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The Gardener and Rose Approach for Childfree PhD Couples

May 23, 2022 by Meryem Ok Leave a Comment

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

  • Portraits of Childfree Wealth (Book by Dr. Jay Zigmont)
  • PF for PhDs Community
  • Childfree Wealth (Dr. Jay Zigmont’s Website)
  • PF for PhDs Register for Mailing List (Access Advice Document)
  • PF for PhDs Podcast Hub (Transcripts/Show Notes)

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, [email protected] 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

January 25, 2021 by Meryem Ok

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

  • The House Hacking Strategy by Craig Curelop (affiliate link—thanks for using!)
  • Email Emily for Book Giveaway Contest
  • PF for PhDs Podcast Hub (Giveaway Instructions)
  • This Grad Student Defrayed His Housing Costs By Renting Rooms to His Peers (Money Story with Dr. Matt Hotze)
  • PF for PhDs: The Wealthy PhD
  • Purchasing a Home as a Graduate Student with Fellowship Income (Money Story with Jonathan Sun)
  • How to Qualify for a Mortgage as a Graduate Student or PhD, Even with Non-W-2 Fellowship Income (Expert Interview with Sam Hogan)
  • PF for PhDs: Community
  • Here is the IRS link that I mention in the Q&A
  • Sam’s Email: [email protected]
  • PF for PhDs: Tax Workshop
  • PF for PhDs: Subscribe to Mailing List
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 [email protected].

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 [email protected].

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 [email protected].

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

January 4, 2021 by Emily

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

  • Tax Center for Personal Finance for PhDs
  • How to Complete Your Grad Student Tax Return (and Understand It, Too!)
  • Quarterly Estimated Tax for Fellowship Recipients
  • Emily’s speaking services
  • Season 2 Bonus Episode 1: Do I Owe Income Tax on My Fellowship?
  • Season 4 Bonus Episode 1: Fellowship Income Is Now Eligible to Be Contributed to an IRA!
  • Podcast hub
  • Subscribe to the mailing list
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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!
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  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.

How to Solve the Problem of Irregular Expenses

December 14, 2020 by Emily

In this episode, Emily tells the story of starting to use the strategy that completely revolutionized her budget when she was a grad student. She teaches this strategy in almost all of the seminars she gives for universities, and it never fails to generate a high level of interest and follow-up questions. The strategy is called targeted savings, and it is a solution to the problem of irregular expenses. Irregular expenses are any expenses that occur less frequently than monthly that are difficult to pay for in the moment, such as flights, car repairs, electronics, gifts, etc. Irregular expenses don’t pose a problem for every budget, but they commonly do for lower earners like grad students. Targeted savings is a particular method for predicting and saving up in advance for these irregular expenses. If you listen through this episode and are motivated to implement a system of targeted savings, you are invited to join the Personal Finance for PhDs Community to access a full course on targeted savings, including a custom spreadsheet, and the December 2020 Challenge to create or update their targeted savings for 2021.

Links Mentioned

  • Targeted Savings: The Solution for Irregular Expenses
  • Personal Finance for PhDs Podcast Hub
irregular expenses targeted savings

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

This is Season 7, Episode 15, and today I don’t have a guest but rather am going to tell you about the strategy that completely revolutionized my budget when I was a grad student. I teach this strategy in almost all of the seminars I give for universities, and it never fails to generate a high level of interest and follow-up questions.

The strategy is called targeted savings, and it is a solution to the problem of irregular expenses. Irregular expenses are any expenses that occur less frequently than monthly that are difficult to pay for in the moment, such as flights, car repairs, electronics, gifts, etc. Irregular expenses don’t pose a problem for every budget, but they commonly do for lower earners like grad students. Targeted savings is a particular method for predicting and saving up in advance for these irregular expenses.

If you listen through this episode and are motivated to implement a system of targeted savings, I invite you to join the Personal Finance for PhDs Community.

I recently added a full course on targeted savings, including a custom spreadsheet, and in December 2020 I’m running a Challenge for the Community for all participants to create or update their targeted savings for 2021. If you want to take the course and/or participate in the Challenge, join the Community at PFforPhDs.com/targeted/.

Without further ado, here’s my episode, on how to solve the problem of irregular expenses.

Definition of Irregular Expense

I’d like to first expand on the definition of irregular expenses and explain why they are such a problem for early-career PhDs in particular.

Irregular expenses are expenses that occur less frequently than monthly, so they don’t really have a spot in a traditional monthly budget the way rent, utilities, groceries, etc. do. Yet, these expenses are predictable, at least in a general sense. You probably have some irregular expenses that occur in a fixed amount at a reliable point in the year, such as an insurance premium or a fee for your university. Other irregular expenses might not have a precise amount or date assigned to them, but it’s fairly certain they’ll crop up sometime, such as purchasing clothes or shoes.

I believe that irregular expenses cause more trouble for early-career PhDs than for our peers who have Real Jobs in their 20s and 30s for two reasons.

First, graduate students and sometimes postdocs have relatively low incomes. For someone whose income far exceeds their fixed expenses, irregular expenses don’t pose much of an issue. They can pay for the expense in the month it arises by cutting back slightly in some variable spending areas of the budget or deferring some spending. Maybe they save a little less or aren’t able to pay off as much debt as usual. But what if the irregular expense rivals or exceeds the portion of your income that doesn’t have to go to fixed expenses? That is fairly common situation for graduate students.

Second, graduate students and sometimes postdocs have more irregular expenses because they are graduate students or postdocs. PhDs often move away from loved ones and therefore incur travel expenses to visit them. Universities often charge fees that have to be paid once per year or term instead of being prorated to be taken out of each paycheck. If income tax on fellowships is not withheld by the university, that creates another irregular expense for the fellow. Research and conference expenses, whether reimbursed or not, are another type of irregular expense. These are all in addition to the irregular expenses that anyone might have.

Common Solutions for Irregular Expenses

Now that we’ve established what irregular expenses are, let’s discuss the various ways people handle them.

I mentioned one solution already, which is simply to cut back in other spending areas or savings goals in the short term so that you can pay for the irregular expense fully in the month that it arises. This solution pairs really well with keeping what I call a unique monthly budget, which is to write a unique budget for every single month that accounts for one-off expenses. However, this is not a viable solution, like I just outlined, if your income does not far exceed your monthly necessary and/or fixed expenses.

Probably the most common solution is to put the expense on a credit card to buy some time. By floating the charge on a credit card until the due date, you can spread the expense out over about two months and therefore have a better chance of paying for it using the prior strategy. For a larger expense, you might even end up carrying a balance for several months to spread out the repayment even more. Using credit cards in this way is not ideal, because you are obligating your future income to past purchases that should be paid for with past income, plus if you do carry a balance you’ll be charged interest.

The final common solution for irregular expenses is to have some cash savings available that you can draw from when an irregular expense arises. Then, you can replace the savings over time. One of the subtle advantages to this solution is that you will almost certainly consider the irregular expense more carefully and look for alternatives if you are spending cash vs. using debt. You might end up choosing not to incur the irregular expense at that time or shopping around for a better value. Plus, of course, there are no interest charges, and you can handle larger expenses than if you were only using the first strategy.

Targeted savings, the strategy I’m teaching you in this episode, is a more detailed version of this third strategy that involves advance planning as well as advance saving.

How I Started Using Targeted Savings

I first noticed my need for an intentional solution to this problem of irregular expenses about two years into my PhD.
Prior to that point, I had used all three of the solutions I just mentioned to handle irregular expenses.

When I was living paycheck to paycheck with no cash savings and an irregular expense came up, I would cut back as much as I could in my discretionary variable spending in that month to pay for it.
On an occasion or two, I still wasn’t able to swing the expense, so I put the expense on a credit card to float it into the next month, meaning the frantic cutting back on expenses lasted even longer. This was super difficult and unpleasant because on a stipend there’s not exactly a lot of fat in the first place.

Later, I did have a small general savings account, which I could dip into and then refill to pay for the irregular expense.

What happened after my second year of grad school is that I got married to another grad student, Kyle. We burned through almost all of our cash savings paying for our rings, honeymoon, and our portion of the wedding expenses. When we got back from our honeymoon and started combining our finances and setting up a joint budget, we realized that we only had $1,200 remaining in cash savings, which I felt obligated to call our emergency fund. So paying for irregular expenses out of existing savings was no longer an option.

It turned out that the summer we got married was a wedding boom among our friends. In fact, and I’m sure this will sound familiar to many of you, that summer kicked off a period of several years in our mid-twenties in which we were invited to about half a dozen weddings each year, most of them requiring us to travel.

Now, I love attending weddings. I very much wanted to share the joy of every couple who invited us to their wedding as we had so recently shared our joy. But we had no savings to help make that happen, and I had become savvy enough about personal finance to know I shouldn’t use a credit card if I couldn’t pay off the charge right away.

In that particular summer, we ended up declining a couple of the wedding invitations and cash flowing the irregular expenses associated with the weddings we did attend. We took a hard look at our new joint budget and found ways to reduce our spending on a monthly basis so we could handle the irregular expenses that we did incur.

As we financially caught our breath at the end of that summer, I resolved that I did not want to go through that again. I assumed—correctly—that we would have another big wedding season the next summer, and I didn’t want to have to scramble to pay for the travel and gifts and attire and everything, and I didn’t want to have to turn down invitations for financial reasons.
I had heard of this strategy known as targeted savings or sinking funds, so Kyle and I agreed to start saving up right then for the wedding guest-related expenses we assumed would come our way in fewer than 12 months. We didn’t know all the details at that moment of what the expenses would be and when they would occur, but it was a reasonable assumption that they would occur. We opened a new savings account, called it “Travel and Wedding Gifts,” and set up an autodraft to contribute money to it every month. The frugal measures we had put in place over the past few months helped us to establish that savings rate. The next year, when we did incur those expenses, we drew from that account to pay for them, and we didn’t have any of the stress and scramble associated with that spending that we did the year before.

General Solution

This is the basic concept of targeted savings. You anticipate an irregular expense, and you do your best to predict the amount and timing of that expense. Then, you establish a savings rate into a dedicated account that will sum to that amount by that time. It’s a really simple idea, though it can be tricky to implement, especially when you endeavor to capture and prepare for all of your irregular expenses, as I soon did.

Expanding the Solution

We didn’t stop with just wedding guest-related expenses. Over the course of the next few months, other types of irregular expenses arose. In September, Kyle and I paid up front for our two yearly university parking permits. In October, we purchased a season ticket to the Duke men’s basketball home games—Go Devils!—and two season tickets to the Broadway musicals series at our local theater. In November, we purchased cross-country flights to see our family over winter break.

We decided to apply our new system to these other expense categories, plus even more. Each time we cash flowed one of these irregular expenses by cutting back our other spending, we set up a new savings account and autodraft to fund that purchase for the following year.

It was not trivial to both pay for these irregular expenses out of cash flow and start saving up for the next year, but we managed it through putting in place frugal strategies that we hadn’t tried before. We canceled cable TV, stopped eating out for convenience, switched where we shopped for groceries, line dried our clothes, pursued credit card rewards, and more.
By the time a full year had passed, we had encountered or thought of every irregular expense in our lives at that time. We had set up separate savings accounts with our bank, and each one had a monthly autodraft to fund it.
Here are the names of our six targeted savings accounts and their savings rates from that time:

  • Appearance $35/mo
  • Cars $185/mo
  • Community Supported Agriculture $35/mo
  • Entertainment $60/mo
  • Medical/Dental/Vision $70/mo
  • Travel and Gifts $390/mo

Key Insight

This system worked very, very well for us, and it works well for many people I’ve spoken with about it. Targeted savings turns large, irregular expenses into small, fixed expenses that are easier to write into a budget. An effective monthly budget is a cornerstone personal finance strategy and is instrumental in helping you reach just about any financial goal, but a budget cannot be effective if it is continually derailed by irregular expenses.
Predicting and preparing for irregular expenses, whether through savings or a cash flow plan, is so important that I made it its own step in the Financial Framework I developed for PhDs, right after paying off high-priority debt and before investing for retirement.

The value of the strategy is not only in predicting and preparing for irregular expenses, although that alone would be reason enough to use it. What I’ve learned from using this strategy is that it helps you compare regular and irregular expenses head-to-head, which is really difficult to do otherwise.

In the absence of a system for predicting and preparing for irregular expenses, you’re flying by the seat of your pants with every irregular expense or spending opportunity that arises. You have to make a quick decision about whether or not you will spend and how your budget will accommodate that spending. In that moment, there is nearly always intense pressure to spend, either internal or external.

Implementing targeted savings has you take a bird’s-eye view of your spending over the course of a year, both regular and irregular. By considering spending decisions well before they actually arise, you take a lot of the pressure off the decision. By converting one-time expenses to expenses that you save for every month, you can more easily answer the question, “Would I rather spend $120 on this irregular expense or $10 per month on this regular expense?”

The trade-off was always there, but targeted savings makes it easier to make an optimal decision. Sometimes, you really rather would spend the $10 per month on a regular expense, so you can make a clear-headed decision to decline the $120 irregular expense. Targeted savings help you organize your spending so that it brings you the maximum possible satisfaction over the course of a year.

Our Targeted Savings Accounts Today

Kyle and I used targeted savings throughout the rest of grad school, and it helped us to spend on travel, car repairs, a DSLR camera, Christmas gifts for Kyle’s huge extended family, fellowship tax bills, dental checkups, business formal clothes, spontaneous charitable gifts, and much more—without anywhere near as much financial stress as we had experienced before using the system.

In fact, we kept using targeted savings even after we finished grad school and our household income increased. Even though we could cash flow pretty much any irregular expense now, I prefer to try to predict them and weigh how much we should spend in one budget category vs. another. In fact, we stopped using the system for the first year after we moved from Durham to Seattle because that was a major upheaval, but we started up again after that year because it was psychologically much preferable.
Targeted savings is not static, and you should iterate it every year at least to keep up with your shifting priorities and spending opportunities. Wedding guest-related expenses are no longer a big driver in our targeted savings system, and spending on our children now holds a place.

Our targeted savings categories as of early 2020 were:

  • Appearance
  • Cars
  • Childcare
  • Electronics
  • Entertainment
  • Gifts
  • Housewares
  • Life Insurance Premiums
  • Medical/Dental/Vision Copays and Coinsurance
  • Miscellaneous Kid Expenses
  • Travel

Course on Targeted Savings

I’ve thoroughly explored targeted savings through reflecting on my practice, talking with other PhDs about theirs, and reading how other personal finance experts use it. I’ve distilled the insights I’ve gained into my new course, Targeted Savings: The Solution for Irregular Expenses.
The course delves deeply into how to design and implement a system of targeted savings so that it captures all your problematic irregular expenses.
The course answers or helps you find your own answers to:

  • What kind of account or accounts should I keep my targeted savings in?
  • Do I need to switch banks to facilitate this practice?
  • How do I predict my expenses for the upcoming year?
  • Should I prepare for my irregular expenses individually or as groups?
  • Should I dedicate existing general savings to targeted savings and if so how?
  • How do I calculate the savings rates?
  • What do I do if an expense pops up that I didn’t predict?
  • Should my emergency fund be separate from my targeted savings?
  • How do I tell if an expense should be covered by my emergency fund or targeted savings?

and, the one that I have to answer for myself every single time I update my system:

  • What should I do if my calculated targeted savings rates are too high to fit into my monthly budget?

If you’re excited by the idea of targeted savings but not sure how to really get it going, please consider joining the Personal Finance for PhDs Community to access the course and December 2020’s Community Challenge. The Challenge is to create or update your system of targeted savings to be ready to go in January 2021. I know I personally need this update as our 2020 spending did not go at all as we had expected. As you go through the course and work on your system, you can report your progress and/or ask for help from me and the other Community members in the forum threads dedicated to the Challenge. The Challenge exists to keep you accountable to your goal of creating targeted savings and to assist you in overcoming any speed bumps you encounter. Even if you’re listening to this later on, as a Community member you’re always welcome to participate in past Challenges, and I’ll still provide support.

You can learn more about Targeted Savings: The Solution for Irregular Expenses and join the Personal Finance for PhDs Community at PFforPhDs.com/targeted/. I actually have made available on that page the first module of the course to give you a flavor of the content, and that module includes a list of two dozen common categories of irregular expenses for early-career PhDs.

Thank you so much for joining me for this episode! I highly recommend you test out the strategy of targeted savings in your own budget. It is a game-changer.

How to Curb Your Impulse to Keep Up with the Joneses

November 23, 2020 by Meryem Ok

In this episode, Emily interviews Dr. Joy Lere, a licensed clinical psychologist and behavioral finance consultant on the danger of “keeping up with the Joneses.” Joy explains how emotionally unsatisfying and financially damaging trying to keep up with the Joneses is and that contentment can only come from within yourself. PhDs anticipating future income jumps would do well to put off lifestyle inflation for a least a few years after their salaries increase, which will give them more career and lifestyle choices in the future.

This is post contains affiliate links. Thank you for supporting PF for PhDs!

Links Mentioned in This Episode

  • PF for PhDs Episode with Daniel Crosby
  • Your Money or Your Life (Book)
  • PF for PhDs: Community
  • Joy Lere Website
  • Joy Lere LinkedIn
  • Joy Lere Instagram (@joylerepsyd)
  • Joy Lere Twitter (@joylerepsyd)
  • PF for PhDs: Podcast Hub
  • PF for PhDs: Subscribe to Mailing List
keep up with the Joneses

Teaser

00:00 Joy: If you can understand that this idea of peer comparison, it is going to be ever-present, and it’s not so much that the environment or the people around you need to change. What needs to flip is the script in your mind, in terms of the mentality you have when looking to the people in your life.

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 seven, episode 12, and today my guest is Dr. Joy Lere, a licensed clinical psychologist and behavioral finance consultant. Our topic is the danger of keeping up with the Joneses. Joy explains how emotionally unsatisfying, and financially damaging, trying to keep up with the Joneses is, and that contentment can only come from within yourself. PhDs anticipating future income jumps would do well to put off lifestyle inflation for at least a few years after their salaries increase, which will give them more career and lifestyle choices in the future. This interview really hit home for me, as I reflected on my post-PhD life and finances and where my family is headed next. As you might have garnered from listening to previous episodes of this podcast, I had a pretty good handle on my finances by the end of grad school.

01:30 Emily: And I was truly satisfied with my lifestyle. I had defeated my Joneses. Or so I thought. Then, my husband and I moved to Seattle. We rented a relatively inexpensive apartment in a wealthy neighborhood. There’s a lot of tech money in Seattle, as I’m sure you know. Suddenly, I wasn’t comparing my lifestyle to that of other graduate students in a medium cost-of-living city, but to other full-fledged adults in a high cost-of-living city. I distinctly remember my first and hardest-hitting Jones moment in Seattle. Shortly after we had our first child, I joined a mother support group in my neighborhood. Our first meeting was in the home of our group leader, and each participant would rotate hosting subsequent meetings. I remember walking into our group leader’s house, which was gigantic, gorgeous, and immaculate. It was somewhat shocking to me. Plus, during the meeting, our group leader casually mentioned she was in the process of custom building another house in our neighborhood to move to the next year.

02:33 Emily: My heart sank, knowing that I would eventually host these mothers and babies in my small, dingy, undecorated apartment. That cheap apartment had been a strategic financial choice upon our move. We were following the advice to live like a grad student so that we could keep our retirement savings rate high while I got my business off the ground and we adjusted to parenthood. Even though we had good reasons for living in that apartment, those reasons paled for me, when I saw where and how my group leader lived. And I started questioning all our choices. That was my first big post-PhD Jones moment. I got past that feeling, kind of, eventually, for that situation, but now my husband and I are in the early stages of searching for our very first home to purchase. And I can sense myself starting to become aware again of the Joneses. Since buying a house in Southern California is such a big, expensive decision, I know I have to be really conscious about those feelings and influences. That’s why the subject of this interview was so timely for me. I hope it will be for you as well. Without further ado, here’s my interview with Dr. Joy Lere.

Will You Please Introduce Yourself Further?

03:50 Emily: I am just delighted to have joining me on the podcast today Dr. Joy Lere. She is a licensed clinical psychologist and behavioral finance consultant, such an interesting combination. So, I’m really happy to have her on the podcast today. We’re actually going to be talking about keeping up with the Joneses. Or rather, how not to keep up with the Joneses. So, Joy, will you please introduce yourself a little bit further?

04:11 Joy: Absolutely. It is a joy and a privilege to be here with you today. My name is Joy Lere. I am a licensed clinical psychologist and behavioral finance consultant. So, essentially I am someone who as a clinician works where Freud meets finance. So, I live and work outside of Napa, California, and I’ve a telemedicine practice where I see patients for psychotherapy. And I also work in specializing in consultation within the finance industry. So within that role, I’m providing support, training, education, coaching, and psychotherapy also to financial planners and financial advisors, because there are a lot of really exciting things happening within the industry where there’s more and more attention being given to the fact that people’s relationship with their money is not just a matter of math or economic theory. Money itself is emotional currency. So, having an understanding of human psychology and how that drives financial decisions is really starting to be integrated more and more into the world of finance.

05:33 Emily: Yes. Thank you so much for that description. Yes, of course, I have observed this trend as well. And I’m really excited to have you on. Actually, I did an interview some time ago with Dr. Daniel Crosby. So, we’ll link that from the show notes as well, since that was on a similar topic.

05:47 Joy: He is a good friend and just, he’s fabulous.

Tell Us a Little More About Your Education

05:52 Emily: Oh yeah, it was a wonderful conversation. Would you also tell us a little bit more about your education, because you’ve spent some time in academia as well?

05:58 Joy: Yes. So, I obtained my master’s degree while living abroad in the UK for a couple of years. And I decided after that experience and after starting my clinical work in England, that I wasn’t quite yet ready to be done with school. So, my husband is in the military. We made our way back across the pond. And then I went to graduate school at George Washington University and obtained my doctorate in clinical psychology while I was there.

Can You Define “Keeping Up with the Joneses”?

06:33 Emily: Yeah. Wonderful. Okay. So, our topic for today, keeping up with the Joneses. Probably a phrase that maybe everyone’s heard in the audience, but can you give a little bit more of a fine point on the definition?

06:45 Joy: Absolutely. So, this is a phrase that’s popularized in society, and it really speaks to the way that people look around their social spheres and circles, and look oftentimes at their peers and kind of benchmark their lives and their decisions to that. So, they are seeing something, often an outside image or kind of a curated facade. I think certainly social media makes this even more complicated for people today. And then they think to themselves, “Well, if they have that or they are making that lifestyle choice, that must mean I can, or I should.” So then, they make decisions based on what they are seeing around them.

Does “Keeping Up” Make Anyone Happier?

07:43 Emily: Does attempting to keep up with Joneses actually make anyone happier? You know, we’ll address the financial component of that in a moment, but does it do anything for us emotionally or socially to try to keep up with the Joneses?

07:58 Joy: I think really, being in the comparison trap just keep someone emotionally stuck. Because what is not happening when you’re telling yourself, “I need to be, I need to be doing that. I need to be getting farther ahead,” is you aren’t focusing and being centered from a place of being grateful for what you have and really having a sense of contentment. And when you think about someone’s financial life, when there’s this constant search and drive and need for more and more and more, that can lead to dangerous, destructive places. Being on a hedonic treadmill like that can be exhausting. And the truth is that when a lot of times people think, “Well, I will eventually catch up,” but oftentimes the goalpost just keeps on moving.

09:01 Emily: I was just going to say that the phrase is keeping up with the Joneses, right? It’s not hanging out with the Joneses and being at the same level as the Joneses. It’s just like it implied in the phrase itself is a continual striving, as you were just saying, which sounds totally exhausting. I really like that you make the point that we can also move these goalposts on ourselves. Like yeah. Maybe you caught up with, you know, Jones number one over here. Well, that just means you’re going to switch your attention to Jones number two and try keeping up in some other area.

09:32 Joy: I tell people, throughout your life, there will always be Joneses there. You went to graduate school with them. You looked around there and you were like, “Well, they’re doing this. That means, naturally, that’s what I should be doing.” They are always going to be in your workplace. They’re going to be on whatever street you live. So, you moved to the bigger house, the newer neighborhood. Well then there’s going to be someone else who ultimately has a little bit more. So, if you can understand that this idea of peer comparison, it is going to be ever-present, and it’s not so much that the environment or the people around you need to change. What needs to flip is the script in your mind, in terms of the mentality you have when looking to the people in your life.

The Hedonic Treadmill

10:29 Emily: Yes, such a wonderful point. You mentioned the term hedonic treadmill a couple of minutes ago, and I’m betting not everyone in my audience knows what that is. So, can you explain that a little bit further?

10:42 Joy: This idea that often times we’re running a race, we’re going after more, something better. There’s a desire for enough. And people think they are moving closer to the mark, but really you are just exhausting yourself on a treadmill, and there’s never a finish line. So, when you are caught in this cycle, you’re just going to keep running. And it ultimately is never enough. I think, I encourage people to reflect on this idea of what is enough. Who decides what it is, how much it is, how do you know you have it? You know, even how someone answers that question is, is enough a number? Is it a sense of security? Does the outside world get to decide what enough is? Or is that something that you determine for yourself? No, this is, this is good. I can stop. I can breathe. And I don’t have to continue to feel the need to be amassing more.

11:55 Emily: Mhm. I’m currently reading the book Your Money or Your Life for the very first time. This is inside the Personal Finance for PhD’s Community. We have a book club, so I’m reading it for the book club.

12:06 Joy: That’s fabulous.

12:06 Emily: Yeah, I’m surprised it took me so long to read actually, because of course it has been out for a couple of decades. But anyway, the concept of enough figures very prominently, the argument that the authors are making in that book about having, as you were just saying, determining for yourself, and it’s really about self-reflection and it’s not at all about looking around you at what anybody else is doing. You know, what it is to be content, be full in a sense, like in terms of thinking about your appetite. You’re full, but you don’t want to stuff yourself. You don’t want to go beyond this, you know, level of fullness or contentness or enoughness because it’s damaging not only to your finances, but also to you as a person to, you know, as you were just saying, continually strive to go and beyond, beyond, beyond. One aspect of the hedonic treadmill idea that I understand at any rate is that, maybe it’s a little bit similar to like addiction or like getting into that, but what you need to feel a pleasure hit from spending becomes higher and higher and higher because you become adapted every new spending level.

13:10 Emily: You know, you get to a new spending level, you’re like, “Well, this is fantastic. I have all these new experiences and stuff. It’s wonderful.” And then suddenly it’s just normal and it’s just you again. It’s just you, yourself. And then you have to go to a higher spending level to get that hit again. And that’s the sort of a mountain climbing, like that’s kind of the treadmill aspect of it, is that correct?

13:28 Joy: Yes. Yes.

Keeping Up with the Joneses Affects Your Finances

13:31 Emily: So, we were just talking about how this is not ever going to be emotionally satisfying. What happens to your finances if you are striving to keep up with the Joneses?

13:40 Joy: I think it, peer comparison when it comes to finances is so complex. And oftentimes it is very problematic because peers give you permission to sometimes spend in ways that you ultimately can’t afford. And sometimes there’s pressure or there’s fear of missing out. Now, when we look at this idea and this concept of keeping up with the Joneses, when we look at the financial state of affairs of the average American family, who is indebted, over-leveraged, all of these things, if you are then trying to keep up with someone who is overextending, you are then overextending yourself even more. So, it just perpetuates this problem indefinitely. My great-grandmother who lived through the depression, had this phrase that I love. And I never met her, but it was something that was instilled in my mom. And it was this: “Just because they have it, does not mean they can afford it.”

Just Because They Have It, Does Not Mean They Can Afford It

14:53 Joy: And that is something that so many people confuse. They look at, “Well, this is the house they’re living in. This is the car they are driving. These are the vacations they are taking. And so that must mean like that’s okay.” What they don’t see is what goes on behind closed doors. They don’t see the physical, the psychological cost of the stress that comes with carrying debt. They don’t see the impact of the work stress of the employment situation that person feels like they are trapped in because of the lifestyle that they are living. A lot of that stuff happens behind closed doors. But I tell people, so part of my job as a therapist is–I love my job–so often, I wake up and I’m like, “I truly believe I have the best job in the world because I get to sit behind closed doors with incredibly bright, driven people who are having conversations they aren’t having with anyone else in their lives.” So, I’ve sat behind closed doors with the Joneses. And let me tell you, their lives are not as rich or pretty or neat as most people think when you just see a public-facing persona.

16:28 Emily: Yes. That’s a wonderful phrase from your great-grandmother. And actually, it reminded me of something that my pastor from my church in North Carolina was preaching a sermon one time and was talking about this concept of keeping up with the Joneses. And I remember him saying, you know, if you’re going to follow sort of the the Christian way of handling money, you know, there’s certain things in the Bible, the layout of how you’re supposed to do this. He says, you’re going to be living multiple steps behind who you perceive to be as your peers. You’re going to be living a step behind because you’re not going to be leveraged with debt, at least outside of your mortgage or whatever. You are going to be living in step behind because you’re going to be giving. You’re going to be living a step behind because you’re going to be saving for your future as well.

You’re Going to Be Living Three Steps Behind

17:12 Emily: So, he was like, “You’re going to be living three steps behind, you know, who you perceive to be your peers in terms of like your career or whatever it is.” And that has really stuck with me too, that like, yes, it just, as you were saying, you don’t know how other people are handling, you know, as an outsider, you don’t know what’s going on inside their homes and how they’re really managing to live the lifestyle that you can perceive. And, you know, you brought up social media earlier. We have so many more, I think, potential Joneses in our life right now, because we have access, in a way limited access, to a lot more people from maybe a lot of our different stages of life and even people you don’t know. So, I’m sure that this just exacerbates this entire problem.

17:50 Joy: Yes. And I love what you brought up. You brought up something so important about lifestyle choices. If you do the things that most people do, you are going to get the things that most people get. You’re going to get average. And right now, financially average in our country is not a pretty picture. So, it really requires people to step back and ask, “Okay, what do I really want? And what do I want long-term?” In order to get ahead, you have, especially early on, our little choices compound over time. So, I will often explain to clients and people, if you can make, and this is especially applicable to, to students, to professionals. A lot of times, if you are entering a kind of employment, or you’re graduating, you’re like, “Okay, I’m going to start living the doctor life.” No, hold on.

18:56 Joy: If you can give it a couple of years of living like you are a broke grad student and what you can do with the savings during that time, when a lot of your peers are starting to make very different choices, what that can lead to for you in the long-term is huge. But that requires being able to say, “No.” It requires being able to tolerate, okay. Maybe you’re going to miss out on some things. But, if you can be willing to do things differently than other people, you give yourself a chance at having something bigger and better that most people will never achieve.

Commercial

19:44 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 which I add to every month. There is also a discussion forum, monthly live calls with me, a book club, 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.

Present Lifestyle Choices Impact Your Future Comfort

20:49 Emily: I’m really glad that you took the conversation in this direction, because it’s exactly where I wanted to go as well. Talking about, you know, when you have these large income jumps, you know, okay for PhDs, you finished graduate school, maybe you’re moving up to a post-doc. Hopefully, a decent jump in income there. Okay, you’re moving out of the postdoc or directly out of the PhD, you’re getting into a proper job. Hopefully, a big jump there. And maybe, you know, throughout your career, potentially there could be other big jumps as you switch, you know, employers or whatnot. So, a lot of my audience is still in graduate school or is still in training. And so, they’re still anticipating and looking forward to those large income jumps in the future. And of course, the advice you just brought up, you know, there’s versions of it. You know, live like a grad student, live like a college student, live like a resident. It’s basically just, keep that lifestyle, or as close to that lifestyle as you can, from your prior earning stage for at least a little while into that next one. And then as you said, you know, this can do fabulous things to your finances. So, can you elaborate on that a little bit more?

21:45 Joy: Absolutely. And I want to explain. I think something that people often don’t fully understand or account for is in school, or maybe early in your career, you have a picture of, “This is what I’m going to want. I’m on this linear trajectory, professionally.” But things change. Life circumstances change. Sometimes your dreams, your desires, opportunities can lead to different places. And, if you have made financial choices so that you have the freedom and flexibility to change your mind, if you want to at a later time, and not be locked in because of the debt you have and the lifestyle that you have settled into, that gives you a ton of freedom. So, I just really emphasize to students that the things you are doing with your money now in these first years of your career are huge. So, if you can just hold on and be a little bit more conservative in some areas, that can have huge implications for your financial life later on.

Saving During Graduate School

23:11 Emily: Yeah. I actually want to give an example from my own life here. It a little feels like I’m tooting my own horn, but I think it does illustrate what you were just talking about. So, when my husband and I were in graduate school, we did our PhDs at the same time. So, we were both on stipends, same time. We saved, you know, I’m into personal finance, right? So like I was figuring this stuff out early. I was figuring out saving, investing and paying off debt and doing all these things. And so I started that during graduate school. Whereas a lot of people, either one have no opportunity to start saving or investing during graduate school, just completely off the table based on either their going into debt for their degrees, or they’re just simply not paid even a living wage. That was not our case.

23:50 Emily: We were very fortunate. So, we were doing that saving. We, one, could, but two, we took the initiative to do it. We were figuring that out at that time. By the time we finished graduate school, we had amassed quite a decent nest egg. And, you know, one, one attitude could have been during that time, “Well, you know, I may as well just spend what I have have, I don’t really need to save right now because I’m going to have this big income jump in the future. And, you know, it’s going to take care of itself at that time. I won’t worry about investing until, you know, later on.” But because we took that other route of starting as early as we could with, you know, saving and investing and so forth, we had a decent nest egg built up by the time we finished graduate school. That enabled one, my husband to take a job at a startup, which he had never anticipated doing and was completely, you know, really nervous about that.

24:30 Emily: We’re sort of conservative with our careers. And so we were like, “Wow, you know, this good job could go at any point.” But it was just such a perfect fit for him. We were like, “How can he pass this up?” You know, we’ll take the risk. We have the nest egg, we can do that. We can take that risk of him taking that kind of job. Secondarily, I was able to start my business, which meant, you know, just completely going off a different track from, you know, the normal job thing, which is a fantastic opportunity and similarly, very good fit for me. So, I feel like our life, you know, career satisfaction levels were much higher than they would have been had we not been in a financial position at that time to be able to make that choice. And the reason we were in that position was because years earlier we had started this process not really knowing that was how it’s going to work out. You know, we didn’t realize, you know, these opportunities came our way and we could take advantage of them because of the preparation we’d done before that point.

25:19 Joy: Absolutely.

How to Cultivate Contentment in the Now

25:21 Emily: So, I’m thinking about a graduate student, probably. Maybe a post-doc, who is currently maybe even practicing not keeping up with the Joneses. Because they probably have a lot of Joneses in their lives that they couldn’t possibly keep up with. Right? Like it’s just not even a feasible thing for them to do right now. So, what would you say to that person about how to still cultivate contentment in their life when they know they can’t even possibly play the game with the Joneses right now, and also how to maintain that once maybe they are able to get in the game once their income is higher?

25:57 Joy: I think, you know, this idea of game and even if we bring it back to the race. if you can understand everyone is playing a different game, and if you can focus on running your own race and just stay in your lane, that is going to set you up for success. Now, I don’t think that if you are not trying to keep up and you’re making a concerted effort around that, that doesn’t mean your life needs to be devoid of fun and human connection. I think, I encourage people to be creative. You can be the one driving the conversation, making suggestions. And the truth is, sometimes if you are maybe doing things or suggesting things to your social circle that are not going to be exorbitantly costly, there are probably going to be some people who are really relieved. Because here’s the thing. Everyone’s running this race.

27:04 Joy: And some people are more aware of it than others. Some people, based on their upbringing and what they bring to the table in terms of their own money scripts, and what gets activated for them around money, they may have different thoughts and feelings about it. But that’s one way to think about it. And you know, this transition when you do have more income, I think it’s important that it doesn’t become, you know, if you think about someone who’s been on a diet and then it’s like, everything is suddenly available, I’m just going to binge. If you can keep a mentality of moderation, that is going to serve you going forward.

Take Ownership of Social Spending

27:50 Emily: I love those two suggestions. And especially the first one around like, it’s sort of like, money decisions, let’s say about social spending with your peer group. They don’t have to happen to you, right? Like you can actually sort of take the wheel and say, at least some of the time, I’m going to be suggesting things to do that are within my budget. Like you said, probably some other people will be relieved. And so, you know, you can do a combination of planning things and maybe saying yes or no here or there to things that other people suggest. So that you’re not, you know, always, always saying no to everything, but yeah, you can keep it more within your range and steer things. I know, certainly for me in graduate school I found a group of friends that I was comfortable socializing with and we all sort of had the same manner of socializing that we enjoyed, and it was very inexpensive. And it was really good for all of us in that sense.

28:40 Emily: And so, you sort of find your people, is maybe one way. So like, there aren’t so many Joneses, so close to you in your life. I had a couple other ideas about how to like combat this, you know, impulse to keep up with the Joneses. One was to redefine what you’re jonesing for. So like instead of jonesing for the consumption aspects of using your money, Jones for like, “I’m going to max out that 401k,” like “I’m going to, you know, be striving”–if you want to strive for something–be striving for something that’s ultimately going to benefit your finances instead of, you know, working in the opposite direction for you.

29:17 Joy: Change your status symbols.

Happiness is Not Contingent on What You Are Chasing

29:20 Emily: Yes. Oh, that’s a great way of putting it. I love that. It’s very, you know, it’s millionaire next door. Right. So, try to be like that person. Are there any other like sort of behavioral finance tips that you would suggest for, you know, helping people achieve their financial goals without letting these Jones impulses kind of get in their way?

29:40 Joy: Well, I think just really paying attention to what you are benchmarking to, this idea of this is the baseline. I think that’s really important. As you think about and reflect on, I think developing financial self-awareness and doing some reflection and understanding about what gets activated for you with your money, and really starting to dig into some of the more core beliefs you carry about money and how that drives what you do with it. I think those are really important foundational places for people to start.

30:26 Emily: Yeah, I think going along with those exercises as well, and you just mentioned this, is sort of remembering where you’ve come from. Like remembering the influences, of course, that your parents have, and then maybe your peers, you know, through different stages of your life. And remembering like, especially once you’ve passed, like the graduate school stage, like, “Okay, back then I did live on this amount of money. I did have this size of home. I did do these things. Was I happy then? Was I content then? Why are things different now? Could they be more similar to how things were in the past?” I’m asking myself some of these questions now that I’m, you know, a few years out of graduate school.

31:02 Joy: If you are telling yourself, “I will be happy when,” and you are then looking to something in the future, I would really encourage you to go back into your history and think about this idea of happy. What is some other evidence you have that there have been other times when you’ve had that feeling that experience that you haven’t had that thing? So, happiness is not contingent on that which you are chasing.

The Power of “No”

31:34 Emily: Yeah. That’s such a, I think foundational point about happiness, that I’m only just sort of starting to learn myself now in my thirties. And I wish I had known it because I am the type of person who kind of always has goals and is always striving for something. And my husband definitely kind of complains and kind of ribs me for like always wanting the next thing. And why can’t you be satisfied now? And, I am starting to realize like that. Whoo. That’s just how I am. I need to really like, look at that because I’m never going to get there. Right? If that’s what I’m basing that on. Is there anything else you wanted to add, Joy, before we wrap up the interview here?

32:09 Joy: I think this idea of there’s a lot of power in saying no and having financial boundaries, that’s something I do a lot of talking with people about. I think a lot of things get in the way of people saying, “No.” There’s a fear of missing out. There’s a discomfort with what you are anticipating someone else’s reaction is going to be. And the truth is, I believe people would be healthier, wealthier, and less exhausted overall if they built that muscle of saying “No” more often. And again, that’s not saying no to everything. But if you are finding yourself in a situation in your gut where you’re like, “I’m going to say yes, but I really don’t want to do this.” Ask yourself why. And then what is getting in the way of your taking care of yourself? If it’s your energy, if it’s your finances, and what would need to happen in order for you to have the courage to say, “No?” And what is the cost to your yes? Be that financial, physical, psychological.

How To Connect with Joy Lere

33:27 Emily: Yeah. Thank you so much. How can people find out more about the work that you do? Or I don’t know, if they want to be a client of yours. Like how do people connect with you?

33:37 Joy: My website is my name. J O Y L E R E. Joylere.com. I am active on LinkedIn, Joy Lere Psyd, and also spin my creative wheels on Instagram a little bit, @ joylerepsyd, and also love to hang out on Twitter and connect with people there. Also, my handle is joylerepsyd.

Best Advice for an Early-Career PhD

34:02 Emily: Yeah. Thank you so much. That’s where we connected as well. So, final question here, Joy. What is your best financial advice for an early-career PhD? It could be something we’ve touched on in this interview, or it could be something else entirely.

34:14 Joy: My best advice is to do things different than most people around you. If you do that now, you will have things that no one else later on in their career will likely be able to accomplish and achieve.

34:36 Emily: Yeah. Thank you so much for that. Thank you so much for this interview and for joining me today.

34:39 Joy: Absolutely. It was a pleasure. Thanks for sharing your platform with me.

Outtro

34:44 Emily: Listeners, thank you for joining me for this episode. Pfforphds.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, please consider joining my mailing list for my behind-the-scenes commentary about each episode. Register at pfforphds.com/subscribe. 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.

How to Identify and Change the Money Mindset You Developed in Academia

November 16, 2020 by Lourdes Bobbio

In this episode, Emily interviews Dr. Chris Cornthwaite of Roostervane. Chris and Emily share the money mindsets that they have observed among PhDs and academics, including believing money and wealth to be evil, scarcity, relating time to income, and anchoring. They discuss how to identify and change your own money mindset. Chris shares how his money mindset has evolved from his youth idolizing poverty through his underpaid grad student years and now into his employment and entrepreneurial journey.

This is post contains affiliate links. Thank you for supporting PF for PhDs!

Link Mentioned in this Episode

  • Find Dr. Chris Cornthwaite at Roostervane.com and on Twitter
  • Get Money: Live the Life You Want, Not Just the Life You Can Afford by Kristin Wong
  • The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas Stanley and William Danko
  • The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor—and Why You Can Never Buy a Decent Used Car! by Tim Harford
  • Millionaire Teacher: The Nine Rules of Wealthy You Should Have Learned in School by Andrew Hallam
  • Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money that the Poor and Middle Class Do Not! by Robert Kiyosaki
  • The Millionaire Fastlane: Crack the Code to Wealth and Live Rich for a Lifetime! by MJ DeMarco
  • Personal Finance for PhDs: Community
  • Personal Finance for PhDs: Podcast Hub
  • Personal Finance for PhDs: Subscribe to the mailing list
PhD money mindset

Teaser

00:00 Chris: It’s one thing to start when you’re, when you’re 20 or 25, and have the value of compound interest over time and save that $40 a month or whatever it was. But it’s actually quite a different thing to start when you’re 35 with student loans that need to be paid off and try to create a sizeable chunk of wealth.

Introduction

00:23 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 seven, episode 11, and today my guest is Dr. Chris Cornthwaite of Roostervane. Chris and I list the money mindsets that we have observed among PhDs and academics, including believing money and wealth to be evil, scarcity, relating time to income, and anchoring. We discuss how to identify and change your own money mindset. Chris shares how his money mindset has evolved from his youth idolizing poverty, through his underpaid grad student years, and now into his employment and entrepreneurial journey. As you’ll hear during this episode, one of the best ways you can change your money mindset is by intentionally seeking out and learning from people who have the money mindset you want to move toward, whether that is through books, other media or new acquaintances.

01:22 Emily: If this episode convinces you that you should work on your own money mindset, I invite you to join the Personal Finance for PhDs community at pfforphds.community. Inside the community, you can communicate with me and other like-minded PhDs through our forum and monthly live calls. The community has a monthly book club and group financial challenges as well. In November, 2020, we’re reading Get Money by Kristin Wong and in December, it we’ll read The Millionaire Next Door by Thomas Stanley and William Danko. Our challenges for November and December are to create a frugal stack and set up a system of targeted savings accounts. One of the eBooks included in the community, The Wealthy PhD, also has a chapter on what money mindset is, why it’s important, and how to shift it. While I didn’t understand it at the time being part of the personal finance blogosphere while I was in grad school was absolutely vital to the level of financial success I had then and now, and was directly my inspiration for starting my business. With the Personal Finance for PhD’s community, I’ve attempted to replicate many of the positive elements of that experience while making the whole process more time efficient and accessible for you. If you’re interested in learning more about and joining the community, you can do so at pfforphds.community. Without further ado, here’s my interview with Dr. Chris Cornthwaite from Roostervane.

Will You Please Introduce Yourself Further?

02:49 Emily: I’m so delighted to have joining me on the podcast today, Dr. Chris Cornthwaite of Roostervane. He writes a lot about PhDs and career transitions and career over there, but he also has a lot of material about money, wealth, money, mindset, and so forth. And that’s why I invited him on the podcast today to tell us more about money mindset. So, Chris, will you please just introduce yourself a little bit further to the audience?

03:14 Chris: Yeah, for sure. So in terms of my academic background, I have a PhD in religious studies from the University of Toronto and after I finished my PhD, I was kind of lost and didn’t know what to do for work. Kind of was the impetus for starting Roostervane, eventually. But I went and I worked for a think tank. So I ran projects for Canadian think tank. Kind of a lot of different projects, but some that kind of related to money that are still interesting to me is things like economic development and prosperity and things like that. And then I went and worked for the federal government for a little while, the Canadian federal government. I worked on a project that helps other countries launch refugee programs. Basically it’s a lot of like international diplomacy kind of stuff and that was really neat. And I still do some consulting in that world, in the refugee program world, but I also run Roostervane. I started a blog, initially it was kind of chronicling my own journey out of academia, but it’s just evolved to things that I like to write about. It’s become everything from a little bit on personal finance, as you say to careers, LinkedIn, ideas about purpose, which has really been an interesting question for me. That’s become about, I would say it’s maybe like 80% of the work I do, but it’s not my full-time income yet. It’s growing, but as you know, it takes time, so I’m working on that too. That’s me.

4:40 Emily: So interesting. Thank you so much. So money mindset is our topic for today.

What Are the Common Money Mindsets of PhDs and Academics?

And I wanted to start off by asking you what are the common money mindsets that you have observed in PhDs or academics?

4:53 Chris: This is such a fun conversation. I’m really glad to have it. I think the thing that I see a lot of, I mean, we could talk about scarcity mindset and that sort of thing, and that’s certainly common. I think the thing that I deal with the most, especially as people are like leaving academia and it’s not just about money, but it’s about careers in general, but there’s a lot of constructs within academia, like ideological constructs that money is bad, money is evil. The pursuit of money is something that, especially for those pursuing life in academia, a lot of people kind of buy the idea that this is a noble cause and worth doing for nothing basically. I think that a lot of PhDs have the idea that they shouldn’t think about money or that they’re bad for thinking about it or that they’re not serious academics if they want to think about it.

5:46 Chris: The irony is that, I remember having one exchange with a student in particular and he was kind of saying some of these things to me and he was quoting his professor. And some of the things his professor had said about how this is not about money. And I said, “is that your professor who makes $170,000 a year?” There’s a huge discrepancy, I think, between the idealism of PhDs and the reality of both the Academy and just “real world”. I think that’s the biggest holdup I see in terms of money mindset is that people have this idea that poverty is noble or that earning money is bad. Investing is capitalism, capitalism’s bad. I think those become really big holdups and I think can actually seriously hinder people from first of all, making good decisions about their career, but also from actually acquiring wealth and getting comfortable, much less wealthy.

6:38 Emily: So I think here, your discipline might be showing because like in contrast, so I’ve heard the same things, but it was not until I started speaking with PhDs more widely across a lot of disciplines that I encountered that mindset. Because for me as an engineering PhD and in the STEM fields, yes, scarcity mindset was there. Yes, undervaluing yourself was there, but not the money is evil aspect of things because I think we were all expecting like, okay, yeah, this is a low-income period of life, but this is not characterized my life overall. Like overall I’m going to be a highly employable, decent to good earner as an engineering PhD or STEM PhD. And honestly, even in my let’s say path through academia in terms of the professors that I interacted with, because I was in science fields and engineering fields, I didn’t have any professors say to me, capitalism is evil or anything like that. So it’s not an idea that I found until I started interacting with humanities PhDs that I even encountered that. I think this is really feel dependent.

7:48 Chris: A hundred percent, I agree. And it’s interesting for careers too. I’m always kind of realizing where these field differences are and it’s hard because I write for PhDs, like it’s one audience, and in some cases I think there are a lot of things that are kind of universal, but you’re a hundred percent right. And I think a lot of the kinds of ideologies around money that I was exposed to, and I mean, I still see them a lot, but you’re you’re right, they’re definitely much more predominant in humanities, social science fields for sure.

8:13 Emily: Yeah, but I’m so glad you brought that one up because I think that one is maybe the most insidious, like the hardest to reverse, which of course we’ll get to in a moment, but that was a great first observation to bring up. Do you have any other ones? You mentioned scarcity mindset earlier, but didn’t actually define it. Do you want to talk a little bit more about what scarcity mindset is?

8:31 Chris: Gosh, yeah. I think scarcity mindset for me, the way I understand it is just the idea that like there’s never enough money and it’s always, I’m just going to be poor and I’m always going to be poor. I mean, I don’t know, we’ve never had the conversation about the philosophies of money behind it, but a lot of the people that I read see this as manifesting into your life, that you adopt this type of scarcity and it becomes true for you. There’s a whole different conversation we could have, but I think at least anecdotally that’s been true in my life too, that when I kind of live this kind of scarcity — there’s never enough money, I have to keep it all tight, and pinch every penny and be just really, really controlling about, about my money. I think that’s what I see and I saw a lot of that in academia and I think, I mean, a lot of people are poor. I actually did all right, because I won the right fellowships. I mean, it’s just luck of the draw. There’s not really any reason why one PhD makes $15,000, another one makes $50,000. But all that to say that I saw a lot of that scarcity mindset. But the other thing that I think one of the things that I really observed academia taught me was this idea of linking your time to money. I didn’t get paid by the hour other than when I did TA or RA work, so I think one of the really valuable lessons I learned in academia and it’s a mindset that academics have if you kind of dig for it is this idea that you can actually work on a grant application for five or six hours and it might bring you a hundred thousand dollars. I think there are also some positive money mindsets from academia too, if you want to dig for them, but it’s just hard to kind of hard to get at them sometimes.

10:16 Emily: Yeah. I think that’s a really interesting point to bring up. Actually, I wanted to go back to the scarcity mindset for a second because there’s actual scarcity in your life and there’s the scarcity mindset and those things can come together or they can be separate from each other. You can have one or the other, you can have both, you can have neither. There is actual scarcity, especially at the graduate student level in terms of how much money you’re making. Now, does that apply to everybody? No, because of course there’s fellowships you can win, you can have side hustles, but there is scarcity in a sense. But whether it limits your mindset or not doesn’t necessarily come along with that scarcity. And the other thing is the academic job market, like there is literal a lot of scarcity in the academic job market. And I think that PhD’s observing that market, even if they choose not to pursue it or don’t end up in academia long-term, they still take that observation with them onto their other career paths and imagine the kind of scarcity and other places that they have rightly observed within academia.

11:15 Chris: Yeah. That’s really interesting. One thing I’m thinking of as you say that some of my professor friends who sat on on grant committees, especially for university-level scholarships and realize how many scholarships actually didn’t get any applications. So it also kind of does make me think that like there is of course literal scarcity, but I think one of the ways for example, that that can play out is that instead of me saying as a student, how can I go make more money or how can I increase my, my income? What scholarships can I apply for in this case because there was a lot of years that they didn’t give out a lot of the scholarships. It’s easier just to say, well, I’m just poor and this is my lot in life and woe is me kind of thing. So I hear what you’re saying. I do. I totally agree with you. And I think there’s a balance there for me between the actual scarcity and the mindset that says, how can I make the most of this? There’s obviously going to be some kind of a limit, but how can I expand what I do have access to?

12:11 Emily: Yeah, exactly. I think it’s really depressing for graduate students to think about their hourly wage, because they imagine, especially because they work so many hours, usually beyond 40 and yet they’re only being paid ostensibly — you mentioned RA or TA work earlier, that’s typically limited to like 20 hours a week, at least in the US — so they’re calculating this off of like 40 plus hours per week when actually they’re only being paid for 20 and technically they’re doing their dissertation for free and a lot of people don’t understand that. So it is depressing, they calculate their hourly wage, but like you said, that’s not actually literally what they’re being paid for. And sometimes you can, as you said, win an award for just a handful of hours of extra work on top of the work that you are already doing. So I do like the idea of divorcing the hourly wage thing, but it’s disheartening to think about in the first place.

13:05 Chris: I’m trying to look on the bright side. There’s a lot to be sad about, about the financial state of academia. So overall I’m not saying it’s like, great, but there are things that I’ve realized — I know we’re going to talk about it later — but as I’ve moved into my life, there are things that academia trained me for that I’m actually like, Oh, that’s actually not a bad thing.

13:22 Emily: Yeah. So let’s finish up talking about the mindsets that you see. Are there any ones that you’ve have any other ones that you’ve observed either positive or negative, helpful or unhelpful?

13:32 Chris: Let me think. Well, I guess so, so I think the thing that initiated this conversation was you had mentioned a post that I wrote where I had identified a lot of different things that I had learned. I’m trying to think about how much they relate to mindset, but I think there are principles, some of which do relate to mindset, about money that students kind of carry forward. So we already talked about the hourly wage, but I was thinking about in terms of scale, like when you think of I don’t know, a journal publication, like creating one thing that can influence multiple people. That’s not so much a mindset though. I guess I think the answer is no, I don’t really have any other mindsets offhand that I talk about.

14:13 Emily: I think the only other one that I’ll bring up is anchoring. So when you’re in graduate school and you’re making this tiny hourly wage or maybe you think about your yearly salary also tiny, because you’re anchored there, because that’s the first, early on salary that you’ve experienced in your life, you may not really understand your value in the marketplace once you go forward from that position, whether it’s in academia or outside of academia. And so your anchored to this, as you mentioned, 15 or 30 or whatever it is, thousand dollars per year, you’re making as a graduate student and you think, “Oh, wow, could I make double that?” And that’s like amazing to you. Instead of thinking, I want to three X, four X, five X, 10 X what I was making in graduate school, or more. I think that’s another really insidious one is, is the ultimate under valuing that you do later on.

15:04 Chris: Yeah, that’s a great point.

How Do You Identify Your Money Mindset?

15:06 Emily: So we talked about the money mindsets that are common among PhDs. These are not universal. So how does an individual determine what are the money mindsets that I currently have? And this is such a tough question because money mindsets are so closely held you don’t even recognize them as such. It’s just how the world works according to you. So how do you identify your own, your own money mindset?

15:28 Chris: I think the thing that helped me most was reading. I would say the first book I read on money was The Undercover Economist. And I read that, I mean, that must be 10 years ago now. I read it somewhere in my graduate journey, I think pretty early on and it rocked my world and I started reading every single personal finance or money book I could get my hands on after that. So I’ve read a lot of them. And I think a lot of what I saw through reading kind of reflected back to me in my own life.

16:01 Chris: For example, I started to, I can’t even pinpoint like where I got it from, but I started to see like things that I was raised with. I was raised in quite a poor family. My dad worked as a maintenance man in hospital, my mom stayed home with five kids, and a lot of my money mindset came from there. There was never enough money, money doesn’t grow on trees, money is for other people, and then we were also religious, so it was also spiritualized. I don’t know if I ever heard that money is evil, but I definitely heard that poverty was kind of noble, poverty was spiritual. I think the more I started to read and just hear people name similar things to what I had felt and seeing other people who grew up in similar places, I started to unpack a lot of those. There’s one podcast I really liked, it’s called Profit Boss, and she really did a fantastic job. Is it Hillary Hendershot? Do you know that one? I haven’t listened to it about five years.

17:00 Emily: I don’t think I know that one.

17:00 Chris: She had done an episode on money mindset, and it was really good and really opened up to me a lot of my own limitations and that really helped a lot. I think just hearing people name their money mindset and seeing it in myself.

17:17 Emily: So I totally agree with you that you have to start encountering other minds to recognize your own mindsets and whether that’s through reading as you were doing. I also early on in my life journey was reading the personal finance blogosphere quite a lot. So hearing from other personal stories of people who are talking explicitly about money. That’s the thing is you have to actually kind of get towards money or money related topics when you know, exchange these other minds. So it’s a little bit easier to do in an impersonal format, like reading or listening to podcasts or watching videos or whatever. But I’ll add into that talking with other graduate students, maybe like we mentioned earlier, outside your own discipline and outside your own worldview. Or not even other graduate students, but just like your peers, maybe peers who have real jobs, that can help you open up. If you’re actually, again, touching on these money or money related topics can help you recognize what’s a mindset in you and what’s like actual observable truth about the world versus just your perception of it. Encountering other people I think is crucial to identifying your own money mindset.

18:24 Chris: The kind of thing that that makes me think of is this idea of even talking about money. And I know that’s another money mindset I had is like, we don’t talk about money. We don’t talk about it with anybody. Money, politics, and I guess religion were the three things you’re not supposed to talk about. Right. And that’s definitely something that I’ve experienced. It’s funny, even with Roostervane. For example, I wrote a post a while back and it was just for fun about how PhDs can be worth a $100K or something, and it was one of the most read posts that I’ve ever done, but it’s actually one of the least shared. People were happy to kind of read about it, but didn’t really want to talk about it. I think there’s a lot of shame in talking about money and expressing an interest in money, and even an interest in having money or growing wealth. That’s another mindset that had held me back in the past. And I think it’s still pretty prevalent.

Commercial

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, which I add to every month. There is also a discussion forum, monthly live calls with me, book club 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.

How Do You Change Your Money Mindset?

20:27 Emily: Okay, so an individual has started to identify their own money mindset by listening to this podcast or reading your articles or reading other materials. How do you think they should actually go about changing a money mindset that they’ve identified as unhelpful that they have?

20:44 Chris: I’ve given a lot of thought this. It’s an interesting question, because I think what I realized is it doesn’t change overnight and I will find myself even years later, like something identified years ago and all of a sudden I kind of will stop myself when I’m doing something and say like, Oh, that’s my X mindset that has kind of played in, but it’s kind of sneaking back in. It’s really, really hard to change the way that you are kind of hardwired to think about money. It takes a lot of time. I mean, I’ve done things like I do journaling and I will sort of journal about it. I just watch and read a lot of stuff. I think really immersing yourself in things that kind of present a different view from what you’re used to, I think that kind of immersion has really helped me a lot. I’m trying to think what else. Those would be the two main ones, just kind of exposing yourself to different ideas and kind of recognize that you’re on a journey to change your money mindset. It will definitely take time. It’s not going to happen overnight. Start taking kind of the little incremental steps to grow it. And I think also education, I would say, is a big part of that. The more you learn about money, the more you learn about growing wealth, the less scary it get. It can get confusing because there’s a lot of contradictory information, but it’s at least less scary. So ideally you’re going to, you’re going to be a little more competent and therefore comfortable with actually thinking about and dealing with your money.

22:07 Emily: I totally agree with you that I think the first stop is sort of the extension of the identification. It’s continuing to encounter other ideas about money and maybe now you can kind of selectively go towards, “okay, well, this is a money mindset that I would like to cultivate, or this is the money mindset I want to get away from, so I’m going to specifically listen to source X or source Y, which is going to help me move again slowly over time towards that more helpful money mindset.” So yeah, I totally agree. Like for instance, listen to this podcast. Maybe this is giving you a different perspective on money than you had before. Or continue to read other sources. I know I, as I mentioned earlier, totally immersed myself in like the personal finance blogosphere. That was really helpful in changing some of my money mindsets, especially around like earning more because definitely as a graduate student, I had those limiting beliefs about like, I can’t have a side hustle and like, I can never increase my stipend, but that turned out to not be true after working on it for years and years I finally figured that out. So definitely getting around other people. I don’t remember the exact phrase, but there’s that thing where like, you’re the average of the five people you spend the most time with. And so with respect to your money mindset, if you’ve had parent one, parent two, professor one in that circle before, you can maybe, at least with respect to this subject, edge those people out in favor of people who, have the mindset that you want to adopt.

23:28 Chris: Exactly. Yeah, I totally agree.

23:30 Emily: And I’ll add in, you mentioned a little bit earlier, abundance mindset and thinking and so forth. And I’ve also read a little bit about that in the entrepreneurial space. That’s how I actually first sort of encountered the topic of mindset was through the entrepreneurial stuff. One of the things that is talked about a lot in that space, which I think might be helpful, is actually writing and saying affirmations. And you mentioned, it’s a little bit related to journaling. Basically what we’re talking about is self-talk. You’ve been telling yourself money is the root of all evil and capitalism needs to die and I will never have money and all those things. You’ve been telling yourself those things for years. And so now you need to start telling yourself other things. It might be helpful to actually write down an affirmation, something that you know maybe intellectually to be true, but you don’t really feel it. You haven’t really internalized it yet and start reciting those to yourself. Maybe it’s once a day or a few times a day, to kind of get that self-talk like grooved in. And so eventually you’ll go to it more naturally. This is something I recommend to people who I work with on money mindset. It’s not something I practice all the time, but I do it from time to time when I feel like I need a little boost or a refresher with my mindset. Have you ever done the affirmation thing?

24:46 Chris: I do actually. I think I just, wasn’t clear in defining how I think of journaling because I do journaling, but within my journaling, I do affirmations as well. I have every day and there’s one in particular, there’s one that I’ll share just because it’s been a recent realization for me. I’m not particularly religious anymore, but coming from this idea of my youth that having money is evil somehow or whatever, I’ve really been thinking through like trying to get myself to adopt the idea lately that money is almost spiritual. That having money and creating wealth, especially as an entrepreneur, is actually an indication of the value that I bring to somebody else’s life. Rather than our ideas about entrepreneurship growing up is like, well, business people trick people into giving them money or whatever. In fact it’s quite the opposite. My wealth, the amount that I get paid is reflective of the value that I bring to people’s lives, and that’s really a beautiful thing. I think that’s one thing, just for example, that I’ve been kind of writing down variations of that for quite a long time now, trying to really worm it into my head because I really do believe it’s true, actually.

25:54 Emily: Yeah. I’m working on a similar one for me and my business as well. The amount of money you’re bringing in reflects the value that you bring to the world. That’s true, if you have a job too, but it’s sort of brutally true when you’re an entrepreneur, like you’re feeling that like all the time, there’s no comfort of the salary.

Chris’s Own Money Mindset Journey

26:13 Emily: Okay, so we’ve talked through what kind of mindsets you might have if you’re in academia, how do identify them, how to change them or start to change them, because you said, it’s going to be a process. You’ve talked about your own personal story here and there throughout this. Is there anything that you want to add more so about your career or your financial journey, especially as it relates to your money mindset?

26:35 Chris: Yeah, I think it’s interesting. I’ve had a constant evolution of my money mindset and it started back when I started reading personal finance books, at the beginning and each personal finance books was like a revelation. Like the first one, I remember reading a book called The Millionaire Teacher. I don’t know if you know that one. And it was like, okay, it’s low cost index funds, that’s how I’m going to build wealth. Low-cost index funds, low MER, ETFs — that’s the answer. And then I read the next one and it was like, actually people with managed portfolios do better over time and like, okay, who do I believe?

27:11 Chris: I think one of the most interesting things about my money journey has been, first of all, just digesting the huge amount of contradictory information out there. And there is a lot of it. For example, I remember reading Dave Ramsey and David Bach around the same time, and Dave Ramsey is like, pay down debt, don’t buy a house until you’re out of debt and David Bach was like buy a house tomorrow because nobody’s going to let you leverage that amount of money anywhere else. So it’s funny, I think like looking back now, I was forming my own views around money, even though there are little nuances in how they actually play out. I remember reading one book in particular and it was after I had read all these different people and the book was, I’m almost ashamed to say it. There are two money books I’m really ashamed to say that I like. I wonder if you could guess them, the first is Robert Kiyosaki’s Rich Dad, Poor Dad.

28:05 Emily: Yeah I was going to say Rich Dad, Poor Dad.

28:08 Chris: I’m so embarrassed to say that I liked that one. First of all, because if you Google Robert Kiyosaki, as an individual, I’m not endorsing Robert Kiyosaki. He’s had some interesting business practices and definitely has some interesting beliefs today. But the book was revolutionary for me. It really changed the way that I thought about business and wealth and just my own upbringing. The second one, this one it’s called The Millionaire Fastlane: Crack the Code to Wealth and Live Rich for a Lifetime! It’s by a guy named MJ DeMarco. I would almost recommend it, but I’m hesitant because it’s like a bro book. He’s just one of those…he was an internet millionaire and it’s really, especially when you read it there are just some things that like don’t sit right. But the one thing that I will say that hit me about that book is he said actually when you look at all these personal finance gurus, none of them got rich off of following their own advice. Dave Ramsey and Susie Orman, these people didn’t get rich from saving 15% of their paycheck. They got rich by creating something that had massive value, massive scale, and creating huge personal brands and putting it out there in the world.

29:16 Chris: And I think that was really like something clicked. I had been working for the government too and realizing that even though I was making quite good money compared to what I was making in my PhD and I was interviewing for jobs that would make even more, I was giving away a third of it in taxes. I was struggling. Even our family, we thought we were going to be wealthy now that we have a paycheck and have a good job and I have a pension. And I mean, the opposite was true. Trying to scrape together that 15% to save every month or whatever it was going to be, it felt almost impossible, just because of the realities of our cost of living and raising kids and unexpected expenses. And I remember kind of thinking this through and saying, okay, it’s one thing to start when you’re 20 or 25, and have the value of compound interest over time and save that $40 a month or whatever it was. But it’s actually quite a different thing to start when you’re 35 with student loans that need to be paid off and try to create a sizable chunk of wealth. It’s possible. It’s definitely possible.

30:23 Chris: At the time I was the only one working my spouse Carolyn was home with our kids and she is a graphic designer, so she does some freelance work, but she wasn’t making a full-time income. So I think I just kind of came to the reality and it was about the time I read this, that it kind of shook me. And I said like, actually the way that I’m thinking about wealth is right for a lot of people, but it might not be right for me. For your listeners, there’s probably a variety of people. If you’re a two income family earning $180,000 a year, it might be pretty easy to catch up and squirrel away 30% a month instead of 15% a month and catch up to where you would have been. But for my own reality, I fell in love with the idea of business and the idea that in my case, especially with an internet business that I could start with almost like nothing. I could start with $3 a month and create a business that’s worth a lot of money. I didn’t know where else you could leverage that. Like you have that kind of leverage or create that kind of scale from starting with like paying Bluehost $3 a month and putting my ideas online to creating something. And I don’t know exactly, like I’m not great at evaluating blogs, but I think even today, Roostervane, from what I understand would be worth like between $30 and $60,000, which is not a huge amount of money, but I started it last year.

31:39 Chris: As a business person, it’s just thinking through business has changed everything about how I see money and I’m no longer one of those people trying to squirrel away part of my paycheck. And those are totally fine if that’s the position somebody is in and that’s kind of their money worldview, that’s totally great. But for me personally, I just got a lot more interested in creating an asset. Creating this asset that’s called a business and it changes everything. I don’t really care how much I take out of the business. I don’t care how much my paycheck is because I actually love having money in the business to reinvest back into it. It’s just little things like that, that as an entrepreneur radically reorients your relationship to money and it really changes the way you view everything. It’s been a long journey and I think I’ve talked a lot about it, but it’s been really interesting, and I still have so much to learn, but it’s just that constant growth and realization, coming to the idea that there are some principles that I’ve come believe about money, about things like scale and impacting people and creating value. And that’s some of the things that I’ve put on the blog, which I haven’t really blogged about why you should invest in low cost index funds. I’ve just blogged about here are some of the kind of generic things that I believe about building wealth.

32:54 Emily: Yeah, I’m so glad to hear that narrative and I see a lot of my own story reflected in that as well. Of course, I’ve also come to entrepreneurship.

Chris’s Business

33:01 Emily: So if people want to read more stuff from you, tell us where they can, they can find you.

33:08 Chris: Yeah, Roostervane.com. It’s kind of like a weather vane, but there’s a rooster on top — Roostervane. And that’s where I blog about…my main thing is careers with purpose. It’s just thinking through like how we actually get jobs and careers, but also how we make meaning from them. That’s the kind of humanities thing that I bring to it is how we think about meaning. So Roostervane.com. You can find me on Twitter, @cjcornthwaite is my handle. You can just search my name, Chris Cornthwaite. Twitter, LinkedIn, wherever I’m always happy to chat.

33:40 Emily: Wonderful. And last question for the interview, Chris, what is your best financial advice for another early career PhD? And it could be related to something we’ve already discussed in this interview, or it could be something completely else.

33:52 Chris: Educate. Education, learn. It’s amazing how many people can spend five or ten years learning about the nuances of a field, but don’t actually want to take any time to learn about the basics of personal finance. I would say read as much as you can, listen to a podcast like this one, and just educate yourself and you’ll be empowered to actually create wealth and to get over some of those mindsets we’ve talked about.

34:18 Emily: Wonderful advice. Thank you so much for joining me for this interview, Chris.

34:22 Chris: Thank you, Emily. My pleasure.

Outtro

34:24 Emily: Listeners, thank you for joining me for this episode. PFforPhDs.com/podcast is the hub for the personal finance for PhDs podcast. There you can find links to all the episode show notes, and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, please consider joining my mailing list for my behind the scenes commentary about each episode. Register at PFforPhDs.com/subscribe. 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 Poddington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing and show notes creation by Lourdes Bobbio.

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