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The Tax and Retirement Effects of Receiving Fellowship Funding

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In this episode, Emily interviews Dr. Jamie Lahvic about her experience being funded by fellowship during grad school at Harvard and her postdoc at the University of California, Berkeley. Regarding the tax complications of being on fellowship and the lack of retirement benefits, Jamie and Emily outline the issues, discuss possible solutions, and suggest advocacy avenues for instigating change. Listen through the end of the interview for the Big Questions regarding the true nature of fellowships and employment.

Links Mentioned in the Episode

S14E3: Image The Tax and Retirement Effects of Receiving Fellowship Funding

Teaser

00:00 Jamie: Because I often felt, you know, in addition to like the confusion and the frustration and wondering what to do, that I don’t know, it felt like an emotional hit. I felt unvalued when I’m put into this weird little category where my earnings don’t make sense and I can’t open an account and I can’t figure out how to pay taxes. And I went on this really kind of rollercoaster from feeling like, “Oh, I’m a valued scientist and worker in this field,” down to like, “Oh, nobody really cares about me or the type of work that I’m doing.”

Introduction

00:38 Emily: Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts, a financial educator specializing in early-career PhDs and founder of Personal Finance for PhDs. This podcast is for PhDs and PhDs-to-be who want to explore the hidden curriculum of finances to learn the best practices for money management, career advancement, and advocacy for yourself and others. This is Season 14, Episode 3, and today my guest is Dr. Jamie Lahvic. We discuss Jamie’s experience being funded by fellowship during grad school at Harvard and her postdoc at the University of California, Berkeley. Regarding the tax complications of being on fellowship and the lack of retirement benefits, Jamie and I outline the issues, discuss possible solutions, and suggest advocacy avenues for instigating change. Listen through the end of the interview for the Big Questions regarding the true nature of fellowships and employment.

01:43 Emily: If there are any prospective PhD students listening—and I hope there are—I want to point you to a new workshop I’ve been publishing in installments throughout this academic year, Set Yourself Up for Financial Success in Graduate School. Now that we’re in admissions season, the modules are getting really exciting and immediately actionable. The two most recent modules are titled “Decipher and Compare Your Offer Letters” and “How to Negotiate Your Stipend and/or Benefits.” One from last fall that you might want to check out as you’re evaluating the cities your offers are in is “Stipends vs. Cost of Living.” I sincerely want you to go into grad school with your eyes wide open regarding the financial realities and in the strongest financial position possible for the program you choose. I hope you will check out the workshop and enroll in the modules that will help you accomplish that. Go to pfforphds.com/setyourselfup/ for more information. You can find the show notes for this episode at PFforPhDs.com/s14e3/. Without further ado, here’s my interview with Dr. Jamie Lahvic.

Will You Please Introduce Yourself Further?

03:01 Emily: I have joining me on the podcast today, Dr. Jamie Lahvic. Super delighted to have Jamie here. We actually met at a conference last summer. I’m recording this in November, 2022. So, we met at the Graduate Career Consortium Annual Meeting, which was in July, 2022. We ran into each other during like a break or something, and we just started chatting and we had this electric conversation about funding, about fellowships, about benefits, about systemic issues that need to be addressed. And I just wanted to capture some of that magical conversation here on the podcast. So, Jamie, I’m super delighted to have you on. Will you please introduce yourself to the audience?

03:42 Jamie: Sure! My name is Jamie Lahvic. I am currently working as a Program Officer at the National Institute on Aging, where I focus on some policies as well as programs related to graduate students, postdocs, and early career faculty. But today I’m kind of excited to talk about my own personal experiences as a graduate student and then a postdoc. So, I went to grad school at Harvard Medical School studying biomedical sciences and then I moved on to UC Berkeley to do a postdoc in cancer biology. And I wrapped up that postdoc in 2021.

04:18 Emily: I’m really excited to see all these different perspectives from you being at a private university, a public university, now in government. Like, this is awesome! And I’m of course going to share some of my own limited experience as well. But we’ve both had some observations about these issues about the finances and the benefits and so forth that are offered to graduate students and postdocs as employees or as fellows. So, I want to, for the listeners just to introduce them. I have a framework, this is not necessarily the way that everybody talks about this, but in my mind there are sort of two broad classifications that graduate students and postdocs can fall into. One is as an employee. The way you know that you’re an employee especially if you’re a citizen or resident, is if you receive a W-2 <laugh> at tax time, that’s like really indicative that you’re an employee.

05:04 Emily: So, you have this employer/employee relationship with the university and that may cause different benefits and so forth to be offered to you. The other classification, a little harder to name, a lot of people use the term fellowship, but not only things called fellowships could fall into this classification. So, I broadly call it awarded income when your income comes from an award that you received. Could be certain types of grants, could be a fellowship, could be some other things. So, that’s the language we’ll be using. We’ll just say fellowship for shorthand, but that basically just means non-employee or at least under the, you know, the timing and circumstances of receiving that award, you’re a non-employee.

Switching Between Grad Student Funding Sources

05:37 Emily: Okay. With that clarification out of the way, let’s talk about, you know, your personal experiences, my personal experiences with being an employee and/or being a fellow during grad school and postdoc. So, we’ll probably take this like topically. What would you like to share? What you know surprised you about maybe switching between these two types of funding? What issues did they bring up? Go ahead.

05:59 Jamie: Sure. Yeah, so as a graduate student, I was never an employee. I was always either paid a student stipend coming straight from the university or then a fellowship stipend once I got an NIH fellowship. So there, it still was a really complicated process. I remember being very surprised first year as a graduate student to try to figure out how to pay taxes, how to pay estimated taxes every year. And it seemed to become more complicated every year, especially because once I got my fellowship, some of my money would come from the fellowship, some of it would come from the university. Those would come in separate paychecks. And then later on once I was teaching I would get a third paycheck to cover the teaching that I was doing. And throughout all of that, I never received a W-2. Every now and then I would receive a 1099 for the teaching, but they were kind of inconsistent in whether they would send that. So come tax time, I kind of never knew what I should even do. So, that was a big struggle.

07:01 Emily: Yeah. Let’s talk about the tax issue for a minute longer, because I mean, you probably know this is like part of the bread and butter of my business now because so many graduate students and postdocs are running into confusion around the tax issues. And basically, I mean we will link in the show notes some episodes I’ve done on this in the past, but it basically boils down to like when you’re an employee, your employer has certain responsibilities in terms of telling you how much money you’ve been paid and how much money they withheld on your behalf and so forth. And once you get into this weird non-employee status, they simply don’t have those legal responsibilities in the way that they do for employees. And so, universities take like all these different approaches. And you’re saying even within Harvard, different pools of money were being reported in different ways.

07:46 Emily: And so, yeah, of course, that gets confusing for the recipient when the vast majority of our like, I mean already the U.S. tax system is so complicated to navigate, but if you step outside of the simple like employee world, it gets even harder to find, you know, the support and the resources that you need. That’s part of why I do what I do. But yeah, tell me a little bit more about how you dealt with these like challenges or complications of not having income tax withheld, for example, or like the reporting inconsistencies?

Team Effort for Taxes

08:15 Jamie: Yeah, I think a lot of the students kind of banded together to help each other. I remember we had one really proactive student who would post in our year’s Facebook group four times a year saying, “Remember, pay your estimated taxes.” And I was like so grateful to get that reminder because I was so caught up in, you know, rotations and qualifying exams and whatnot. I just couldn’t think about remembering to do this. So, just having somebody send a reminder was amazing. And then we did a lot of talking to each other to try to fill out the forms correctly. I think I was a few years into graduate school when I found your website and some of your tips, and I remember that being just amazing and just feeling like that’s something that was, you know, it’s complicated but once it’s laid out it is relatively simple. It is the type of information that the university could have given us that they never really did because they wanted to stay away from giving tax advice and they’re not a certified public accountant, and that type of thing. So, it felt like the students were on our own to try and figure it out.

09:17 Emily: Yeah, I think that again, while the universities don’t have again this legal requirement to issue tax forms that make sense, or whatever, I do think it’s really helpful when they try to address this as much as they’re able to. And I mean, I hear a lot of pushback when I work with uni–not a lot. Some places I hear pushback like, “Oh we really can’t, you know, give tax advice and so forth.” And I try to kind of make the point like, “Well, you on your own or me, like we could talk about this without it being advice.” Like we can just talk generally about how estimated tax works and what these different reporting things that are going on are. And that’s what I do like with my quarterly estimated tax workshop. Again, we’ll link it in the show notes. And so, a lot of times universities contract with me to provide that because they feel like that shifts some liability off of them and onto me and they’re more comfortable with that.

10:07 Emily: But again, just giving a little bit of education and some reminders and tips and so forth is not, to me, giving advice, because really it is ultimately up to the individual to figure this out. Like I’m not sitting down with anyone filling out their forms, like they’re still doing that on their own. I’m just providing guidance on how to do so. So, I guess this is kind of turning into an ad but like if the listener <laugh>, if you listeners are on fellowship and you want your university to help you, tell them about what I offer, because they may feel more comfortable working with me then doing this, you know, with an internal employee who, you know, might expose them to some liability.

Added Hardship of Inconsistent Tax Reporting

10:41 Emily: Okay. Estimated tax and reporting stuff, all a difficulty of being on fellowship. Anything more you’d like to add about that? Or should we move on to a new talking point?

10:52 Jamie: I just thought it, you know, in addition to kind of the confusion, it can sometimes cause real hardship. Like for me for instance, I didn’t receive a 1099 for my final chunk of teaching that I did in my like final year as a graduate student. And so, in between doing that teaching and like the spring and into summer semester, I got a postdoc. I moved across the country, I had started a whole new tax, you know, qualification as an employee there. And then when it came time to do taxes, I honestly completely forgot about the money I had gotten paid in the previous spring. Because I never received any kind of 1099, any kind of documentation, and I just didn’t pay taxes on it. And I think I like woke up in the middle of the night sometime like three months later and went like, “Oh my god, I made like thousands of dollars <laugh> that I didn’t pay any taxes on.” And then like on my own, I had to then figure out how to adjust my taxes. I had to pay a penalty for the amount that I, you know, had failed to pay previously. And at the time, like I had just spent all of this money to move cross country. I was making a postdoc salary. Like I really didn’t need to be paying any extra penalties on my taxes for that type of thing.

Potential Changes at the University Level

12:04 Emily: Absolutely. I mean, good for you for doing the amended return and everything, because I know some people will just kind of let it go after that point. But you really don’t want to let it go like multiple years and then have the IRS, I mean I know it’s rare, but it can happen that they can come after you, and then it’s an even bigger problem. So, good that you took care of it. But I think kind of what we’re saying here is just like communication, <laugh> communication is helpful around this topic. So, we’ve talked about this problem, various problems related to taxes. What are some things that could change at the university level, state level, federal level, whatever it is, to alleviate these problems?

12:41 Jamie: I mean at the university level, my understanding is that even if you’re not an employee, the university can still give you a 1099 for the money that you’ve made, and that universities, as far as I know, kind of choose whether or not to go through that step and send out those 1099s. So, I think that’s a major thing that just having a very clear document makes filing your taxes easier. You know, that’s something that like TurboTax and similar basic tax filing software knows how to work with. So, I think that would make a huge difference for a lot of students.

13:12 Emily: So, I actually did experience this during graduate school, so I’ve had a couple periods of my life where I was on fellowship. But when I was at Duke, Duke actually did manage to withhold income tax on behalf of at least me. I don’t know if every type of fellowship it was available, but at least for me, about half my years I was on this like non-employee kind of income. So, they were able to withhold on my behalf, and they did issue a 1099-MISC (Miscellaneous) at year’s end. So, that helps with like the problem you just identified of like, you know, a year and a half goes by and you’ve forgotten about some chunk of your income. Yes, that does help with that problem. The issue that it causes <laugh> is that the 1099 is most widely recognized as a self-employment income kind of document.

13:59 Emily: And so, then there’s, I feel like there’s even more burden on the recipient to properly communicate what this is with their tax software or their tax preparer. So, if they know to do that and they know that they’re not supposed to pay self-employment tax on this income, then it can work out. As a reporting document, it’s okay, but I would say, you know, nine times out of 10, people don’t know that it’s not self-employment income or maybe they know that, but they don’t know how to communicate that. And they don’t check that, they don’t understand how it’s going to affect their return. Anyway, so it can cause an even bigger mess. So like, I hesitate to say that that is the best solution. I mean really to me, I would say the 1098-T is the best form that we have as of now.

Reflections on an Adjusted 1098-T and Streamlined Tax Reporting

14:50 Emily: Although I would love it if there was just an adjusted 1098-T or a different kind of form that really could fully reflect the fellowship like situation. Because again, the 1098-T, while it’s used by many universities, they’re not required to issue one if you have more of this box five grant income than you do box one, like the educational expenses and charges. So, if they would just issue it all the time, I think that would be helpful. But even going beyond that, like this is now like a federal level kind of thing. Like if there were a different form or the 1098-T itself were somehow different, that would be even more clear.

15:26 Jamie: Totally. Yeah. Yeah, and I know anecdotally, I eventually switched over from like the TurboTax software to I think FreeTaxUSA that has a great little box to check that said you know, is this income, are you like, are you a graduate student or postoc rather than an undergraduate? Because I think it’s typically with that 1098-T where they’re trying to like not take out taxes on the portion that you’ve used to cover scholarly expenses, which applies to like an undergraduate who’s receiving, you know, tuition reimbursement, but not to a graduate student. So, I could imagine at the federal level, you could create a little box like that on the 1098-T, right? To check here if this is a graduate or postdoctoral level fellowship, right? Or check here if this money is not being used to cover tuition and scholarly expenses. It would be nice.

16:20 Emily: I think this is both like maybe a reporting option at the federal level, but also it comes down to the university level and how, like which department is the one that’s like processing these paychecks. And you are, like saying how you did about your various different incomes from Harvard, that indicates to me that like maybe payroll was issuing some of this, maybe financial aid was issuing some of this. And like having these different siloed departments separated from one another communication-wise means that things are not streamlined and you get different types of forms and maybe for you, maybe you were on different pay schedules for, you know, different sources. Yeah. So, having like a single department that handles like all, you know, income for graduate students and postdocs, whether it is payroll income for employees, whether it is, you know, non-employee income, that might help. I don’t know, maybe that’ll cause other problems too, but like right now, again, the universities are not really set up to handle this in a streamlined, or at least, I don’t want to say broadly. Some universities are not set up to handle this in a streamlined manner. Maybe others have it a little more figured out. I don’t know.

17:23 Jamie: I know actually when I got paid at UC Berkeley, it was more like that. So there, I was eventually on a fellowship as well, but I received one paycheck per month. And it was kind of interesting because, you know, I would receive my lump monthly salary or stipend from the fellowship, but only a little portion of that would get taxed. So, there would be like a little tiny bit of tax taken out, and then the rest of it was untaxed. But it at least came to me on like one single paycheck where it was very clear how much tax had been withheld, and then I could run the numbers when it came time to pay the estimated taxes on the rest.

17:59 Emily: So, it sounds like you were still receiving a pay stub. Even though a portion of this is employee. Yeah, that’s perfect. I mean, I kind of always tell people who are employees like, “Okay, look at your last pay stub, even before you receive your tax forms. Look at your last pay stub.” Maybe you have to access it through your payroll system or whatever, but you can find out how much tax was withheld. But again, those pay stubs are not generated usually if you’re a non-employee. But it sounds like Berkeley has this figured out, so I’m really happy to hear that. I would, yeah, I would love to be able to come up with like, I don’t know best practices, like which universities are using the best practices. So like, Duke has something figured out over here, Berkeley has something figured out over here. Like, I don’t know, maybe there’s a way to again, promulgate these best practices among these different universities and financial whatever, backend stuff.

18:44 Jamie: Yeah, and you know, I think great groups to kind of connect to for that are unions. Within the UC system, we have a strong postdoc union. And I think they had done a lot of pushing, you know, both on how much you get paid, but also a lot of these minute policies about how you get paid. And so I wouldn’t be surprised if the more streamlined system came about because of pressure from the union. And I’d be interested to know what other, you know, grad student unions and postdoc unions are where they’re having successes.

19:13 Emily: Yeah, I’m super glad to hear that. Exactly. Like sort of giving a voice to these, well, you might not know, but the downstream effect of this like decision that you’ve made, the way you’ve set up the system is it’s causing these problems.

Commercial

19:28 Emily: Emily here for a brief interlude! Tax season is in full swing, and the best place to go for information tailored to you as a grad student, postdoc, or postbac is PFforPhDs.com/tax/. From that page I have linked to all of my tax resources, many of which I have updated for tax year 2022. On that page you will find free podcast episodes, videos, and articles on all kinds of tax topics relevant to PhDs. There are also opportunities to join the Personal Finance for PhDs mailing list to receive PDF summaries and spreadsheets that you can work with. The absolute most comprehensive and highest quality resources, however, are my asynchronous tax workshops. I’m offering four tax return preparation workshops for tax year 2022, one each for grad students who are US citizens or residents, postdocs who are U.S. citizens or residents, postbacs who are U.S. citizens or residents, and grad students and postdocs who are nonresidents. Those tax return preparation workshops are in addition to my estimated tax workshop for grad student, postdoc, and postbac fellows who are U.S. citizens or residents.

20:43 Emily: My preferred method for enrolling you in one of these workshops is to find a sponsor at your university or institute. Typically, that sponsor is a graduate school, graduate student association, postdoc office, postdoc association, or an individual school or department. I would very much appreciate you recommending one or more of these workshops to a potential sponsor. If that doesn’t work out, I do sell these workshops to individuals, but I think it’s always worth trying to get it into your hands for free or a subsidized cost. Again, you can find all of these free and paid resources, including a page you can send to a potential workshop sponsor, linked from PFforPhDs.com/tax/. Now back to the interview.

Advocacy Avenues for Grad Students and Postdocs

21:28 Emily: The last kind of question in this area, and you just mentioned one of the advocacy avenues: unions. Can you think of any other advocacy avenues that graduate students and postdocs might be able to use to make these kinds of changes that we’re talking about?

21:45 Jamie: I mean, even outside of a formal union, I’ve seen a lot of success from graduate students and postdocs just banding together and working together on these things. Whether that is kind of peer-to-peer advice and providing resources, or working together as a group to request something from your department, from your university. You know, I have so many memories of like trying to do my taxes, trying to fill in the forms, and getting like frustrated and upset and not knowing what to do. And I think like you have peers who can help you through some of those things and at least to help you feel supported.

22:25 Emily: Now, I don’t know exactly what avenue this is, but I have noticed over the years that I’ve been studying federal taxes for, you know, as in how they affect graduate students and postdocs, that there have been changes. The 1098-T has gone through actually a big remodel in the last few years. The Kiddie Tax went through a slight change with the Tax Cuts and Jobs Act. So, there have been other changes that have been made that makes me realize that changes possible. Now, I don’t know what the avenue is for letting someone know, <laugh> that you want a change to happen. Maybe it’s contacting your representative or your senator or whatever. We can talk about some of the advocacy around like retirement stuff that happened a few years ago in a moment, but the change can happen. I’m just not clear exactly how you communicate, you know, this advocacy at the federal level.

23:09 Jamie: Yeah, that’s a good question. I mean, I know I’ve been on like the IRS website looking for like from their resources, like what is their advice for people in these situations. And what I found was only a few lines, right? Like not a lot of detail. So, I would love to see, you know, coming directly from the IRS some more clear advice around these types of situations. And I do know that government agencies put out things like RFIs, requests for information, and they do have various sort of feedback channels, so trying to find those for the IRS or for your state tax departments could be one way to go about it.

(No) Access to University Retirement Accounts

23:48 Emily: Okay. Future project for me. Okay, well I just alluded to retirement accounts, so let’s talk about that next. What’s been your experience with being offered or not being offered access to university retirement accounts?

24:01 Jamie: Sure. So, as a graduate student, I didn’t have any option for any kind of retirement account. And my understanding was that from legal sort of tax reporting purposes, I wasn’t able to open an official retirement account. So, in graduate school I was making like just enough money to save up a little bit and I did start buying like some mutual funds with that. And then as a postdoc, I did have a retirement account offered. However, I started out by like not really contributing very much to it at all because I was living in this really high cost-of-living area with not a lot of income. And then I actually found out as I was going through the fellowship application process that I was going to be losing that retirement contribution once I got a fellowship coming in. So then I sort of, at the last minute just before my fellowship came in, I like maxed out all my contributions as best as I could for like the last few months and tried to top it off. But then the fellowship came in and those accounts kind of sat stagnant for the rest of my postdoc. So, that was a frustrating thing to see. And it’s definitely been really nice now for a little more than a year I’ve been in, you know, a real job with very solid you know, federal government retirement accounts. So, that’s been nice to watch those finally like properly growing.

25:26 Emily: Yeah, it’s been my observation that if you’re not an employee, you do not have access to the 403(b) or 457. I actually don’t know why this is the case, but I’ve never seen an exception to it. Like yeah, I guess it has to do with like the rules behind what kinds of money can be contributed to a 401(k) or a 403(b), 457, these kinds of accounts. What I mentioned earlier, and you probably know this is, at the end of 2019 with the SECURE Act, there was a definitional change. So, 2019 and prior, fellowship-type income not reported on a W-2 was not permitted to be contributed to an IRA, an individual retirement arrangement. But that definition of what kind of money is allowed to be contributed to an IRA was changed by the SECURE Act.

26:18 Emily: And so 2020 and forward, you can contribute fellowship income not reported on a W-2, if you’re a graduate student or postdoc, to an individual retirement arrangement. I don’t know why a similar definition change could not occur for 403(b)s, 457s, et cetera. I just know that I’ve never seen it. I’ve never seen a non-employee be offered access to that particular benefit. Furthermore, at the graduate student level, it’s just very, very rare. Not totally unheard of, but rare, that a graduate student employee is offered access to those accounts. It does happen from time to time, but usually not. I’ve had a couple podcast episodes, and we’ll link in the show notes, where people have talked about as a graduate student contributing to those types of accounts. But again, it’s not common.

27:00 Jamie: I didn’t know actually about that change to the SECURE Act. Like I was still a postdoc in 2020 and I had had that IRA that I had opened like just before my fellowship started. But yeah, I definitely wasn’t contributing to it in 2020 and 2021. I had no idea that that was a possibility.

27:17 Emily: Yeah, I don’t think it was, I mean I talked about it a lot, but just like generally speaking, people make that assumption, right? That graduate students and postdocs are usually not able to contribute to a retirement account. So, why would we even have the conversation about whether they’re allowed to or not? Thankfully, someone was having the conversation because there was a change, right? Because I mean I remember that Senator Elizabeth Warren was a sponsor of this bill. There were other co-sponsors. It came up multiple times in the Senate and the House and it just never passed, multiple years, until it was rolled into the SECURE Act. There were a lot of other changes going on with how retirement accounts were being treated. So, it was kind of rolled into that and I’ll link in the show notes a couple of episodes we did right around that. But again, people make these rules. So, if people at the federal level decided that graduate student and postdoc non-employee income was legitimate in whatever, you know, little tax benefit they’re trying to offer, then it could become legitimate and maybe universities also would follow suit and start to offer that benefit. I actually don’t know why graduate students would be excluded from 403(b)s and 457s. Does it cost the university anything? Like a little more administrative burden to extend those benefits? I honestly don’t know why they wouldn’t for those students who can.

28:34 Jamie: Yeah, especially if it’s not a question of matching, if it’s just a question of contributing your own earnings into this account, right?

28:41 Emily: We can dream, Jamie, that there would ever be a match <laugh>. That’s a couple more steps down the road. No, some postdocs do receive matches or actually, I don’t know about you for being a postdoc in the UC system, but the UC system has a defined contribution level for their employees. I don’t know if it applies to postdocs, but in any case you might get that as an employee and then lose it if you, you know, then switch over to fellowship at a non-employee.

29:06 Jamie: Yeah, I believe in the UC system, I never got any kind of match, but I did have access to that 403(b) as well as I think a DCP.

29:15 Emily: Yeah.

“Non-Employee” Fellowship Income Legitimacy

29:16 Jamie: But yeah, I think it’s interesting that you describe it as like the legitimacy of being an employee and the legitimacy of that income. Because I often felt, you know, in addition to like the confusion and the frustration and wondering what to do that, I don’t know, it felt like an emotional hit. I felt unvalued when I’m put into this weird little category where my earnings don’t make sense and I can’t open an account and I can’t figure out how to pay taxes. I remember having like some really sharp juxtapositions between attending a professional conference and like giving a talk and talking to PIs in my field and having people really excited about the work that I was doing and then coming home a week or two later and trying to figure out some of my financial life and it being so confusing and seeing that there was just no support set up for it. And I went on this really kind of roller coaster from feeling like, “Oh, I’m a valued scientist and worker in this field,” down to like, “Oh, nobody really cares about me or the type of work that I’m doing.” So, I think it can have an emotional hit as well.

30:24 Emily: I’m so glad that you shared that. I think this is how we started our conversation at GCC actually, that fellowships and similar kinds of awards are supposed to be so prestigious.

30:35 Jamie: Exactly.

30:36 Emily: It’s supposed to be such an honor. It’s supposed to be based on your merit that you’ve received this. And yet the downstream effects are, well now you’ve been unclassified as an employee and your benefits are reduced. And I don’t know, maybe at some point in the past, the money made up for it. Like maybe you could make more as a fellow, which could make up for some of these issues. But I don’t know that that’s so much the case now. I was actually just seeing on Twitter today that like, you know, fellowship awards on certain grants are set at such a level that they’re below the minimums the universities have to pay their own graduate students and postdocs. So it’s like, well if you’re not even making more and the university has to make up some deficit in the award that you’re receiving, like what is the point of this when it has these negative implications later on?

31:27 Jamie: Yeah, absolutely. I mean I think the point for, well you know, it’s a point for your PI, right? It saves them some money out of their budget, and otherwise it’s a line on your resume. You got this prestigious award, congrats. Here’s some prestige. Right?

Inherent Value of a Fellowship

31:44 Emily: This almost reminds me of like, I don’t know, I’m thinking like crypto, like a currency. Like it only has value because we’ve decided it has value, it doesn’t have inherent value. If it came with more money that would be inherent value, but would it still be actually worth it? How much money would it take to make up for some of these deficits that we’re talking about?

32:04 Jamie: That’s a good question, yeah.

32:05 Emily: Right. So like, not only is it maybe the retirement stuff that we mentioned. Now on the tax front, you’re not necessarily paying more in taxes, it’s just more difficult. But I will say there are certain tax benefits I know at the federal level that you’re not eligible for if you have only this non-employee kind of income. So for example, the earned income tax credit, which is supposed to be for low-income individuals, usually with children, multiple children who are not making enough money, they have to have “earned income.” And under that definition, as of now, 2022, fellowship income is not considered earned income. So, you can’t get the earned income tax credit. You also can’t get the child and dependent care tax credit, which was so valuable in 2021. It was massively increased in 2021. You can’t get it if, let’s say even if you’re married to someone else, let’s say I ran into this situation literally I had a question from this married couple, both postdoc fellows, could not take this tax benefit because they did not have earned income under the definition. Now, graduate students can take it because students have an exception. But postdocs, everybody forgets about the postdocs!

33:08 Jamie: Everybody forgets the postdocs, it’s true!

33:11 Emily: Postdocs don’t have this exception <Laugh>. Everybody forgets that postdocs exist and yet for some, in some career paths, you can spend just as much time as a postdoc as you will as a graduate student, maybe even if not more. It’s a very important life stage. There’s family formation going on, and yet they’re excluded from some of these benefits. And like we were just saying, it comes back to is this fellowship income considered earned income? And that term earned income is used all over the tax code or the way the tax code is interpreted. Now, it used to be used for retirement account contributions, then the term was changed, taxable compensation, then the definition of taxable compensation was changed to include fellowship income. So, why can’t this term earned income be changed to include this type of income? I think this brings up a bigger, even bigger, bigger question though, which is like what is earned income?

Earned Income: Great Expectations

34:04 Emily: What is the responsibility that you have when you receive this non-employee income? What’s the responsibility that your employer has to you or your non-employer has to you? What’s the responsibility you have to your non-employer? So, if you’re an employee, you’re expected to work and produce certain outputs, whether it’s teaching, research, whatever. If you’re receiving a fellowship, it’s much less clear what the outputs are supposed to be. You have to have outputs to continue to be on the fellowship. But what are they exactly? And I think that lack of definition is what’s going into this earned income, not, you know, fellowship income not being considered earned income.

34:39 Jamie: Yeah, no, I think you’re right about that and I think that’s how this ties into kind of bigger labor questions, right? About our graduate students. Should they be classified as employees? Are they workers or are they students? And these are, you know, big things that have big implications across the U.S. and especially for universities on not just tax status but on a lot of things about how academics do their work and how academics get paid.

35:08 Emily: I’m so thankful for this conversation because it’s really like stretching me to think about these like bigger issues exactly as you were just saying. Whether we’re on fellowship or whether we’re employees, is there actually a difference there? Why are these differences encoded at the university level, at the federal level, state level, if they don’t have much meaning to us at the functional day-to-day, month-to-month, year-to-year. I know I mentioned earlier about half my time as a graduate student was spent as an employee, half as a non-employee. Functionally, what is the difference between what I was doing one year versus another year? It felt all pretty much the same to me.

35:45 Jamie: Yeah, and I think I remember it being sold to me as if you receive a fellowship, you have more independence from your PI because you’re bringing in your own money so you can be more independent in, you know, what experiments you do or how you drive your project. But in actual experience of my own or talking to other people, their level of independence was really just dependent on their PI and how that PI ran their lab. And I didn’t know anyone who was able to be more empowered because they had the fellowship or were able to push back on PI demands because of the fellowship.

36:22 Emily: I did see people who received fellowships be able to switch labs when possibly that wouldn’t have been the case otherwise. They were more attractive to that PI like accepting them. And they could, you know, take some time to get up to speed or whatever, again, without some maybe output expectations of being on a different kind of grant or whatnot. But I think you’re right, you know, we’re both kind of speaking coming from like the biological sciences kind of research. There’s so much overhead, there’s so much cost to that. How much money is the student really bringing in versus how much is their research overall costing the PI and the university? And so, if that ratio is not that great in the student’s favor, I don’t think there’s much independence that they can advocate for. Now, if your cost of doing research is like pretty much only your salary if you don’t have those kinds of overhead from doing like wet lab experiments and so forth, then maybe there’s a better argument here about independence from the PI. And I think in the humanities fields, some of them, at any rate, my understanding from talking with people is that like they have a lot more independence anyway in their research questions. And so a fellowship could be even more in that direction. But, yeah, I do think this is very, very field dependent.

37:32 Jamie: Yeah, I think that makes a lot of sense.

Future of Research

37:35 Emily: Well, this conversation has been so invigorating. Is there anything else that you want to share about your experiences or your observations or advocacy avenues that we can encourage listeners to take?

37:46 Jamie: I mean, I always love to tell people to check out the organization Future of Research. I used to serve on their board of directors and it’s a really great non-profit that kind of helps students and postdocs come together and crowdsource information and advocacy plans and push the field of research forward from the point of view of these early-career folks.

38:08 Emily: Excellent. And we will link in the show notes an interview that I did with Dr. Gary McDowell, the former director of Future of Research where we talked about post-doc salaries and post-doc work environments and how to, you know, choose a supportive PI and these kinds of questions. That’s excellent. Well, Jamie, I’m so glad that we got this interview out on the podcast that it didn’t just have to stay in the halls of the GFF conference, but that’s where great ideas are born with these like mixings and so forth and it was great to meet you in person and yeah, to be able to record this for the podcast listeners. So, thank you so much for coming on!

38:44 Jamie: Thanks, it was wonderful talking to you!

Outtro

38:51 Emily: Listeners, thank you for joining me for this episode! I have a gift for you! You know that final question I ask of all my guests regarding their best financial advice? My team has collected short summaries of all the answers ever given on the podcast into a document that is updated with each new episode release. You can gain access to it by registering for my mailing list at PFforPhDs.com/advice/. Would you like to access transcripts or videos of each episode? I link the show notes for each episode from PFforPhDs.com/podcast/. See you in the next episode, and remember: You don’t have to have a PhD to succeed with personal finance… but it helps! The music is “Stages of Awakening” by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing by Lourdes Bobbio and show notes creation by Meryem Ok.

This PhD Student-Nurse Is Confident in Her Self-Worth

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In this episode, Emily interviews Brenda Olmos, a nurse practitioner and rising third-year PhD student in nursing. A first-generation college student who grew up without financial stability, Brenda was debt-averse throughout college and her master’s degree and started building wealth in her 20s through investing and real estate, eventually aligning with the FIRE movement. When she decided to pursue a PhD in her late 20s, she held out for an online program with an excellent culture and funding package. Thanks to her lucrative outside work, Brenda has continued to invest consistently during her PhD, although more slowly than she did pre-PhD. Brenda’s strong financial position and career optionality have set her up well for a fulfilling post-PhD career.

Links Mentioned in this Episode

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Teaser

00:00 Brenda: It’s so cool to like see yourself grow in ways that you never thought you could. And financially like, okay, maybe I’m taking like a 50 or $60,000 per year cut. But in the course of my life, like is three years really going to matter that much, you know? And how much more will my life be enriched by having this degree? Like what doors will it open for me? Whether they’re monetary or not is not really the point for me anymore. And that’s something that I was able to achieve in my twenties.

Introduction

00:37 Emily: Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts, a financial educator specializing in early-career PhDs and founder of Personal Finance for PhDs. This podcast is for PhDs and PhDs-to-be who want to explore the hidden curriculum of finances to learn the best practices for money management, career advancement, and advocacy for yourself and others. This is Season 13, Episode 2, and today my guest is Brenda Olmos, a nurse practitioner and rising third-year PhD student in nursing. A first-generation college student who grew up without financial stability, Brenda was debt-averse throughout college and her master’s degree and started building wealth in her 20s through investing and real estate, eventually aligning with the FIRE movement. When she decided to pursue a PhD in her late 20s, she held out for an online program with an excellent culture and funding package. Thanks to her lucrative outside work, Brenda has continued to invest consistently during her PhD, although more slowly than she did pre-PhD. Brenda’s strong financial position and career optionality have set her up well for a fulfilling post-PhD career.

01:56 Emily: Would you please help me out with something? I want to record six podcast interviews this fall to be published over approximately the next six months. Will you consider being a guest? As a listener, I’m sure you have something to say about money as a PhD or PhD-to-be! Simply fill out the Google Form at PFforPhDs.com/podcastvolunteer/ to get the ball rolling. Alternatively, if you have someone in mind who you’d like to hear me interview, please connect me with that person over email or Twitter! I really appreciate it! Let’s keep the podcast going strong! You can find the show notes for this episode at PFforPhDs.com/s13e2/. Without further ado, here’s my interview with Brenda Olmos.

Will You Please Introduce Yourself Further?

02:52 Emily: I am delighted to have joining me on the podcast today someone I know from Fintwit, Brenda Olmos. She is a rising third-year PhD student at the University of Oklahoma Health Sciences Center. She’s actually doing a PhD in nursing, so a very different kind of PhD student than we’ve had on here before. Not only that, her program is online, so she lives in Austin, Texas. So, Brenda, I’m so happy to have you on the podcast and get to have a deep-dive conversation with you. Will you please tell the listeners a little bit more about yourself?

03:20 Brenda: Sure! Hello everyone. My name’s Brenda Olmos. And, like Emily said, I live in Austin, Texas, and I’ve grown up in this area of central Texas and really enjoy living here. So, when I was searching for PhD programs, I was definitely searching for distance programs. And that’s the case about me being in an online PhD program. I grew up, like I said, here in central Texas, and I went to UT Austin for my undergraduate in nursing degree. Six years later, I graduated with my Master’s in Nursing as a family nurse practitioner. So, I had about six years of experience as a registered nurse at the bedside, which means I basically worked in inpatient hospital settings, taking care of people who were acutely ill. And then I chose to leave that setting when I became a nurse practitioner and I worked in an outpatient primary care setting for older people.

04:11 Brenda: So, I’m a geriatric nurse. And I found a scholarship in 2019 for geriatric nursing research. And I was kind of at a point in my life where I was satisfied with my career, and I found it rewarding. I found my work very gratifying, but I felt that my potential wasn’t really maximized in that role, that I made a difference one-on-one with patients, but that I wanted to make a difference at a larger scale. And in nursing, there are two paths for a doctorate degree. There’s a Doctorate in Nursing Practice, which is a DNP, and a lot of nurses do that because they want to make immediate change, like in administration or policy. And then there’s the PhD, which is the Doctor of Philosophy. And that’s more of a research-based doctorate, like most other PhDs in which you focus on generating new knowledge and you learn the research process.

05:07 Brenda: And I actually had really great mentors, which caused me to lean towards the PhD. And I chose the PhD in nursing because I felt that I wanted to have the doctorate that was universally recognized as a terminal degree and as a doctorate, whereas a DNP is very specific to nursing. I wanted to have something that, you know, the three letters that mean something to everybody <laugh> in the world, right? So, that’s kind of been my trajectory. I worked as a nurse practitioner for three years, full-time from 2017 to 2020. And then in 2020, I had been accepted to the PhD program. I was still kind of on the fence about it because I was making six figures as a nurse practitioner. And even though I didn’t know at the time that I had won this scholarship, I was like, I don’t know, this is a big leap to take. And then the pandemic hit and that took away so much of the joy of my work. And so much of the compensation that I realized I’m ready to go do something different. So, I’ve been in my PhD program since August of 2020. And like you said, I’m going into my third year now.

06:13 Emily: Wow. I love when I get someone on the podcast who has really, really thought deeply about their career and the trajectory of it and chosen, after all of that, to go into a PhD program. I don’t want be, you know, too critical of people who went like directly from undergrad down that path. I went almost directly from undergrad, but I just think it takes on a different tone. You have more focus in your research usually with all that like background work experience, and especially for you having a very, you know, very solid, super lucrative like career leading into that and you just really thought about, well, what do I want in my life? How do I want to be spending my time? That’s actually a lot of what we’ll be talking about today.

06:51 Emily: And I just want to kind of frame this for the listener a little bit that you know, Brenda’s had, as we just said of really different career trajectory than probably most people who are listening, probably the vast majority of people who are listening. And so once we get to start, you know, talking about Brenda’s finances, you’re going to see a pretty rosy picture. And it is of course, largely due to having that career in her twenties. But I don’t want you to like dismiss this episode as like, you’re never going to learn anything from it because you’re not in the same kind of position that Brenda was, because I still think there’s going to be something here, some strategy, some mindset, especially, that you can learn from. So, keep with us even though it may be a little bit of a different kind of story.

07:29 Brenda: And I do want to add to that that not every nurse is in my position, right? Like I had a really great scholarship for undergrad. Probably about 75% of my undergrad degree was paid for through scholarships and grants. I paid for my master’s degree, partially through hospital tuition reimbursement, and partially by working full-time. But I had classmates who took out a hundred thousand dollars for two years of their master’s program, and they’re paying that off now, right? So, I just want to be transparent about the fact that like, don’t go up to every nurse and be like, oh my God, you have no debt and you make a ton of money. Like, no, I was very strategic about the way that I got my education and I was always debt-averse. And so, I think that’s also important to point out.

Financial Independence, Retire Early (FIRE)

08:14 Emily: Yeah. Because I next want to kind of talk about you discovering the FIRE movement, which you did prior to starting the PhD program, but you had already, as you just said, taken some, you know, FIRE-like steps leading up to that, by being debt-averse, by working a lot while you’re in school, by choosing an employer who’s going to give you tuition reimbursement and so forth. So like, you were already setting yourself up well financially, even if you hadn’t, you know, discovered that particular movement. But let’s go to that like moment when you discovered the FIRE movement and what appealed to you about it? Like, why did you decide to start going that route?

08:45 Brenda: Yeah, I think a lot of it was rooted in, like for many of us, the way that we grew up around money, right? Like the beliefs that were planted in our minds as young kids. And for me, and I’ve talked about this in BiggerPockets and in some other podcasts, is that I had so much financial instability growing up and I knew so much about my parents’ finances and I knew the lows and I knew the highs. And I had kind of, maybe not consciously, but unconsciously decided that I was going to be stable, that my adult life was not going to be a roller coaster of emotions, secondary to my financial situation. And so, I think that’s why FIRE appealed to me because it was like, oh, I don’t just have to be stable. Like, I can be free. <Laugh>, you know, it’s like, there’s one extreme where you’re tied to the ball and chain, there’s the middle ground where you’re stable and you’re working, you’re saving, maybe you’re investing. And then there’s financially independent where no matter what you do, whether you work or you don’t work, you’re okay, right? So, I found out about it through some podcasts, StackingBenjamins, Afford Anything, Earn and Invest. And I just started listening and I was like, wow, there’s a lot I can do with some money I have saved up. Or like, maybe I should buy a property, you know? And that’s kind of how it all took off.

10:13 Emily: I think we’re going to get here, like later in the interview, but this like really interesting overlap in your story between pursuing FIRE and pursuing the PhD, and like the time freedom that FIRE can give you to then apply it to your academic interest. Even if those interests don’t pay as well as other career paths, perhaps, that were available to you. So, I really hope, yeah, we pull that out later in the interview. So, give me a couple, like, you know, mechanical things that you did in those early years of FIRE. You mentioned, oh, maybe I should consider buying a property. Like, what were some things that you did that were deviations from the path that you were on before, once you learned about FIRE?

10:49 Brenda: Right. So, I started investing in a brokerage account, which I had never done before. Like the thought of investing in the stock market was really foreign to me. I knew that my parents had 401(k)s, but I didn’t know that that was investing in the stock market. And so, I started doing research on that. And I talk about this on the podcast I have with my friend, Minority Millennial Money, about how my first experience into investing was like going to Wells Fargo and having an advisor there telling me that I needed at least $25,000 to like open a portfolio <laugh> and, you know, I look back on that and I did it. But I look back on that and I’m like, oh, I was so naive, you know? And now I know so much more and eventually, I transferred it out of Wells Fargo, but so the first thing was investing, and the second thing was buying a home.

House Hacking

11:40 Brenda: First, it was a small condo in 2017. Prior to that, I had kept my living expenses low because I just lived with a friend who owned a home and I rented a room from her for $600 a month, right? So, for Austin, even seven years ago, that was really cheap. So, and I didn’t, I don’t mind living with people, but it was nice to have my own place when I bought a condo in 2017. And then in 2019, I bought a single-family home and I rented out the condo. And so, now I have both.

12:11 Emily: So, let’s see, in 2019 you bought the single-family home, in 2020, you started the PhD program. So, are you still living in that single-family home? Or did you move again?

12:19 Brenda: Yeah, and I house hack it. So, I mean, house hacking is really just having roommates, right? So, basically, I started having travel nurses stay with me so that I didn’t have a permanent person. I just kind of had a nurse house. And so, I really enjoyed that. And there was a little bit of a lull there when COVID hit because many of their contracts got canceled. And so, I was at a critical point where I was like, I’m quitting my job. I have this house to take care of and the income may not be there, but it ended up working out. And hosting travel nurses is really awesome.

12:59 Emily: Yeah. This strategy of house hacking is one that I have given some air time to in the past and I’m really excited about for PhD students, because for that stage of life, it’s already really normalized to live with roommates. And so, if you have the financial wherewithal to be able to purchase, be the owner and be the landlord, it can like really radically transform your finances. So, so glad to hear that you were taking advantage of that strategy even before starting the PhD.

Choosing a Supportive PhD Program

13:22 Emily: So, we kind of already talked about like, why you wanted to start the PhD, you know, why you thought it was the best move for your career. Did you want to add any more details about, I don’t know, that particular program or anything else about your, you know, deciding to go down that career?

13:35 Brenda: Yeah. And, you know, we have met over Financial Twitter and there’s also Academic Twitter. And on Academic Twitter, I see so many horror stories of like really difficult programs, really toxic environments. And I was like, A) I don’t have to do this. So, I am not going to go to a program like that. And B) What if I found a really great program, you know? And so, I just created a spreadsheet with all the schools I was looking at. And this particular program, the director called me, she wanted to talk, she was warm, she was encouraging. And she was genuinely interested in me, you know? And I was like, wow, that’s really special. Whereas other schools like just sent me computer-generated emails, you know? And I was like, okay. So, like my email just went into like a black hole. So, that was important to me, especially because I know that people don’t know this, you know, people outside of nursing don’t know this, but nursing academia has a really negative reputation for being very toxic, very discouraging, not supportive, hazing, in a sense.

14:44 Brenda: And it’s especially prominent at the graduate, you know, and doctoral level. So, I was like, I don’t need that in my life. So, I’m going to look for a program where I feel like it would be a good experience. And I found that, and I was like, okay, I could do this here. So, that was important to me. And also, it was important to me that, if I was going to take this big financial hit, that it was going to be for something worth it. And like you said, for me, the PhD is really something I’m doing for personal enrichment, right? There’s no guarantee that I’m going to make more money when I’m done. You know, I made almost $200,000 in 2019 just working a little bit extra. If I get a job that makes me that much post-PhD, I’ll be really excited. But for me, it was also really important to see people that look like me because I’m a Latina nurse practitioner. And I just could count on one hand how many people who were nurses who had PhDs, who were Hispanic, that I knew, you know? And so, in a field that’s predominantly or 95% white women, I thought it was important to increase the representation.

16:00 Emily: Yeah. I love all those overlapping motivations. And I love, it sounds like you were patient, right? Like you were willing to be really selective about the program that you went to. And I love that little note about like, oh, this person actually called me, like, I talked to this person over the phone instead of just email correspondence and just form letter stuff. And I love that like, you looked at this field, like you said, it has this bad reputation, and you said to yourself, I don’t need to do this. And I’m only going to do it if I can find the program that is going to be really supportive of me. It’s the right fit for me. And even if you know, Academic Twitter and everything else is telling you, no, no, everything’s terrible. It never, it doesn’t exist anywhere. You were like, no, I’m going to hold out and find that perfect program for me. And you did. So like, I just say that to point out that, like, that’s a limiting belief that you could have had. Like, you could have told yourself, oh, I’m never going to find a home. It doesn’t matter. People like me never, you know, get into this level of nursing or succeed or whatever, whatever. And you chose to not have that limiting belief, right? So, I want other people to hear that message as well.

17:02 Brenda: Yeah. And I’ve spoken with my classmates about this, and I think I’m just fortunate in the sense that I have a very positive disposition <laugh> and so I didn’t, it never occurred to me that I wouldn’t find one. I just thought, I just need to find one <laugh>.

Net Worth in Grad School

17:17 Emily: Okay. So, let’s hear more details about your life, like coming into the program. We’ve heard a couple of things. You already owned two properties. You had been making like over six figures. In fact, your income was nearly $200K in that year immediately prior to starting graduate school. Would you like to share anything about like your net worth or just any other aspects of your financial picture at the time that you started graduate school?

17:38 Brenda: Yeah. So, at the time I started graduate school, that was 2020. So, my net worth now is about $550,000. And at that time it was probably, I think I remember tweeting about it and I think it was like $330K at that time. And that big leap has really just been real estate prices just skyrocketing. And so, I do count like potential, you know, appreciation in my net worth. And then I probably have, right now, I have about $160K or $170K invested. And at that time I probably had like $120K. And so, I’ve been contributing, let’s see, with Roth contribution maximum, which is 6,000, plus about a thousand dollars a month. So, that’s like $18,000 a year in the last two years. So yeah, that makes sense. $120K plus another $35K to $40K. So, I’m at $160K. And I anticipate, you know, this is just kind of a lull in my investing trajectory. And once I go back to full-time work and I’m earning a full-time income again of hopefully at least a hundred thousand, if not more, because I’ll be able to add my clinical practice contract work to it, then I’ll be able to go back to investing closer to $25,000 a year.

19:00 Emily: I mean, investing $18,000 a year while you’re in a PhD program is well, definitely the highest number that I’ve heard <laugh> of anybody on the podcast. So, you’re not exactly a slouch in this area. But so, prior to the PhD, though, it sounds like you were using a taxable brokerage account and maybe some employer-provided stuff 401(k) or 403(b).

19:18 Brenda: Yes, a 401(k).

19:18 Emily: Yeah. Okay. And so, that benefit went away, I assume. Like at the moment you’re only doing your Roth IRA and then the taxable brokerage account.

19:27 Brenda: Yeah. And actually, so before the episode, we talked about my stipend. So, my stipend is, just to protect my time, I don’t owe any kind of labor for that stipend, but I am limited to working 20 hours per week. The great thing about that stipulation is that I’m not limited to how much money I can make. I’m just limited to hours I can work. So, I have been a graduate research assistant at the university since spring of 2021 with one of my professors. And we’ve actually published two papers together, which is awesome. But one of the benefits of that is that as a GRA, you become staff of the university and you get access to their 403(b) and 457. So, I have been contributing at least half of my GRA income, which pays $25 an hour. And what’s funny about this is that the original pay for that position was $15 an hour at the university.

GRA Salary Negotiation

20:27 Brenda: And I told my professor, I was like, I’m sorry, like, I am passionate about your work, but like, I just cannot do it for $15 an hour. Like I have too many things going on and I have too many other much more lucrative offers. And so she went to financial, I don’t know, the financial services building and they agreed to bump it up to $25 for everyone in the nursing program, because we’re all registered nurses, at least, you know, some of us are nurse practitioners. So, it was like almost insulting <laugh>, you know? I mean, I don’t want to be a snob about it, but it’s like, who would take $15 when I can go work the same hour for $65 or $75? So anyway, so yeah, I’ve been doing the Roth, the taxable brokerage, which really comes third on my list. Like if I’m short on money one month, that’s the last one I fund. And then I contribute 50% of that $25 per hour income, which is 10 hours a week, a thousand dollars a month. So, half of that goes to the 457. And I chose the 457 on purpose because you can access it anytime without penalty.

21:38 Emily: Love all those details. Actually, it’s interesting because most people who I speak with who are like on the level of 10-hour per week employees are not offered those benefits. So like, I would say that’s a great, like, exception that your university or health sciences center offers that. So, that’s awesome that you’re doing that. And I love that you, you know, shared that negotiation story and that it not only benefited you, but benefited everybody. Like this is a message I’m trying to get across with like, you can negotiate for yourself as an individual. Yes. But it can also help other people when you do that, because it sends a message.

22:12 Brenda: I wouldn’t have expected them to just give it to me. I mean, it would’ve been fine, but then it’s like, I think it was a fairness issue, right? Because they were like, oh, well, all these other students are also doing it. No, it was great. And I think it was definitely something that the graduate college had to take into consideration because you’re looking at, you know, graduate students, but we’re also working professionals, right? So, that is kind of a unique situation that nurses in graduate school are in.

22:43 Emily: Absolutely.

Commercial

22:47 Emily: Emily here for a brief interlude! These action items are for you if you recently switched or will soon switch onto non-W-2 fellowship income as a grad student, postdoc, or postbac and are not having income tax withheld from your stipend or salary. Action item #1: Fill out the Estimated Tax Worksheet on page 8 of IRS Form 1040-ES. This worksheet will estimate how much income tax you will owe in 2022 and tell you whether you are required to make manual tax payments on a quarterly basis. The next quarterly estimated tax due date is September 15, 2022. Action item #2: Whether you are required to make estimated tax payments or pay a lump sum at tax time, open a separate, named savings account for your future tax payments. Calculate the fraction of each paycheck that will ultimately go toward tax, and set up an automated recurring transfer from your checking account to your tax savings account to prepare for that bill. This is what I call a system of self-withholding, and I suggest putting it in place starting with your very first fellowship paycheck so that you don’t get into a financial bind when the payment deadline arrives.

24:06 Emily: If you need some help with the Estimated Tax Worksheet or want to ask me a question, please consider joining my workshop, Quarterly Estimated Tax for Fellowship Recipients. It explains every line of the worksheet and answers the common questions that PhD trainees have about estimated tax. The workshop includes 1.75 hours of video content, a spreadsheet, and invitations to at least one live Q&A call each quarter this tax year. If you want to purchase this workshop as an individual, go to PF for PhDs dot com slash Q E tax. Now back to our interview.

Sources of Income in Grad School

24:50 Emily: So, let’s like back up a tiny bit and talk about sort of all of your income sources during graduate school. Because you know, you’ve mentioned a couple times you have this really fantastic scholarship, so let’s start there. Like, what does the scholarship give you?

25:02 Brenda: Right. So, the scholarship is specific to my university, and it’s a special foundation that was money given through a philanthropic organization. And they basically allotted $150,000 scholarships separated into three years, $50,000 per year. That comes out to $30,000 per year or $2,500 per month as a stipend, and $3,000 for summer tuition, $6,000 for spring and fall tuition, and $4,000 leftover are for travel to conferences and that kind of thing. And I will say that I have used some of your courses and the taxes because that $2,500 counts as 1099 income for me. So, I do have to pay taxes on that. And most of my contract work is not on a W-2. So, I do have to pay taxes on that as well.

26:01 Emily: Okay. So, it sounds like the scholarship is fully paying your tuition and fees, giving you a stipend of $2,500 a month, and you have this additional professional development fund per year. Wow. Okay. That sounds great, but we’re not done yet. The way that we talked about this earlier, and I think the best way to phrase it for the listener is that that stipend of $2,500 per month essentially protects 20 hours per week of your time for you to devote to your dissertation research, or your classes, whatever it is you have to be doing for your PhD. And so, with the next 20 hours of your work week, you can be doing other paid work in that time. So, you can earn above your stipend. It’s just, you’re limited in the number of hours you can spend working. And so for you, you’ve already mentioned like the assistantship that you have at 10 hours per week. Do you have any other work that you do in the other remaining 10 hours per week?

Clinic Contract Work

26:52 Brenda: Yeah, so my former employer kept me on as a contractor. So now, I technically work for the agency that staffs their clinics, but they have urgent care clinics every weekend from nine to four. So, I’ll pick up weekend shifts. And occasionally, because my former boss knows me and knows that I know like the day-to-day clinic work, then he’ll ask me if I can work some days during the week. And so, I’ll do that. And that’s at $75 an hour. And then I have a couple of other jobs where I fill in for other nurse practitioners, like when they’re on vacation or they’re out sick or something. And the great thing about some of those is that they’re kind of slow clinics. And so, I can just take my schoolwork and do it there <laugh>.

27:43 Emily: Yeah. Sounds like a sweet deal. So, with all these active income sources together, the stipend plus the other work that you’re permitted to do, what does that add up to in terms of like your yearly income on average?

27:56 Brenda: So, last year my taxes were a little bit complicated, so I have the 1099 income, and then I have the real estate income. And I don’t take any of that as income from the real estate. So, the condo has its own account, and it has a little emergency fund for itself. And anything that it makes, it stays in there for emergencies, and same with the house. It has its own account. I pay rent into the homes account for myself, and then my tenants pay for pay into that account as well. But I rarely take any money from those accounts. So, I don’t count that. So, out of $112,000 last year, about $30K of that was from the rentals. And so, I really made about $70K, probably. So, $30K of that was from the stipend and then I made another $40K in part-time work.

28:53 Emily: Okay. So interesting. So, you have income sort of on your tax return, you have income that you don’t actually consider, like you’re not actually taking it into your personal accounts. You’re just leaving that as emergency funds and so forth for the real estate stuff. Yeah, that makes sense. Well, earning $40K on top of the $30K, again, really great for a PhD student. So good for you. The message that I want the listener to be hearing from this part of the interview is Brenda’s time is valued in a certain way because of her existing credentials and work experience and so forth. But earning something like $75 an hour is not out of the question for a PhD student in other disciplines. Depending, of course, on your work experience and what your field is and how, you know, in-demand it is, et cetera.

Valuing and Monetizing Your Skills

29:38 Emily: So, like you made the comment earlier. It’s a good thing they’re only limiting me on time and not the amount of money that I can make, because, you know, in some of your income sources, you can command quite a high hourly rate. I would love for other graduate students and postdocs to hear that message and think about, wow, if I’m making $75 an hour, a hundred dollars an hour, I only need to work two hours a week to make a really huge difference in my budget. You know, like when you can get to those high hourly rates, you don’t have to spend a ton of your time, you know, to get your finances in the shape that you want them to be in.

30:10 Brenda: For sure. And I think that, you know, like you said, I have a very particular skill, but there are skills that I don’t have that I would gladly pay someone $65 an hour to do. Like currently I’m dealing with some big data and I’m like, oh my gosh, I’m like going on websites of like, you know, people you can pay on an hourly basis to like walk you through something. And I’m sure that there are people in PhD programs who know this like the back of their hand, and they’re just not making themselves available for someone like me. Because I can earn that money, you know, relatively easily, and I’m happy to pay someone for their expertise as well. So, that’s very true. And I think that maybe sometimes, you know, I am very aware of my skill because I have a license and a certification for it, but you may have skills that other people need that don’t necessarily have, you know, very formal credentials, but that people would be happy to pay for.

31:12 Emily: And I think it’s so easy to get caught in this trap of undervaluing yourself inside academia. Like what you were talking about earlier with like the $15 versus $25 per hour negotiation that you did. It’s so common inside academia to undervalue ourselves. We see everybody else doing it, then we do it as well. But if you can take a little bit of a pivot and maybe, you know, market your skills to somebody outside of academia where these are not, you know, a dime a dozen kind of skills that everybody has, then you can, you know, potentially get those higher hourly rates. So, definitely food for thought, I hope, for some people.

Negotiating In-State Tuition

31:42 Emily: So, I think that you are probably the first interview we’ve had on the podcast who is doing like a hundred percent remote program. Not just like remote for COVID or whatever has been going on temporarily. So, you live not in the same state as where your university is. So, how does that work out with your scholarship and with the tuition and everything?

32:02 Brenda: Yeah, so that’s true. I specifically was looking for long-distance programs because I like where I live. I live close to my family, and I knew that a PhD was an experience that I would need support for <laugh>. And so, I didn’t want to leave my support system behind to do that. And so, whenever I got accepted to the University of Oklahoma and I was still living in Texas, and I had no plan to leave Texas, there was the issue of out-of-state tuition costs. And so, I got accepted in about March 2020. I found out I got the scholarship in April of 2020, and I had kind of set that as the bar, like if I get accepted and I get the scholarship, I’ll go, right? But then I thought, well, out-of-state tuition is almost double, right? It’s the difference between $10,000 and $6,000 a semester.

32:58 Brenda: And I just told the director, like I really want to go to this program, and I’m really grateful for the scholarship, but I realized financially that the out-of-state tuition is going to eat up about 50% of my stipend per semester. So, is there any way I could get in-state tuition? And she actually took it up to the graduate college and they agreed to give me a waiver for three years. So, I pay in-state tuition, and actually the great part about being a graduate research assistant is that, when you take on that position, it’s actually the grant that is funding you, that pays the waiver. And so, the waiver that I had originally been promised can be given to someone else while I’m a GRA.

33:44 Emily: Wow. Okay. Another great example of negotiation, and also another kind of general negotiation point that I like to make to prospective graduate students is like, you don’t necessarily know all the different levers that these people behind the scenes can pull to like enhance your package. So, you made the suggestion, maybe I could pay the in-state tuition rate instead of the higher rate, and they made that happen. And if that hadn’t exactly been possible, maybe they could have found a different way to augment your package to make up that, you know, $4,000 per year difference. So, yeah, so encouraging for prospective graduate students.

34:15 Brenda: I do want to mention that one of the points I brought up was that, and maybe this is just using a rivalry to my advantage, but you know, UT Austin and the University of Oklahoma are rivals in football. And UT Austin has a policy that, if you’re an out-of-state student and you come in to Texas with a scholarship from Texas, like if you won a scholarship in Texas, then the University waives your out-of-state tuition. And so, I presented that to the director and I said, you know, UT Austin does this, do you guys do anything like this? And I think that was what helped, you know, is that I had kind of done my research and I was like, you know, this is something another university is doing. Can you guys do it? And they said yes.

34:58 Emily: That’s a great example as well of like sharing of best practices. Hey, these other people have found this solution over here. Sometimes it helps to open their mind. Oh, well, maybe we could find this similar solution. Absolutely.

Money Mindset

35:09 Emily: So, you mentioned, you know, you’ve taken a pretty substantial income cut to pursue the PhD. Are there any other ways that taking this step in your career has impacted your path towards financial independence?

35:23 Brenda: Yeah, like I said, it’s probably a little bit of a setback numbers-wise and on the spreadsheet, but I feel that it’s so valuable to me personally and professionally and in my development as a person, as a researcher, as a scientist, as a nurse. You know, I’m just being challenged to think in ways that I never did before. And my practice in primary care became kind of monotonous and, you know, unfortunately, there wasn’t very much motivating me forward. And I feel totally different now. You know, even though sometimes I’m overwhelmed to learn new things, it’s so cool to like see yourself grow in ways that you never thought you could. And financially like, okay, maybe I’m taking like a $50 or $60,000 per year cut. But in the course of my life, like is three years really going to <laugh> matter that much, you know? And how much more will my life be enriched by having this degree? Like what doors will it open for me, whether they’re monetary or not is not really the point for me anymore. And that’s something that I was able to achieve in my twenties, right? Like that I set myself up to where, whether I make $50,000 or $150,000, what matters most to me now is that I’m happy, that I’m fulfilled, that I’m challenged, that I enjoy the people I work with, that I genuinely feel that I’m making a difference.

36:54 Emily: And it’s just so like gratifying to hear that, you know, the work you did on your finances in your twenties, both before and after discovering the FIRE movement, set you up to have this excellent financial experience during the PhD. Now, part of that is your field, and this is normal and so forth, this fantastic scholarship, you got all of that. But part of that is just, you know, when I was listening to some of your other podcast interviews, I was thinking that you just sound so like, calm about your finances. Like you just sound so like relaxed about them, which is a very different energy than what I give off sometimes, and like other people who I listen to, or interview on the podcast. But that is on the back of all the work that you did in your twenties to lead up to this point.

37:37 Emily: And so, you get to be relaxed because you have this net worth, you have your properties, you have your house hack, and you have this fantastic income. And this is just something that I so wish that more PhD students could experience. Even a fraction of the experience that you’re having, right? Like maybe it’s having the reasonable income for a person in their twenties or thirties. Or maybe it’s, you know, having worked for a few years, building up a bit of a nest egg before taking that income cut the way you have. I just, I love hearing just your whole like, sort of disposition towards this.

38:09 Brenda: Yeah. And I think a lot of it is reorienting your mind to not have a scarcity mindset, right? To kind of have an abundance mindset, like I’m going to thrive and I’m going to find a great job after this. And like I said, I’m just gifted with a naturally positive disposition, but like, I don’t have any worries about what will happen after, because everything’s worked out so far. <Laugh> maybe that’s just because I’ve been so strategic, right? Maybe in some ways I could have relaxed a little bit, but I am very forward-looking, right? I’m always kind of thinking about the next thing. And I have to remind myself to live in the moment, too, but yeah. I think that most PhD students, like you said, undervalue themselves. And I think about my classmates alone. You know, I’m like, they’re so talented, they’re so smart. Some of them are doing this with kids, with a family, taking care of their parents, with a job. And I’m just like, those are skills, right? Like those are highly marketable skills. Like just getting through the program with life the way it is is a crazy good skill. So, I really appreciate that you encourage people to, you know, maybe do some inward thinking about how can I monetize these things that just come naturally to me now in this stage of my life?

What is Coast FI?

39:40 Emily: You said a couple of minutes ago that, well, it doesn’t really matter if I make $50,000 or $150,000 a year. It’s going to be okay. It’s going to work out. That reminded me of the term Coast FI, a particular version of FIRE. Do you think about Coast FI? Would you describe yourself as Coast FI? Let’s define that for the listener.

39:59 Brenda: Yeah. I think traditionally, Coast FI means that your retirement is set, even if you don’t invest another dollar. I wouldn’t say that I don’t need to keep investing. I think I do. But I don’t really see myself retiring early in the traditional like FIRE sense because I have, A) A very useful skill that’s highly needed in this country. B) I speak Spanish, which is really useful in my part of the country. C) I’m just such a busybody. Like I could never stop working, you know, <laugh> like, I just, when people talk about staying home, like with children, I’m like, I could never do that. I could have children, but I’m not staying home with them 100% of the time. So, yeah, Coast FI for me just means that I have the financial flexibility to choose something that means something to me, as opposed to just a means to an end, to like pay my bills. And a part of that has also been keeping my expenses low. But the other part is, like you said, everything I did to set myself up in my twenties. And, you know, a few years ago, I probably would’ve told you that I would quit working at 45. And now that I’ve been in the PhD program, I’m like, no, there’s so much to do. There’s no way I could cut off 15 or 20 years off my career, you know?

41:26 Emily: That’s so interesting that you described earlier kind of finding, getting into like a lull in your career. Like you weren’t so stimulated. And I think that some people, like you did, would see FIRE, the potential to retire early, as the solution to that. And you did, but you also found another solution, which is, you know, taking your career in a slightly different direction, going down the academic path. And you found that reinvigoration there. And now you have kind of choices on both fronts. You have many career options, you have many financial options, to work, to not work, to work in a capacity that other people would not be able to, perhaps, because they hadn’t maybe had all these, you know, made all these decisions in their twenties and so forth. So, kind of the world is your oyster really <laugh> once you finish this program.

42:09 Brenda: Yeah. And things have come up during the PhD program. I don’t know if it’s because of the PhD program, but for example, I was a volunteer vaccinator for a local community center that was giving out COVID-19 vaccines every three weeks. And I was just consistently going, because I just wanted to help my community. And then they reached out to me about being the clinical consultant for their community center, because it was part of their grant. It would help their grant application if they had someone, you know, whose name they could put down, and they offered to pay me for that as well. That was an income source I forgot to tell you about. So, they pay me $500 a month, and I basically like attend some meetings and answer questions about COVID, about the vaccine, about what to do if this or that. And that was something I never would’ve thought I would do. You know? And it’s just like kind of a result of just saying yes, like I was like, well, I don’t see clinical consultant on my resume yet. <Laugh> but I guess I’ll do it. You just tell me what to do and I’ll show up, you know?

43:17 Emily: That comes from having that financial margin in your life and the time margin, right? To be able to say yes to, at first unpaid, but then later look what it turned into, you know, opportunities, which is something I could certainly <laugh> learn from.

Post-PhD Plans

43:29 Emily: Okay. So let’s talk a slight bit more about post-PhD plans. You mentioned earlier, you know, you have a few different career paths that you might choose among. What are you thinking?

43:40 Brenda: So, the idea of working in industry, or like the pharmaceutical area appeals to me because every pharmaceutical company has a medical affairs division in which they have doctoral-level prepared clinicians or pharmacists, which kind of serve as the bridge between the scientists creating the drug or the device and the prescribers out in the world. And so, that’s actually a really lucrative option. Like I know a couple people who do it and they make about $170,000 plus bonuses. So, they’re making like $200,000 a year. So, if I wanted money, that’s what I would do. <Laugh> which I’m not above saying that I want money. Okay. <laugh> so if that job came up, I would definitely consider it. Then there’s obviously the traditional route of pursuing some kind of tenure-track research career in academia. I’m kind of iffy on that. I don’t know that it’s the best use of my strengths. I’m definitely a people person. I’m an extrovert. I can do writing and I can write grants, and I could potentially, you know, try to prove myself to the NIH for the rest of my life <Laugh> to try to get research money, but I’m not sure that I want that.

45:03 Brenda: And then, I could do a blend of clinical practice and teaching where I just teach as an adjunct and I maintain my clinical practice. That’s kind of what I was doing before the PhD. So, I’m not sure that I would really be maximizing what I learned in the PhD if I went back to that. And then there’s a postdoc if I do want pursue research and I just want to get into someone else’s work and see what they’re doing, and maybe that’ll make me more excited about a tenure-track career. And then I was also looking at the National Clinician Scholars Program, which is kind of like a subset of the Robert Wood Johnson Foundation. And that’s a program at six campuses all over the country in which you basically get more education on health policy and organizational change. And most of the graduates go on to work at like the Department of Health or Health and Human Services or the CDC or some kind of federal agency where policy is happening. So, that’s probably one of my top ones. Pharma’s one of my top ones, and teaching in a, non-research, like very little research, that’s probably my third one.

46:11 Emily: Yeah. Well, hopefully, you have all of those things on the table once you get towards your graduation. And like you said, money could play a role in your decision, or maybe you’ll be following, you know, what seems most interesting to you. And again, the position that you’re in affords you those options. So, it’s wonderful to hear. And I think you said earlier, you know, you’re probably not going to be idle, right? Even once you achieve financial independence, however you want to define that. It sounds like you expect to have a long career, which is, once you’ve invested in something like a PhD program, it’s very, I think, worthwhile to keep your skills out there and keep, you know, working for your communities you’ve said so far. Yeah. Anything else you want to add about what you envision your life to change or not change? Like after you achieve financial independence?

46:57 Brenda: I think as a woman and as someone in their early thirties, you know, one of the big factors in deciding what I do is like, if I want to start a family, and what career option would be most conducive to that. And like you said, I have options, but like women have to think about that more. And especially in academia or in science, like you don’t want to be put on the mommy track, right? So, that’s also something I consider like if I were to have children, would it be right away after the PhD? Would I settle into another job? Like give it a year or two? I’m going to be 33 in September. Like what about my, you know, what about my fertility? Like, there are so many things to think about. And I think that’s very real for a lot of women in academia, right? It’s like juggling your human babies and the baby of your career, which is your research or whatever you’re working on post-PhD.

48:00 Emily: Absolutely. And another thing that having a strong financial position just puts you in a strong position to decide about. If you want to take an extra long maternity leave that’s unpaid, but you have a job to go back to, well, maybe that’s going to be, you know, the best situation for you, or maybe not. Maybe it’ll be a different decision, but whatever you do, I mean, having money gives you options. I say that over and over again, it just gives you options. And that’s really what you have now, which is so delightful to hear.

Where Can People Find You?

48:24 Emily: So, if people want to hear more from you, where can they find you?

48:29 Brenda: I’m on Twitter @almostbrenda, like the word almost, and then my name, almost Brenda. And that’s also my Instagram handle and my email address at Gmail, almostbrenda@gmail.com. I’m on LinkedIn. That’s linkedin.com/in/bolmosfnp for family nurse practitioner. And I’d love to connect with people. Even if, you know, even if you just want to talk about how to improve your finances, I know Emily, you’re a great resource for that. And I’ve been in the Community forums there too. But if you’re interested in coming on our podcast, I cohost Minority Millennial Money which is on Apple and Spotify and all of the platforms. We love to have people come on and we talk through their finances with them and see what they could do better. So yeah, I’m easily reachable. I’m all over the internet. <Laugh>

Best Financial Advice for Another Early-Career PhD

49:26 Emily: Wonderful. I hope you’ll have a few people follow up with you from this. Okay. I’m going to conclude with the question that I always ask my guests at the end of interviews, which is what is your best financial advice for another early-career PhD? And it could be something that we touched on in the interview, or it could be something completely new.

49:44 Brenda: I would say it would be to disassociate your self-worth from your net worth, right? Because although I’m in a particularly advantageous position, I know how difficult it must be for people who are not in this position and are looking forward to those days when they get to earn a higher living. And you know, you’re already undervaluing your skills. You’re already in places that may be toxic and not supportive. Like, the very least you could do is like not value yourself based on what’s in your bank account. <Laugh>. And also, if you have the ability to keep investing, like to not lose time, because time is money in the market, right? So, anything you can throw at it is super helpful.

50:32 Emily: Great messages to end on. Brenda, thank you so much for this delightful interview!

50:36 Brenda: Yeah. Thank you!

Outtro

50:42 Emily: Listeners, thank you for joining me for this episode! I have a gift for you! You know that final question I ask of all my guests regarding their best financial advice? My team has collected short summaries of all the answers ever given on the podcast into a document that is updated with each new episode release. You can gain access to it by registering for my mailing list at PFforPhDs.com/advice/. Would you like to access transcripts or videos of each episode? I link the show notes for each episode from PFforPhDs.com/podcast/. See you in the next episode, and remember: You don’t have to have a PhD to succeed with personal finance… but it helps! The music is “Stages of Awakening” by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing by Lourdes Bobbio and show notes creation by Meryem Ok.

This Grad Student’s Finances and Mental Health Were Stuck in a Negative Feedback Loop

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In this episode, Emily interviews Dr. Haley Sanderson, a postdoc at the University of Saskatchewan. Haley was dramatically underpaid during graduate school and discouraged from working on the side. While many of her peers lived hand to mouth, Haley’s situation was made more dire by her at-the-time undiagnosed and untreated mental health disorder. Haley entered a negative feedback loop in which her finances, mental health, and physical health deteriorated together. Emily and Haley discuss what her program could have done to ameliorate this negative spiral and why it’s vital to sufficiently financially support PhD trainees. Haley concludes with her very practical financial advice for anyone at a career transition point.

Links Mentioned in this Episode

Image for S12E4: This Grad Student's Finances and Mental Health Were Stuck in a Negative Feedback Loop

Teaser

00:00 Haley: My suggestion would be, if somebody’s in my situation, to go get the help you need and get the financial help that you need, even if it means taking out loans. Because it’s much better to have the financial debt than the mental health debt.

Introduction

00:22 Emily: Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts, a financial educator specializing in early-career PhDs and founder of Personal Finance for PhDs. This podcast is for PhDs and PhDs-to-be who want to explore the hidden curriculum of finances to learn the best practices for money management, career advancement, and advocacy for yourself and others. This is Season 12, Episode 4, and today my guest is Dr. Haley Sanderson, a postdoc at the University of Saskatchewan. Haley was dramatically underpaid during graduate school and discouraged from working on the side. While many of her peers lived hand to mouth, Haley’s situation was made more dire by her at-the-time undiagnosed and untreated mental health disorder. Haley entered a negative feedback loop in which her finances, mental health, and physical health deteriorated together. We discuss what Haley’s program could have done to ameliorate this negative spiral and why it’s vital to sufficiently financially support PhD trainees. Haley concludes with her very practical financial advice for anyone at a career transition point.

01:44 Emily: I have set a super audacious goal for my business and our U.S. PhD community broadly. It’s actually a bit difficult for me to even speak it out loud! My goal is for every graduate student, postdoc, or postbac in the U.S. who is not having income tax withheld from their stipend or salary to be offered training on how to 1) estimate their future income tax liability, 2) determine if they are required to pay quarterly estimated tax, and 3) prepare to pay their tax bill or bills through setting up a system of self-withholding. I am passionate about this topic because surprise tax bills, high tax bills, and fines are an almost completely preventable source of financial strife for my community, and all that’s needed is a bit of education delivered at the right time. I provide just such a training, which is my asynchronous workshop titled Quarterly Estimated Tax for Fellowship Recipients. Most of you have heard me talk about it before, and some of you have taken it. The perfect time to give PhD trainees access to this workshop is when they start or switch onto non-W-2 income, which often happens near the start of the academic year, i.e., the near future.

03:08 Emily: If you share my passion—or maybe it’s more of a frustration for you—and know that your university is not already providing sufficient training in this area, would you please recommend that your graduate school, postdoc office, graduate student association, or department sponsor my workshop for those interested in taking it? You might want to take it yourself, or perhaps you just want to save the entering cohort the time and energy it took you to figure this all out on your own. To make this recommendation, simply email the potential sponsor with the reason you are recommending the workshop and this link: PFforPhDs.com/sponsorqetax/. If you’re comfortable with it, you can Cc me emily@PFforPhDs.com, and I can pick up the conversation. Thanks for participating with me in trying to reach this goal! I know it will prevent a lot of people in our community from experiencing tax-related financial emergencies next spring.

You can find the show notes for this episode at PFforPhDs.com/s12e4/.

Without further ado, here’s my interview with Dr. Haley Sanderson.

Will You Please Introduce Yourself Further?

04:33 Emily: I am delighted to have joining me on the podcast today, Dr. Haley Sanderson, who is a postdoc at the University of Saskatchewan, and she is coming on the podcast to talk about a really sensitive topic, which is living on a very low graduate student stipend while dealing with mental illness. So, Haley, I’m really pleased that you volunteered to be on the podcast to talk about this important topic. So, would you please introduce yourself a little bit further for the listeners?

04:58 Haley: Hi, I’m Haley. I have a PhD in environmental studies where I specialize in environmental microbiology and biotechnology. I finished my PhD in five years defending and graduating in fall 2018, since then I’ve completed postdocs with the Agriculture and Agri-Food Canada, Dalhousie University, and I’m now a postdoc in the Vaccine and Infectious Disease Organization at the University of Saskatchewan. And I’m currently applying for more full-time permanent gigs <laugh>.

05:37 Emily: Well, best of luck with that. Okay. So we’re going to go back to your grad school years, and most of my listeners are going to be in the U.S. So, could you please explain, give some context for how you are funded during your PhD?

Funding During the PhD

05:53 Haley: So, during my PhD, I started as a master’s student, so I actually started on a much lower stipend of about $14K Canadian. So, to get that money, I had to TA for about two semesters every year and then do a research assistantship in the summer. I was a master’s student for a year, and then I bumped up to be a PhD. I ended up getting three provincial scholarships in Ontario that bumped my stipend up to $25K, which is only a little bit higher than the base stipend for a PhD student. So, with that stipend, we actually have to pay tuition out of it. So, not all of it gets to go to living. You also have to pay your tuition out of the money that they give you. So, the actual amount that I lived off of was much smaller than the stipend that I got <laugh>.

07:14 Emily: Yeah. Well, let us know, do you remember the numbers on that? Like after paying the tuition, what amount were you living off of? And then give us some context for, like, how does that compare to the local cost of living?

07:26 Haley: I don’t know the exact numbers, but tuition was about $2,000 a semester, I would say, for about $6,000 a year. So, when I was on my original master’s stipend, I only had maybe $8K <laugh>, which is a little <laugh> insane. I had a lot more to live off of once I was in the PhD program. So, when I was a master’s student, I actually had to work, but there were some problems with the department not wanting me to work and kind of threatening to take away the stipend that was paying like my tuition and my rent.

Challenges to Supplementing the Stipend

08:09 Emily: Yeah. I mean, the numbers that you’re throwing out there sound incredibly low. It’s not surprising at all to me that you would, you know, seek other sources of income. Was that something that your peers were doing as well? Was the department also like threatening other peers who were working, or how were they making ends meet?

08:27 Haley: A lot of the other people in my department had like side gigs that they’d only do every once in a while. A lot of people hid if they had part-time jobs. Unfortunately, I worked close to the university and some of them saw me working, so that didn’t work out too well <laugh>.

08:48 Emily: How was that resolved? Did you have to give up the side job?

08:53 Haley: Some of the admins helped me apply to the provincial scholarships. And once I got the provincial scholarships, I was kind of told to get rid of the part-time job.

09:03 Emily: And would you say that when you had that higher $25K minus, okay, let’s say $19K per year stipend during the latter part of your PhD, was that enough to survive, or did you feel like you would’ve worked more if you were allowed to?

09:18 Haley: I probably would’ve worked more, but I think I would’ve had trouble doing that with the mental illness, because there were a lot of things that that impacted. Like my eating, my sleeping, my social life were also impacted by finances, and moreso by the mental health problems.

Mental Health Impact on Money Mindset

09:41 Emily: Yeah. Let’s talk about that more now. So, you had an undiagnosed slash untreated mental health condition at that time. So, how was that affecting how you handled your finances?

09:54 Haley: So, I have a psychotic disorder that causes me to have delusions and hallucinations that are usually really disparaging and kind of controlling. So, let’s say, for instance, when I got accepted into the master’s program, my mom made a comment that my brothers paid for their second degrees. And that kind of morphed in my mind to my parents won’t help me at all, so don’t ask them. Even when I tried to apply for like student loans, I kind of got it in my head that I would never be able to pay them back. So, it was kind of like a brick wall to actually apply for that. There were other things in my life, like I couldn’t eat certain foods because I thought I’d get really sick and stuff like that. So, it was essentially that I couldn’t really do anything to help my situation because my brain would tell me, like, you can’t actually do this.

10:58 Emily: Wow. Yeah. I had not like, thought about that or realized that was a potential, you know, symptom that some people could be experiencing. So, thank you for sharing that. I do a lot of like, how do we find workarounds on this podcast? Or like breaking through like your money mindset stuff. But like when you’re dealing with a serious mental health condition, that’s simply not an option without higher-level treatment, right? Which you eventually got, and we’ll get to that. And so, how then also did having such a low income during graduate school affect your ability to get diagnosed or treated?

11:33 Haley: I started to have psychotic episodes during my third year of my undergrad. And at that time, I went to go see a doctor and that doctor gave me antidepressants, which there was a co-pay for. And he wrongly sent me home without doing any more assessment and essentially told me, you might be developing schizophrenia, we’ll see <laugh>, which is not the best thing <laugh>. So, I was already on a very small budget when I was in undergrad. My parents paid for like my tuition and my rent. So, I was never in a situation where I would be homeless, but I was still in a situation where I didn’t have that much money. If I were in that situation now where I’m on my antipsychotic and my antidepressant, the antidepressant is maybe a couple dollars a month, but if I didn’t have benefits my antipsychotic would be over $200 a month.

12:43 Haley: So, part of the reasons why I stopped taking the medication at that point was, one, that it caused pretty severe hallucinations, more than I had before I got on the medication, because it was the wrong one. And the other thing was that I didn’t necessarily want to pay for it <laugh> because it was making me feel worse. So, I was kind of in denial that I needed them when I was in grad school, because I could no longer tell if I was feeling well, or if I was sick. Everything just kind of melded together. So, in terms of the impact of having a really low budget in grad school, I couldn’t eat properly. I maybe spent $30 a week on food, and I pretty much ate the same things all the time. Like rice, lentils, beans, and apples.

13:48 Haley: I was so worried about things that I also didn’t sleep. And by that I would mean I would be in the lab for maybe 16 hours a day and I’d go home and sleep for four to six hours. And one of the big things about controlling psychosis is that you need to get enough sleep. So now, I actually need close to eight to 10 hours on average. So, that was a pretty big impact. And it certainly didn’t help the delusions that I couldn’t get financial help <laugh>. It was kind of like a feedback loop.

14:27 Emily: I was just going to say that sounds exactly like a negative spiral, right? Like you are having tight money issues, so you forgo the medicinal and also other forms of self-care that maybe were somewhat available to you. And then your mind is also telling you that you can’t access or don’t deserve those things. And then it loops around again. So yeah, that sounds horrible.

Financial Stress and Sacrifices on a Low Stipend

14:56 Emily: You just mentioned living off of a really small, like food budget, for example. So, were there other things that you didn’t spend on that you forwent spending on to make that really low stipend work?

15:10 Haley: I didn’t go out very often and kind of avoided any social situation where I might have to pay for stuff. Particularly in my first two years. After my first two years, I moved somewhere with a better cost of living. I kind of filled my time only with work because I couldn’t really afford to have hobbies <laugh>. At one point when I decided to move in my second, third year, I had to give up a cat that was kind of my emotional <laugh> animal at that time, because I couldn’t move them across the country to where I was working. I didn’t go home for Christmas, and I barely saw my family because I really couldn’t afford to go on a bus or go on a plane. I didn’t take a vacation throughout my entire PhD. I didn’t date anyone during my entire PhD. And I avoided buying anything other than food. So, I would wear clothes until they like physically fell apart. Same with shoes. I’d wait until I really, really had to. So, I essentially forgo like anything that would be making me kind of happier <laugh>. So, it really wasn’t ideal.

16:39 Emily: Yeah. I realized that I kind of phrased that question as like, “Oh, what are the great strategies you used?” Not that I meant it that way, but this is not at all a laudable list, right? This is all a list of things that caused you to become even more unhealthy. And again, in that spiral that we were just talking about, and to not be able to break out of it. Like having an injection of some extra money, I mean, it would also help if your mind were, you know, allowing you to spend on these things, but having some extra money would’ve helped your general mental health, but also specifically your condition so much. It’s so obvious that that would be the case. I’m just like hearing a picture of you like drowning during graduate school. Financially, mentally. And I’m wondering about the people around you, like your advisor or other people in your department. Like, was there anything that they could have done? I’m asking this in a way of like, what can other people listening to this, take away if they see a peer or someone in their program that is to say, maybe they’re a faculty member or someone else who has a bit of power in the situation too. Like what, what should they have been doing or what could they have done to help you out of this spiral?

What Could Have Helped?

17:59 Haley: In some ways, there wasn’t really much people could do. In terms of what the department did, they tried to help me get scholarships, which did make the situation a lot better. There is an opportunity to do like graduate assistant work that I did for two summers. That was really helpful. Maybe having like emergency funds that are easy to apply to would be very useful too. But a lot of the time, I didn’t think that my, I couldn’t tell that my situation wasn’t normal <laugh> because a lot of my peers had similar problems. Probably not to the same mental extent, but in terms of money, it was pretty common. And maybe just increasing the stipend would make a big difference. I checked the department’s website and it looks like the PhD stipend has increased, but the master’s stipend is still quite low. But that would be what I would think of when I think of what the department could do to help people.

19:09 Emily: Absolutely. I think pay graduate students more. Pay graduate students enough that they don’t experience the things that you mentioned, like not being able to go home and visit your family members, never going out socially if there was, you know, a possibility you might spend money. In addition to just being like the compassionate thing to do for students who are under your charge, as well as, especially if you’re not going to allow them to work or whatever, they’re not developing. You were not developing as a scholar in the way you could have. You could have blossomed even more, had you been sufficiently financially supported. Same goes for your peers too. So, it’s just really, it’s very hard for me <Laugh>, I’m sure for the listeners as well, to hear how much you were struggling and how big of a difference, you know, a few more thousand dollars a year from your department would’ve made, and what exactly is tying their hands to make that not happen? If their goal is to develop scholars and PhDs, they could do that even better by financially supporting them better. That’s how I view it.

20:12 Haley: Yeah.

Commercial

20:15 Emily: Emily here for a brief interlude. I have set a big goal for my business and our U.S. PhD community broadly. My goal is for every graduate student, postdoc, or postbac in the US who is not having income tax withheld from their stipend or salary to be offered training on how to 1) estimate their future income tax liability, 2) determine if they are required to pay quarterly estimated tax, and 3) prepare to pay their tax bill or bills through setting up a system of self-withholding. I provide just such a training, which is my asynchronous workshop titled Quarterly Estimated Tax for Fellowship Recipients. Now, some universities, institutes, or funding agencies already offer such a training, and they have no need to work with me. But others won’t allow their employees to touch the topic of taxes with a 10-foot pole, and that’s where working with me can really benefit everyone. Would you please send me an email and tell me which camp your university falls into—or if it’s somewhere in between? You can reach me at emily@PFforPhDs.com. Furthermore, let me know if you want to take Quarterly Estimated Tax for Fellowship Recipients for free or think that the cohort coming in this fall should, and I’ll reply with how you can help make that happen. I look forward to hearing from you! Now back to our interview.

Ending the Negative Spiral

21:56 Emily: So, how did you ultimately end this spiral that you were in? Did you get on medication? Did you see different doctors? Was it a matter of graduating? Like what happened?

22:06) Haley: Graduating was actually the worst thing that happened <laugh>. So, I had to pay for my ticket to do my defense because I was living in Alberta at the time and I had to come back to Ontario, and that actually completely depleted my bank account. If I hadn’t gotten a job pretty much right away, I would not have had a place to stay and I wouldn’t have been able to go home at all. I ended up going through an even bigger spiral where I entered like acute psychosis. Like the CRA is after me <laugh> kind of psychosis or people are actively following you and you’re hearing complete conversations and more disparaging comments and so on. I essentially kept working for almost six months with acute psychosis. And then I finally hit a point where I couldn’t do it anymore and I realized that there was something incredibly wrong.

23:21 Haley: So, I ended up going to the doctor who tried to put me on an antipsychotic, but I essentially spiraled further when I got onto the antipsychotic because it was essentially too late to be putting me on it in an outpatient location. So, I ended up having to go to the ER twice. The first time there wasn’t a psychiatrist. So, they sent me home. The second time, I was essentially really dehydrated, only weighing 80 pounds and completely out of reality <laugh> essentially. So, the psychiatrist put me into inpatient care and I stayed there for a month where they put me on medication and I essentially slept because I was burnt out from work and the PhD. So, it’s taken probably two and a half years to get on the right medication and recover fully from that.

24:23 Haley: Starting a postdoc that actually pays me enough to live has been pretty helpful <laugh> in that because I’ve been able to start eating more healthy. I’m not as worried. And I have the psychosis under control between medication and therapy. So, I’m sleeping a normal amount. I’m eating a normal amount. I’m exercising because I can afford to go to the gym and like go to spin class and stuff like that. One of the weird things is I actually got out of the grad school with absolutely no debt because I couldn’t actually apply for the loans. Like my head would not let me apply for them. So, I ended up getting out with absolutely no debt, but also absolutely no money <laugh>. So, I was really lucky that I was offered a job right away. After I was hospitalized, I had to take three months off. So, I actually lost the job that I had gotten and I had to find another job, which I had to move across the country for. And then after that job, I had to move across the country again, which has always been kind of a financial burden, but that’s just kind of how my job goes <laugh>. But I’m doing much, much better than I was doing in grad school and have a lot of things more under control.

Paying Off the Mental Health Debt

25:57 Emily: I am so glad to hear that you’re in a much better place right now. Although it does seem to me that it’s taken a long, long time to get there. I mean, you mentioned that you came out of graduate school with no financial debt, but you had a debt to yourself of another kind, right? Of having not taken care of yourself and had been on the medication and doing the sleeping and the eating and all that stuff. So like, you still had to come out of that depth of the, you know, of care that you needed to get back up to the point you’re at now, the stable and healthy point.

26:32 Haley: I would say that I would’ve rathered have the financial debt than the mental debt. So like, my suggestion would be if somebody’s in my situation to go get the help you need and get the financial help that you need, even if it means taking out loans. Because it’s much better to have the financial debt than the mental health debt.

26:57 Emily: I totally agree. And I’m really glad to hear you say that. I don’t want to criticize other people either in their financial situations, but when you’re in a unique time of life, like being a graduate student and it is ideally time-limited and you’ll move on to having a better-paying job later on, it can, in some situations make sense to take out debt and some people feel so debt-averse that they, and I’m not saying you did this because you had this mental health condition, but they put themselves into debts of these other kinds. They’re not eating properly. Maybe they are not living in a safe situation. Again, I don’t want to sound like I’m criticizing them, but they do as a graduate student, at least in the U.S., have the option of taking out debt and alleviating some of that.

27:43 Emily: And so, I just want them to think about that as a legitimate option and not something that’s completely off-limits to them to help this short-term cash crisis that they’re in during graduate school. Again, the responsibility for that as we were talking about earlier falls much more on the programs underpaying people. That’s on them, rather than the people who are being underpaid. But that is a way out of a very difficult short-term situation. And like you said, you would’ve rather had a bit of money to pay off than having these years and years that it’s taken you to recover from the state that you were in by the end of graduate school.

Save Money and Study the Financial Side of Grad School

28:20 Emily: Do you have any other advice for prospective graduate students who are walking into programs like you did your master’s, your PhD program, who are potentially being radically underpaid compared to the local cost of living?

28:37 Haley: I would mostly work for a while and save money before you go to grad school. I wasn’t in a situation where I thought I could do that, but if I could do it again, I probably would’ve started working right away and then decided if I wanted to do grad school after I’ve made a little bit of money <laugh>. Make sure that whatever program that you want to go into does have a fair stipend. I didn’t even think of that when I joined grad school, but that should have been a much bigger consideration than what it was for me because I’m first-generation. I didn’t think that they would give me a stipend that I couldn’t live off of <laugh>.

29:17 Emily: Misplaced trust.

29:19 Haley: Yeah <laugh>. I would maybe do a little more digging on the financial side before starting grad school.

29:27 Emily: Yeah. I think those are great suggestions for someone considering graduate school. Definitely look into the stipends versus the local cost of living. I have a website that helps with that. At least if you’re in the U.S., which is called PhDstipends.com. So you can see what other graduate students actually report as being their income, not what the programs tell you they’re paying. Those might be two different things until you get the offer letter, at least. So you can kind of do some pre-research on the programs that you’re planning on applying to, to see if they’re paying a living wage or not. And like you said, I think a lot more people should be considering working for a decently-paying job for a year or two or three before they start graduate school to build up some kind of financial safety net so that they don’t have to do things like you were just mentioning, the cost of moving multiple times across the country.

30:13 Emily: That’s very significant. And if you end up paying for that, let’s say with like credit cards, because you don’t have the savings or cash to do it, then you’re kind of starting graduate school like already knocked back, already knocked onto your back foot, like financially, because you’re now having to pay down credit card debt in addition to living on this very, very small stipend. So instead, if you can have that savings, so, so helpful to just kind of get out ahead of these issues. So, that’s great advice for prospective graduate students. And thank you for giving that.

Best Financial Advice for Another Early-Career PhD

30:43 Emily: I do end my interviews with a standard question that I ask all of my guests, which is what is your best financial advice for another early-career PhD? And it could be something that we’ve talked about in the course of the interview, or it could be something completely new.

30:55 Haley: If you’re a postdoc, I’d start saving and get a retirement fund and maybe a rainy day fund. Because postdocs are fairly short for most people, and you’re probably going to have to move again and things come up. So, it’s good to start saving once you can start saving after grad school. And kind of the same advice for looking at a postdoc. Make sure the salary is enough to live comfortably on before you agree to do it. It’s not a nice thing to accept a salary and then get to the city and realize that you can’t really live there <laugh>. And maybe try to negotiate your salary if you can.

31:45 Emily: All wonderful advice. I’m recalling actually, when my husband got a postdoc offer in Boston, we were living in Durham, North Carolina at the time. So kind of moderate cost of living to high cost of living. And we calculated it after accounting for the cost of living change between those two cities. He was actually being offered effectively less money than he had made as a graduate student with that postdoc position in Boston. And he did try to negotiate and he got them to increase the offer very, very slightly. And ultimately did not take that offer and finances were, you know, a part of that decision. And so, I totally agree with you, especially if you have not yet lived in a city, whether it’s for grad school, for postdoc, anything else. You need to really investigate what the cost of living is because you just don’t know until you actually live there. And by the time you accept an offer and move, it’s too late <laugh>. You need to do as much as you can in advance. So, Haley, thank you so much for being willing to give this interview. I think it was a really important conversation that the listeners are going to benefit so much from. So, so glad to hear you doing well. And thanks again for volunteering!

32:50 Haley: Thanks for having me!

Outtro

32:58 Emily: Listeners, thank you for joining me for this episode! I have a gift for you! You know that final question I ask of all my guests regarding their best financial advice? I have collected short summaries of all the answers ever given on the podcast into a document that is updated with each new episode release. You can gain access to it by registering for my mailing list at PFforPhDs.com/advice/. Would you like to access transcripts or videos of each episode? I link the show notes for each episode from PFforPhDs.com/podcast/. See you in the next episode, and remember: You don’t have to have a PhD to succeed with personal finance…but it helps! The music is “Stages of Awakening” by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing by Lourdes Bobbio and show notes creation by Meryem Ok.

The Gardener and Rose Approach for Childfree PhD Couples

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In this episode, Emily interviews Dr. Jay Zigmont, who holds both a PhD in Adult Education and Certified Financial Planner designation. Jay has focused his financial planning practice, Live Learn Plan, on the childfree community, and his book, Portraits of Childfree Wealth, will be published on June 1, 2022. Emily and Jay discuss the stories and interview excerpts from the book and Jay’s observations about the relationship between being childfree and finances. Jay holds up the model of the Gardener and Rose as a potentially useful one for dual-PhD couples, which is what he and his wife practice.

Links Mentioned in this Episode

Teaser

00:00 Jay: And I was amazed that people would share this. I mean, to be frank, people would rather talk about their sex life than their finances. But people were sharing it all, and it’s just amazing to see.

Introduction

00:15 Emily: Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts. This is season 12, episode one, and today my guest is Dr. Jay Zigmont, who holds both a PhD in Adult Education and the Certified Financial Planner designation. Jay has focused his financial planning practice, Live Learn Plan, on the childfree community, and his book, Portraits of Childfree Wealth will be published on June 1st, 2022. We discuss the stories and interview excerpts from Jay’s book and his observations about the relationship between being childfree and finances. Jay holds up the model of the gardener and rose as a potentially useful one for dual PhD couples, which is what he and his wife practice.

01:10 Emily: If you’ve been getting value from this podcast, would you please do me a favor? This is a perfect time of year to recommend me and my work to an appropriate host or sponsor at your university or Alma mater. In case you didn’t know, I offer numerous personal finance seminars and workshops on topics like taxes, investing, budgeting, and debt repayment, all tailored for graduate students, postdocs, and/or prospective graduate students. If you think that you and your peers would benefit from my teaching, please recommend me to your graduate school graduate student association or post office. These recommendations help me get my foot in the door with new clients or remind past clients of the need for this material. If you choose to recommend me over email, please Cc me, emily@PFforPhDs.com so that I can pick up the conversation. It’s only possible for me to create free-to-you content like this podcast if I have paying clients for my speaking engagements and prerecorded workshops. Thank you in advance for recommending me. Without further ado, here’s my interview with Dr. Jay Zigmont, CFP.

Would You Please Introduce Yourself Further?

02:29 Emily: I am delighted to have joining me on the podcast today, Dr. Jay Zigmont. He is a CFP whose practice is called Live Learn Plan. And he’s also a PhD. His PhD is in Adult Learning from Yukon, and we’re going to be talking today about his kind of specialty within his financial planning practice, which is in childfree people. So, that’s kind of the topic, and specifically how like his career has progressed and how he and his wife together have progressed in their careers and trade offs in their childfree life. So, Jay, it’s such a pleasure to have you on the podcast. Thank you so much for volunteering! And would you please introduce yourself a little bit further for the listeners?

03:06 Jay: Absolutely. Emily. So what I do for my day job is I help people understand their dreams and figure out their life and financial planning. I specifically work with childfree folks, which is a interesting area, because in finances it’s completely ignored. There’s no mention in the entire certified financial planning training of being childfree. So I try to bring a little bit of my own life and my research into the practice.

03:30 Emily: Yeah, that’s really, I just think it’s really exciting to learn people’s niches and like why they chose them. Obviously, I have a very specific niche in my like financial education stuff. So, that’s awesome that you’re kind of overlapping your own life choices with what you focus on in your profession. So, it’s a little bit of an unusual path, right? To get a PhD and then get a CFP later on. That’s a certified financial planner by the way, for those who aren’t familiar with the acronym. So, can you tell us how your career took that path?

04:00 Jay: Yeah, so I spent a lot of time in healthcare and academia and you know, everybody listening, there are probably some people who have done both those careers. And it’s always good, bad, and ugly. And across that time, the thing that was common was I was doing coaching. So, whether it’s executive coaching, career coaching, life coaching, academic coaching, whatever it is. And the reality is people are more willing to pay for financial coaching than they are for some of the other. And as soon as you do that, you need to start working on a CFP, become an investment advisor, all the other ones to cross the T’s dot the I’s. And what I’ve found is that I can combine life coaching or life planning with financial coaching and financial planning, because I don’t know if you can separate your life and your finances, but at least that’s the way I look at it, they’re all together.

04:45 Emily: I have the exact same viewpoint. It’s one of the things that has always like excited me about personal finance is that it is so intertwined with just your life holistically. It’s impossible to separate. And I think you really can like get to know people really well, what their values are, what excites them through how they are using their money or how they would like to use their money in the future. So, I totally agree. That’s really, really fun.

05:08 Jay: So, I’m also advice-only. So, I’m an advice-only CFP. I don’t do investment management for people. So, my work is around teaching people to do it themselves. So, that matches where I come from. But it’s also, frankly, different in the financial world, because I’m not charging an AUM fee or anything like that. I meet with people on a regular basis. I actually meet with them monthly and we work through their life finances and it just helps people grow.

05:31 Emily: I totally agree. This is a really new, like exciting model within financial planning. I don’t know if the listeners will be familiar with the AUM or assets-under-management model, but that’s where you hear like a, you know, an advisor’s charging you 1% or some other fee similar to that, to do all your investment management for you, but your model is completely different. And a lot of, I think younger planners are moving towards this fee-only model where, like you said, you’re paying kind of for someone’s time and expertise, but it’s a teaching relationship. It’s a coaching and guiding relationship. I’m working with a financial advisor as well who’s a CFP who works under that same model of a subscription model instead of this like AUM model. So yeah, I really, I love that.

Portraits of Childfree Wealth

06:10 Emily: So, in preparing for this interview, you sent me a book. Can you tell us about the book and the study that you did that leads into it?

06:20 Jay: Yeah. So, I actually started off with a different plan than my book. And, you know, when you dive into research, you have this idea of what you’re gonna look at and then it goes somewhere else. And I’m a qualitative researcher by nature. So, I really wanted to look at the question of what is it like to be childfree, and how does that impact your life and your finances and your wealth? And I’d done a bunch, you know, got a bunch of surveys, got a bunch of data, started going through it. But I was doing these interviews with these people, and these amazing stories came out of what their life was like. And I said, okay, I have to kind of pause some of the analytical work I’m doing and just share these life stories because they don’t exist. You know, and the childfree, they’re about 11% of the U.S over 55 are childfree. And a recent study in Michigan found that 27% of adults are childfree, but there’s no stories about kind of like, well, what does that mean? How does that work? What is that life like? And I was like, how is it possible that such a large group, I mean, we’re talking millions and millions of people, don’t have something, and in the financial literature it’s completely ignored? So, I’m sharing the stories, and hopefully people can go, “Oh, that’s me,” or, “Wow, I didn’t realize that was a way of life.”

07:28 Emily: Can you say the name of your book and when it’s coming out?

07:31 Jay: So Portraits of Childfree Wealth comes out June 1st.

07:35 Emily: Okay. So, I read this in preparation for the interview, and what I found fascinating is that it feels very honest. It feels very unfiltered, especially about a topic like finances, which is so sensitive. And a lot of people are not willing to speak openly about it. So, it is really exciting that you could, you know, compile these interviews and really share, like you just said, like exactly what life is like for these, you know, selected people that you included in the book. So, it was really a fascinating read. Disheartening at times, honestly, but also very encouraging at times. Because obviously different people have different kinds of stories.

08:10 Jay: So, you’re right on it. And I think one of the most shocking things to people is, being childfree doesn’t mean you’re rich. There are people in there literally talking about living on an air mattress. You know, I’m like, the way I look at it is, you know, if they had a kid they’d drown, you know, they just barely keep, and I was amazed that people would share this. I mean, to be frank, people would rather talk about their sex life than their finances, but people were sharing it all. And it’s just amazing to see.

08:37 Emily: Yeah, and I don’t know if this is one of maybe the threads that you pulled out of this set of interviews, but definitely in a number of them, finances were not necessarily like a motivation for making a choice to be childfree, but it helped a lot on that front. Like you said, some of people interviewed would not, I think, be able to financially support a child without some additional like outside assistance, the way they were earning and living like at the moment. And so, it seems like a practical choice as well.

09:10 Jay: Yeah. And I think, so because we’re talking to researchers, this is always a fun one. There’s a relationship, I’m being technical on that, between growing up in poverty or poor and choosing childfree. I don’t have enough data to look at correlation/causation, but there is something there, you know? I didn’t come up with it. I don’t have the money. And then I’ve made that choice. And I think that’s one of those that we’re going to have to dive deeper in to understand, but there are also people that have chosen, well, I’m not having kids because of climate or medical issues or all different reasons. So, I mean, they’re just as varied as the people themselves.

FIRE versus FILE

09:47 Emily: Yeah. And I’m sure this is probably typically a multivariate decision, right? It’s not just one overriding reason for making the choice to be childfree, but it’s, it’s a few things that all kind of come together. Besides the relationship between growing up in poverty and choosing to be childfree, what were some other like key observations or other relationships that you saw?

10:06 Jay: So, I think some of the interesting ones, I was surprised the amount of childfree folks that say they don’t really want to retire. So, there’s a lot of work right now on the FIRE movement, Financial Independence, Retire Early. And there are a couple people that are FIREd and some people like inadvertently FIREd and all that. But most people are going, I’d rather do what I call FILE, Financial Independence, Live Early. It’s kind of dimmed the work. You know, Ryan shares his story in the book of, he works 25 hours a week, never on Fridays, never before 10:00 AM. And like he could take his laptop and go to Palm Springs and do work from anywhere. And that’s really interesting because I think that might be a unique thing to the childfree community that you can get up and go and have that mobile life. But it’s also, if your goal is not retirement, it completely changes your financial plan.

10:54 Emily: I really like that you had that acronym that you explained a few times throughout the book, the FILE. And it reminded me of some of these other like flavors of FIRE, like barista FIRE and Coast FI and all of those. Yeah, super interesting.

11:09 Jay: Some of the people in the FIRE community will argue with me and say, well, Choose FI or Slow FI, the same as FILE. And I go, well, here’s the question? The question is, are you retiring at the end? And what you hear is a lot of FIRE people go, “No, I don’t really want to retire.” Well then you’re not FIRE-ing. You are doing something else. And I think the point I was trying to work through is if I’m not retiring, then my financial plan shouldn’t reflect retiring. And people go, well, what does that change? Well, it changes a lot of your assumptions, and it changes what are your goals, and how does that fit?

11:41 Emily: Yeah. That’s a really exciting concept. Were there any other observations or relationships that you’d like to pull out from the study?

The Gardener and the Rose

11:48 Jay: Yeah, I think the other one I mentioned in there comes out of me and my wife to an extent is this concept of the gardener and the rose. So, my wife and I were both PhDs, and anyone that has a family with two PhDs, you know how hard it is to get a career with two PhDs. Does that make sense, Emily?

12:04 Emily: I know it very well. My husband has a PhD, too.

12:07 Jay: Yeah. So, we get this trailing spouse thing, and it just, it’s a nightmare. My personal belief is it’s almost impossible to get two careers at exactly the same level at exactly the same time for two PhDs. It is possible, but I mean, it’s like you won the lotto. And what I heard from the childfree folks was people were looking at, Hmm, what are the options? And what my wife and I did is we look at it as the gardener or the rose. Somebody’s the rose growing, and somebody’s the gardener providing the support. And I have to clear, you know, that is not gendered roles or anything like that. It’s just expectations, because somebody has to provide support, and somebody has to grow. And my wife and I, we actually have made a conscious effort that we’re going take turns, you know, and that allows the rose to kind of grow and do its own thing.

12:54 Jay: And what you heard is people in this book saying, “Well, you know, we have two incomes. We don’t need both. One of us is not happy.” And I’m like, “So, quit.” And they’re like, “Wait, what?” I’m like, “Well, take turns growing and you can work this gardener and the rose approach. And I’ve got people in there that one’s creating his own video games and he’s doing indie game design and they’re living in an RV. He’s the rose right now, and his wife works in healthcare. It’s this thing that can happen where you can take these turns. Does that make any sense?

13:24 Emily: It absolutely makes sense to me. And as I was reflecting on this concept, I was trying to sort of apply it to like my relationship with my husband and how our careers have progressed. It doesn’t fit, I think, quite as cleanly for us as it does for you and your wife. But I see elements of it at different times and in different ways.

Commercial

13:43 Emily: Emily here for a brief interlude. If you are a fan of this podcast, I invite you to check out the Personal Finance for PhDs Community at PFforPhDs.community. The community is for PhDs and people pursuing PhDs who want to take charge of their personal finances by opening and funding an IRA, starting to budget, aggressively paying off debt, financially navigating a life or career transition, maximizing the income from a side hustle, preparing an accurate tax return, and much more. Inside the community, you’ll have access to a library of financial education products, including my recent set of Wealthy PhD Workshops. There is also a discussion forum, monthly live calls with me, and progress journaling for financial goals. Basically, the Community exists to help you reach your financial goals, whatever they are. Go to pfforphds.community to find out more. I can’t wait to help propel you to financial success! Now back to the interview.

Taking Turns

14:49 Emily: The examples in the book, as far as I remember of gardener and rose, were like the one that you decided of like, well, one person’s going to like take a break from earning or like earn less than they maybe could because the other person is financially able to provide. But from what I can tell for you and your wife, that’s not the case. You’re both working, you both have income, but it’s more about whose career is driving some other decisions in your life. Is that right? How does that work?

15:12 Jay: Yeah, so my wife is in the academic path. And as everybody here knows, when you get the right tenure track position, you just go <laugh>. So, we actually recently moved 1200 miles for her career, and you’re right. It’s not about income, but it’s about that support. So, if somebody’s going to be on that tenure-track path, there’s a whole lot of other stuff that needs to get taken care of. I mean literally like the gardening and the house and the landscaping and the, whatever it is and paying the bills and whatever it is. It’s not about money, but it’s about that support that you need to do that. Because if my wife had to stop and do all that while she was on this tenure-track fun, it would hurt her career. So, we take those turns. Now, mind you, my turn as a rose, I’ve told her 15 years I’m retiring completely and we’re going to get in a boat and travel the world. That’s it. And that’s what I want to do. And she knows that, but that puts a limit, frankly, on her career. But also, it’s a fairness of taking turns.

16:14 Emily: Do you think that the turn-taking aspect is like essential to the concept of gardener and rose? Or is it okay for a couple to choose permanent roles as one or the other?

16:24 Jay: Yeah. So, it’s a rough question. I believe that if people pick one role or the other, it’s way too easy for someone to be neglected or not appreciated or have concerns, let’s call it that. What I think happens is, there are some great stories in there of people that have tried to do the type of gardener and rose without the swap, but then the person that’s in the rose position feels guilty. You know? Well, I’m taking advantage of, well, no, if we know we each have our own turns, I can be selfish for my turn. You can be selfish for yours, and that’s okay. I think if one person decides, “Hey, I want to be this role forever,” and that’s their conscious choice, maybe. But especially when you’re talking about like two PhDs, that’s hard, you know? Fortunately, I can do my finance work from anywhere, but there are other career options I could follow if I was being the rose. So, I think there’s just a balancing act. Does that make sense to you?

17:24 Emily: It does. And I’m actually thinking back to, I’m not going to be able to like cite research on this, but it’s something that I think I read maybe during our premarital counseling that my husband and I went through about how it was maybe about like life satisfaction or something with, we’ll just say married couples, where they had an agreement about whose role was whose. Like maybe there was a working spouse and a non-working spouse. As long as they both were in agreement about what their roles should be, they had a pretty decent level of happiness, even if their circumstances caused them to be flipped. So, let’s say, you know, more traditional, let’s say the husband’s supposed to be the one working, let’s say the wife’s supposed to be the one taking care of the home. Well, the husband becomes disabled, and the wife is the one who has to go into the workforce. Couples who were in agreement about like what their roles should be were happier, even if they couldn’t actually live out those roles, but just having the agreement between them was satisfactory to them. So, it reminds me a little bit about this. Like how do you negotiate, you know, who should be the gardener and who should be the rose at any given time. As long as you’re in agreement, I feel like it’s going to help, even if maybe life circumstances end up playing out a little bit differently.

18:31 Jay: Yeah. And I think there’s some of that that nature does to it. You know, like just your life, your career, there are times in your career. There’s a great example, somebody in the book who just needed to take a 90-day sabbatical, just needed to like get her brain back, you know? And we’re seeing some of this with the great resignation where people aren’t really quitting jobs forever. They’re like, I just need to stop and do something else. And that might be just for a period of time. And I think you’re right. It is the clarity on the roles. But I think with childfree couples, one of the challenges is you have the time, money, and the wealth, the freedom to do what you want. And that actually can cause a little bit of analysis paralysis routine of having too many choices. So, by taking these turns in the roles, you go, “Okay, you’re the rose. Follow your dream. I’ll do like the day in, day out work and vice versa.” And it’s almost like it’s just a little anchor between the two of you. And it also gives people to think through that chance, like you’re talking on the marital counseling of, well, what are our roles? What do we want to do? And a lot of couples have never had that discussion. It’s just implied. And that can cause issues.

19:35 Emily: Yeah. I mean, I’m just trying to think about like two people trying to be the rose at the same time. And if you both want to be the rose, then you’re both also going to have to be the gardener in some ways. There’s going to have to be some kind of negotiation and agreement there. It’s a little bit more clean if it’s like, okay, clearly one person’s a rose, one person’s a gardener. But maybe there are ways you can work out, you know, different aspects of your life or something like that where it could play out a little bit where both of you sort of get to feel like the rose, maybe. This is maybe a little bit how I was applying it to the course that my husband and I have had with our careers. Because, like you and your wife, we moved in 2015 for my husband’s job.

20:15 Emily: So, his first like post-PhD job in industry. We moved across the country. And I was okay with that. I was starting my business. And so I was like, you know, I had a location freedom within my job, but I wasn’t making nearly as much money as I could have had I taken a traditional job after my PhD. And so, in a way, you could interpret that as he’s the rose, because we’re moving for his job. Our location where we’re living is determined by his work. I also see it as my husband was providing financially for both of us, to a large degree, so that I could grow my business, which has flourished over time. And so, I see it like kind of both ways in different ways, right? Location on the one hand, and actual like finances on the other hand. So yeah, I just, there are different ways, I think, that you could imply this framework, but I think it works.

Outsourcing the Gardener

21:03 Jay: Yeah. And I think the gardening roles can be a whole bunch of things. And frankly, if you make enough money, you can pay somebody to do all the gardening roles. Literally. I mean, you can pay somebody to do all that. And then you can have two roses. But as long as location doesn’t mess with it. Some people do look at it as the financial support and the other. But if we go back in time, and I hate to say these old gender roles, but the idea was somebody was doing their primary job and somebody was providing support at home. And I don’t think we realized how much work it is to provide support at home, with or without kids, there’s just a lot of stuff. You know, we need a new roof on our house. Well, that’s a giant project, you know? So, you’ve got to have somebody with the flexibility to do that. Or, you have to be able to pay somebody to manage these projects for you. And I think that’s overlooked because if we’re both at the top of our careers, then we’re going home and have to figure how to mow the lawn. Like, our brain just explodes. Money is not important. What money gets you is important. So, if you’re just working to make the dollars, and it’s not making your life better, change something,

22:16 Emily: I’m feeling this like so strongly right now because my husband and I purchased our first home, which is like a single-family like house a year ago. And so, we went from like apartment living as renters to this managing an entire house situation. And it is a lot of work. I was not quite prepared for this. So yeah, and we’re trying to figure out ways, like how much should we be outsourcing? How much should we keep, you know, us to do the work. But it is a lot, a lot, a lot of work that it takes to run a household. Yeah. And I definitely did not appreciate this a few years ago back when I was still a renter.

22:51 Jay: Let me give you a number on that one. I’ll actually give you the answer on what you should outsource. The question is what do you make per hour, and would you rather work an hour than do the work? So my wife and I, we have somebody come in to help clean. I’ll work an extra hour of work and not have to clean the toilets. I mean, that’s the math behind it. If you enjoy mowing the lawn, do it. If you don’t, <laugh> figure out your hourly and, you know, pick up an extra, you know, class or whatever it is to cover that.

Communication is Key

23:18 Emily: Yeah, this is like airing my dirty laundry on the podcast, but like literally my husband and I are talking about this right now with respect to a house cleaner. I am very confident that we both made more per hour, and that a house cleaner could do a better job and faster than we could do it. But he still has this like, idea that like, you should do it yourself or something. We’re working on that. That’s something we have to agree on together. So yeah, we’re sort of in negotiations about that right now. Is there anything else you want to tell us about this like gardener and rose concept?

23:51 Jay: I think the big thing is communication. I mean, that’s the bottom line of all of it. And I think, when it comes to finances, unfortunately, even couples don’t talk about it, you know? And here’s what I’ve found, with my clients, I talk about this type of concept all the time. The person who needs to be the rose, the person who’s burnt out of their career or whatever, the other spouse is perfectly fine with. It’s the rose that has trouble taking it, you know? Of saying, okay, I will step down or I will change, or I will do whatever. The other person always supports it. So, I think it’s that communication. And I think the other part of it is, what I’m seeing at least in the great resignation world is it’s not about money. It’s changing jobs for either meaning or, you know, whatever that feeling is for the soul, not about the dollars and cents. Hey, I want to make more in my career.

LifeScriptTM Deviation

24:46 Emily: Kind of tying into that. One of the big patterns that I saw reading through the stories in your book was this concept that childfree people, and the people are sort of speaking about their own experience, they have this sense that they can make changes in their lives without maybe considering how it would affect a child or maybe other people in their lives. And that they, in theory, have like a freedom to do that. Did you have that observation as well? But what I also observed is that they weren’t always acting on it. They thought they had the freedom, but they weren’t using it.

25:22 Jay: So, I have this moment frequently and it was in the book and also with just everyday people. And I look at their numbers, I go, “You’re fine. You can do that. You can make that.” And then you get this look in their face, like, “No, no I can’t.” And I’m like, “I’m looking at it financially, you can.” And there’s like this tension. And it happens with people that could cut back on work or retire or change their careers. And I think, you know, I just had a good conversation with somebody that’s this concept of like the middle class work ethic or the Protestant work ethic, which is kind of what you’re talking about with your husband, where I’ve got do this. No, you don’t. Like, so for childfree folks, our goal is not to pass generational wealth. It’s to pay for our bills on the way out. So, adding more zeros to a bank account doesn’t help. So, there’s a point where you’re like, well, I want to go on that, you know, trip of a lifetime or whatever. Well, then do it. And people are like, “Oh, I can’t. I still got…” I’m like, why? And I think it’s just this cultural component. It’s why your husband won’t let somebody else clean the toilets.

26:28 Emily: Yeah, I totally agree. That Protestant work ethic thing <laugh> how people are brought up. And I guess what we see in the book is like people, you used the term LifeScriptTM in the book. And how people who have made a conscious choice to be childfree have deviated from the LifeScriptTM. But it sounds like even though they’ve made that step, some of them are still being held back by this like cultural conditioning around making radical changes or really experiencing the freedom that they have earned through their finances and through their career.

27:02 Jay: Absolutely. So, the LifeScriptTM goes this way. You go to school, high school, you graduate, you go to college, by the way, most people don’t even like pick where they go to college. Their parents put something on them. So, that’s part of the script. You go to college, you get a job, you get married, you have kids, you get old, you retire. That’s kind of like the standard script. So, childfree people threw out the middle of it. Like, nah, I’m not doing the kids. And also, interestingly enough, 32.1% of childless people, this is per census, will never get married. So, they even threw away the married part. So, they threw that all out. Cool. Throw away the part about job and career and like, it just locks up because, well then what do I do? And they’re like, well, I don’t like where I live.

27:50 Jay: Well, then move. And they’re like, well, but you know? So, another great example is people go, well, I have to buy a house. You don’t. If you’re childfree and you’re going to move every two years, there’s no reason to buy a house. But then people go, well, but how do I, you know, make money without a house? That’s fine. We can do reeds. We can do some other stuff with it, but it’s just like this, it locks them in. And I have to spend a lot of time going well, there are other options and working it step by step.

28:18 Emily: This is just that observation you just made is why I’m so pleased that you chose this as your niche, because some of those elements you just said, you know, the FIRE movement is kind of working on people’s psychology around this, but I love that you have that further spin on it of focusing just on the childfree community. Because they, as you said, you know, at the beginning they have different financial lives than other people who do have children. And they deserve to be served specifically with their finances. And so, I’m so glad that you chose that as your niche and connected that personal element of your life to your professional life. I’m just so excited for your business. Tell us where people can find the book and where they can contact you if they’d like to learn more?

29:02 Jay: Sure. Portraits of Childfree Wealth is sold everywhere books are sold. If you want to go to Amazon, Barnes and Noble, whatever works for you. And I can be found at childfreewealth.com.

Best Financial Advice for Another Early-Career PhD

29:13 Emily: Well, Jay, thank you so much for giving this interview. I conclude all my interviews by asking what is your best financial advice for another early-career PhD? And that could be something that we’ve touched on already in the interview, or it could be something completely new.

29:27 Jay: Let me give you something that’s a life advice, if that’s okay. One of our colleagues taught us this and I wish others knew it. He said him and his wife both were MDs, had made a deal that they don’t have to go to each other’s corporate events. You know, the Christmas events, all that. So, my wife and I early on adopted this and we don’t go to each other’s events, because frankly, we don’t know anybody. And it’s been the best thing for our life because we don’t have to have that awkward conversation and the other. And people go, well, that’s not financial. No, it’s a life thing. You know, I don’t need to have that convo. And by the way, it’s easy to explain to people go, yep, we have this deal. This is how we do it. We have separate careers. And it works. And it sounds silly, but if you try it, you’ll like it.

30:12 Emily: Okay. Very interesting. Well thank you, Jay, for this fascinating interview. Thank you so much for coming on!

30:17 Jay: Happy to be here!

Outtro

30:24 Emily: Listeners, thank you for joining me for this episode! I have a gift for you! You know that final question I ask of all my guests regarding their best financial advice? I have collected short summaries of all the answers ever given on the podcast into a document that is updated with each new episode release. You can gain access to it by registering for my mailing list at PFforPhDs.com/advice/. Would you like to access transcripts or videos of each episode? I link the show notes for each episode from PFforPhDs.com/podcast/. See you in the next episode, and remember: You don’t have to have a PhD to succeed with personal finance…but it helps! The music is “Stages of Awakening” by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing by Lourdes Bobbio and show notes creation by Meryem Ok.

Turn Your Largest Liability into Your Largest Asset with House Hacking

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In this episode, Emily and her guest, Sam Hogan, explain how house hacking can benefit graduate students and early-career PhDs. House hacking is when you purchase a property, live in it, and rent out part of it. While not possible in every housing market, house hacking is within reach for many graduate students and certainly postdocs and PhD with Real Jobs. In the first part of the episode, Emily teaches some of the most salient concepts from The House Hacking Strategy by Craig Curelop. She also presents some real numbers from potential house hacks in college towns. In the second part of the episode, Emily interviews Sam Hogan, a senior loan officer at Prime Lending (Note: Sam now works at Movement Mortgage) who specializes in writing mortgages for graduate students and PhDs, especially those with fellowship income. Sam gives additional details about how an early-career PhD can qualify for a mortgage for a house hack.

This post contains affiliate links. Thank you for supporting Personal Finance for PhDs!

Links Mentioned in This Episode

grad student house hack

Teaser

00:00 Sam: The best example, which has happened I would say many times over, is in North Carolina. One student purchasing that, you know, the regular stipend amount of around $32,000 a year, he bought it at $200,000, put $10,000 down was still within his debt-income ratio. And when he started off the process, he did say he was going to house hack.

Introduction

00:28 Emily: Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts. This is Season 8, Episode 4, and I have a different episode structure for you today. The entire episode is devoted to exploring house hacking, which is when you purchase a property, live in it, and rent out part of it. We’re going to focus on how house hacking can benefit graduate students and early-career PhDs, and how it is possible for more people than you might expect. In the first part of the episode, I teach some of the most salient concepts from The House Hacking Strategy by Craig Curelop. I also point to a few real examples of potential profitable house hacks that I looked up this week. In the second part of the episode, I interview Sam Hogan, a senior loan officer at Prime Lending (Note: Sam now works at Movement Mortgage) who specializes in writing mortgages for graduate students and PhDs, especially those with fellowship income.

01:26 Emily: Sam gives additional details about how an early-career PhD can qualify for a mortgage for a house hack. Sam has been featured on two previous episodes and is now an advertiser with Personal Finance for PhDs. Reading this book came at a great time for me, actually, as my husband and I are taking steps to buy our first home within the next few months. It’s given me a different perspective on real estate investing for sure and the value of your primary residence. I’m very excited to share this material with you. Our giveaway contest is actually for the book Sam and I read for this episode! In January 2021, I’m giving away one copy of The House Hacking Strategy by Craig Curelop (affiliate link—thanks for using!), which is the Personal Finance for PhDs Community Book Club selection for March 2021. Everyone who enters the contest during January will have a chance to win a copy of this book.

02:18 Emily: If you would like to enter the giveaway contest, please rate AND REVIEW this podcast on Apple Podcasts, take a screenshot of your review, and email it to me at emily at PFforPhDs dot com. I’ll choose a winner at the end of January from all the entries. You can find full instructions at PFforPhDs.com/podcast. The podcast received a review this week from Emily B. The review reads: “This podcast has been so helpful to me as I apply to graduate school!! So many of these things aren’t talked about but Emily is great at explaining all of these concepts and interviewing people who have great advice.” Thank you to Emily B for this lovely review, and best of luck to you this spring! Without further ado, here’s my review of the concepts in The House Hacking Strategy.

Review of The House Hacking Strategy

03:08 Emily: The House Hacking Strategy by Craig Curelop (affiliate link—thanks for using) was published in 2019 through Bigger Pockets Publishing. Bigger Pockets is a popular online real estate investment community. House hacking, which I’ll define momentarily, is popular among this community, and Curelop presents a very enthusiastic and rosy picture of the strategy. For the duration of this episode, I want you to allow yourself to dream a little. I know and you know that house hacking is not possible or desirable for many graduate students and PhDs for a variety of reasons. But just for the next few minutes, I want you to suspend your doubts. We’ll come back to reality in a little bit and talk over some numbers. For the moment, instead of confirming for yourself all the reasons that you can’t house hack, ask yourself, “How and when might I be able to make this strategy work for me?” If you are convinced that you want to house hack, you may just find that a fire is lit underneath you and you can make it happen sooner than later.

04:07 Emily: In fact, I did some searching on Redfin and Craigslist and found three properties near three R1 universities that I think might be profitable house hacks for single graduate students. I’ll present those numbers after I go through some of the material from The House Hacking Strategy. I’m going to start my teaching in the same place that Curelop starts his book. I’ll read some quotes and summarize some paragraphs from pages 23 and 24, the start of Chapter 1. Quote “What is your largest expense? The majority of the United States population would not hesitate to reply with “housing.” Whether you are paying rent or paying down a mortgage alongside with taxes, insurance, maintenance, and all the other expenses associated with owning a home, your house is likely what you spend most of your money on each month.” End quote.

Definitions: Asset and Liability

04:54 Emily: Curelop then shares the definitions that Robert Kiyosaki uses in his books, which is that an asset is anything that puts money into your pocket every month, and a liability is anything that takes money from you every month. Under this definition, your home is a liability, whether you own or rent. Quote “Arguably, the biggest misconception that most Americans have is that their home is their largest asset. When, in fact, it is their largest liability. However, there are some exceptions. A few of them are exemplified at the conclusion of each chapter. You will read fellow house hackers’ stories in this book who have used strategies outlined here to turn what could be their largest liability into their largest asset. “They strategically designed their lifestyle so housing is not their largest expense. As a matter of fact, through the strategies I talk about in this book, they have completely eliminated housing as an expense and they make money from their living situations every single month. And yes, their lives look just like yours. From the outside, you would not think that they are any different because they have days jobs, errands to run, and families to care for.” End quote.

Turning Your Largest Liability Into Your Largest Asset

06:03 Emily: Turning your largest liability into your largest asset—that is an incredibly powerful idea. How do they do that? Let’s define house hacking. House hacking is when you buy a home, live in it, and rent out part of it. The classic house hack, according to this book, is buying a multifamily property (a duplex, triplex, or four-plex), living in one unit, and renting out the others. In that case, your tenants are your neighbors. Another variation of house hacking is to buy a single-family home and rent out the bedrooms that you do not occupy. In that case, your tenants are your roommates. There are all kinds of reasons that house hacking is powerful from a real estate investment standpoint, which The House Hacking Strategy covers very well. I’m taking a different approach, which is speaking to people who are not necessarily enamored with real estate investing, but rather want to find a way to reduce or eliminate their largest monthly expense: their rent or their mortgage payment.

07:01 Emily: Whenever I speak about frugality and reducing expenses, I ask that people first consider how they can reduce their housing expenses, even though accomplishing that can be difficult and expensive upfront. I’ve published through this podcast and highlighted in my seminars creative strategies such as serving as a resident advisor, living in subsidized or low-income housing, renting your home on AirBnB, and house hacking, although I haven’t used that term before. I published two full interviews with grad students who rent out rooms in their homes, which I’ve linked from the show notes, and some of my other guests have mentioned in passing that they use the strategy.

Benefits of a Successful House Hack

07:37 Emily: If you set up a profitable house hack, you will either: 1) Bring in enough rent to completely cover your mortgage and reserves, which is the money you need to put aside monthly for future home maintenance and vacancies, or 2) Bring in enough rent that your personal housing expense is less than what you would have paid in rent had you not house hacked. If you were to move out and rent your room, the total rent from the property would be more than the mortgage and reserves. A minimally successful house hack reduces your personal housing expense. A very successful house hack puts money in your pocket on a monthly basis. I believe house hacking is a hugely powerful strategy for PhD students and a great one for postdocs and other early-career PhDs. It’s accessible to many more early-career PhDs than those who currently pursue it.

08:26 Emily: I’m going to focus in this episode on single PhD students and their numbers since they are the most difficult case. If you have a postdoc income or Real Job income, getting into a house hack will be easier, and likewise if you have two incomes to work with instead of one. I want to throw in a word of caution that this episode is just a short summary of part of a book that is not super in-depth either. So while I want to encourage you to look into this strategy, you must do your due diligence in your local market before taking the step to actually buy a home.

Why is House Hacking a Great Fit for Grad Students?

08:59 Emily: So why is house hacking a great fit for graduate students? First, a traditional grad student fits perfectly into the ideal demographic of house hackers: people without children who are willing to live with other people. That’s not to say that you can’t house hack if you do have children, but it might look different for you. Second, a grad student basically by definition lives near a university, which boasts a large pool of potential tenants. I think it would be straightforward to set up a house hack where all your tenants are fellow grad students, the way Dr. Matt Hotze from Season 3 Episode 3 did. Third, grad students have limited avenues for increasing their incomes. Yes, it is possible and you should do what you can within the rules of your visa, department, funding, etc. House hacking is a way to increase your income without violating the letter or spirit of any of the restrictions placed on you and will almost certainly take less time than a side hustle for what you earn.

Curelop’s Five House Hacking Strategies

09:56 Emily: Curelop presents five house hacking strategies. On one side of the spectrum, you have the strategy that necessitates the smallest lifestyle change but is also the least profitable. On the other side of the spectrum, you have the strategy that is the most profitable, but that also necessitates the largest lifestyle change. From least profitable to most profitable, the strategies are: 1. Rent out an accessory dwelling unit on your property 2. Purchase a multi-unit property and renting out the units you do not occupy 3. Purchase a home and rent out the rooms you do not occupy 4. Rent out your own bedroom and sleep in your living room 5. Rent out your whole residence and live in a trailer or RV in your driveway If you’re like me, strategies 4 and 5 do not sound very appealing! I’m going to focus on strategy 3 in this episode, but it’s perfectly fine if another strategy is the best fit for you.

House Hacking: Ongoing Costs

10:56 Emily: Let’s talk more about both sides of the house hacking ledger now, first your ongoing costs and then how you make money. On the costs side, every month you need to make your mortgage payment, which consists of principal paydown of your loan, interest, property tax, homeowner’s insurance, and probably private mortgage insurance or PMI. You might also have a homeowner’s association payment. Another cost, which is irregular, is the cost of maintenance and repairs on the home and also renovation if you choose to do that. Curelop recommends putting aside every month a few hundred dollars—what he calls reserves—for home repairs and also to help you make your mortgage payment when you are between tenants. He also says you should have $10,000 at a minimum in your reserves to start with. If you don’t have $10,000 yet, he suggests securing access to a line of credit in case something comes up that you can’t cover with your existing reserves.

House Hacking: Net Worth Increases

11:41 Emily: That covers the ongoing costs of operating your house hack. I’ll get to the up-front costs a little later. Now for the exciting part: how your net worth increases while you house hack. First and most importantly, you will collect rent from your tenants. As I said earlier, this rent should either completely cover your mortgage payment and reserves or at least reduce your personal housing expense. Second, each month as you make your mortgage payments, you will pay down the principal balance of your loan. Now, in the first few years after you take out the loan, only a very small fraction of your payment goes to principal due to the amortization schedule; the great majority goes to interest, tax, insurance, etc. So principal paydown is a relatively small factor early on in the mortgage. Third, your home is likely to appreciate in value over time. When you sell, it will probably be worth more than what you bought it for. Appreciation comes in two forms, natural and forced.

Natural and Forced Appreciation

12:48 Emily: Natural appreciation is the general increase in real estate prices over time. According to Curelop, historically real estate has appreciated 6% per year on average across the US. Now, as we all remember from the housing crisis, different real estate markets do appreciate at different rates, and depreciation is also possible if you get really unlucky with your timing. So while natural appreciation is likely to be in effect over the long term, you can’t count on it over the short term. Forced appreciation is when you do something to a property to increase its value, such as finishing a basement to add bedrooms and a bathroom. You of course have much more control over forced appreciation than natural appreciation. If you choose your renovation judiciously, you can increase the value of your property by more than what you spent. Appreciation can rival rent collection as the most positive factor in increasing your net worth through house hacking, but it’s only realized when you sell the home. Fourth, there are tax benefits to rental real estate. Curelop doesn’t go into much detail on this in the book and I’m not familiar with them so I won’t elaborate either, but this is another way that your house hack is less costly to you than owning a home that you don’t rent out.

Seven Common Objections to House Hacking

14:00 Emily: I hope the financial advantages of house hacking have sufficiently excited you about the idea. Curelop also presents and then counters seven common objections to house hacking. I’ll list all seven, but only go into the arguments against a few of them. Just know that if the others are hurdles for you, he does address them in the book. 1. House hacking is more work than renting. 2. When you house hack, you will share space with other people. 3. You need to keep a professional relationship with your tenants. 4. You have to live in an investment property, which might not be as nice of a location as you could afford. 5. The housing market could tank. 6. You have to put more money down to house hack than your up-front rental costs. 7. Your tenants might fail to pay you. My overall observation of this list is that these objections are all valid. They all have at least a kernel of truth or a possibility of occurring. I think it would be really helpful to identify every adverse event that could occur and come up with a plan for how you would respond. Going through that exercise might make you feel better about moving forward with house hacking instead of just being generally nervous about the downside risk.

Counterpoints to Some Common Objections to House Hacking

15:11 Emily: I want to add some thoughts to a few of the aforementioned objections. 2. “When you house hack, you will share space with other people.” Having roommates is pretty standard in graduate school for single people. Even if you could afford to rent a place on your own, it wouldn’t be strange to choose to have roommates instead. I’ve also known plenty of PhDs who continue to live with roommates even after they couple up or get married. I think this is less of an objection for our population than others, at least up until the point that you have children. 3. “You need to keep a professional relationship with your tenants.” and 7. “Your tenants might fail to pay you.” My fantasy house hack for a graduate student is to rent to other grad student peers and to be friends or at least friendly with your tenants. It is important to maintain professionalism at least within the bounds of your landlord-tenant relationship. You should be a great landlord, responsive and fair. I hope your tenants will respond in kind and not try to take advantage of your personal relationship. Curelop devotes a whole chapter to screening tenants, which as a new landlord I think you should follow to the letter. Of course, this book was published prior to 2020. The possibility of tenants not paying and not being able to evict them probably didn’t occur to many landlords, but now it’s on everyone’s radar. As a house hacker, you should make sure that you are financially capable of paying the mortgage even if your tenants are unable to pay rent for an extended period of time. If your university offers funding guarantees, I think that’s worth asking about on a rental application. You can’t prevent a tenant from misusing their money to the extent that they are unable to pay rent, but you can make sure that their income is reliable.

Four Considerations to Purchasing a House Hack

16:56 Emily: What does it take, financially, to purchase a house hack? Is it feasible where you live now? Let’s consider four elements. 1. The cost of properties appropriate for house hacking 2. The price to rent a room 3. Your stipend or salary 4. Your savings First, how expensive of a home could you buy on your income or your household’s income? Interest rates are so low now that rules of thumb like “Your mortgage shouldn’t exceed three times your income” have become outdated. Really, I’m asking two different questions here: 1) How large of a mortgage will you qualify for? and 2) How much of a mortgage would you feel comfortable taking out? Some house hackers will take out the largest mortgage they qualify for because they are counting on rental income to help pay it, but you might be more conservative, as I discussed before.

17:48 Emily: I’m going to talk this over with Sam Hogan a bit more in the second half of this episode. According to what he told us in our last interview, Season 5 Episode 17, if an applicant has no debt and excellent credit, they could qualify for a mortgage of four to five times their yearly income. If you have debt or merely good credit, the multiple will be smaller. Now, whether taking out that much debt is prudent is up to you. If you weren’t house hacking, I would say no, but if you are, it depends on your risk tolerance. Now you have a ballpark idea of the size of mortgage you could take out. You of course need to work with a mortgage originator like Sam to calculate your exact number. But going forward with the ballpark number, are homes available for less than or around that mortgage amount? Or is it way too low to buy anything? You can use a site like Redfin or Zillow to figure out what a house hack would cost you. If you’re looking for a townhouse or single-family home to house hack, perhaps you would look for a 2 bedroom place at a minimum. Broadly speaking, the more bedrooms you can purchase, the more rental income you’ll be able to generate.

Consider Cost-of-Living

18:56 Emily: If you live in a high cost of living area and you’re trying to purchase a home with one grad student income, you are likely to find that everything is out of reach. It’s disappointing, but don’t give up on the idea of house hacking for later in life. If you find that you can maybe afford to buy something, the next question is whether a house hack, in particular, is viable. Can you rent out the bedrooms that you won’t occupy for enough to at least reduce if not eliminate your housing cost? The answer is not an automatic yes for the type of home you can afford. If you’re not familiar with rental prices by the room in your area, check Craigslist and Facebook Marketplace. Having verified that house hacking is viable on your income and in your rental market, we come to the last piece of the puzzle, which is the down payment and closing costs. In the interview with Sam coming up next, we discuss the down payment requirements of various mortgage programs. If you’re not a veteran, you’re looking at 3% at minimum, but Sam suggests up to 10% in some cases. So for a low-cost property, the down payment could be as little as a few thousand dollars.

Five-Year Rule of Thumb

20:02 Emily: Curelop states in the book that closing costs are typically paid by the seller, not the buyer, so the money the buyer has to come to the table with above the down payment is rather minimal, perhaps a few hundred or a thousand dollars. Even if you don’t have the savings required to fund a home purchase in your bank account right now, how quickly could you come up with the money if a fire were lit underneath you? Over the course of a year, a vigorous side hustle, a higher-paying fellowship, or a summer internship could do the trick. Since I mentioned a year, I want to address the five-year rule of thumb. I know that many grad students and postdocs feel a ticking clock when it comes to considering real estate purchases. Many of us expect to move with every new career stage we attain. The five-year rule of thumb implies that you may not even break even if you buy a home instead of renting during grad school or your postdoc because of the high transaction costs that come with buying and selling and that you can’t count on natural appreciation over short time frames.

21:00 Emily: What I found interesting about The House Hacking Strategy is that it concentrates on the return on investment that can be achieved within one year. The reason for the focus on that timeline is that owner-occupancy mortgage loans require you to live in the property for one year. An aggressive house hacker might move every year to a new house hack, collecting rental real estate along the way instead of selling. The point that I want you to take from this is that you don’t have to listen to rules of thumb or rely on appreciation to overcome the transaction costs of real estate. Instead, you can use the rental income from your tenants. A house hack might be viable for you even if you plan to remain in your current city for only a couple of years—you just have to look at the numbers. Also, it’s important to plan your exit before you purchase your house hack. Are you open to turning it into a fully rented property after you move? Do the numbers still work if you have to hire a property management company? Or if you are sure that you will sell, you need to account for the high closing costs in your calculations.

Thought Exercise: Three Example House Hacks

22:02 Emily: Now let’s get into those numbers I mentioned earlier! As a quick exercise, I looked at the list of universities I’ve given or am scheduled to give webinars for in the 2020-2021 academic year to see whether house hacking was viable in those cities and what the numbers might be. Here was my process: 1) I searched Redfin for the university’s city with a max asking price of $150,000. I typically set a 3 bedroom search minimum, but sometimes adjusted up to four or down to two. I picked a house within a few miles of the university, something that looked move-in ready and not the cheapest available. 2) I searched craigslist for the area the house was in to get an idea of rental prices by the room and picked a price in the middle to low end of what I saw. 3) I went back to Redfin to look at the estimated mortgage payment. I set that the buyer would put 5% down and get a 3% interest rate.

23:03 Emily: I’m now going to share with you the properties and numbers I found in three of the cities I looked at. Of course, this was a cursory search, so my selections and numbers might be off due to a lack of local insight. Just consider this a ballpark estimate. Also, please note that I’m doing this exercise in January 2021, and both the renting and buying markets are really weird right now due to the pandemic and it being outside of the high home buying season. If you do this search even just a couple of months from now, it might look totally different, let alone a couple of years.

23:39 Emily: Example #1 is in East Lansing, Michigan, near Michigan State University. The property I picked is a 3 bedroom, 2 bath, 1500 square foot single family home, and the asking price is $89,900. A 5% down payment is $4,495, and the monthly mortgage payment would be $752. I picked $400 per month as the rental price per room. That means that renting out two of the bedrooms covers the mortgage payment while you live in the third. After setting aside a couple hundred dollars per month for reserves, you have reduced your own housing cost by about $200 per month. Over the course of one year, assuming that your irregular expenses did not exceed your reserves, you would have reduced your own housing expense by $2,400. Over five years, that turns into reducing your own housing expense by $12,000, and that’s without taking into account possible rent increases.

24:43 Emily: Example #2 is in Louisville, Kentucky, near the University of Louisville. The property I picked is a 4 bedroom, 2 bath, 1300 square foot single-family home, and the asking price is $134,000. A 5% down payment is $6,700, and the monthly mortgage payment would be $777. I picked $500 per month as the rental price per room. That means that renting out two of the bedrooms covers the mortgage payment and perhaps all of the reserves. You would live for free in the third bedroom and pocket the $500/month rent from the fourth bedroom. Over the course of one year, assuming that your irregular expenses did not exceed your reserves, you would have taken in $6,000 in rent above your mortgage payment and reduced your own housing expense by $6,000. Over five years, that turns into $30,000 in rent collected and reducing your own housing expense by $30,000, and that’s without taking into account possible rent increases.

25:48 Emily: Example #3 is just outside St. Louis, Missouri, near the Washington University in St. Louis. The property I picked is a 4 bedroom, 2 bath, 1800 square foot single-family home, and the asking price is $150,000. A 5% down payment is $7,500, and the monthly mortgage payment would be $925. I picked $600 per month as the rental price per room. That means that renting out two of the bedrooms covers the mortgage payment and perhaps all of the reserves. You would live for free in the third bedroom and pocket the $600/month rent from the fourth bedroom. Over the course of one year, assuming that your irregular expenses did not exceed your reserves, you would have taken in $7,200 in rent above your mortgage payment and reduced your own housing expense by $7,200. Over five years, that turns into $36,000 in rent collected and reducing your own housing expense by $36,000, and that’s without taking into account possible rent increases.

26:53 Emily: Now, if those numbers don’t motivate some of you in low- to medium-cost of living areas, I don’t know what will! You can literally buy an income stream that will benefit you to the tune of thousands or over ten thousand dollars per year for a few thousand dollars, an extra hour here or there, and the willingness to take a risk. And that’s not even counting the principal paydown, tax benefits, and potential appreciation! Keep in mind that all of my examples are completely made up. I’m just trying to ballpark some numbers and show that this is possible in some places on one grad student’s income. Curelop publishes the numbers of a real house hacker at the end of each chapter. For transparency, I didn’t examine every city on my list of candidates. I skipped the California ones, I only briefly glanced at Austin, Texas and Boston, Massachusetts to verify that $150,000 won’t buy you anything near the universities right now. I went down a road a bit in Providence, Rhode Island before crossing it off my list. But I thought these three examples were good ones. Purchasing may very well be possible in those other markets if you have more than a single grad student stipend to work with, or perhaps at a time of year when there is higher volume on the market. After the commercial break, I’ll be back with my interview with Sam Hogan.

Commercial

28:15 Emily: Emily here for a brief interlude. If you know that you want support in accomplishing a big financial goal this spring, I recommend my group coaching program, The Wealthy PhD. You and I will meet one-on-one to identify and plot a course toward your big financial goal. Past participants have opened IRAs, set up systems of targeted savings, started budgeting, systematically implemented frugal tactics, and more. Every week for eight weeks, you’ll participate in a small accountability group that I facilitate. The group will help keep you on track to meet small weekly goals that add up to your big goal. Prospective grad students, this would be a perfect cycle to join as I and the other participants can give you a ton of support and financial insight as you interview and ultimately choose your PhD program. The deadline for discounted early bird registration for The Wealthy PhD is Saturday, January 30th, 2021. Visit pfforphds.com/wealthyPhD to learn more and register today. Now, back to our interview.

Welcome Back, Sam! How Can People Find You?

29:26 Emily: I am delighted to have joining me on the podcast today my brother, Sam Hogan. Sam is a Senior Loan Officer at Prime Lending (Note: Sam now works at Movement Mortgage), and we’ve been having conversations over the last several years about how grad students and postdocs, especially, can get mortgages when their income is maybe it’s fellowship instead of employee. Maybe it’s temporary instead of a long-term thing. We’ve had these conversations before. So if you’re, you know, liking what you hear today from Sam, please go back and listen to season two, episode five, that’s a two-part interview. The first part is with a person who actually house hacked, Jonathan Sun. And then the second part of the interview is with Sam. And then Sam was also back in season five, episode 17, where we talked a lot more about this issue of fellowships and being able to qualify for a mortgage with fellowship income. So Sam’s back today to talk about house hacking. I gave him an assignment. I told him to read The House Hacking Strategy by Craig Curelop along with me so that we could have a conversation about it and get his perspective as a loan officer. So Sam, welcome back to the podcast.

30:32 Sam: Thank you for having me happy to be here.

30:34 Emily: Can you upfront say your contact information, everything for the audience?

30:38 Sam: Yep. My cell phone is (540) 478-5803. And then my email is sam.hogan@movement.com.

What Did You Think About the Book?

30:48 Emily: Yeah. And you’ve been getting a lot of referrals. A lot of people have been finding you through the podcast episodes you’ve done before. Graduate students and post-docs and early-career PhDs. So we’ll talk about a few of those sort of case studies in a little bit, but first I just wanted to get your general impressions about the book on house hacking. I know that you are not a house hacker, although you are a landlord, but yeah, just what did you think about this book and this idea generally?

31:16 Sam: Very motivational. Definitely on the aggressive side of house hacking, giving suggestions, like living in a trailer in your driveway. Not something I would do personally, but it’s a step in the right direction. I mean, people need to know that it’s okay to live in a house for just one year and then buy another property the following year. So I liked it a lot. There were some accuracy things that I would’ve changed just regarding loan approval, but the loan guidelines and laws we have to stay within, they change annually. So there are always little tweaks and adjustments, especially 2020 was a funky year. So they made some higher credit score requirements and things like that. Generally speaking.

Did it Make You Want to Try House Hacking?

32:01 Emily: I think that’s a really good way of approaching this book. I do see it more of like a motivational book and like an overview, but maybe not once you drill down into the specifics, like, yeah, it might not be accurate year to year because things do change. The book was published in 2019, but as you said, 2020 kind of upended, a lot of things we’re recording this interview in January, 2021. So yeah, I totally agree about the book. And did it make you want to try house hacking?

32:27 Sam: It did. And then they also made me reflect on what I had when I was still living in a one-bedroom, one bathroom, how I actually rented out the common area to a buddy who needed a place to live.

32:39 Emily: Oh yeah, because you were house hacking for a little while. I forgot about that. Because your place was only a one-bedroom, but you did have a tenant.

32:46 Sam: Yeah, he was just switching jobs. He’s also in finance. And yeah, he ended up just bunking with me. And I think it was only like $4,000 for the year, but Hey, I mean that’s $4,000 I didn’t have to start out with.

Real Example of Potential for House Hacking

33:03 Emily: Yeah, definitely. And before this point in the interview, I’ll have told the listeners a lot of the principles from the book. So we don’t have to go through all of those in detail, but I wanted to really get from your unique perspective, some ideas about how a graduate student or how someone on a lower income can actually make this house hacking strategy work. Of course it will not work in every housing market. We know that. The incomes for graduate students and postdocs are too low to make it work in high cost-of-living areas. But there is a chance of it working in lower cost-of-living areas even on one income. But especially if you did have two incomes or if maybe instead of a graduate student or a post-doc, you know, there are some different situations where this does work out. So I wanted to get from you, you know, from all the clients that you’ve worked with a few examples of people who either were planning on house hacking, and you knew that at the time you were making the loan or who bought a large enough place that they could house hack if they wanted to. So can you talk us through a couple of those examples?

34:03 Sam: Yeah. So I mean the best example which has happened, I would say many times over, is in North Carolina. One student purchasing that, you know, the regular stipend amount of around $32,000 a year. I actually just looked up the property it had appreciated. He bought it at 200,000, put 10,000 down, was still within his debt-income ratio. He closed in April last year, and when he started off the process, he did say he was going to house hack. When I followed up with him a few months after closing, he didn’t end up renting out any rooms. He enjoyed having those extra spaces. So I’ll probably check up with him in the spring and see if he had changed his mind. But, I mean, it was a four-bedroom place, so he definitely had the ability to do it, but then just didn’t execute after closing because I guess he was comfortable with the payment enough.

35:02 Emily: I do want to emphasize that whenever you’re planning a house hack, it’s really vital to be confident that you could make the mortgage payment without any rent coming in. Maybe in the case like this person, you just decided not to rent out the rooms, ultimately your life circumstances change, or you want your privacy or whatever. Or it could be that, Hey, maybe you have a tenant, but that tenant is not paying you. And that’s happened a lot in 2020. It’s really a difficult situation to resolve for everyone. And so you need to be sure that, you know, if you scrimp and save and you reduce your other expenses, you would be able to make that mortgage payment still. So the example that you just spoke about and you said this has happened multiple times in North Carolina. I know that you’ve been working with a lot of graduate students in the Triangle, at UNC and at Duke, NC State, to make these loans happen in that area.

Loan Qualifications for a ~$32K/year Stipend

35:49 Emily: So let’s just take that market for example. So what size of a mortgage could a graduate student, let’s say, possibly take out? Like, I guess what I’m asking is, you know, they’re looking at their stipend, someone who isn’t ready to approach someone like you, a loan officer yet, but they’re looking at their stipend, they’re making 30 or $32,000. Like you said if everything were ideal in the rest of their finances, like let’s say they’re debt-free and they have a great credit score. How large of a loan could that person qualify for? Because that’s really kind of the question here is, are you going to be able to qualify for a large enough loan to make house hacking a possibility in your housing market?

36:27 Sam: So the highest I’ve been able to approve without a co-signer is 220,000. That was also in the Research Triangle.

36:37 Emily: So $220,000 on about a 30, $32,000 kind of stipend.

36:41 Sam: $32,000, this student did not have any student loans that were deferred. She was pretty much debt-free except for a few credit cards.

36:51 Emily: Okay. So pretty, really, really good solid portfolio otherwise. So just for the listeners, like house hacking could still be possible if you have those other kinds of debt, you’re just going to qualify for a little less. So it just has to work in your housing market.

37:04 Sam: Right. I mean, it’s important to understand that, like, even though you might have a similar situation to somebody else, it’s never exactly the same. So you want to have someone pull your credit, look at your entire financial picture in order to give you the results catered to your ability to purchase. You don’t want to just assume you’re going to fall into a bucket and everything will be okay. Because there are some very important details that go into this approval and those have to be evaluated by an expert. There’s just some things you can evaluate on your own, especially things like mortgage insurance, what will be allowable for your down payment, you know, in order to make your ratios work and make sure you’re within the guidelines.

37:49 Emily: So I think what I would encourage the listeners to do, if they are enthusiastic about this idea of house hacking but they’re not sure if they’re going to make it work is look really high level at what is your income and then what are houses, at least probably a two-bedroom home of some kind, selling for in your area. And if you’re within like striking distance of like, maybe I could get a loan, possibly, I’m not sure, for enough to make this work. That’s the time to approach someone like you that is to say, to approach you because you’re the expert in this subject and ask, well, how much can I be approved for? And then figure out whether or not there are houses in your area that would help you make this strategy work.

Different Types of Loans Available in the Marketplace

38:27 Emily: So let’s talk about the down payment for a moment because you just brought that up and we’d actually, didn’t talk about this much in our last episode. And it’s an important factor to consider. I would the two big hurdles for especially graduate students to buy homes are: one, qualifying for a big enough mortgage on their low income, and two, having enough of a down payment. So would you just really quickly run through the different types of loans that there are available in the marketplace and how much of a down payment is required for each of them?

Sam (38:55): Yeah. So some of your most popular loans, FHA loans and conventional loans. FHA a classic first-time home buyer basically program. It’s insured by the Federal Housing Administration, and the down-payment is three and a half percent. So they make it very achievable. There’s some employment and income that’s not accepted for FHA. So you want to check with your lender. And then when we get over to the good stuff, the conventional loans, taken out, allow you to go as little as 3% down and that can come from a gift from a family member or a friend. It doesn’t have to be your own verified funds. More commonly, Epic FHA loans are not a good fit for fellowship income, but if you have regular W2 income or some other employment, maybe a second job you’ve had for a year or two, this is also a good option.

39:45 Sam: Now if you have excellent credit, you’re going to want to get into the conventional loan bucket because it’s going to have lower mortgage insurance. It allows as little as 3% down. When we’re thinking about stipend income at $32,000 a year, you going to want to lean towards 5%–or 10%–down to make your ratios work. This is all going to depend on working with, you know, someone you trust so they can evaluate your personal qualifications. Okay. But outside of those two popular loan products, we have VA loans. So if you’re a veteran and you’re back in school, VA loans are a piece of cake. They require no down payment. There’s no mortgage insurance. There are a lot of good other good benefits. Like the VA loan can be assumed by another person and take over that low rate that you’ve already established.

40:39 Emily: Yeah. Thank you for explaining that. So we’re talking about 3% down, as little as 3% down for conventional, although you’re recommending five or 10% as maybe a better fit, depending on the person. FHA loans, three and a half percent down. VA loans, 0% down. So the kind of range of downpayment costs that we’re talking about are, it sounds like, okay, let’s say on a $150,000 property, that would be like four and a half thousand dollars at 3%, up to $15,000, if you were putting down 10%. So kind of somewhere in that range is what we’re talking about as a minimum down payment. I don’t know, in one sense, it’s a lot of money for a graduate student to come up with that. That’s a pretty, you know, it’s a good chunk of a year’s salary. However, if the outcome is getting you into a house that cashflows you every month, or at least reduces your housing expense every month, in the long-term, it’s a small amount of money. It can be a larger amount of money to come up with in the moment. And you just mentioned for conventional loans, it is acceptable for someone like a parent, perhaps, to gift you the down payment.

41:44 Sam: This is very common.

41:48 Emily: And I was of course, very impressed by, you know, the case studies that were in the house hacking strategy of people making back their entire initial investment and more, you know, within the first year of owning their house hack, that is the down payment money. Plus maybe they put in some renovation funds. It was some really, really inspiring case studies. And of course you have to take everything with a grain of salt because the author is going to be picking the absolute best to include in the book, run the numbers in your own situation. But I mean, as you just said, compared to renting, which is a pure drain on your net worth, you have a really good chance of, you know, actually coming out ahead with house hacking–with buying, but like house hacking makes it even more sure. You know, that you’re going to come out ahead when you have that rental income coming in.

42:33 Sam: Yeah. And I do want to say the examples he gives in this book, they are very good examples. I also feel like he’s kind of, double-dipping on some of the numbers sometimes because I mean, you’re not paying $8,000 down on your loan amount in your first year of ownership. You’re paying mostly interest. So I just felt like he was kind of double-dipping with, Oh, if I have this extra rental income and I have that, plus I’m using that to pay down my loan, you know, and then he’s making it motivational, I’ll say. But is that realistic at all markets? Definitely not.

Examples Outside of the Research Triangle

43:13 Emily: I wanted to get an idea of you of a few other housing markets that you’ve worked with grad students in. Maybe not specifically for house hacking, but just grad students who have been able to buy homes around other universities. Can you give us a few examples outside of the Research Triangle?

43:28 Sam: Yeah. I mean, I’ve had success in outside of Boston, Massachusetts, where you think it’s a high-cost area and then someone on a fellowship wouldn’t afford it. That has been successful. Outside of Denver, Colorado. We’ve also had some purchases there with a post-doc. Gosh, Miami, Florida, we even had someone purchase who was going to University of Miami. Atlanta, Georgia is popular. Emory University has a good funding letter, which I’ve helped a few students out down there. It’s really all over. I mean, we have from Texas to Rhode Island to Tennessee and Ohio.

44:11 Emily: Yeah. That gives us a good idea. Thank you. So I was actually surprised to hear some really big markets in that list where you’ve made this work. So yeah, I would say for a grad student or postdoc, whoever who’s listening who is wondering about this strategy, just run some really high level numbers in your area. According to like what’s in the market right now and what your stipend is, and then yeah, if you think you’re within striking distance, like reach out to Sam, reach out to a few lenders and see if they can make the numbers work for you.

44:38 Sam: Yeah. I just want to put the emphasis on like, if you feel like you’re well-qualified, like you know you don’t have $200,000 in student loans. You know income’s going to continue for years plus, just reach out to myself or someone on my team because there’s very often a personal touch that we have for this community. I work with some students that have been denied by two other lenders. But they’re already in contract and you know, I’m two weeks late on working with them. So just in respect to your own time and maybe these other lenders that aren’t familiar, you know, we work a lot with the PhD community. I mean, we’re doing at least five plus deals a month right now, all over the country.

Correcting the Record: Credit Scores

45:27 Emily: Was there anything else about the book that you wanted to kind of correct the record on?

45:33 Sam: Yeah. I mean, there are a few things regarding credit score that changed in 2020, after this book was written. So last spring, when everything with COVID-19 was restricting some lenders, they upped credit score requirements. So a lot of FHA loans, you can’t really apply for them unless you’re over 640. And for conventional loans, no lenders typically go down to 620. There’s a breaking point. It’s at 660. So if your FICO score, if your middle FICO score is above 660, it’s going to be cheaper for you to go conventional monthly. The mortgage insurance is lower. Now, if your middle FICO score is below 660, it’s going to be cheaper for you to go FHA. That’s just a rule of thumb that all lenders use. When we price out everything and when we compare monthly payments, that’s the breaking point.

46:27 Sam: So if you’re at 661, I’m going to put you in a conventional loan. You’re at 660 or 659, FHA is for you. It does mention in the book, how, if you’re in an FHA loan, you will have to refinance into a conventional loan. This is a very common thing. Everybody does it. It reduces your mortgage insurance and also allows your mortgage insurance to drop off at 78% of equity. Okay. But everything else was looking really good. He had some very clear things to say for these first-time home buyers or house hackers. I would just suggest everyone to get better results. You should work with a loan officer, either myself or someone who’s also a senior loan officer who has a few years experience, so they can make something cater to your needs. But generally speaking, it was a great read. Very aggressive when he starts talking about, you know, living in a tent in the backyard and renting out every room in your three bedroom.

47:29 Emily: That strategy also was a little too much for me. And I think, you know, when I’m presenting this to my audience, it’s more about what can you make work over the course of five years? Not necessarily over the course of like one year. The book is very focused on one year and you know, there’s reasons for that from a real estate investing strategy, why that’s the case. But I think for the people who are listening to me, they’re more likely to want to stay in a place for a few years and have their own bedroom during that time.

47:58 Sam: Exactly, exactly.

Would You Please Give Your Contact Info Again?

47:58 Emily: Okay. Sam, thank you so much for this interview. Great information. I really hope we’ve gotten some people excited about house hacking, about buying homes, making it seem like a possibility earlier, even during graduate school. I know that I wish that I had seriously considered this or known about this concept when I was in graduate school. So as we close out, will you please give your contact information again?

48:19 Sam: Yeah. Thank you for having me again. The best way to reach me is by phone. It’s (540) 478-5803. My best e-mail is my work e-mail. It’s sam.hogan@movement.com.

48:34 Emily: Wonderful. Sam, thank you so much for joining me.

48:37 Sam: Of course. Thank you for having me.

Concluding Thoughts About House Hacking

48:39 Emily: I’m back with a few concluding thoughts. I fervently wish I had learned about the power of house hacking earlier in my life. I did my PhD at Duke between 2008 and 2014. I knew several fellow grad students who were house hacking, though I didn’t know the term at the time. So it was possible to make the numbers work. My husband and I together definitely could have purchased a home in 2010, the year we got married, based on our two stipends and our existing savings. However, I was still psychologically scarred from watching the housing market crash and there was a lot of talk about rigorous lending standards. We thought that we would leave Durham in 2013 perhaps, so following the five-year rule we did not pursue homeownership. We didn’t end up moving away from Durham until 2015. So in retrospect, house hacking was possible and almost certainly highly profitable, and we lived there long enough that either selling or keeping the home as a rental would have been viable options.

49:38 Emily: All that is water under the bridge for me, of course. What I can do now that I have learned about this strategy is two things: 1) I can consider how I can house hack in my present life. My husband and I are planning to buy our first home in the near future. We do want a detached single-family home but could consider adding an accessory dwelling unit. If that turns out to be impractical, perhaps we could house hack during a sabbatical year in another area of the country or once our kids are grown. 2) I can share this strategy as widely as possible, as I’m doing in this episode, and support anyone in my audience who wants to investigate or pursue house hacking. A perfect place to talk over these ideas as you pursue them is inside the Personal Finance for PhDs Community. In fact, we have one member already who is planning a house hack in the next few months! The House Hacking Strategy by Craig Curelop is our monthly Book Club selection for March 2021. So jump into the Community at PFforPhDs.community and we will discuss house hacking!

50:39 Emily: I want to continue this conversation not just in the Community but also on this podcast. If you are a grad student or PhD who is currently house hacking or has done so in the past, please get in touch with me. I’d love to publish a compilation podcast episode with several real case studies. If you’d like to volunteer, even anonymously, you can reach me at emily@PFforPhDs.com.

Listener Q&A: Do I Report My Stimulus Checks?

51:07 Emily: Now, on to the other one of our two new segments, the listener question and answer. Today’s question comes from a grad student in my annual tax return workshop, How to Complete Your Grad Student Tax Return and Understand It Too. Here’s the question: Do I report my stimulus checks as part of my gross income? This question has a really short answer, which is no. Your stimulus checks, or your economic impact payments as the IRS calls them, do not have any effect on your tax return unless you did not receive one when you were supposed to. I’m going to read from an IRS newsroom release from last spring titled, What People Really Want to Know About Economic Impact Payments. And I’ll link to this page from the show notes. Quote, “Is this payment considered taxable income? No, the payment is not income and taxpayers will not owe tax on it. The payment will not reduce a taxpayer’s refund or increase the amount they owe when they file their 2020 tax return next year. A payment will also not affect income for purposes of determining eligibility for federal government assistance or benefit programs.” End quote. So there you have it. Super straightforward.

53:18 Emily: The stimulus checks, the economic impact payments, are not taxable. Really the only catch, like I just mentioned, is if you were in fact eligible for these payments in 2020, but the IRS didn’t know that you were eligible and you didn’t receive the payments, then you will claim what’s called a recovery rebate credit on your tax return. So on form 1040 in line 30, you’re going to have a number in that line. It’s going to be an additional credit to you, which means you’ll get more of a refund than you were expecting essentially. Now, if you’re not sure if you’re eligible for the recovery rebate credit, there is a worksheet in the instructions for form 1040 called the recovery rebate credit worksheet. And you can fill out that worksheet and it’ll tell you exactly, you know, whether or not you were eligible and whether or not you can claim the recovery rebate credit. So thank you Aanonymous for that question.

53:18 Emily: By the way, if you’re interested in learning more about my tax workshop, How to Complete Your Grad Student Tax Return and Understand It Too, and potentially join it like this questioner did, you can go to PFforPhDs.com/taxworkshop to find more information. If you would like to submit a question to be answered in a future episode, please go to PFforPhDs.com/podcast and follow the instructions you find there. I love answering questions, so please submit yours.

Outtro

53:48 Emily: Listeners, thank you for joining me for this episode. PFforPhDs.com/podcast is the hub for the Personal Finance for PhDs podcast. On that page are links to all the episode show notes, which include full transcripts and videos of the interviews. There is also a form to volunteer to be interviewed on the podcast and instructions for entering the book giveaway contest and submitting a question for the Q and A segment. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple podcasts, Stitcher, or whatever platform you use. If you leave a review, be sure to send it to me. Two, share an episode you found particularly valuable on social media with an email listserv or as a link from your website. Three, recommend me as a speaker to your university or association. My seminars cover the personal finance topics PhDs are most interested in like investing, debt repayment, and taxes. Four, subscribe to my mailing list at PFforPhDs.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode! And remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is Stages of Awakening by Podington Bear from the free music archive and is shared under CC by NC. Podcast editing and show notes creation by Meryem Ok.

What Your University Isn’t Telling You About Your Income Tax

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In this episode, Emily lists six things that your university isn’t telling you about your income tax. Point 1 is on why and how this lack of communication manifests. Point 2 is on what your Form 1098-T, if you even receive one, is not telling you. Points 3 through 5 are on the extra steps that grad students, postdocs, and postbacs on fellowships or training grants need to take but are rarely instructed on or even warned about. Finally, point 6 is on the tax pitfalls that anyone under age 24 needs to watch out for.

Links Mentioned in the Episode

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Intro

Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts.

This is Season 8, Episode 1, and I don’t have a guest today, but rather will list for you six things that your university isn’t telling you about your income tax. Point 1 is on why and how this lack of communication manifests. Point 2 is on what your Form 1098-T, if you even receive one, is not telling you. Points 3 through 5 are on the extra steps that grad students, postdocs, and postbacs on fellowships or training grants need to take but are rarely instructed on or even warned about. Finally, point 6 is on the tax pitfalls that anyone under age 24 needs to watch out for.

Please keep in mind that I’m recording and publishing this episode in early January 2021 for tax year 2020, so if you are listening to this at a later date, please check the Tax Center on my website, PFforPhDs.com/tax/ for any relevant tax law changes or other updates.

For Season 8 of the podcast, I’ve shifted up the format! There are two new short segments, one before and one after the interview or, in the case of this episode, expert discourse. I hope this new format will encourage more interactions between me and you, the listener!

Book Giveaway

Without further ado, here’s my episode on what your university isn’t telling you about your income tax. I have seven points for you today.

Preliminary Comments

Before we get into my list, I need to make a few general comments.

First, this episode is for US citizens and residents living and working in the US who have household incomes below about $150,000. I am discussing federal income tax only, but don’t forget that you might be subject to state and local income tax and other types of taxes as well.

Second, I am not a CPA or any kind of tax advisor, so none of this is advice for financial, legal, or tax purposes.

Third, I’m going to use the terms employee income and awarded income throughout the episode, so I need to define them for you up front because I semi made them up.

Employee income is the stipend or salary you receive in exchange for working for your university or institute. It is reported on a Form W-2 at tax time. Typically, employee positions at the graduate student level are called assistantships and max out at half-time positions.

Awarded income is the stipend or salary you receive from your fellowship or training grant, provided it is not reported on a Form W-2 at tax time. You are not considered an employee with respect to awarded income. Awarded income also includes the money that pays your tuition and fees if you are a funded grad student and your health insurance premiums if you are a postdoc or postbac non-employee. We’ll talk more about the tax forms awarded income may or may not show up on momentarily.
Fourth, if you want to learn more from me about any of the subjects I mention, the best place to go is PFforPhDs.com/tax/, where you can find many free articles, podcast episodes, etc. If you want to really dive in deep, I have two paid workshops available.

How to Complete Your Grad Student Tax Return (and Understand It, Too!) goes over how to handle your higher education income and expenses with respect to your tax return, whether you ultimately prepare it manually, using software, or through a human tax preparer. You can find that at PFforPhDs.com/taxworkshop/.

Quarterly Estimated Tax for Fellowship Recipients explains how you know if you’re responsible for paying quarterly estimated tax and goes line-by-line through the relevant tax form to show you how to estimate your tax due. You can find that at PFforPhDs.com/QEtax/. That’s q for quarterly. e for estimated, t, a, x.

Finally, if you want to bring this tax content and more to your peers at your university or institute, I am available for live speaking engagements. Head to PFforPhDs.com/speaking/ for more info on that.
All right! With that out of the way, here is my list of six things your university isn’t telling you about your income tax.

1. Anything

Your university is not telling you anything about your income tax. This can happen in one or both of two ways.

The first mode of non-communication is through tax forms or a lack of tax forms. Now, employees definitely will receive a Form W-2 at tax time that lists their stipend or salary. But the university isn’t necessarily required to send you any forms regarding your awarded income. It’s actually quite common for grad students and postdocs to receive zero tax forms or any kind of formal or informal communication regarding their income. And that obviously leaves them totally adrift, and many don’t even realize that they are supposed to account for their stipends or salaries on their tax return.

Not all universities take this zero communication approach for their PhD trainees receiving awarded income. A lot of them report grad student awarded income on Form 1098-T in Box 5, even though the IRS does not require them to. A minority report awarded stipends or salaries on Form 1099-MISC in Box 3. Some send an informal letter listing the amount of the awarded stipend or salary. These approaches are helpful to a degree, but it would be even better if there was one standard way of reporting awarded income that was used by all universities in the US.

The second mode of non-communication is through staff members. Almost universally, staff members are instructed to not discuss income tax with individual students or postdocs. The university does not want to make itself liable for erroneous tax returns. Even though that’s frustrating, I think it is understandable.

As a sidebar, despite this prohibition, grad students and postdocs frequently repeat misinformation to me that they heard from staff members. Now, whether the staff member said something incorrect or the student simply misinterpreted what was said, I can’t be sure. A perfect example is the phrase “Your stipend isn’t subject to income tax,” which many students have repeated to me. What I think the staff member said or meant to say is “Your stipend is not subject to income tax withholding.” However, what the student hears is “You don’t have to pay income tax on your stipend.” You can see that this is a topic that needs to be discussed carefully.

The best case scenario seems to be when universities host educational workshops on higher education tax topics. Those are typically led by knowledgable staff members, volunteers from local accounting firms, or me, an outside contractor. None of us are giving individual tax advice, but we are teaching grad students and postdocs how the university reports their income and higher education expenses and how the IRS views the same.

So super best case scenario, you receive some kind of tax form or letter and have the opportunity to attend a workshop. Worst case scenario, no forms or letters and everyone clams up.

2. Your Form 1098-T Lacks Vital Information

I want to like Form 1098-T, I really do. It’s the best we have. And, without getting too much into the weeds, Form 1098-T has undergone a couple edits recently that make it far, far easier to use. So that is great. I wish its usage was universal.

Where Form 1098-T still falls short is in failing to catalog all awarded income and all higher education expenses that are relevant to a funded grad student.

On the income side, it’s typical to include tuition and fee scholarships and waivers in Box 5. Often, though not always, the awarded stipend or salary appears as well. But you might have received other awarded income as well during the year from your university or another source, and if that funding was not processed by the department that prepares the Form 1098-T, it may be left out. So you can look at the number in Box 5 of your 1098-T, but you still need to wrack your brain to come up with any additional awarded income you might have had for the year.

On the expenses side, Form 1098-T Box 1 reports “payments received for qualified tuition and related expenses.” A lot of people and software conflate the sum listed in that box with the total of their qualified education expenses for the year. Qualified education expenses are used to reduce your taxable income or your tax liability. I don’t want to get too technical in this episode, but if you make that assumption, you might be missing out on hundreds or even thousands of dollars of qualified education expenses, meaning you could overpay your true tax liability by tens or hundreds of dollars. This is because the definition of “qualified education expenses” is actually different depending on which higher education tax benefit you’re using them for, and Form 1098-T uses the most conservative definition. So unfortunately you can’t just go with the number listed in Box 1. You have to look into all of your higher education expenses individually to determine which you can use for the tax benefit you chose. That means combing through your student account as well as considering other spending you’ve done.

I wish Form 1098-T were completely trustworthy so you wouldn’t have to track down all the underlying expenses in your student account, but it’s just not the case right now.

If you would like some support through this process, I recommend joining my tax workshop at PFforPhDs.com/taxworkshop/. I provide a detailed discussion of what qualified education expenses are missing from Form 1098-T and worksheets to help you keep all the numbers straight.

3. Your Fellowship or Training Grant Income Is Taxable

I just wanted to close the loop I brought up in point #1. In case you were not aware, awarded income is taxable to the extent that it exceeds your qualified education expenses such as tuition and required fees.

Now, just because some income is taxable doesn’t mean you will actually end up paying income tax on it. If your total income is low enough or your have enough deductions and credits to claim, you may not end up paying any income tax. But you have to go through the exercise of filling out your tax return to determine if and how much income tax you owe, and that is true whether your income is awarded or employee or both.

There is a persistent rumor within many universities and departments that awarded income is tax-exempt. That actually used to be the case several decades ago, so there is a kernel of outdated truth in the rumor. And I can understand why the rumor lives on and spreads, because it is what people want to hear. Plus, at many places it is not countered by direct communication from the university as in point #1.

If you would like to hear my full argument with IRS references to prove that awarded income is taxable, please listen to Season 2 Bonus Episode 1 of this podcast, titled “Do I Owe Income Tax on My Fellowship?” It is linked from the show notes for this episode.

4. Your Paycheck Is Pre-Tax, Not Post-Tax.

I’m going to expand on the issues related to awarded stipends and salaries now.

With employee income, your employer withholds income tax on your behalf to send to the IRS and gives you a paycheck for the rest of your income, which is your net or after-tax income. A pay stub is also generated for each paycheck that lists your gross income and all the tax that has been withheld, though you might have to proactively seek it out.

While it is possible to withhold income tax from awarded income, most universities and institutes don’t offer this benefit. There is typically no pay stub generated, either. In the absence of clear communication, harkening back to point #1, many, many fellows who are on board with point #3 assume that their income has already had income tax withheld. After all, that is how paychecks work for the great majority of people who receive them.

It’s a nasty surprise when they realize that their pay is pre-tax, not post-tax, and they have a large tax bill to pay.

5. Your Income Tax Is Due Four Times per Year, Not One

This point follows on on from point #4 for those who do not have income tax withheld from their awarded stipends or salaries:

If the amount you owe in income tax exceeds $1,000 for the year and you don’t fall into an exception category, you are required to make what are called estimated tax payments. This is when you, personally, send the IRS money up to four times per year to stand in for income tax withholding.
Going along with point #1, this is rarely discussed or even mentioned to grad students and postdocs receiving awarded income. A heads up would be nice.

Ideally, fellowship recipients would be told that they might owe income tax—point #3—and that tax is not being withheld from their paychecks—point #4—and that the best practice is to set aside money from each paycheck for their future tax payments, whether that is once per year or up to four times per year—this point.

If you would like more information about estimated tax for fellowship recipients, I have a great long-form article on it that I’ll link to from the show notes. If you want my help to determine if you are required to make estimated tax payments and in what amount, I recommend checking out my workshop at PFforPhDs.com/qetax, that’s qe for quarterly estimated t a x.

6. Those of You Under Age 24 Need to Be Extra Cautious

If you are under age 24 at the end of the tax year and receive primarily awarded income, there are two tax potholes for you to watch out for. Your university won’t tell you about these subjects because it comes way too close to giving tax advice.

The first is potentially being claimed as a dependent by your parent or other relative, which generally speaking is not good for your bottom line but good for theirs. I have observed that parents and the people who prepare their tax returns tend to default to assuming that anyone under age 24 who is a student is a dependent. The thing to know about being claimed as a dependent is that it’s not a matter of preference. There is a set of five objective tests to determine if a young person is a dependent, which you can read about in Publication 501. There is a tricky part of one of the tests, though, the support test, which is different depending on if your stipend or salary is employee income or awarded income, so watch out for that. You should go the extra mile to discuss with your parent or relative whether you can be claimed as a dependent before either of you files in case there is a difference of opinion to work out, because it’s much easier to do it that way than to mediate a disagreement via the IRS.

The second is the Kiddie Tax. The Kiddie Tax is an alternative way of calculating your tax liability based on your parent’s marginal tax rate instead of your own graduated tax rates. Ostensibly, the Kiddie Tax is supposed to disincentivize high-earning parents from sheltering income-generating assets in their children’s names, but in a mind-boggling twist, the Kiddie Tax applies to awarded income, not just investment income. I have an article on my site on the Kiddie Tax linked from PFforPhDs.com/tax/. I sincerely hope that it does not apply to you or you can find a way to avoid it or minimize it, but in any case it is something to be aware of and watch out for.

I have a whole video in How to Complete Your Grad Student Tax Return (and Understand It, Too!) dedicated to people who were under age 24 during the tax year, so if you want a more in-depth exploration of these topics, please go to PFforPhDs.com/taxworkshop/.

Conclusion

I’m really glad you joined me for this episode! If you found something of value in it, please share it with your peers. You can save them a lot of emotional and financial turmoil and stress by giving them a heads up about the topics I covered. I really appreciate it! Good luck this tax season, and don’t hesitate to reach out if you need any help!

Listener Q&A

Outro

Listeners, thank you for joining me for this episode!

pfforphds.com/podcast/ is the hub for the Personal Finance for PhDs podcast. On that page are links to all the episodes’ show notes, which include full transcripts and videos of the interviews. There is also a form to volunteer to be interviewed on the podcast and instructions for entering the book giveaway contest and submitting a question for the Q&A segment. I’d love for you to check it out and get more involved!

If you’ve been enjoying the podcast, here are 4 ways you can help it grow:

  1. Subscribe to the podcast and rate and review it on Apple Podcasts, Stitcher, or whatever platform you use. If you leave a review, be sure to send it to me!
  2. Share an episode you found particularly valuable on social media, with a email list-serv, or as a link from your website.
  3. Recommend me as a speaker to your university or association. My seminars cover the personal finance topics PhDs are most interested in, like investing, debt repayment, and taxes.
  4. 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.