for her Bachelor’s and Master’s in biotechnology. She moved to Tennessee for her PhD and worked at the Oak Ridge National Lab.

2:47 How was your life in Knoxville and working at Oak Ridge?

Sushmitha says Knoxville, Tennessee is a beautiful place in the Great Smoky Mountains. Living in Knoxville was affordable. The graduate stipend was more than enough to live comfortably. Oak Ridge National lab has a super computer for bioinformatics and experimental research. The lab is funded by the Department of Energy. They emphasize collaborative research. She also took courses and taught classes at University of Tennessee in Knoxville. She learned how government research worked compared to how university research worked. She learned that she preferred the government setup that emphasized collaboration.

Sushmitha’s fiancé got a postdoc at the Salk Institute in May 2018. As she thought about her next step after her PhD, Sushmitha knew she was restricted to the geographic area of San Diego. This is when she started looking for postdoc opportunities at the Scripps Institution for Oceanography.

5:17 What was the stipend in your last year of graduate school?

Sushmitha’s salary stayed the same for the four years of her PhD. She received $24,000 annually. She got about $1800 per month. In Knoxville, a one bedroom apartment is 800 to 900 square feet and $900 per month for rent and utilities, at the maximum. PhD students have at least $1000 remaining after rent for food and travel needs. She says having a car is cheap because gas is around $1.20 per gallon. It is easy and affordable to travel by car. She says Knoxville is very affordable to live in as a graduate student, as well as to save money and do exciting things.

7:17 How did you start preparing for the move to San Diego?

Sushmitha’s fiancé moved in May 2018 and did the groundwork. She says it was more difficult than she expected to make the move. Not only did she need to finish all of her PhD work, she had to pack up the place she lived for four years. They decided to take only the bare essentials in their car. She said it was difficult to let things go. They took a road trip from Knoxville to San Diego in late December. The drive took five days. She says she wasn’t prepared for leaving her friends and the familiar place.

9:07 What was your PhD defense timeline?

Sushmitha says the university’s deadline for defense was November 1st. She went to India in the summer for two months. She returned and decided she wanted to wrap things up. She had one month to write her dissertation and prepare for defense. She defended at the end of October. The very next day she flew to San Diego for her interview for her postdoc position at Scripps. She flew back to Knoxville, then she had fifteen days to finalize her dissertation with comments from her committee and submit it to the university. She also had to finish experiments in the lab. December 13th was graduation, and her family came from India. She had three days to pack up her house and prepare to drive to San Diego. Sushmitha says she felt like she made a wrong decision to graduate early, but she doesn’t regret it now. She would advise other people to take more time. She would’ve loved another month for this process, though she didn’t need another full semester.

12:24 How did you arrange for your new housing in San Diego?

Sushmitha says her fiancé didn’t take a full apartment to himself because the postdoc salary is not enough money to qualify for an apartment. You have to prove that your monthly income is three times the monthly rent to qualify. In San Diego, one bedroom, one bath apartments range from $1600 to $2200. The apartments for $1600 are located farther from the institutions and require a car for the commute, which her fiancé didn’t have. Her fiancé lived with a host family and paid $1000 per month for a room in the house.

Sushmitha contrasts San Diego housing with Knoxville housing. In Knoxville, it is easy to find an apartment because many properties have management offices. You could go to the leasing office and choose from available apartments. In San Diego, no apartment complexes are close to the institutes. Housing is managed by individual landlords, and you have to rent from the owner directly. Sushmitha and her fiancé had to show documentation to prove their income, but Sushmitha didn’t receive her documentation in a timely manner. They lost money to application fees during this process.

Sushmitha says they dealt with scammers during their housing search. They experienced five different scams, but didn’t fall for the scams. She knows people who did fall for scams and paid $500 security deposits for places that weren’t real. She’s never seen this before.

When she finally received her offer letter and documentation, she and her fiancé got a one bed one bath in a duplex. The rent is $2200, so one of her paychecks goes to rent and utilities. Emily summarizes that in San Diego, they needed two incomes to show that they could afford the rent together.

18:25 Where did you find housing listings?

Sushmitha says they used Craigslist, Zillow, Apartments.com, and the Facebook group Free and For Sale University of California, San Diego. On Facebook, people post about roommate openings, available apartments, and advice. She also asked her HR department for help.

She says the scams came from the Facebook group and Craigslist. She posted in the group that they were looking for one bedroom one bathroom and they received fake offers. On Craigslist, some of the listings are scams. The postings include photos of real apartments and seem real. When you email the lister and ask to visit the apartment, you receive an excuse about why they’re out of town and they’ll ask for money without showing you the place.

22:28 How did you find the place you are living in now?

Her current apartment was listed on Zillow. Her fiancé saw the listing the day it was posted. He emailed the agent and got connected with the owners. The owners showed him the place, and he showed the documents. They were the first to contact the owners and they got the apartment. Emily says the process is similar in Seattle. Who arrives first and drops off the information and checks gets the place.

24:00 How much are you making as a postdoc?

Sushmitha makes $50,760 annually. This is the University of California, San Diego postdoc pay rate. It is 10% higher than what the National Institutes of Health recommends for postdoc pay. Monthly, this pay is about $4000 but after taxes and health insurance, it is $3200 take home pay. She says there wasn’t state tax in Tennessee, but California has both state and federal tax. She is an employee with a W-2 and pays social security tax.

Emily shares the example of her husband’s pay after graduate school. His salary was a 40% gross increase but a 20% net increase after taxes and health insurance. You have to take these new costs into account.

26:14 What else do you want to tell us about this transition?

Sushmitha says it’s good to talk to people and know about the city you’re moving to. With the high cost, it was a mental adjustment. She has a hard time with the how much she pays for the apartment and gas. Gas in San Diego is closer to $4 per gallon. Mentally, you have to prepare yourself for higher costs. You think you’ll be able to have leftovers for savings, but it is hard. She mentions that people with computer science jobs in San Diego make more money and may have a different financial situation. But as a postdoc, the financial situation is much tighter. She says they are trying to save money for the wedding, but it is difficult. You have to be prepared for the first year of living in a high cost city.

If you’re moving to a city with well-paid jobs, don’t talk to the people in those position. You need to talk to postdocs and graduate students to know how they live. Sushmitha shares that there are free shuttles for UCSD and everything is walkable. Emily says you can’t apply the same lifestyle from one place to another, and you need a mental adjustment. Talking to your peers is helpful.

30:29 Anything else about your adjustment to postdoc life?

In graduate school, you have a cohort and form tight friendships. As a postdoc, you are more independent and it is harder to make friends. She went to a networking event, but the new postdocs just wanted to make friends instead of network. Emily shares that it is hard to make friends as an adult after moving to a new place.

33:18 Final Comments

Anyone who is making a big move will benefit from this conversation.

33:56 Conclusion

How to Start Grad School on the Right Financial Foot

April 15, 2019 by Emily

Starting a PhD program is, professionally and personally, one of the most exciting times of life. You’re meeting people who will be your peers and advisors in the coming years whose research interest align with yours, getting acclimated to a new university and city, and of course starting a fresh school year. However, many first-year PhD students, as they’re going to happy hours to get to know their cohorts and buying their textbooks, are thinking to themselves: “Am I going to make it until my first paycheck arrives?” Financially speaking, starting a PhD program is one of the most challenging times of life as well.

The financial challenges of the transition into a PhD program are myriad and the resources are likely to be few. Moving to a new place and starting the school year are expensive endeavors, and sub-optimal decisions around housing and transportation may reverberate in your finances for years to come.

I present this article not to discourage you in what should be an invigorating and hopeful experience, but so that you have time to prepare for its unique financial demands. Starting grad school on the right financial foot means that you are poised for financial success throughout your PhD instead of reeling from the initial financial blow and playing catch-up for months and years to come. Here is what you can do in the months leading up to your transition into grad school to start in a place of financial strength.

Draft a Budget ASAP

It’s vital to put your stipend offer in context as early as possible. The number may strike you as generous-for-a-stipend or meager, but until you know something about the local cost of living it is rather meaningless.

The best way to get an idea of how far your stipend will go is to start drafting a budget and use approximate numbers until you lock in various aspects of your living expenses. Two starting points are the Living Wage Calculator and the estimated room and board from your university’s financial aid office. Neither one of these numbers will prove to be totally accurate (I hope they are both overestimates of what you will pay) but it’s a start for the triangulation.

Your draft budget should include:

The income tax you expect to pay,
Your necessary expenses, i.e., housing, transportation, utilities, groceries, household consumables, clothing, etc.
Your discretionary expenses, i.e., restaurant and bar spending, travel, entertainment, etc.), and
Your education expenses, i.e., tuition and fees required to be paid out of pocket, course supplies, etc.

Further reading: How to Read Your PhD Program Offer Letter

To a degree, you can use your current expenses (if you track them) to estimate what your future expenses will be, possibly with an adjustment for the shift in the cost of living.

It’s quite difficult to drill down into the specifics of what you will spend in a job/life that you’re not yet in, especially if you are not currently tracking your expenses. Therefore, you can use placeholder percentages to help you estimate your expenses and guide your decisions. For example, the Balanced Money Formula states that you should not spend more than 50% of your net (after tax) income on all of your necessities together (including minimum debt payments). This is a challenging benchmark for grad students to adhere to, especially in high cost of living areas, but it illustrates how important it is to keep your necessary expenses in check to the greatest degree possible.

Further reading:

Thoroughly Research Your Housing Options

Housing is by far the largest expense in virtually every grad student’s budget, and first-year PhD students are expected to make this enormous financial decision with little to no insight into the local area. The result is that graduate students often overextend themselves in their housing costs, which are financially, logistically, and emotionally difficult to change.

Starting grad school on the right financial foot means locking in your fixed housing and transportation costs at a reasonable level for your stipend. The general rule of thumb is to spend no more than 25-30% of your net (after tax) income on housing. This guideline proves impossible for many if not most PhD students, who may be paid too little, live in an expensive area, or both.

Further reading: How Much of Your Stipend Should You Spend on Rent?

Particularly in those challenging housing markets, the best course of action to find the most suitable housing (even if you spend more than the guidelines) is to start your search early and thoroughly research your options. I recommend starting your research with a housing survey conducted by your university or graduate student association (if one exists) and senior grad students who are paid a similar stipend to what you will be (e.g., 3rd years and up). From these sources you can ascertain the price range you can expect for housing and potentially tips on the best locations, housing types, and even specific complexes or landlords to pursue.

Further reading: Your Most Important Budget Line Item in Graduate School and Why You Need to Re-Evaluate It

A note on on-campus or university-affiliated housing: On-campus housing is attractive for students moving from a distance because it short-circuits this whole decision-making process. But this type of housing was not all created equal. At some universities, the university housing is subsidized, which means there is likely fierce competition to live in it. At other universities, the university housing is more expensive than comparable non-affiliated housing. You won’t know whether university housing is a good deal and worth pursuing until you talk with current grad students.

Go Frugal on Transportation

Alongside figuring out your housing options and eventually committing to something, you need to decide how you will get around town. If you don’t own a car, you might need to buy one. If you already own a car, you have to decide whether to bring it with you or sell it.

Owning a car, even without a car loan, is a very expensive undertaking. Beyond the cost of the car itself, you typically have to pay for insurance, parking, gas, registration fees, inspection fees, taxes, maintenance, and repairs.

If it is feasible to live car-free in your new city and you don’t currently own a car, I recommend trying to live car-free for your first year. You can always reassess and buy a car at a later time if you decide you want one.

If you decide to buy a car or keep the car you already own, make sure you globally assess your expected costs (not just the best-case scenario!) and write them into your budget. An expensive or newer car costs you more not just in the purchase price but in your insurance premiums as well.

Your transportation and housing expenses are necessary to fix in concert to a degree. If you decide to live car-free, you might choose to pay more to live closer to campus or on a convenient bus route. If you decide to buy or keep a car, you can offset some of those costs by finding less expensive and less convenient housing.

Create a Transition Budget

Most graduate students experience what I call the long and expensive first month of grad school, though I have noticed some universities are working to change this pattern. You must prepare for this long and expensive first month prior to starting your transition to grad school.

The expense of the first month comes from your move. First, the moving expenses themselves: your and your possessions’ transportation to your new city plus the cost of feeding yourself and so forth during that time. Second, the start-up expenses for your new place: first (and last) month’s rent and security deposit, deposits for your utilities, furniture, and stocking your pantry. Third, the expenses of a new school year/term: any money that you must pay to your university in a lump sum and the expenses associated with your coursework.

The long first month refers to the length of time from when you move to your new city until you receive your first paycheck. Personally, I showed up for orientation in mid-August and didn’t receive my first paycheck until the last day of September. Of course, that time includes all your regular living expenses, on the back of your moving expenses.

You want to be sure going into the long first month that you can come out the other side without racking up debt. Saving cash in advance to pay for the transition is the best solution, and a transition budget will help you estimate the total cost.

Build Your Financial Foundation Now

Because you have several months between now and your matriculation into your PhD program, you have the opportunity to establish your financial foundation prior to the challenges of this transition. By financial foundation I am referring to saving cash for the transition, saving an emergency fund, paying off debt, and/or investing – whatever is most appropriate for you right now.

If you currently have a full-time job, you have the most opportunity to shore up this foundation, but even as a student or part-time/gig economy worker, it is still possible to a degree. It will be well worth a few months of sacrifice, either in terms of earning more through a side hustle or spending less through frugality, to start grad school on the right financial foot instead of a few steps behind.

Further reading: Financial Reasons to Work Before Starting Your PhD

After you save the money you need for your transition into grad school, consider whether you can pay off any of your current consumer debt completely (e.g., credit cards, car loan, medical debt, IRS debt). While you can defer student loans while you are in grad school, these other kinds of debts will still require minimum payments even while you receive your stipend, so it’s worthwhile to attempt to knock them out completely.

Further reading:

If you spend the time and effort now on planning out your expenses and saving money, once you matriculate you will be able to focus solely on the stimulating new people and experiences you encounter instead of experiencing financial stress. Starting grad school on the right financial foot by locking in a good deal on housing and not allowing yourself to fall into credit card debt also sets you up for financial success throughout your PhD. An ounce of prevention is worth a pound of cure.

If you would like to me to work with you on navigating your financial transition to graduate school, please check out my financial coaching program exclusively for rising grad students.

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.

housing

Links Mentioned in This Episode

Teaser

Introductions

Financial Advice for Early Career PhDs

What to Research When Choosing a Program

Commercial

Understanding The Role of Cost of Living Increases

Final Words of Advice

Financial Plans After Grad School

Outtro

Links Mentioned in the Show

Would You Please Tell Us More About Yourself?

How Were You Able to Purchase a Home During Grad School?

What Were the Pros of Renting Out Rooms to Peers?

What Were the Cons of Renting Out Rooms to Peers?

Why Didn’t You Sell When You Left Durham?

How Did You Decide When to Sell the House?

What Advice Would You Give to a Grad Student or Postdoc Who Is Considering Buying a Home and Renting Out Rooms?

What Is the Helium Podcast?

Links mentioned in episode

0:00 Introduction

1:06 Please Introduce Yourself

2:47 How was your life in Knoxville and working at Oak Ridge?

5:17 What was the stipend in your last year of graduate school?

7:17 How did you start preparing for the move to San Diego?

9:07 What was your PhD defense timeline?

12:24 How did you arrange for your new housing in San Diego?

18:25 Where did you find housing listings?

22:28 How did you find the place you are living in now?

24:00 How much are you making as a postdoc?

26:14 What else do you want to tell us about this transition?

30:29 Anything else about your adjustment to postdoc life?

33:18 Final Comments

33:56 Conclusion

Draft a Budget ASAP

Thoroughly Research Your Housing Options

Go Frugal on Transportation

Create a Transition Budget

Build Your Financial Foundation Now

Links mentioned in episode

0:00 Introduction

0:54 Please Introduce Yourself

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

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

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

17:30 What do you do about large expenses?

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

22:00 Can you talk about saving for retirement?

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

30:28 How did you pay the tax balance?

34:40 Final Comments

35:18 Conclusion

Links mentioned in episode

0:00 Introduction

1:02 Please Introduce Yourself

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

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

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

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

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

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

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

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

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

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

36:24 Final Comments

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

46:28 Conclusion

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