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Roth IRA

Financial Questions from an International Graduate Student

January 27, 2025 by Emily

In this episode, Emily interviews Gauri Patel, a first-year grad student in biomedical engineering at the University of Texas at Austin. Gauri is on an F-1 visa, but she has lived in the US for over 10 years. The financial questions Gauri has encountered are different from those typically asked by both US citizens and new international students. Gauri and Emily discuss bank accounts, retirement accounts, tax reporting, and the cost of immigrating to the US.

Links mentioned in the Episode

  • Host a PF for PhDs Tax Seminar at Your Institution
  • PF for PhDs Tax Center for PhDs-in-Training
  • PF for PhDs S4E17: Can and Should an International Student, Scholar, or Worker Invest in the US? 
  • PF for PhDs Subscribe to Mailing List
  • PF for PhDs Podcast Hub

Teaser

Gauri (00:00): I’m the type of person to gather all the information before doing things, but that can hinder progress if you just keep adding more bits of information rather than like acting on what you already know. I spent a little too long deciding like, oh, which, which company to go with. But yes, I I was able to open up the Roth IRA.

Introduction

Emily (00:28): Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. This podcast is for PhDs and PhDs-to-be who want to explore the hidden curriculum of finances to learn the best practices for money management, career advancement, and advocacy for yourself and others. I’m your host, Dr. Emily Roberts, a financial educator specializing in early-career PhDs and founder of Personal Finance for PhDs.

Emily (00:59): This is Season 20, Episode 2, and today my guest is Gauri Patel, a first-year grad student in biomedical engineering at the University of Texas at Austin. Gauri is on an F-1 visa, but she has lived in the US for over 10 years. The financial questions Gauri has encountered are different from those typically asked by both US citizens and new international students. Gauri and I discuss bank accounts, retirement accounts, tax reporting, and the cost of immigrating to the US.

Emily (01:30): The tax year 2024 version of my tax return preparation workshop, How to Complete Your PhD Trainee Tax Return (and Understand It, Too!), is now available! This pre-recorded educational workshop explains how to identify, calculate, and report your higher education-related income and expenses on your federal tax return. Whether you are a graduate student, postdoc, or postbac, domestic or international, there is a version of this workshop designed just for you. While I do sell these workshops to individuals, I prefer to license them to universities so that the graduate students, postdocs, and postbacs can access them for free. Would you please reach out to your graduate school, graduate student government, postdoc office, international house, fellowship coordinator, etc. to request that they sponsor this workshop for you and your peers? You can find more information about licensing these workshops at P F f o r P h D s dot com slash tax dash workshops. Please pass that page on to the potential sponsor. Thank you so, so much for doing so! You can find the show notes for this episode at PFforPhDs.com/s20e2/. Without further ado, here’s my interview with Gauri Patel.

Will You Please Introduce Yourself Further?

Emily (03:06): I am delighted to have joining me on the podcast today, Gauri Patel, a first year PhD student in biomedical engineering at UT Austin, and today Gauri and I are going to discuss being an international graduate student, but one who has been in the US for a significant amount of time and how the financial questions that you have at that stage are different than either you know, domestic graduate students or people who are international students and brand new to the US. So I’m really excited to learn from Gauri about this. So Gauri, will you please introduce yourself a little bit further for the audience.

Gauri (03:37): Thank you so much Dr. Roberts. So I, as you mentioned, I am a first year graduate student at the University of Texas at Austin and I’m studying biomedical engineering, uh, specifically in biomedical imaging. So my start in this field was during my master’s thesis where I studied a particular image analysis technique to understand how a tumor microenvironment could influence outcomes to therapy. And so I want to continue studying this and so here I am, uh, doing more research at, uh, in a PhD program.

Emily (04:14): Excellent. Well, let’s kind of rewind the clock and take us back to, uh, maybe when you first, uh, entered the US and tell us about how that happened.

Gauri (04:23): I first moved to the US pretty much exactly 11 years ago. Uh, and it was because my dad had found a job in Michigan and so at at that age you don’t really have much of a say in where you’re going. And so my family moved to the states and I’ve been in Michigan ever since.

Visa Status: H-1B, H-4, F-1

Emily (04:46): So tell me how that works visa wise. ’cause I know, I’m gonna guess your father was on an H-1B, but I don’t know how the family aspect of that works.

Gauri (04:55): He eventually got to an H-1B, so we moved from Canada to the US and so Canada, there’s a different visa category that my dad could also work under. So he first started on a TN visa and I was on whatever dependent version of the TN there is. I’m not sure what the name of that is exactly, it was quite a while ago, but then eventually he did get moved over onto an H-1B, after which I was on an H-4 visa, which is a dependent of the H-1B. And I basically stayed on that, um, from middle school through high school and then my first year of my undergrad.

Emily (05:34): Okay. And then from your second year of undergrad, did you start on F1 visa at that time?

Gauri (05:40): I switched to an F1 during my second year of my undergrad and that was because I wanted an opportunity to do internships or paid research on campus. Uh, so the H-4 visa, you require some type of worth work auth- authorization and that there’s a different timeline about when you’d be able to work. It has to go through a different approval process and it’s kind of like up in the air when that, uh, work authorization would come through. And so if I was on an F1 visa, it would be rather immediate. I would do a year of school and during that time I would be permitted to work in a research capacity on campus. And also it’s pretty immediate you can get authorization for CPT or OPT and so that’s why I switched to the F1.

Emily (06:34): That certainly seems like a reasonable reason to, to, you know, make that switch. I’m wondering were there any downsides, like anything that you were foregoing or giving up by making that switch?

Gauri (06:44): Yeah, for sure. So since my family was on an H-1 was under the H-1B visa category, there’s also the option to apply, have your employer sponsor for a green card. And so that’s like the main perk of the H-1B visa. It can eventually lead to a green card. However children, they age out at 21 and so I was like really getting close to that point of aging out. And so the question remained, do we still hang on to this H4 dependent visa and not be able to work in the hopes that before I turned 21 I would, that green card would, you know, go through or do I switch immediately and you know, cut my losses. And so, uh, we just decided that the green card was probably not gonna happen before I turned 21. And so I might as well switch to the h uh, sorry, excuse me. F1 visa at this time.

Emily (07:53): Well I wanna kind of pick up with the green card process maybe a little bit later in our conversation, but let’s kind of go back with um, your experience, you know, doing research and everything through your undergrad. Um, it totally makes sense to me that you would want to have those potentially paid research experiences where you already thinking at that time that you wanted to pursue, uh, your field or science generally or like did this basically the switch to allow you these experiences. Were you thinking ahead to graduate school, I guess is what I’m asking?

Gauri (08:24): Yeah, for sure. So I first started off, um, my first year I was pretty set on pre-med. I wanted to go to medical school, um, and pre-med the curriculum makes you jump through like a lot of hoops, like oh, do shadowing and do research hours and all that. And so that’s how I got into research in the first place. But I ended up liking it so much that I abandoned the pre-med track and I’m like, I think this is the research is just what I’m interested in general. And so the F1 visa definitely helped. It also would’ve been helpful for pre-med purposes as well to get like clinical hours maybe, you know, work in some, some sort of, um, healthcare setting. So working somewhere was like whether I wanted to go to graduate school in research, in a research capacity or to medical school working somewhere had to have happened.

Family and Personal Finances

Emily (09:21): Yeah, that makes sense. Um, since we’re talking about work then and paid work and so forth, can you tell me a little bit about, doesn’t necessarily have to be your family’s finances, but like what was going on for you financially during that time and especially if there were any tie-ins then with like your visa status or your choices around that.

Gauri (09:39): Finances were never really a struggle for my family, which I’m very grateful for. Um, because I, as an international student, I didn’t get any financial aid or qualified for federal student loans, so everything did have to come out of pocket. So more about having paid work, it was more about, um, finding a sense of autonomy and not having to rely on, you know, my family being my safety net all the time. And so that’s why I was interested in the paid work.

Emily (10:14): And you told me during our, um, pre-interview chat that you started listening to financial podcasts even as an undergrad, including this podcast. And so what led you in that direction of like being interested in finances even at that stage?

Gauri (10:28): Oh yeah, it was pretty much, so I worked in this, um, lab as a volunteer for two semesters and then that summer after I asked them like, Hey, can I stay for the summer and work here full time and also get paid perhaps? And they were like, yeah, sure we can make that happen. Um, in hindsight I didn’t realize how like, oh wow, that actually happened <laugh>. Um, now that I know more about the research space like that, that was kind of incredible that that happened. But anyway, so I, I’m like, oh, I’m about to get money for the first time. Um, and unlike some of my peers that I went to high school with, they all worked like, you know, jobs, um, at like the local ice cream shop or they were, you know, hosts at, you know, some type of diner or they tutored on the side. I couldn’t do that on the H-4 visa. And so up until this point I’d just been volunteering. This was quite literally like my first paycheck. And so I was like, what do I do with this? What could I possibly do with this? And I’m just the type of person to go poking and prodding for answers. And so I went to finance podcasts.

Emily (11:49): Yeah, that’s great to hear. Um, I think when I had a similar like transition, you know, coming out of undergrad and getting like my first stipend paychecks, like after that I was asking the same questions like, oh, uh, never had this control over money before. Like, what exactly do I do with this? I went to books because podcasting was barely a thing back then, but that’s awesome that we have so many different like avenues you can go to now. Um, okay. So anything else you’d like to share with us? Maybe about the transition from, you know, finishing up undergrad and your master’s into graduate school in terms of your finances and then we can kind of dig into the, um, specific questions or concerns that like someone in your position has?

Gauri (12:29): I think the only big difference between my undergrad and master’s and then grad school now is that in undergrad and Master’s, the amount I was making was like, it, it couldn’t sustain all of me. Um, my family was helping out with tuition entirely and then now it’s a, a different ball game. Like I, I can more or less like take care of myself on this stipend. And so that autonomy I was like really searching for. Um, I I feel like it’s like finally coming to fruition like, oh, it’s happened.

Emily (13:06): So when you kind of approached me about doing this episode, you were saying, okay, yes, I’m an international student but I don’t have the same concerns of a brand new to the US international student and I also have different concerns going on than someone who is already a citizen or resident. So just like point by point like let’s talk through like what you’ve encountered and sort of what you’d like to share with other, other listeners who might be in a similar situation.

Choosing a Bank as an International Student in the US

Gauri (13:30): Yeah, for sure. So the first thing, um, you do is when when you get some type of money in your hands, it’s like I have to put this somewhere. And so it’s the first question is like, oh, what bank do I choose? And so I was consuming this financial content and it was like, oh, you should start saving up for an emergency fund and moreover you should put it in a high yield savings account, but for international students there are only a certain number of banks that will offer their services to you. And so the first bank account I had was, um, a Chase bank account. Um, I don’t know if it’s okay to name names.

Emily (14:07): Oh yeah, go ahead.

Gauri (14:07): For banks. Okay. So it was a Chase bank account and it had some like stipulations on the minimum balance that should be in there. It didn’t offer any interest at all. And so in terms of all the different banks you could choose from, you’re limited to a very set few. Um, so I had that bank account first, but then finally after I got the work authorization to work on campus in this uh, lab and then after I got the social security number associated with it, it was after all that that I could open this bank account. And so anytime you hear like, oh, do this, do X, y, and z, like a pretty actionable step, that seems easy enough. Um, I always seem to find like, oh I need to have this before I can do this thing.

Emily (15:05): Yeah, it is, it is really hard at like as a podcaster, someone who does one to many communications, it’s really hard <laugh> to keep all audiences in mind and speak to like all audiences. So you’re absolutely right. Like if you’re listening to a US based, you know, personal finance podcast or like reading a book or something else, like you definitely have to put another filter on that and say like, okay, <laugh>, is this actually going to be possible for me? And the answer is like, just like you said, yeah, there are banks that will work with you, it’s just not necessarily every bank and not everyone’s gonna make it easy and some people need the SSN and some don’t and so forth. So like you just have to be, there’s just another selection criteria on that. Absolutely. Have you, so since like having that Chase bank at first, have you subsequently opened or been able to open any other types of like higher yield savings or something like that?

Gauri (15:51): Yeah, for sure. I primarily use uh, my SoFi bank account now and it was pretty easy to like get the account, but it’s only after you’ve got some type of job lined up and you’re getting paid for it and you’ve got like all the things that come with the job first, like you need to have that SSN which um, is not like a oh I’ll just like apply for it type of thing. They’re finding the job is not like the easiest thing in the world. So you could hear the fi- finance advice but know that there are steps before steps you must take before you can, you know, enact those. Um, yeah, in general it’s like a thing I have to Google, like, oh open up a Roth IRA, can I open up a Roth IRA is something I have to Google.

Commercial

Emily (16:42): Emily here for a brief interlude! Tax season is in full swing, and the best place to go for information tailored to you as a grad student, postdoc, or postbac, is PFforPhDs.com/tax/. From that page I have linked to all of my free tax resources, many of which I have updated for this tax year. On that page you will find podcast episodes, videos, and articles on all kinds of tax topics relevant to PhDs and PhDs-to-be. There are also opportunities to join the Personal Finance for PhDs mailing list to receive PDF summaries and spreadsheets that you can work with. Again, you can find all of these free resources linked from PFforPhDs.com/tax/. Now back to the interview.

Opening a Roth IRA as an International Student in the US

Emily (17:34): Yeah, let’s talk about that question. Um, so you heard about Roth IRAs, I’m sure through all the content that you were consuming and uh, tell me what year that was when you like first learned about a Roth IRA,

Gauri (17:46): I actually learned about a Roth IRA back in high school and so my high school offered a finance class and so they tried to teach us about, um, saving for retirement and 401Ks and Roth IRAs and whatnot, but I don’t think it like fully sunk into our minds yet about how significant those things were. So I heard about a Roth IRA before, um, I didn’t fully grasp its like importance until I started listening to like finance content a few years later.

Emily (18:21): Yeah. So when did you like start googling that question? When did you feel like, okay, as an imminent step I would like to open this kind of account and I really need to figure out if I’m able to? When did that happen?

Gauri (18:31): I think that was two years ago. I was like, I’ve listened to all this advice. Um, so I’m the type of person to gather all the information before doing things, but that can hinder progress if you just keep adding more bits of information rather than like acting on what you already know. So I knew that I needed the Roth IRA and I was like, you know what, fine, let’s, let’s just start googling. Um, can I, can I open this and who’s willing to offer this to me?

Emily (19:01): Yeah. And what did you find?

Gauri (19:04): I think it was from your podcast, like some interview a while back, um, and there was like a snippet. I remember watching like as an international student you can open a Roth IRA and I’m like, oh check. Fabulous. Um, now I spent a little too long deciding like, oh, which, which uh, investment bank or like, which, which company to go with. But yes, I I was able to open up the Roth IRA <laugh>.

Emily (19:31): Yeah, that I think you’re referring to the interview I did with Hui-chin Chen who’s a CFP. And I think that we recorded that back in like maybe 2018 or 2019. And even by then I had been getting regularly questions in my like, live seminars from international students, can I open a Roth ira? Should I open one? You know, is it allowed? Is it a good idea? And so I was really, really glad to get an expert on the podcast who could help us with all those questions. But the, the gen, I mean people who are interested should listen to that full episode. But yeah, the, the general, uh, takeaway was like, yep, <laugh>, if you want to invest like while you’re an international student or postdoc in the US go ahead and do it now with a Roth IRA specifically, you still need to fulfill the, um, taxable compensation requirement to be able to make those contributions. Did you have to like, I don’t know if you were receiving W2, you know, employee type income at that time, maybe it wasn’t so much a question for you or is that, is that taxable compensation question something you also had to investigate?

Gauri (20:30): I don’t think I investigated it that much because at the time I really wasn’t earning all that to put anything into the Roth IRA, so it was just open for a while and it, my income definitely wasn’t a W2, it was actually a 1099, but I think from another series of, not another series, but like another episode or couple of episodes of yours, um, I think you went over the old guidance before 2020 and then after 2020 and it was like, yes, 1099 income can be uh, put into a Roth IRA. And so I was like, oh great. So I I could have done it all along. Um, not that there was anything left <laugh>.

Emily (21:16): Yeah, that definitely did change to have fellowship income not reported on W2 eligible to be contributed starting in um, 2020. But you still had that added wrinkle of like as an international student, as a non-resident in the us um, we’ve settled like the compensation term in, in taxable compensation, but you also had to know that your income was taxable in the US and I don’t know, would you like to share like what is your technical country of residence? It seems so silly to say that ’cause you’ve been here for so long, but like what is your country of residence?

Gauri (21:47): I think right now for tax purposes, it is not the US I think it switches to the US in a year. I think it’s like five years. Mm-hmm <affirmative>. Yeah, that I can say I’m on my tax. I’m like, not from here, but after five years of saying that you are from here now for as far as taxes are concerned.

Emily (22:09): Yes. So I don’t know the Canadian US tax treaty intimately, but I’m pretty confident that your income was then taxable in the US at least to some extent. So you did have that eligibility mm-hmm <affirmative>. Yep. So yeah, that’s great. But like you said, like, you know, US citizens, residents and so forth, they have this one bar of like questions they have to ask about the Roth IRA and then there’s that further bar that, you know, international non-residents have to ask. So I’m really glad that we kind of reviewed that to like, you know, point people back to that other resource and like get that all out there because like it is such an amazing tool. Um, and it’s really a shame to miss out on it if you’re ready to contribute to one just because you might have some outstanding questions that, you know, they can take a little bit of time to resolve those. So hopefully we resolved a few for the listeners. Um, is there anything else that you’d like to add on that? Like Roth IRA question?

Gauri (23:03): I think that’s about all. Just, uh, don’t let the tail wag the dog as, as they say. So I had the account open but I wasn’t like too worried about what could go in there. Um, it all worked out in the end for me, but I think if I got too caught up in the weeds, I I don’t think the account would’ve ever been opened or I would’ve ever put anything in there <laugh>.

Emily (23:25): Yeah, I totally agree. And it’s, and it’s this area of investing where people that in my observation seem to have the most like analysis paralysis. Um, and I, maybe you’ve heard me say this on podcast before, I’ve probably told the story, but like I made like a huge mistake when I first opened my Roth IRA, which is that I didn’t actually invest the money that I was putting in and yet it’s really good that I started it and started contributing even though I made like a huge mistake with it. Like, I mean we have a decades, decades long investing journey ahead of us, so like it’s better to just get started even imperfectly than to just like wait and wait and wait and wait and not do anything. It’s totally okay to make relatively minor mistakes. You can overcome them along, along the journey. What was your third uh, point that you wanted to bring up?

Opening a 403B as an International Student in the US

Gauri (24:08): So I figured out the bank account, I figured out the Roth IRA and then now my question is, hmm, I still have some more left to save. Can I open a 403B? Which the answer is yes, but then all of this additional money that I have, it’s coming from a fellowship which according to my university, it’ll be reported on a 1042s form, which I’ve never encountered before. Um, from my searches on Google, I don’t see that much guidance for graduate students with this form. It’s more about US citizens that have moved abroad that, that received this form and I’m like, I’m, I’m not that <laugh>. I’m very much the opposite. I’m a non-citizen within the US so the jury is still out. I’ve emailed like the tax folk at my university regarding like, Hey, would you happen to know if this can be put in a 403B or a Roth IRA or like any tax advantaged account and they’re like, sorry, we can’t give tax advice.

Post-Interview 403B Contribution Follow-Up

Emily (25:19): Hi y’all, this is Emily breaking in during the editing process. Gauri and I talked for a bit here about her 403(b) and her tax situation, but I wasn’t quite asking the right questions, so we ended up exchanging several emails after the interview to sort it out. Here’s what we figured out: Gauri has two types of income. She’s an employee throughout the year and also receives supplemental fellowship income. Her employee income exceeds $10,000 per year and therefore is not subject to the US-Canada tax treaty, so it is fully taxable and reported on a Form W-2. As a nonresident, her fellowship income is reported on a Form 1042-S with income code 16, and it is also fully taxable. Gauri’s question was whether or not she could contribute her Form 1042-S income to her 403(b), and the answer to that is no because it is fellowship income and only employee income can be contributed to a 403(b). But she does have employee income, and that’s why her university allowed her to open the account and she could contribute to it from her employee, i.e., W-2, income if she chose to. The reason she particularly was asking if she could contribute the fellowship i.e., Form 1042-S, income to her 403(b) is because of the automatic 14% income tax withholding rate, which is rather high compared to her effective tax rate. So our conclusion is that she can contribute to the 403(b), but not from the particular pot of money that she wanted to, and even though she has that annoyingly high income tax withholding rate, it’s all going to come out in the wash at tax time, likely in the form of a tax refund. OK now back to the interview!

Building a Financially Stable Life in the US as an International Student

Emily (26:52): Was there any other, another point that you’d like to bring up in this sort of question about having been in the US for like a very long time yet still being on this F1 status?

Gauri (27:03): The main goal of consuming all the finance content is, so answering the question of like how do I build a financially stable or good life for myself years in the future if I’m in the US but because of my visa I also have to, it’s like vacillating between yes, think long term, but also what if you’re not here long term? What then? Um, so of course that opens a can of worms, like what if this, what if that? But I just have to work with, let’s just assume I’m gonna be here for some indefinite amount of time and then if the day that I have to go back to Canada comes, um, I will deal with extricating myself from all of this money that’s invested in these US-based, um, accounts at that point. Um, I think it would, it would be like a hindrance if I constantly worried about it right now.

Emily (28:09): Yeah. And I I’m really not sure what steps you would that would be practical to take, um, to, you know, think about this possible future where you would be living in Canada, um, I don’t know, open a Canadian bank account. Like I’m not even sure what would be like a reasonable thing to do, um, like you said for an outcome that you’re hoping is not going to come about and has a probably a low chance of actually coming about. I think you’re exactly right. Just to say like, I’m gonna build what I can here and if the day comes when I have to make a change, I’ll make a change then, but you don’t need to anticipate that. Yeah, and I think that was the answer too from that podcast episode with, um, with Hui-chin Chen. She was just saying like, yeah, if you end up leaving the US later whether because you wanted to or because you had to or whatever the reason, you can sort of cross that bridge when you come to it. Like don’t let that be a reason for you to not build wealth and build your financial life in the US. So I think you’re taking exactly the right path.

Gauri (29:08): That’s fabulous to hear.

Current Financial Goals

Emily (29:09): <laugh> Do you have any current financial goals?

Gauri (29:14): Current financial goals? So the immediate thing would be to restore my emergency fund. So my emergency savings, I had to draw out of that for moving to Austin from Michigan. And so the moving costs and then furnishing, you know, the apartment, the first few months of, you know, rent before the, uh, the stipend payments came in. I used my savings to tide me over during that time. And so right now I, I need to work on restoring that amount. Um, so that’s my immediate goal. And then once that’s done, I think that should take up to a year, depending on how aggressive I’d like to be at. After that point, I will have to decide where to redirect those extra funds that were going into my, um, emergency savings, like should I put that into a taxable brokerage account or finally answer that 403B question. And so send that, send those funds over there. Where should those go would be the next question.

Emily (30:25): And are you also thinking about a potential green card in the near future and like what are the, because I know there’s sometimes hefty financial costs associated with that transition.

Gauri (30:34): Oh yeah, for sure. So the past, I think two or three years, uh, my Visa has cost about $500 a year in different work authorization fees or different petition fees. So I already have that in the back of my mind. Like, oh, every time I need to do something with my visa, it’ll be a couple hundred dollars. But for a green card application for someone that is seeking a PhD, there is a employment based visa that I myself could petition for if I demonstrate that I’ve done outstanding research in my field and I’m a person worthy of staying in the us. Um, and so just for that, just for two forms relating to that, I think it’s um, called, it’s called Immigration for Alien Worker or Petition for an Alien Worker, something along those lines. The fee for that is around $700 and then the adjustment of status. So to adjust my status from an F1 to this employment based visa, that would be around $1,400. And so just for those two forms, if I were to go about it without the help of any sort of immigration lawyers, whatnot, that’s already over two grand. So I definitely need to have some sort of bucket larger than a couple hundred dollars ready to go for when that day comes about. And also I have to decide like, do I even wanna pursue that path or would I prefer to just go the more routine route, which is employment based, um, visa. So like pursuing an H-1B track, so up in the air.

Emily (32:31): How will you make that decision? Or I guess I’m also asking like you mentioned earlier about, you know, the number of years you’d been in the US and having to make a decision about F1 versus staying on the previous status. Um, is there an amount of time that you’re looking at where you’ll, that you’ve been in the US where you or been on the F1 visa where you’ll need to make this decision? Or is it really kind of up to you? You can do it at any point?

Gauri (32:53): The sooner it happens, the sooner like a weight would be lifted off my shoulders about like this always, you know, you have to keep in the back of your mind that like you’re not necessarily here forever, whether you choose to be or not to be here forever. So it would be like a mental weight, you know, relieved. Um, the F1, since I’m in a STEM field, I could have my OPT go for I think up to three years with the extension. And so within those like three years, I’d have to make some type of decision about whether my employer can sponsor for an H-1B visa or I’m going to go about it on my own. So it’s within the next eight years I have to come up with an, an exact plan about what would be the fastest, um, most efficient way to go about this process. Mm-hmm <affirmative>

Emily (33:53): And if you decide you wanna do it on your own and you have those fees that you’re looking at, plus maybe you, you might wanna pay a lawyer, um, to help you as well, are the finances going to hold you back or do you think you’ll be able to save up the requisite amount of money by the time you want to go about this process?

Gauri (34:10): I think I am well informed enough about how much this is going to cost me, and so I’d be able to plan for that regardless. It would still be a stretch, but it’s not like this is happening six months from now or you know, this is happening in just in a very short amount of time. Like I have the time to prepare for this type of scenario.

Traveling Back to Your Home Country as an International Student

Emily (34:36): I don’t know if this applies for you at all, but something I’ve seen happen with other international students, um, is that they need to go back to their home country every so often to deal with their visas. Has that ever come up for you and, and if not, is it ’cause you’ve been in the US under all these different statuses for so long? Or is it because of the relationship between US and Canada or like how does that work?

Gauri (34:57): It’s a US and Canada thing, so it’s a special caveat in this regard as well. So most students need to go through a Visa interview and actually receive approval to study in the US however, I’m Canadian and so I simply have to be accepted into a US university and show that I have some method of paying for my stay here and that’s all the evidence I have to give to study. I don’t have to continue to go back to Canada to renew my visa or even have any documentation for the exact visa.

Emily (35:41): I see. I’m just throwing that out. There’s another potential cost that I’ve seen international students bear uniquely these like high fees of international travel every, you know, few years to deal with that like particular issue. Um, yeah, I mean the more that obviously I, I was not an international student, so like, but the more I learned about the financial aspects of having this status in the US like it just, there’s just kind of more that burdens that kind of get thrown on the pile. Like, okay, no access to student loans, can’t side hustle, have to pay fees for visa related items, maybe for travel as well. Like just, it it emphasizes um, very deeply for me the importance of paying a living wage and not just a living wage more than a living wage to graduate students, especially international students because there’s just no, there’s no ways to pivot. Um, if you are financially on your own, if you’re financially independent from your family, then you have to make it work on the stipend like you’ve been talking about and you have all these additional, um, fees that can, that can pile up as well that domestic students don’t have to, don’t have to worry about. So yeah. Yeah. I’m really glad that, you know, you brought this up and that we got to have this conversation. Um, is there anything else that you wanna add about yeah, um, being an international student, having been in the US for so long? Or about your current financial goals or anything else?

OPT Application Tip for International Students in the US

Gauri (36:59): Pro tip for international students, um, when it comes time to send in your OPT application, do it the day you’re allowed to submit that application. So first you need all those signatures or you know, green lights from your advisor about like, yep, you’re ready to graduate and whatnot. That should be done before the 90 days. You have like a 90 day window before your last day of classes to apply for OPT. Have those ready to go. And on that like very first day of the 90 days apply for OPT then ’cause I did it right the first year after I grad, graduated from my undergrad and the second year I waited a few weeks and my OPT was delayed, I think over a month.

Emily (37:55): So it’s just for processing time, like you’re just saying like be the first one, like be first in line mm-hmm <affirmative>. Because if you delay then these applications are like piling up behind it and just pushes like the timeout. Is that right?

Gauri (38:06): Yeah, exactly. So when I was first in line, my OPT, like the EAD card arrived within three weeks. And so I had it well in advance of any start date and the second year round I was like, oh, it arrived in three weeks. I’ve got time.

Emily (38:26): You were complacent. Yeah, <laugh>.

Gauri (38:27): I was, I didn’t think I’d be so off base. Um, but yeah, don’t, don’t, don’t do what I did. <laugh>.

Best Financial Advice for Another Early-Career PhD

Emily (38:37): <laugh> Yeah, don’t do it <laugh>. Um, okay. Well thank you so much for that tip. And I’d like to end by asking you the question that I ask all of my guests, which is, what is your best financial advice for another early career PhD? And it can be something that we’ve touched on in the interview already, or it could be something completely new.

Gauri (38:53): I’ve learned that you need two savings buckets at least. So there’s the emergency when truly it’s an emergency and you have no sources of income whatsoever, and then a second bucket for yearly, like one off expenses, like, oh, there’s that vacation you’ve really been wanting to take or you have to travel for whatever reason. For me it’s like, you know, oh, here’s a couple hundred dollars for some visa related thing or I’m working in a STEM field. But I think all grad students in this day and age need a laptop or some type of technology of some sorts, and that’s pretty costly as well. And so, you know, your phone falls apart or your laptop needs to be replaced or you gotta go to a conference or whatnot. Um, there has to be like a separate bucket <laugh>, aside from the emergency savings. Um, and that, that having that separate bucket really relieves like a lot of stress, at least for me.

Emily (39:55): Yeah, this is like a major component of my teaching. I would say that’s different from like you mentioned listening to like financial feminists, for example, Tori Dunlap’s podcast, Her First 100K. Um, what I see in like the more general personal finance space is people talking to other people who have higher incomes high, you know, moderate to high incomes, which is just not the case for graduate students. And so things like having to pay for a plane ticket, well, you know, if your income’s high enough and you’re doing a great job with your personal finances, you know, keeping your rent low and all that stuff, like that’s not gonna be an issue for you, but it’s an issue for almost all graduate students to pay for those types of expenses. So like that is definitely an area that I have of much greater emphasis than other like personal finance teachers do because I totally agree with you. It takes so much stress off to have planned and prepared for those expenses in advance so that you’re not having to, I don’t know, like go to the food bank and like not, you know, put gas in your car and like all the stuff that you would have to do on the short term basis to sacrifice, to come up with money that you really needed if you, if you didn’t have that savings. So I love that tip. Thank you so much for sharing that. Um, and this was, it was wonderful to talk to you and thank you so much for teaching me and you know, asking the questions and you know, sharing the conclusions that you’ve come to along the way. And I wish you all the best in getting your, you know, status in the US secured in the way that you would like it in the near future.

Gauri (41:15): Thank you so much. It was great talking to you

Outtro

Emily (41:27): Listeners, thank you for joining me for this episode! I have a gift for you! You know that final question I ask of all my guests regarding their best financial advice? My team has collected short summaries of all the answers ever given on the podcast into a document that is updated with each new episode release. You can gain access to it by registering for my mailing list at PFforPhDs.com/advice/. Would you like to access transcripts or videos of each episode? I link the show notes for each episode from PFforPhDs.com/podcast/. See you in the next episode, and remember: You don’t have to have a PhD to succeed with personal finance… but it helps! Nothing you hear on this podcast should be taken as financial, tax, or legal advice for any individual. The music is “Stages of Awakening” by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing by me and show notes creation by Dr. Jill Hoffman.

Is Fellowship Income Eligible to Be Contributed to an IRA?

February 6, 2022 by Emily 27 Comments

Update 2/22/2022: Great news! The point of this article has been fulfilled because the IRS re-revised Publication 970 for tax year 2021 to reflect the current tax code, which permits taxable graduate student and postdoc income, whether reported on a Form W-2 or not, to be contributed to an IRA.

Publication 970 p. 5 NOW states: “Individual retirement arrangements (IRAs). You can set up and make contributions to an IRA if you receive taxable compensation. A scholarship or fellowship grant is generally taxable compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. However, for tax years beginning after 2019, certain non-tuition fellowship and stipend payments not reported to you on Form W-2 are treated as taxable compensation for IRA purposes. These include amounts paid to you to aid you in the pursuit of graduate or postdoctoral study and included in your gross income under the rules discussed in this chapter. Taxable amounts not reported to you on Form W-2 are generally included in gross income as discussed later under Reporting Scholarships and Fellowship Grants.”

The rest of this article is unchanged from its original publication date on 2/6/2022.

Believe it or not, I look forward to the release of each new version of the IRS’s Publication 970, which covers how fellowship and scholarship income is taxed. I read it thoroughly and make sure that what I teach is in line with it. However, when I opened up the new 2021 version a few days ago, I was disappointed to read on p. 5: “Individual retirement arrangements (IRAs). You can set up and make contributions to an IRA if you receive “taxable compensation” (formerly “earned income”). Under this rule, a taxable scholarship or fellowship grant is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement.” Disappointed doesn’t really touch the depths of my feelings… I was momentarily devastated! I’ve been telling you for over two years now that fellowship income is eligible to be contributed to an IRA regardless of how it is reported or not reported at tax time. Was I wrong? Let’s explore the relevant texts. I have great respect for the IRS publications and find them very useful, but they are not the final word on tax law… the tax code is.

Further reading/listening:

  • Fellowship Income Is Now Eligible to Be Contributed to an IRA!
  • Do I Owe Income Tax on My Fellowship?
  • Weird Tax Situations for Fellowship and Training Grant Recipients
  • What Your University Isn’t Telling You About Your Income Tax
  • Fellowship and Training Grant Tax Forms

Pre-2020 Status

You must have “taxable compensation” to contribute to an IRA in a given tax year. You can contribute up to the cap for that year ($6,000 in 2019-2022) or your amount of taxable compensation, whichever is lower.

Through tax year 2019, with respect to PhD trainee income, only income reported on a Form W-2 was considered “taxable compensation.”

The text from the 2019 version of Publication 970, Tax Benefits
for Education
, reads on p. 5: “Individual retirement arrangements (IRAs). You can set up and make contributions to an IRA if you receive taxable compensation. Under this rule, a taxable scholarship or fellowship grant is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. For more information about IRAs, see Pub. 590-A and Pub. 590-B.”

Similarly, the text from the 2019 version of Publication 590A, Contributions to Individual Retirement Arrangements (IRAs), reads on p. 6: “Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2.”

This text is very clear and reflects the widely held understanding of eligibility for IRA contributions. It was very disappointing for many members of the PhD community; winning a fellowship often comes with a pay raise and therefore an enhanced ability to save for retirement, yet those recipients were barred from making IRA contributions. Keep in mind, these fellowships were taxable as ordinary income, just not considered taxable compensation for IRA contribution purposes. I didn’t like this rule, but I taught it as part of my personal finance material.

The Graduate Student Savings Act

Somehow, the plight of graduate students and postdocs who received fellowship income was heard! The Graduate Student Savings Act proposed to change the definition of taxable compensation. It was put before Congress as a bill in 2016, 2017, and 2019.

An excerpt of the fact sheet for the Graduate Student Savings Act of 2019 reads: “While fellowship or stipend income is taxed by federal and state governments, it doesn’t qualify as “compensation,” meaning that none of a student’s fellowship funds can be saved in an IRA… Many postdoctoral fellows… also receive taxable fellowship income, yet these fellows are also barred from using their fellowship income to contribute to tax-preferred retirement accounts. The Graduate Students Savings Act of 2019 would ensure that any graduate student or postdoctoral fellow who is
paid for their work or their studies can save a portion of their stipend in an IRA.”

While not using super specific or technical language, this excerpt makes clear the intent of the bill: to allow “any graduate student or postdoctoral fellow who is paid for their work or their studies” to contribute to an IRA, i.e., change the definition of taxable compensation.

Graduate Student Savings Act was not successful in being passed as an independent bill in any of those years. Then, in 2019, it was included in the SECURE Act.

The SECURE Act

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) is described by Investopedia as a “far-reaching bill includes significant provisions aimed at increasing access to tax-advantaged accounts and preventing older Americans from outliving their assets.” It was signed into law on December 20, 2019.

The Graduate Student Savings Act was included in the SECURE Act. Here is the relevant text from the bill:

“SEC. 106. CERTAIN TAXABLE NON-TUITION FELLOWSHIP AND STIPEND PAYMENTS TREATED AS COMPENSATION FOR IRA PURPOSES.

“(a) In General.—Paragraph (1) of section 219(f) of the Internal Revenue Code of 1986 is amended by adding at the end the following: “The term ‘compensation’ shall include any amount which is included in the individual’s gross income and paid to the individual to aid the individual in the pursuit of graduate or postdoctoral study.”.

“(b) Effective Date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2019.”

This expands the definition of taxable compensation for the purposes of contributing to an IRA beyond what is reported on a Form W-2. To me, this definition clearly includes taxable fellowship and training grant income paid as stipends and salaries not reported on a Form W-2.

The Tax Code (2021)

From the current Internal Revenue Code section 219 on Retirement Savings, section (f)(1) reads:

“(1) Compensation For purposes of this section, the term “compensation” includes earned income (as defined in section 401(c)(2)). The term “compensation” does not include any amount received as a pension or annuity and does not include any amount received as deferred compensation. For purposes of this paragraph, section 401(c)(2) shall be applied as if the term trade or business for purposes of section 1402 included service described in subsection (c)(6). The term “compensation” includes any differential wage payment (as defined in section 3401(h)(2)). The term “compensation” shall include any amount which is included in the individual’s gross income and paid to the individual to aid the individual in the pursuit of graduate or postdoctoral study.”

Again, I read this as any type of grad student and postdoc salary or stipend with no clauses about being reported on a Form W-2. The language is very similar to how IRS Publication 970 describes fellowship income on p. 5: “A fellowship grant is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research.”

The Internal Revenue Code does seem, to me, to reflect the intent of the Graduate Student Savings Act of expanding the definition of taxable compensation with respect to graduate student and postdoc income beyond what is reported on a Form W-2.

The 2021 Publications

Publication 970

As I stated at the start of this article, Publication 970 disappointingly has not changed its tune on the definition of taxable compensation. It says the same thing in 2021 that it did in 2019 as if the Graduate Student Savings Act had never passed.

Publication 590-A

Publication 590-A, to its credit, now has some mixed language regarding taxable compensation and fellowship stipends and salaries. I’ll compare the 2018 and 2021 versions of this publication.

The 2018 version of Publication 590-A contains exactly one reference to fellowship income on p. 6 in the section titled What Is Compensation?: “Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2.”

The 2021 version of Publication 590-A contains this language on p. 6 in the section titled What Is Compensation?: “Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2.” So no change there.

However, further down in the same section it says: “Graduate or postdoctoral study. Compensation includes any income paid to you to aid you in the pursuit of graduate or postdoctoral study.”

Are they trying to draw a distinction between “any income paid to you to aid you in the pursuit of graduate or postdoctoral study” and “scholarship and fellowship payments”? What could “any” income mean if not, at least in part, fellowship payments?

To further muddy these waters, Publication 590-A includes Table 1-1, Compensation for Purposes of an IRA. The 2018 version of this table doesn’t mention either fellowship income or graduate or postdoctoral study. The 2021 version lists “taxable non-tuition fellowship and stipend payments” as included in the definition of taxable compensation.

This language in the table is consistent with both employee and non-employee graduate student and postdoc income, again, with no mention of a Form W-2 reporting requirement.

Furthermore, the 2021 version of Publication 590-A says under the Reminders section on p. 2: “Certain taxable non-tuition fellowship and stipend payments. For tax years beginning after 2019, certain taxable non-tuition fellowship and stipend payments are treated as compensation for the purpose of IRA contributions. Compensation will include any amount included in your gross income and paid to aid in your pursuit of graduate or postdoctoral study.”

I am not sure what “certain” means in this paragraph. “Non-tuition fellowship and stipend payments” reads to me as stipend or salary as long as your tuition is being paid by another source of funding. “Any amount included in your gross income and paid to aid in your pursuit of graduate or postdoctoral study” reads to me as both your employee income (reported on a Form W-2) such as from a graduate assistantship position or postdoctoral employee position and taxable non-employee (not reported on a Form W-2), often sourced from a fellowship or training grant.

My Conclusion

My conclusion is that the very clear language in Publication 970 and Publication 590-A excluding taxable fellowship and scholarship income from the definition of taxable compensation unless it is reported on a Form W-2 is not consistent with the spirit of the Graduate Student Savings Act or the current tax code. The changes made by the SECURE Act to the tax code included in the definition of taxable compensation “any amount which is included in the individual’s gross income and paid to the individual to aid the individual in the pursuit of graduate or postdoctoral study.” To me, this means that if you receive a taxable stipend or salary as a graduate student or postdoc, even if it is not reported on a Form W-2, it is taxable compensation for the purpose of contributing to an IRA.

What Do You Think?

I am really struggling with this and I honestly want to know: Do you see a flaw in my reasoning? Is there some difference between “fellowship” and “any income paid… in the pursuit of graduate and postdoctoral study”? Leave a comment here or email me ([email protected]). I am open to the idea that there is something I don’t see or understand. Or let me know if you agree with me.

What Can We Do?

If my argument is valid and the text in IRS Publication 970 and Publication 590A (in part) is incorrect, what can be done? Hit me with your ideas for getting this text updated.

My initial idea is to write to the offices of the Senators (Elizabeth Warren, Mike Lee, Ron Wyden, and Tim Scott) who sponsored the Graduate Student Savings Act to see if they can clarify why the IRS’s language in these publications doesn’t reflect the change the Act brought about. Do you have any other ideas?

The big win for our community was getting the Graduate Student Savings Act passed. The follow-through on that win is making sure that people (and tax software/preparers) know about the change so that graduate students and postdocs can functionally contribute to IRAs.

A Lucrative Summer Internship Enabled This PhD Student to Max Out Her IRA

October 19, 2020 by Meryem Ok

In this episode, Emily interviews an anonymous member of the Personal Finance for PhDs Community and alum of The Wealthy PhD. Anonymous did a summer internship at Google Research, which helped her evaluate whether she wants to pursue a career in academia or industry and set her up well for an industry career. The internship also paid her in three months approximately what she makes in an entire year on her grad student stipend. Anonymous shares her tips for applying to Google’s summer internship program and convincing your PhD advisor to let you do the program. The sudden but temporary increase in Anonymous’s income spurred her to participate in The Wealthy PhD, through which she opened and maxed out an IRA, optimized her financial accounts, and started tracking and budgeting her expenses.

Links Mentioned in the Episode

  • PF for PhDs: The Wealthy PhD 
  • PF for PhDs: Community 
  • Christine Mirzayan Science Technology Policy Graduate Fellowship Program 
  • Leet Code Website 
  • Cracking the Coding Interview (Book)
  • PF for PhDs: Graduate Student Savings Act Episode
  • PF for PhDs: Fellowship Income Now Eligible for IRA Contribution
  • PF for PhDs: Podcast Hub
  • PF for PhDs: Subscribe

Teaser

00:00 Anonymous: Kind of talking about how much you earn, or like, how much money you have in your bank account can be an uncomfortable topic. So, having a safe space, or a kind of required space, to be open about your finances and listen to other people’s ideas. I think having this community was really empowering for me.

Introduction

00:26 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 seven, and today my guest is an anonymous member of the Personal Finance for PhDs Community and alumna of The Wealthy PhD. Anonymous did a summer internship at Google Research, which helped her to evaluate whether she wants to pursue a career in academia or industry and set her up well for an industry career. The internship also paid her in three months approximately what she makes in an entire year on her grad student stipend. Anonymous shares her tips for applying to Google’s summer internship program and convincing your PhD advisor to let you do the program. The sudden, but temporary increase in Anonymous’s income spurred her to participate in The Wealthy PhD, through which she opened and maxed out an IRA, optimized her financial accounts, and started tracking and budgeting her expenses.

01:23 Emily: The Wealthy PhD is my signature program that delivers financial inspiration, accountability, and actionable knowledge. Through one-on-one coaching sessions, I help each participant to identify at least one overarching goal that they would like to achieve during the program and map out the necessary steps. I also lead weekly accountability meetings with small groups of participants during which you will set and report on small weekly goals and also receive help overcoming any obstacles you’re facing. It’s an intensive and highly transformative experience. The next cycle of The Wealthy PhD will take place in early 2021. You can find out more at pfforphds.com/wealthyPhD. In the meantime, the Personal Finance for PhDs Community is available for you. The Community comprises many financial education resources I’ve created, including the ebook, The Wealthy PhD. The Community is a self-directed experience. However, I am always available to provide assistance and personalized feedback to you through the Community forum and monthly live calls. We also have monthly challenges and a book club. A benefit I recently added is that you are invited to sit in on my podcast interviews and ask your own questions of my guests. You can learn more about the Community and join anytime through pfforphds.community. Without further ado, here’s my interview with Anonymous.

Will You Please Introduce Yourself Further?

02:31 Emily: I have a really special guest joining me on the podcast today. She is a member of the Personal Finance for PhDs Community, and she is also an alum of my Wealthy PhD program. So, we’ve been working together for a few months now. She is actually choosing to remain anonymous for this episode. So, I won’t use her name, but I will let her introduce herself to you in just a second. And we are going to be talking about the wonderful, lucrative internship that she did just this last summer, summer of 2020 with Google and how she got the internship and what it’s done for her finances. So, super excited about this. This is a great one to listen to if you are considering whether or not you should do an internship during your PhD program. What are the pluses and minuses? We’ll be talking about all of that. So, welcome, and will you please introduce yourself?

03:42 Anonymous: Yeah. Great to be here. So, hi I’m Anonymous and I’m a fourth-year PhD candidate studying electrical engineering and computer science, or EECS. Actually, a fun fact about myself is that I actually studied Biomedical Engineering at UC Berkeley, where I went as my undergrad.

Google Research Summer Internship Experience

04:04 Emily: Yeah, good to know. I didn’t even realize that. So, we have that field in common, actually. Okay. So, I mentioned this last summer, you did an internship with Google. What was that type of internship and what do you think you got out of it? Professionally speaking?

04:19 Anonymous: So, the internship was my first industry experience. So, it was actually very valuable for me in and of itself to gain perspective on how research works in an industry setting versus academia. And during the internship, besides doing research, I tried to attend a few seminars which talked about industry versus academia. And there were some great workshops where professors slash research scientists, so people who lead a dual life of industry and academia, talked about their experiences. So, I tried to focus my experience on what would it be like if I were to get a job in industry.

05:00 Emily: Okay, so this was, you were thinking of it as actually kind of like a trial period in helping you decide which way to go in your career.

05:08 Anonymous: That’s right. Yeah. Since I switched my major from biomedical engineering to electrical engineering, before I wasn’t really thinking about industry as much as now. But having switched the major I noticed that a lot of people in my major would start doing internships after their third year or their fourth year. So, I really wanted to try something out to see if I would like it or not.

05:36 Emily: Okay. Yes. Let’s come back to that point in a moment, but I just wanted to hear more about did you actually learn anything new or was it more about you learning the setting and how things work in that setting? Or, yeah, just more about like, what did you get out of this internship?

05:51 Anonymous: So, this internship is actually a little bit special in the sense that it’s very research-focused. So, within Google, I was within Google Research. So, it’s not quite typical industry experience, I suppose. The setting was actually quite similar to how I would normally work with my PhD advisor.

Career Development Opportunities via Google Internship

06:14 Emily: And what about future career opportunities? You know, if you do decide that you want to go into industry instead of academia, you know, do you see the possibility of being hired at Google or at least would maybe your mentor be able to serve as a reference? Or what about sort of the furthering of your career?

06:30 Anonymous: Oh, definitely. So, I’m not sure about other companies, but at the end of my Google internship, I had the option to either return as another intern for next summer, or for those who are graduating within one or one and a half years, they had an option to do full-time position conversion internally. So, at a minimum, this is a great opportunity, I think, for me to get an internship opportunity back again, because I will not be graduating for another two years, so I’m not eligible for full-time conversion. But I think this is also kind of a good motivation for PhD students to do an internship either after their third year or their fourth year. So, I haven’t gotten a job yet, but I think this would also greatly help with the job search once you’re near the end of your PhD.

Why Should a PhD Student Consider an Internship?

07:23 Emily: Yeah, that sounds fantastic. So, both between your reasons and also maybe other people’s reasons, why should a PhD student consider doing an internship? Obviously, there are some programs like yours where it’s more culturally common to do internships. So, maybe speak to the people who are less familiar with why you would do an internship at all.

07:44 Anonymous: So, I think that you should try to keep your options open for those in the PhD. It’s still not late to get new experiences and decide what you would like to have in your career. So, if it’s something that you haven’t tried out before while we’re still in the program, I think that’s a great experience to get. And we will get to this aspect, but usually an internship helps greatly with your financial aspects compared to your graduate stipend. And that can be, I think that’s a wonderful motivator as well.

08:27 Emily: I see. I think the reason that you did this, especially, I think is a really great one is just kind of checking out the setting. Like, is this a place where I’d like to work compared to academia in helping people make their career decisions? I know that I did one, you could sort of call it an internship. It was, it was built more as a fellowship, but I did one three-month fellowship. It was actually after I finished my PhD, but it’s open to people who are not finished with graduate school yet, called the Christine Mirzayan Science and Technology Policy Fellowship at the National Academies. And from their like sort of conception of the fellowship program, it’s very clear that they’re not about like recruiting people to come work at the Academies. Like they’re about offering an experience in science policy to people who will, they always talk about it in thirds. About a third of them might go into careers in science policy.

09:13 Emily: A third of them will probably go back to academia and be, you know, faculty members or whatnot, or work in other roles within academia. And a third of them will go on to have other jobs. So, their purpose is just to give that experience away to people as sort of a way to tell them about what the National Academies are doing no matter what setting they end up in. So, at least that is billed as being very open. Like this is about career exploration and we’re happy to have people, you know, come participate in it for that purpose.

How Do You Discuss Internships with Your Advisor?

09:39 Emily: So, we said earlier that in your field, it’s a little bit more common to do internships, not unheard of. How did you navigate this conversation with your advisor of maybe, should I do an internship? What should the timing be? Is it okay with you? And how do I fit it in with the rest of my research plan?

09:57 Anonymous: I think the easiest way is to talk to your advisor early about, even if you’re a first year student, you probably have some careers aspirations that might change, and that’s totally fine. But try to have regular conversations with your advisor about what you might want to do after your PhD. And actually, your advisor can be the person who helps you get the internship. So, it’s not about getting his permission to do something outside of academic research, it’s working together to find something that works for both the advisor and yourself. And in my case, the research field that I was in while at Google Research, was not exactly my thesis topic, obviously. But it was in the same field of intersections between biology and artificial intelligence. So, I learned a lot of transferable skills in research that is actually helping me a lot right now that now that I’m back in PhD research. So, it’s a win-win in my case.

11:13 Emily: I think that’s a really smart approach to take in any negotiation is put yourself in the shoes of the person across the table from you and figure out what they want to hear and how this would benefit them. So, that’s awesome. You’re going to another setting, you’re learning something new and you’re able to bring back, you know, new ideas, fresh perspective, new insights to your existing resource and to your advisor. Hopefully, everyone can find some kind of connection between, you know, what they might be doing in an internship and how it can benefit their work or their advisor. At least try, that does sound like a great approach.

Tips for Being a Competitive Google Research Applicant

11:48 Emily: So, specifically talking about when you applied to Google Research. This is a fairly big program, right? Like, do you know how many people they accept every year?

12:01 Anonymous: I’m not sure, but probably across the world, there’s thousands of interns for summer.

12:06 Emily: Oh, wow. Is that at the undergraduate and graduate level?

12:10 Anonymous: I think so.

12:11 Emily: Okay. Yeah. So, quite a big program. What tips do you have about being a competitive applicant? Obviously, you were successful, but maybe you’ve learned even more since then about other commonalities that people who are successful in landing this internship.

12:25 Anonymous: Right. Yeah. So, I have some tips from myself and also something that I heard from a student. So, my specific role was software engineering intern. So,, it only applies to that position. Just FYI there are many types of internships within Google, not just software engineering. So, it’s going to be specific to that position. For this position, I had to do something called technical interviews, and I think that’s kind of unique to this one which requires some problem-solving related to data structures and algorithms. Thankfully this process is fairly common in other tech companies as well, not just in Google. And there are plenty of resources out there, too. There a standard interview book that everybody seems to use for this position and also a website called Leet Code to do practice problems.

13:20 Emily: What’s the title of that book?

13:22 Anonymous: The title of the book is Cracking the Coding Interview.

13:27 Emily: Okay. So, yeah, I’ll link to that from the show notes, as well as the website that you just mentioned.

13:33 Anonymous: Yeah. So the book is Cracking the Coding Interview, and the website is called Leet Code L E E T Code. So, I realize that this kind of technical interview might not be really common in other positions. And rather there might be more behavioral, quote unquote, behavioral questions. I think something common that other PhD students might need to do to get internship positions, not just software engineering, but other positions is explaining their research. And a great tip for this I heard is to try to prepare your research speech at three different levels. So, one level is for recruiters who know nothing about your field, the second level is for someone who is somewhat familiar, maybe you might know some terminologies, but not your specific research area. And the third level is someone who might be really familiar. So, maybe he or she is world class expert who invented the technique that you’re using. It’s uncommon that you might get this kind of recruiter, but at least with Google, it’s a large place with many, many smart people who know many things. So, when you’re explaining your research, which I think that would happen in nearly all probably positions that PhD students apply to, I think it’s really beneficial to prepare your speech in three different levels.

14:52 Emily: Yeah, that is a great idea. I’ll add in actually on the, using a book to prepare or whatever, I went through a round or two of interviewing for like management consultant company internships, which I did not get. But there is like a similar process of like everyone uses the same book, everyone practices, they call it casing, everyone practices casing together. And so, you can often find students at your same university who are preparing for the same type of interview. Maybe not even at the same company or whatever, but you can sort of form like working groups and practice together if you want to. I would imagine if you go to a large university, you’re probably going to be able to find some other people who are going through the same process at the same time.

Biggest Tip: Apply Early

15:33 Emily: And outside of the technical interview, do you have any tips on, I don’t know what the rest of the application entailed, but any tips on the rest of it?

15:48 Anonymous: The rest, I had to do a few more interviews regarding project matching. So, this was the phase where research scientists from Google would reach out to me. And we would talk about what their project is about, if I’m interested, what my skill sets are. So, this is where explaining your research comes in. Yeah. Otherwise, I think the biggest actually tip is to apply early. So, I don’t know when this will be published, but right now early October would be a good time to start looking around. Yeah, usually these positions get filled up in a rolling basis and I know really smart students who applied early the following year and they don’t get any offers at all, even though they’re super qualified to do so. So, the earlier the better.

16:37 Emily: Yeah, that’s a great, great tip. Thank you for adding that. We’ll try to push this episode out as quickly as we can so that it gets in front of people in a timely manner.

16:48 Anonymous: Right.

Commercial

16:51 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.

What Did the Internship Do For You Financially?

17:50 Emily: You mentioned earlier that finances can be a great motivator to do a summer internship. Can I ask you how much you were paid by Google for doing the internship?

18:06 Anonymous: I don’t remember the exact total amount, but I think the total was almost equivalent to the amount that I would get paid by NSF for a whole year. But I got the same amount in three months.

18:21 Emily: So, NSF I think pays $34,000 if I recall correctly, or at least in that ballpark, for the year. So, it’s around that amount of money for three months. So, something like $10-$11,000 a month.

18:35 Anonymous: Yeah. I think it was slightly less than that, but yeah, I think that’s reasonable.

18:41 Emily: Yeah. That is incredible. You know, for a graduate student, you’re a fourth year. So, you’ve been living on, you know, your stipend for a few years now. It’s the NSF stipend, so it’s, you know, relatively generous. And then to get that same amount of money over a very short period of time is–maybe it’s wonderful, but also maybe a little bit like shocking. Like where’s this money coming from? And, “Oh my goodness, how did I do this?” So, what did doing the internship do for you financially? Obviously, the income is high, but then what did you do with that income?

Roth IRA Contribution Goals Achieved

19:14 Anonymous: So, I joined The Wealthy PhD program about the same time that I started my internship to exactly deal with the question that you just posed, which is what do I do with all this extra money? And I had a few goals I wanted to kind of accomplish over the summer. One of which was trying to contribute fully to the 2020 Roth IRA. So, I knew from this podcast that graduate students are able to contribute to Roth IRAs pretty recently. I don’t think I was eligible last year, but I am definitely eligible this year due to the internship. And I wanted to pay all $6,000, like within the summer. Concretely, this internship has enabled me to do that in one go. And that also really helped me with the lifestyle inflation problem. So, I was quite worried when, before starting this internship that I would suddenly live very lavishly and waste all my hard earned money that I earned.

Gaining Control Over Finances

20:23 Anonymous: So, I really wanted to avoid that. And The Wealthy PhD program really helped me to gain control over my finances so that, A) I know how I’m spending my money, which I didn’t really have an idea before. I knew I was kind of close to living paycheck to paycheck. I wasn’t in debt. But I was a little bit afraid and I was the type of person who was afraid to check her bank account sometimes. So, being in The Wealthy PhD program helped me gain confidence to manage my finances. And besides contributing to the Roth IRA, I think I also ended up changing all my bank accounts at the end. It wasn’t my plan. But while in the process, I noticed that I should try to consolidate various different accounts that I had into one place so that I can check more easily. So, it was kind of motivated by that so that I can be on top of my finances and that kind of led to discovering things like I think I had a GenGuard investment account that I totally forgot about. I worked very briefly between my undergrad and grad and I had an investment account that I opened, but I never checked. So yeah, a lot of things got accomplished during this program to gain control over my finances.

21:58 Emily: Yeah. I would say, you know, it was the combination of the extra income from the summer internship plus, “Oh, we have this opportunity now.” And so we’re not only going to be using the money in the best way you can, but also kind of cleaning up some other things that you had lingering in your finances that weren’t quite organized the way you wanted, and so forth. Like changing the bank accounts, like what was going on with that old investment account and like digging it up and figuring out what to do with it. So yeah, that’s wonderful. And as I, you know, what I do with The Wealthy PhD is, actually you have this as part of the Personal Finance for PhDs Community as well. It’s a framework that I developed for early-career PhDs to basically develop financial security and then wealth.

22:39 Emily: And so for you, like the other Wealthy PhDs, we just work on sort of figuring out where you were on that framework and getting organized and getting onto one single step. Because often people start, they are sort of on multiple steps at the same time. Getting onto one step and then moving forward. So, you were able to get through, you know, step four of the program, which is start to invest. You maxed out that IRA for 2020. Plus, you know, you were able to go beyond that, should you want to buy, you know, extra savings and so forth on based on the higher income. I would say it’s a major shift for you personally. Obviously, you know, decided to face your finances enough to decide to participate in The Wealthy PhD. But going from being someone who didn’t want to check their bank account to being, you know, an investor, totally like confident and competent. I mean, that’s a really big change, plus having the money available to do what you want to do with savings and so forth. Yeah, I would say it’s a really big shift. It was really a pleasure to have you in the program and I’m happy to have you continuing on with me as part of the Personal Finance for PhDs Community.

Additional Benefits of The Wealthy PhD Program

23:41 Emily: Is there anything else you wanted to add about your summer internship or about your experience with The Wealthy PhD?

23:48 Anonymous: I think I would like to just say that The Wealthy PhD program was a very valuable one. It was also not just getting over control, but it was the first time where I could speak freely about finances. I guess, depending on how you grew up or your culture kind of talking about how much you earn or how much money you have in your bank account can be an uncomfortable topic. So, having a safe space or like kind of a required space to be open about your finances and listen to other people’s ideas. That was really helpful for me to hear about how other people are dealing with their finances. I know that everybody’s situations are very different of course, but something that I learned that was really interesting to me was side hustling. So, I never thought about, I guess internship is a type of side hustling, but I never imagined anyone in their PhD doing extra work while they’re doing their PhD research. And during the program, I saw many, at least a couple people, who are doing really interesting side hustles. I think someone had a YouTube channel, which is amazing. I think somebody was an actual licensed therapist, which blew my mind. So, I think having this Community was really empowering for me.

25:11 Emily: I’m so happy to hear that. Yeah. It’s obviously something that I love to run. I love to be in. I love to provide support to these grad students and PhDs in this way. As you said, it’s really hard to find a space where you can openly talk about money. So, you have two challenges, right? First find a space where you can openly talk about money. Not too many of those. Secondly, find a space where people actually like can understand and sympathize with your situation of, “I only earn $30,000 a year.” Well, for you this year, that was different. But in a typical year, that would be the case. And, “Oh yeah, I really don’t have any potential for increasing my income on a fulltime basis until many years from now. Oh, and I’m also dealing with lingering, you know, debt issues and not having invested throughout all my twenties,” and all kinds of like unique to PhDs kinds of issues. So, I’m really pleased that I’ve been able to provide that space and that people like you have been taking advantage of it and we’ve been having such wonderful conversations. So, yep. I really appreciate that. Thank you.

Best Advice for Another Early-Career PhD

26:07 Emily: So, as we close out the interview, what is your best advice for another early-career PhD?

26:14 Anonymous: I would say I think just echoing what you just said. Try to start saving for retirement early. I, I think I had this mentality in my early PhD as well. But as PhD students, we mightfeel like we’re not earning enough money. So, we might think that, “Oh, I don’t have enough money for retirement. All my money’s gone after paying rent and food.” Or I think another thing is, “Oh, we’ll catch up once we get a real job. So, we’ll not save during our PhD years, but start afterwards.” But I think something that’s constantly being emphasized is the importance of time and compounding interests in investing. So, even if it’s very little, now that I’m back to my PhD stipend, I’m investing very little, but I’m still investing. As soon as my stipend comes in, I’m investing a certain amount of money to my Vanguard investment account. So, I think that that’s pretty important, no matter, regardless of what you think about how much money you have, where we can catch up afterwards. Just try to save for retirement early.

27:25 Emily: Yeah. You really only know what’s going on today. You don’t know what the future holds. You might stay in grad school longer than you expect to. You might do a five-year post doc. It may be a long, long time until you reach the point that you thought you would start investing. And as you said, with the power of compound interest, the time value of money, those years that go by could have been helping you a lot in terms of your investments. If you have, you know, the means and the willingness to start earlier, then it’s a wonderful idea. I just wanted to add in, actually, because you sort of briefly mentioned this earlier, but prior to 2020 people in your position, fellowship recipients, weren’t able to use IRAs, to contribute to IRAs. So, you could still invest, you could still invest for retirement.

28:06 Emily: It just couldn’t be inside a tax advantage retirement account. However, starting in 2020, that changed. So, your eligibility was different in 2020, not just because you did the internship, but also because your fellowship is now eligible to be contributed. So, I’ll link in the show notes to the podcast episodes that I have explaining that change as well. But it just happened at the end of 2019. So, some people are still not aware of the shift yet. So, yeah, if you have fellowship income in 2020, and you weren’t aware, yes, you can contribute that to an IRA. So, definitely think about doing that, or at least starting one, contribute a little bit before the end before tax day in April, 2021. So, thank you so much Anonymous for coming on the podcast and sharing about this internship experience of what it did for you financially. I found it fascinating. I found it really hopeful for people who maybe in other fields who could take advantage of an internship like this and have kind of a boon year like you did in the middle of grad school when it’s sorely needed.

29:04 Anonymous: Yeah. Thank you so much for having me.

Outtro

29:07 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.

This Grad Student Didn’t Let a $1,000 Per Month Stipend Stop Her from Investing

March 23, 2020 by Meryem Ok

In this episode, Emily interviews Dr. Rachel Blackburn, an assistant professor at Columbus State University. Rachel’s PhD stipend at the University of Kansas was approximately $1,000 per month and her rent claimed half of that, but she resolved to do more than scrape by financially. Emily and Rachel discuss in detail how Rachel optimized her pay rate in her side hustles, generated extra income through credit card churning, and travel hacked her personal and professional trips. By combining these techniques, Rachel not only contributed to her Roth IRA during grad school but also paid down student loan debt. You won’t want to miss the excellent insight she shares at the end of the interview.

Links Mentioned in the Episode

  • VIPKid Website
  • Personal Finance for PhDs Interview with Aubrey Jones
  • Rover (Pet Sitting App)
  • TaskRabbit (Neighborhood Services App)
  • Turo (Personal Car Rental App)
  • Fat Llama (Personal Item/Electronics Rental App)
  • Instacart (Grocery Delivery App)
  • Personal Finance for PhDs Interview with Dr. Shana Green
  • Personal Finance for PhDs Article: Perfect Use of a Credit Card
  • Personal Finance for PhDs: Tax Center
  • STA Travel Website
  • Hostelworld Website
  • Personal Finance for PhDs: Podcast Hub
  • Personal Finance for PhDs: Subscribe to Mailing List

Teaser

00:00 Rachel: Don’t underestimate your own creativity. One of your strengths and skills as a PhD student is researching, so why not take that same skill and apply it to your financial life?

Intro

00:18 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 five, episode 12, and today my guest is Dr. Rachel Blackburn, an assistant professor at Columbus State University. Rachel’s PhD stipend at the University of Kansas was approximately $1,000 per month, and her rent claimed half of that. But, she resolved to do more than just scrape by financially. We discuss in detail how Rachel optimized her pay rate in her side hustles, generated extra income through credit card churning, and travel-hacked her personal and professional trips. By combining these techniques, Rachel not only contributed to her Roth IRA during grad school, but also paid down student loan debt. You won’t want to miss the excellent insight she shares at the end of the interview. Without further ado, here’s my interview with Dr. Rachel Blackburn.

Will You Please Introduce Yourself Further?

01:17 Emily: I have with me on the podcast today, Dr. Rachel Blackburn, and she has a really exciting story to tell us from back when she was in graduate school, how she managed to generate extra income so that she was able to start a Roth IRA which is just an amazing goal and I’m so excited to hear more about the story. So, Rachel, thank you so much for joining me today, and would you please introduce yourself to our listeners?

01:40 Rachel: Yeah, thank you so much for having me. So, I am Dr. Rachel Blackburn, and I am currently an assistant professor at Columbus State University, which is in Columbus, Georgia.

01:51 Emily: Great. And where were you in graduate school?

01:55 Rachel: So, I did a Master of Fine Arts degree at Virginia Commonwealth University, and then I did my PhD at the University of Kansas.

02:04 Emily: Excellent. So, you’ve moved around quite a bit, it sounds like.

02:08 Rachel: Yeah, I have.

02:11 Emily: Tell me about your stipend during graduate school and why you needed to look outside of that–why you ended up generating extra income.

Grad School Stipend at the University of Kansas

02:20 Rachel: Yeah, absolutely. So, during my MFA program, it was all student loans. That’s all it was. And when I got to my PhD at KU, I was really determined to not take out any more loans no matter what my stipend was. And my stipend was basically $1,000 a month, and my rent was of course about half that. And so, I realized that if I ever found myself in a situation where–it was okay to scrape by, like if I budgeted really carefully, I knew I’d be okay. But I was worried about unforeseen elements like a car breaking down, a major hospital visit. You know, something that would really require me to come up with a lot of money at once. And that’s what I was concerned about.

Balanced Money Formula: Necessary Expenses = 50% of Pay

03:08 Emily: A couple of points in there that I just want to follow up on it because I think it’s a great example for anyone who’s maybe looking at a stipend offer letter or maybe you’ve just started graduate school and you’re kind of still figuring out what your budget’s going to be. So, you just mentioned your rent was about 50% of your pay, which is sort of widely considered to be too high. Right? So, according to the balanced money formula, which to me is a good reference point, all of your necessary expenses should be about 50% of your pay. So, not only rent but also utilities and paying any contracts that you’re in and your transportation and your basic food–all of that stuff is supposed to be within 50%, which is actually a high bar for many graduate students to reach, but it’s just kind of a good reference point.

03:53 Emily: So, you knew seeing rent at 50%, this is going to be pretty challenging. And like you said, you also were anticipating having occasional large, hard to cashflow expenses, which is so, so common. Anyone who lives for about a year or longer, you’re going to realize you have these large expenses sometimes. So, that’s why you turned to generating extra income outside of your stipend. So, did you start that right from the beginning of graduate school–or, rather at the beginning of your PhD program–and I’m wondering, was this a common thing among your peers? Did your advisor know about it? Was this a thing that people did and they were open about or was it more kept quiet?

Side Hustles and Financial Situation Often Kept Quiet

04:34 Rachel: You know, it was really kind of kept quiet. I don’t know how many students revealed to faculty that we were all taking on side hustles. I think maybe later on it did when push really came to shove and things like my advisor saying, “I think we need to look to defend your dissertation in the following semester instead of this one.” And me being like, “I literally cannot afford another semester of tuition. You’re going to have to help me get this done now.” So, things like that. I think when push came to shove, we probably revealed a little bit more about our financial situation, but really the only people that were doing okay in grad school and didn’t need to side hustle were frankly people that had two-income households. So, most often married couples. Yeah.

05:25 Emily: Yup. Super common there. I mean, really, paying $1,000 a month. The faculty should be aware–I mean also living in the same city, right? And presumably having a much higher income. They should be aware that that is not enough to live on without either taking out student loans, which as you said, people have enough experience with student loans to know that they should avoid them if at all possible. No, it’s really not enough to live on. So, it should be no surprise to anyone that this is going on. Yet, as you said, most of the time, it’s not really something that is talked about very openly, at least between students and their advisors or students and the administration. Maybe students, among themselves, talk to each other. Okay. So, thanks for giving us kind of the picture for being on the ground there. So, just give me a quick overview. What were your methods of generating extra income that we’ll then dive into?

Primary Side Hustles: House and Pet Sitting

06:15 Rachel: I would say, primarily, my side hustles were housesitting and pet sitting. Those were easy to do, and what was great about them is that if you did a decent job with one, that professor would recommend you to other professors. And professors are always going out of town for guest lectures and conferences. A lot of them have pets. If you have a halfway decent sense of compassion as a human being, you’ll be fine taking care of a pet. Some just want their plants watered or some just want their home to look lived in while they’re away. So, falling into that circle is a really great thing. And that was a lot for me. Also, I did some teaching online and there are various ways to do this. So, I actually taught online for a community college in just outside of Lawrence (KS). And also, another hack about this is that if you’re interested in possibly teaching English online, for whatever reason, there are a lot of companies specifically for Chinese and Korean and Japanese students who will advertise their online teaching English programs, but they will do so on the New York City Craigslist. At the end of the day, you only need be online. You don’t have to live in New York City, but they’re targeting those bigger markets because they’re just expecting to have more people that they can interview. And so, I honestly went on to New York City’s Craigslist a number of times and found online teaching that way as well.

Secondary Side Hustles: Online Teaching and Waiting Tables

07:43 Emily: Just to jump in there, I have another interview where another grad student is currently side hustling with VIPKid, which is one of the companies that you just described that offer that kind of work. So, if anyone’s specifically looking for a company that’s going on right now and we’re recording this in July, 2019, check out VIPKid and check out that other interview. Yeah. Any other online teaching besides that, that you did?

08:08 Rachel: Those mainly comprised what I did online. Now, some people are a fan of waiting tables. This is also something I did. And, really, the only hack there is that if waiting tables is something that really takes it out of you, energy-wise–and it can, you’re on your feet the whole time–I recommend if you can only do it like once a week, do it on a Friday or Saturday night when the restaurant is busiest, that’s when you’re going to make the most tips. Doing a Wednesday lunch is not going to help you out. Doing a Friday night dinner might actually cover your groceries that week, or what have you. So, that’s the hack there. Try and get signed up for the busiest times.

08:48 Emily: Get that hourly rate up as high as you possibly can so you can minimize the number of hours you actually have to do it. Okay.

Side Hustling Apps

08:56 Rachel: I will just add really quickly that there are a few apps out there that can help you generate income as a side hustle. I made a list of some that I’ve used. So, Rover is a pet sitting app, so sign up to petsit. TaskRabbit is basically anything. So, somebody in the neighborhood needs help painting a fence. That’s TaskRabbit. Turo, you can rent your own car out to other people. That’s T U R O. Fat Llama is where you rent out your own possessions. So, say you have a Nintendo Wii sitting around not being used. You could rent out your Nintendo Wii for a weekend to some kids. So, there’s that. Also, Instacart is where you shop for other people. So, anyway, those are some of the ones that I’ve tried.

09:44 Emily: That’s awesome. Thank you so much for adding those specifics. In fact, I guess I talk about side hustling a lot on this podcast because in fact we have another interview where someone’s talking about using Rover and another interview where someone is discussing Instacart. That’s season three, episode two with Shana Green. That one’s already out. So yeah, to follow up on any of those, but thank you so much for giving those specifics. That’s a really great next step for anyone looking to those side hustles. And we also wanted today to talk about credit card churning and travel hacking. So, the listeners may not be very familiar at all with what credit card churning is, what travel hacking is. So, can you start with some basic definitions here for, let’s say, credit card churning first?

Credit Card Churning Fundamentals

10:29 Rachel: Yeah. So, credit card churning is the idea that you take advantage of credit card signups who are offering major big signup bonuses for when you sign up for that credit card. Now, let me preface and say that I’m really just a beginning level churner, like beginner-level churner. Some people are really sophisticated with how they’re tackling this. And I’ve seen spreadsheets of multiple cards when you’re signing up, when you’re canceling the card and things like that. In a nutshell, that’s credit card churning.

11:10 Emily: There’s suddenly a huge subculture within personal finance that is specifically about credit card churning and maximizing credit card rewards. So, if people want to dive, dive, dive into this, that is available. We are fine with the beginner level here. So, whatever you’ve been doing is great. I want to specifically point out that there’s a difference between credit card churning and having credit cards on a longterm basis that give you ongoing reward. So, what we’re specifically discussing today is getting, as you said, those signup bonuses. And so signing up for new cards fairly frequently, doing whatever you need to do to get the signup bonus. And then usually either moving on–keeping the card open, but not using it anymore–moving onto the next card in your churn list, or, potentially closing it pretty quickly. So, just wanted to clarify that for the listeners. So, can you tell us how you got started with this? What was the first credit card you opened for this purpose, for example?

12:06 Rachel: Yeah, absolutely. So, my first year in my PhD program, I was friends with a guy who was an entrepreneur and he was opening his own business. And he fell into the credit card turning scene because he was starting to try and figure out, “How can me and my business partner fly around the US? Because we anticipate that we’re going to fly a lot. So, how are we going to cover all of those tickets?” And so, he really introduced me to the world of credit card turning. So, I should say from the very top that if you’re someone who has trouble paying off your credit cards every month, if you have not so good credit, it’s not the best thing. It’s really ideal for someone who’s really good at paying off the full amount every month, who’s really good at not spending a credit card on things that either you don’t need or things that may be superfluous to your daily life. And so, the one that I opened was Chase.

Disclaimer: Use Credit Card Churning Wisely

13:10 Emily: I want to jump in a second and just emphasize that point because credit card churning and using credit card rewards is really a fairly advanced strategy. I would not recommend this for anyone who is new to using credit cards. My personal rule on this would be use credit cards in your life, in your regular budgeting for at least one year before you even attempt something like this. Because you need to have a lot of confidence in yourself, as you were just saying, that you’re going to be paying off that card in full every month, that you’re not going to be spending any extra money just for convenience factor or whatever it is because you’re excited about the rewards. You need to be a super, super good budgeter and super, super organized before you jump into this world. And it can be really lucrative, as we’ll get into in a moment. So, it’s very tempting, but show restraint. Hold back. Be sure you have your budget totally aligned before you try to attempt it. I’ll link in the show notes, I have an article that I wrote previously called, “Perfect Use of a Credit Card.” So, that will outline what you need to master in terms of using a credit card before you jump into what we’re talking about now. So, thank you so much for emphasizing that. Now, you were just mentioning that you opened a Chase card, first.

14:18 Rachel: Yeah. So, when I first started to get into this–now, like I said, I just wanted to take baby steps. I have used credit cards for most of my adult life, and I feel pretty confident with my use of credit cards that I don’t really have an addictive personality. I don’t go gambling or drink alcohol very much. I’m just kind of pretty unattached that way. So, I felt confident starting to do a baby churn with just one card. I should also mention by the way, that if you open too many cards within the space of 12 months or 24 months, some credit card companies will take note of that and they’ll say, “Okay, don’t give them any more cards.” And it can damage your credit that way. So, that’s just something to be aware of.

15:03 Rachel: So, I recommend, personally speaking, I would probably top out at three in the space of one year. I think that’s plenty to keep up with. So, Chase, for example, had a credit card, and often what they are is that there’s a signup bonus and in order to achieve that signup bonus, which is usually in the value of points and then those points can be exchanged for either travel points, like they can translate to air miles. They can translate to gift cards. Sometimes they can translate to cash back. With Chase–and I did this a few years ago, so I can’t speak to what it is now, but–when I took the Chase card a few years ago, I crunched the numbers and I basically found that gift cards was my biggest bang for my buck. So, I exchanged my signup points all for gift cards for things that I would spend money on regardless, like grocery stores, gas stations, things like that, Walmart, those kinds of things.

Credit Card Churning: Timing is Everything

16:05 Rachel: A lot of these signup points are dependent on you spending a certain amount of money within the first three months, that’s often the typical amount of time. So, I would time my opening a credit card with an event in my life where I knew that I’d be spending more money than I typically do. So, say for example, I think mine was $1,000. I had to spend $1,000 within the first three months of opening this card. And if I did, I was given a reward of 50,000 points, which ultimately translated to my plane ticket to a conference I was presenting at. So, I timed this for when I had been to the doctor and I’d had a hospital visit and I knew I was going to be paying off a lot of doctor’s bills. So, I knew I’d be spending that money anyway. So, that’s how I timed it.

16:53 Emily: We use the exact same strategy–I wouldn’t say we were credit card churning, but signing up for signup bonuses from time to time–doing the exact same thing as you did, like looking at our upcoming six months or a year, whatever, and identifying a few points in the year where, “Okay, we are going to pay our car insurance once every six months.” So, that’s like a pretty big bill, we can put that on the card. “Oh, we’re going to have to buy a flight to here or there. We can put that on the card.” All within a window that was the window that we needed for achieving the signup bonus. So, we did the exact same thing. I think that meeting those minimum spending requirements can be, very typically, a challenge for someone who lives on a lower income, right?

17:31 Emily: Because you don’t have a lot of spending that goes on in a given month, let’s say. Most people will not be paying their rent with a credit card. Usually you have to pay a fee or something to do that. So, if you’re going to exclude rent from this calculation, then there are not that many other things, maybe, that will help you achieve this minimum spend. So, definitely looking your calendar and anticipating upcoming expenses, signing up for a card that’ll give you the right window when you’re going to have to pay those expenses. There’s a little bit of a trick to it when you have a lower-spending lifestyle.

18:00 Rachel: Absolutely. Timing is everything. I also didn’t realize, even for myself, how much I spent cash on lots of things. When I started really concentrating and focusing and saying, “Okay, I could pay cash for this, but I could pay a credit card. Let me just pay with a credit card.” I’m starting to realize that there are very few instances in which it benefits me to use cash, to be honest. Now, I do keep cash on me at all times, just in emergencies. Who knows. But I did start using a credit card for a lot more things than I had. And I find that the rewards do come back to me. Yeah. But no, that’s a fair point. Timing is everything with the credit card churning. When you open the card, when you decide to cancel the card, that kind of thing. Yeah.

Credit Card Points for Gift Cards and Air Miles

18:50 Emily: So, you said that for you, you probably max out at about three cards per year. That’s what you’ve decided you can handle in your personal spending and tracking everything. Other people do a lot more, but that’s what works for you. And that, when you first started doing this, you would trade these points you generated for gift cards because that was what you figured was going to be maximizing those points. Has that continued to be the case? So, do you always do gift cards, or have you redeemed for other types of rewards?

19:18 Rachel: At one point, I did redeem for travel points because, like I said, I was paying for a plane ticket. So, it was easy to translate those to air miles and to do that. What I have found, in my experience–what’s helpful is letting life happen and determining, “Oh, okay, you know what? This month, I have a lot of unexpected expenses. So, actually what I could do to save myself some money this month is go ahead and redeem some points for, say, a grocery store gift card or a gas station gift card. Because that helps offset the unexpected expenses that I’m having.” However, later on down the year, I might find like, “Oh, I really need to take a trip to this conference,” or, “I need to go on this research trip.” And at that point, maybe the air miles are more helpful.

20:10 Rachel: So, it just depends. The nice thing about gift cards too is that if you want to, dare I say, splurge, and get yourself a gift card to like AMC Theatres so you can see a movie, or something that’s like a small, not too expensive luxury. Later on, when you go use that gift card to go see that movie, you don’t really feel as guilty about it because you’re not spending your own money. You’re actually just spending the rewards that you’ve already incurred from paying on your credit card. So, that’s kind of a nice thing that I feel like is a guilt-free way of treating yourself to the occasional movie, or what have you. Because, as we all know, grad school is so stressful. Yeah.

Credit Card Churning: Spreadsheets Are Your Friends

20:53 Emily: I really like that strategy that you’re using the points or whatever that you build up as almost kind of a piggy bank that you can then deploy as needed in the future. And of course, using it for lifestyle upgrades, like going to the occasional movie or whatever you want. When you have your stipend paying your baseline expenses, then you can use your side hustle money, the credit card rewards, whatever it is, for big expenses as they come up to ease your stress or just more of life’s pleasures. So, I really like that strategy. Any other things you want to share with us regarding credit card churning?

21:27 Rachel: I really do recommend keeping a spreadsheet with all of your information, just to make sure that you’re keeping track of what you’re spending, you’re keeping track of, “Is this really for sure financially benefiting me? Am I getting rewards?” Versus, “Am I tempted to spend more money just because I’m trying to meet some kind of signup reward, or something.” Also, don’t be afraid to cancel credit cards. A lot of these cards start off free the first year, but then have an annual fee that they’ll charge you. And sometimes those annual fees hit you and you go, “Oh no, I didn’t realize I was already a year out from when I started this card.” So, you know, make sure that you keep a tally of dates of like, “Okay, I need to make sure I cancel this card by this date,” and so on and so forth. Just to keep yourself on the straight and narrow with the churn.

22:18 Emily: Totally. Totally agree. I have to admit myself, just last month I had an annual fee for one of my cards hit, and I was kind of like, “Oh I guess I’m keeping that card another year.” I mean, I could probably still call and get out of it, but I was kind of debating, “Should I cancel it before the year is up or should I keep it?” And then the year was up before I had my bearings about it. So, I’m going to start a spreadsheet and put that in because I’m definitely canceling it by the end of the second year. In fact, it’s already on my calendar as a reminder to do that. So yes, being very organized, super, super crucial with this strategy.

Commercial

22:57 Emily: Emily here for a brief interlude. Tax season is upon us, and while no one loves this time of year, it’s particularly difficult for post-bac fellows, funded grad students, and postdoc fellows. Even professional tax preparers are often thrown for a loop by our unique tax situation. And don’t get me started on tax software. I provide tons of support at this time of year for PhD trainees preparing their tax returns, from free articles and videos, to paid at-your-own-pace workshops, to live seminars and webinars for universities and research institutes. The best place to go to check out all of this material is pfforphds.com/tax. That’s P F F O R P H D S.com/T A X. Don’t struggle through tax season on your own. Visit my website for the exact information you need in the most efficient form available. Now, back to the interview.

Let’s Talk More About Travel Hacking

24:01 Emily: So, let’s talk more about travel hacking. And you already mentioned using the credit card signups to then generate points that can be translated to different airlines depending on the card and who their partners are. So, that’s definitely one way to go about travel hacking. But you said you had a few other travel hacks that you like to use.

24:19 Rachel: Yeah, I do. So, okay. So, some of these are really simple and kind of a onetime thing. Some of these are a little bit more “shady,” if you will. Not shady, I’m not going to recommend anything illegal, but a little sneaky. So, one of the sneaky things that I did, and I’m sure I can’t be the first person to do this or come up with this, but I would be very careful about timing my applications for funding within the university, because some funding applications will say, “Are you receiving funding for many other source?” And I want to be able to say, “No, I’m not.” And that’s true if I have not yet received official funding from another source. So, I was very careful to time my applications in such a manner that allowed me to always be able to say, “No, I’m not receiving funding from another source.” And if I then applied to another source after I submitted that application, well you know, who could have foreseen that I would do that. So, that’s one. Yeah. Another smaller hack is that a lot of us, I think, forget that as grad students, we’re still entitled to student discounts. So, things like STA Travel, which is the Student Travel Association. They have a website where you can look up airfares and all kinds of things. That’s something to take advantage of in addition to all of the sort of usual suspects like couchsurfing and Airbnb, and things like that.

25:52 Emily: I don’t know about Student Travel Association. Can you say more about that?

STA Travel and Hostelworld

25:56 Rachel: Oh yeah, sure. Student Travel Association. I discovered them when I was in college, actually, because I was studying abroad and I was looking into airfares and things and wondering if, “Is there a way I can hack my way into traveling more beyond my study abroad semester?” So, that’s when I discovered STA Travel. STA Travel covers a lot of things. They also, and I could be wrong on this, but I believe they are the same company that issues international student identification cards. That’s the ISIC card, International Student Identity Card. And that has some benefits to it. In fact, recently they’ve started making them like a credit card so you can even add money onto them and use them as a form of payment. But yeah, STA Travel has a lot of different options. And some of the airfares might be, the stipulation is merely just that you’re a student. Some of them might be, you need to be 35 years and younger. So it kind of depends. You have to check it out. But it’s at least another source.

27:00 Emily: This reminds me, and maybe this is part of that association, but just about hostels–like some of them are only open to students or maybe people of a certain age; not super common in the US. But abroad, much more. So, is that kind of the same idea?

27:14 Rachel: Yeah, absolutely. And actually when it comes to hostels, if you haven’t discovered Hostelworld–hostel W O R LD.com–they’re a great source for housing. And I’ve used them abroad a lot. But in the bigger cities in the U S you’ll find Hostelworld locations, too. And it’s amazing how cheap you can get. A lot of people say, “Well, I don’t feel comfortable sleeping in a room with 10 other people that I don’t know for $10 a night.” A lot of properties on hostelworld.com do offer private rooms, and they’re still cheaper than what you would find on Airbnb.

27:54 Emily: I actually used Hostelworld–I think it was through Hostelworld–when I traveled to Chicago one time when I was in graduate school. And my husband and I, who had no interest in staying in separate rooms with many other people, were able to book a private room together at the hostel, which worked out really well for us. It was very inexpensive. So yeah, thanks so much for mentioning that. And also STA Travel. I spent 10 years in college and graduate school and I’m really kicking myself that I did not know about this. So, thank you so much for mentioning it. What’s the next travel hack on your list?

Budget Airlines, Driving, and Incognito Browsing

28:26 Rachel: Yeah. Okay. So, some of those websites also worth mentioning briefly if you ever are traveling abroad. Ryanair and EasyJet are budget airlines and they’re really inexpensive. That’s helpful to know. But unfortunately, those seem to be limited to Europe. Okay. So, I’ve also crunched the numbers on this, and if it’s possible to drive and if you are receiving funding for say a conference or a research trip, driving actually optimizes the money that you’re spending because you might actually get more back. A lot of universities have a really nice high mileage reimbursement for driving. And so if you can drive but you were thinking of just taking a plane just because, it might actually be worth your while financially to drive. Another thing is, I don’t know if this is widely known, but browsing “incognito” on your browser when you’re looking at flights and hotel rooms and things like that.

29:27 Rachel: So, with most browsers, you just go to the settings. I use Google Chrome. So, for Google Chrome, it’s the upper right-hand corner, and you pull down the dropdown menu and you just say that you want to browse incognito. And what that does is it sort of erases all of the memory and cookies that are stored in your browser. And for whatever reason, say like Orbitz for example, if they know that, “Oh, Rachel Blackburn comes to us and she buys plane tickets through Orbitz a lot, we can probably charge her just a little bit more because she’s likely not going to look at any other sites for fares.” And so browsing incognito takes away their ability to do that.

30:12 Emily: Yeah, really good tip. Anything else in that travel hacking list?

For the Bold and the Brave: Motel Pricing Negotiation

30:18 Rachel: Okay. So, one thing I’ve done–and this might be a little on the riskier side, and I certainly would never, ever blame anybody for not wanting to do this–but, let’s say I’m driving long distance and I know that I’m going to have to crash somewhere. If you feel comfortable, and especially as a single woman, maybe you feel more comfortable doing this if you have a friend with you or something like that. A lot of hotels that are these kinds of like motels that you see on the side of the highway when you’re driving long distance and you’re kind of in the middle of nowhere. They will lower their fares quite a bit if you show up late at night and you’re like, “Hey, I need a room.” And they’ve only got like maybe 10 other people in the hotel and they’ll say, “Okay, it’s $99 for the night.” And I’ll say, “Oh, you know what? I’m sorry. That’s a little bit more than I was wanting to spend. So, I’m just going to go on.” And then they’ll say, “No, no, no, no, wait.” Because who else is going to drop by late at night to stay? So, a lot of them will actually negotiate fare with you, and they’ll drop it down, say like, “Okay, well can you do 75?” “Yeah, that’s better.” Okay. Now, that does mean that you’re not making a reservation ahead of time. You also run the risk that they may not negotiate with you. That can happen too. So, if I’m taking this route, I try to always stop off in a town that’s large enough to have at least three or four off-the-highway motels where I can try that tactic.

31:52 Emily: I’m really glad you mentioned that because we have so few opportunities for negotiation in the US for these types of sales. So, yeah, that never occurred to me, but I really like this strategy. I can’t say I’ll necessarily do it, but I like the idea.

32:08 Rachel: Yeah, it’s for the bold and the brave for sure.

32:11 Emily: I mean, if there is a town where there are two, three, four of these, then they know that you can just walk down the street and try the same tactic. It’s not going to cost you hardly any more time. So, why not? How late is late at night by the way, for you, after what time?

32:25 Rachel: Hmm, that’s a great question. Most people, especially thinking of highway driving, a lot of people like to be in a motel before it gets dark, especially people with families and stuff like that. So, I would say any time after sunset you’re good to negotiate. Yeah.

32:44 Emily: Yeah. Sounds good. Any more travel hacks?

Inviting (non-PhD) Friends to Conferences

32:49 Rachel: One thing I have done, and I wouldn’t exactly call this a hack, and anytime I have done this, I’ve been totally upfront with my friends about it. If I’m going to, say, a research conference or a research trip or something. I’m going somewhere, I can anticipate I’m going to need a hotel room or an Airbnb. I will often invite my friends along, and not friends who are PhD students, but just friends of mine. And I’ll be upfront and I’ll say, “Listen, would you want to come hang out with me in this city for a weekend? We can split an Airbnb, and when I’m at my conference, you can do your own thing. And when I’m not at my conference, we can hang out together.” And I’ve done that before and it’s great. It’s a double benefit of getting to see friends that you wouldn’t otherwise see. But also, you have someone to share the conference with who’s not necessarily associated with the conference. So, I did a research trip to LA at one point and I invited two of my girlfriends along, and I said, “Hey, I’m going to be in LA for a long weekend. Come hang out with me. There’s going to be times when I’ll have to be at this conference, but most of the time I’ll be free to hang out.” And so they shared an Airbnb with me and immediately split my Airbnb three ways instead of one way. So yeah, that’s another hack, sort.

34:06 Emily: Yeah, why not? If you’re going to a desirable location and you like your friends and like to hang out with them, no harm in suggesting it, certainly.

34:13 Rachel: Yeah. I mean, I know so many people that go, “Oh no one else is going to this conference. I guess I’m footing the bill for the whole hotel room by myself.” And it’s like, “No, you might have some friends who like to travel and who would love the excuse to just get away for a weekend.” So, yeah.

34:33 Emily: Yeah. I like that idea.

Prefixes: To Doctor, or Not To Doctor

34:35 Rachel: Okay. Last one. This is the last hack. I often, when I’m booking a hotel or a plane, I have read that specifying your prefix as doctor can make a difference. Even if you’re not a doctor yet, what are they going to do? They’re going to go find your transcripts? Probably not. I don’t think American Airlines has time for that. So yeah, start using doctor as a prefix. It couldn’t hurt.

35:03 Emily: So, when you say that it can help, what do you mean? Would that actually change the rate that you’re paying, or what difference would it make?

35:13 Rachel: Yeah, well I’ve read stories of people saying that they got a better seat or they got a better rate. Sometimes it might just be like, “Oh, you’re a doctor? Continental breakfast is free for you,” or whatever. Or maybe it’s just a few dollars off your bill, or something. But my guess is that this only leads to really minute differences, but again, every little bit helps. Why not? Worst-case scenario, somebody calls you Doctor?

35:44 Emily: Yeah, I think I may try this out. I’m trying to remember. I think in most cases when I travel, I don’t use doctor as a prefix because I don’t want to be approached with a medical situation on a plane. Of course, I’ve never even seen that happen. So, the chances that it would are really, really, really tiny. But I think that’s been my reason to shy away from using my proper title. But now that I know that I may actually get something out of it, I might try using it consistently going forward. Okay. So, we’ve talked about your side hustling. We’ve talked about how you’ve generated other extra income and how you’ve reduced expenses with your associated travel and so forth. And you told me when we started preparing this episode that all this allowed you to open a Roth IRA during graduate school, which, if you told me I’m being paid $1,000 a month and I’m going to be living in Lawrence, Kansas, I’d be like, “Good luck with that.”

36:46 Emily: You know, who would ever think that that would be possible? Yet, it sounds like through these different mechanisms that you were able to. So, tell me more about why you decided to start saving for retirement while you were in graduate school and why in particular you used a Roth IRA?

Why Start a Roth IRA in Graduate School?

37:00 Rachel: Yeah, absolutely. So, I’m in the humanities. I was a theater professional, theater artist for many, many years professionally before I decided to go back to school, years later. And because of that, I was a freelance contractor for a lot of my life–a lot of my working adult life. So, I was never hired on a permanent full-time basis. I was often hired on a full-time basis for the next three months, you know? And then I was again hired somewhere else for the next three months. And I think in the back of my mind, I kept hoping, one of these days, surely, I will get a job that will offer me benefits and savings plans and things like that. And after a few years, I realized, that’s not going to happen. And then when I went back to school, I didn’t know what my options would be there, either.

37:54 Rachel: I knew it was going to be a tight budgeting situation. I was not under any illusion that I would be–I mean, the idea of like saving for an IRA was completely out of my mind. But somewhere during the PhD–and at this point in my life, I’m like early thirties, 32, 33–and I thought, “If I don’t make this happen for myself, it might never happen.” We all know the statistics about finding a tenure-track job after you graduate. And I just thought I can’t keep telling myself, “Don’t worry. One day you’ll get that job. Don’t worry, one day you’ll get those benefits.” I thought, “Okay, it’s up me. It’s up to me to do it. So, I just need to really be creative and smart about how I’m saving money.”

Know Yourself to Choose Which IRA Works For You

38:42 Rachel: I was able to open a Roth IRA with Vanguard. Now, there again–and for those listening, PhD students who are great at research–just research around, figure it out. One thing I liked about Vanguard was that they seem to have, I believe–and I don’t want to misspeak because I could always be wrong. There could be information I don’t have–they seem to have kept their nose clean, relatively, through the recession. And that was one thing that really attracted me to them. I also spoke to friends and family that were involved in business and they all said, “Oh yeah, Vanguard’s a great company.” So, that’s how I chose them. I also just researched financial products and I said, “Okay, what makes the most sense to me?” I wanted something that would hold onto my money and wouldn’t let me at it. Because if I could pull it out without penalty, I probably would. And that’s just a personality assessment on myself. So, I wanted a financial product that I could put money into anytime. I wasn’t worried about being taxed on it. So, that’s why I chose the Roth IRA that I did. And, it would give me incentive to not take the money back out. So, yeah.

39:53 Emily: That sounds perfect. I think you had great insight there. If you don’t make this happen for yourself, it may not happen. Now, we know that you now have that tenure-track position. You’re one of the lucky few, right? But so many people, so many people currently in grad school or maybe in a postdoc or something–yeah, you don’t know what your job is going to be in the future. And kind of the way things are trending is, not only are pensions in many cases a thing of the past, even having what would be full-time benefits, like having access to a 403(b) or 401(k) or whatever, that is disappearing too as more and more people are entering the freelance market, as you said, or doing contract work. So, really, at some point, as you just said, you just need to make it happen for yourself because you can’t necessarily rely on an employer to do this for you anymore.

40:50 Emily: So, it’s a hard realization, but it’s one that if you do have it early on, like you did prior to graduate school or maybe during graduate school or during a postdoc for other people you know what, go ahead and get started. Because now is always kind of the best time to do it, right? Like best time to start saving for retirement. Well, that was 10 years ago, but the second best time is right now. So, go ahead and get started and don’t let, “Oh in the future things will be different hold you back from that.” So, I really love having the story from you of, “Yeah, my stipend was very small, not really sufficient for even a relatively low cost of living area. Yet, this is what I did to change this. I hustled in this way. I was super smart about deploying my credit score in this other way. I kept my travel expenses down in this way, and look at that. I was able to start saving for retirement based on all those strategies.”

Best Financial Advice for Early-Career PhDs

41:39 Emily: And now of course you have the full-time job and things are working out very well, it sounds like. So, love this story and thank you so much for this interview. And as we kind of sign off here, I just wanted to ask you, what is your best financial advice for another early-career PhD?

41:55 Rachel: Don’t underestimate your own creativity. One of your strengths and skills as a PhD student is researching. So, why not take that same skill and apply it to your financial life? If you had told me when I was in my MFA program, “Hey, guess what? In a few years, you’re going to make up your mind that you’re bound and determined to open an IRA.” I would’ve said, “That’s crazy. How am I ever going to save for an IRA on a stipend that I have?” And my other best piece of advice, I decided that because your loans are deferred while you’re in school, if you can pay on your loans while you’re in school, you’re only paying principal. So, that was my other goal throughout grad school. Financially speaking, I was bound and determined, even if it was $10 a month, that was still $120 less on my principal at the end of the year. So, however small it is, just chipping away at those student loans while you’re in school will really help you by the time you’re out of school.

43:01 Emily: I love both pieces of advice. Deploying your creativity and your research skills to your finances as well as your academic interests. And then, just because your student loans are deferred doesn’t mean you have to ignore them. Go ahead and start paying on them to whatever degree you can or are interested in. And/or do this retirement investing. Both of them are going to greatly benefit you by the time you finish up with graduate school and start having to make payments on the student loans. So, Rachel, thank you so much for this interview. This is really, really insightful and I enjoyed speaking with you.

43:34 Rachel: Yeah. Thank you so much for having me. It was great talking to you.

Outtro

43:38 Emily: Listeners, thank you for joining me for this episode. Pfforphds.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple podcast, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media or with your PhD peers. Three, recommend me as a speaker to your university or association. My seminars cover the personal finance topics PhDs are most interested in, like investing, debt repayment, and taxes. Four, subscribe to my mailing list at pfforphds.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode. And remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is Stages of Awakening by Podington Bear from the free music archive and is shared under CC by NC. Podcast editing and show notes creation by Meryem Ok.

Can and Should an International Student, Scholar, or Worker Invest in the US?

December 9, 2019 by Lourdes Bobbio

In this episode, Emily interviews Hui-chin Chen, a Certified Financial Planner specializing in advising globally mobile professionals through her business, Pavlov Financial Planning. In the interview, Hui-chin answers the questions: Is it permissible for an international student, postdoc, or worker to invest while in the US, and if permissible, is it advisable? Hui-chin and Emily discuss several factors that could impact the answers to these questions: whether the person desires to stay in the US long-term, the type of visa they are on, what type of income they have (W-2 vs. fellowship/training grant), and whether they have access to a tax-advantaged retirement account, such as a 401(k), 403(b), or IRA. Listeners to this episode should come away with clear next steps to further evaluate whether and where to invest while living in the US.

Links Mentioned in This Episode

  • Attend an office hours with Hui-Chin on 7/22/2020
  • Money Matters for Globetrotters
    • Investing as a non-resident alien living in the US
  • Pavlov Financial Planning
  • Personal Finance for PhDs: Sign up for personal finance coaching
  • Personal Finance for PhDs: Wealthy PhD group program sign-up
  • Personal Finance for PhDs: Podcast Hub
  • Personal Finance for PhDs: Subscribe to the mailing list
  • Find Hui-chin Chen on Twitter
international investing in US

Teaser

00:00 Hui-chin: I would actually recommend the default is think about, well, if I had the extra money I can invest for the long term, I don’t really need the money — why not? So there has to be a really good reason why you don’t do it.

Introduction

00:21 Emily: Welcome to the Personal Finance for PhDs Podcast for higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season 4 episode 17 and today my guest is Hui-chin Chen, a certified financial planner specializing in advising globally mobile professionals through her business, Pavlov Financial Planning. In this interview, Hui-chin answers the questions: Is it permissible for an international student, postdoc, or worker to invest while in the US and if permissible, is it advisable? We discussed several factors that could impact the answers to these questions. One, whether the person desires to stay in the US long-term. Two, the type of visa they’re on, F-1, J-1 or H-1B. Three, what type of income they have, that is W2 versus fellowship or training grant. And four, whether they have access to a tax advantage retirement account such as a 403B, 401k, or IRA. I’ve wanted to help the international graduate students in PhDs in my audience think through these questions and scenarios for a long time and I’m so grateful to Hui-chin for giving us her expertise in this area today. Please consider sharing this episode with your friends and peers. Without further ado, here’s my interview with Hui-chin Chen.

Will You Please Introduce Yourself Further?

01:42 Emily: I am so delighted to have joining me on the podcast today Hui-chin Chen. She is a CFP. Her business is Pavlov Financial Planning. She is an expert in this area of international students, postdocs, workers living in the US and what can we do investment wise? I know this is a question of high, high interest in my audience. I get this question every single seminar I deliver at universities. Can I invest in the us? Should I invest in the US. What kinds of accounts can I use? So Hui-chin is here to help us answer these questions as best we can. It’s a very complicated and detailed area, but you know, we’re going to work through it over the next 30 minutes or so. So Hui-chin, thank you so much for, for joining on the podcast and please tell us more about yourself and your business.

02:29 Hui-chin: Well, thank you for having me Emily and I think you covered like all the high levels. Like you said, I’m a CFP, a certified financial planner and I focus my work on clients and international planning needs, whether they’re immigrants to the US, people who are temporarily working in the US that migh leave or US citizens that become expats. So sort of like your listeners who are technically expats from other countries. So I deal with international complexities day in and day out for my clients, so I’m happy to answer any questions you might pose today.

03:05 Emily: Yeah, I mean I have been searching high and low for an expert, just like you. Will you please mention your blog name, your website name.

03:12 Hui-chin: Yes. You can read more about just in general financial planning topics for global and mobile people on moneymattersforglobetrotters.com and if you want to learn more about my business or working with me, it will be on pavlovfp.com.

03:29 Emily: Great. And you have a YouTube channel as well, right? What’s the name of that?

03:32 Hui-chin: Yes. Well there’s no name because I just record more like a series of different topics. The most recent one I recorded, I call it “Welcome to the USA: personal finance edition”. I think some of you might be interested or your spouses who accompan you to the US while you study or work and they may or may not be able to. So it goes through a lot of the different steps of understanding the US system that will be helpful if you eventually do want to stay in the US.

04:04 Emily: Yeah, perfect. Tell me just a little bit more about yourself — when did you arrive in the US, where are you from, why did you come here and those kinds of things.

04:12 Hui-chin: I first arrived full time in the US in 2004 for my graduate degree in public policy and management. I did consider going into a PhD, but I did not eventually and I basically stayed. Since then, I found a job in the US, I continued my work and then I met my husband in grad school, but after working separately for a few years, decided to get married and he got a job posting overseas in different countries. So I also have a very personal interest in working with people from all over the world because, for example, right now, I’m actually not physically in the US, we’re somewhere else. So.

Investing in the US as an International Student

04:58 Emily: Okay. Yeah. Fascinating. Oh my gosh. I really hope people follow up with you about this. So what we decided to do with this interview was to answer two broad questions, which are the ones that hear during seminars. The first is am I allowed to invest in the U S is this permissible? Secondly, is it advisable for me to invest in the U,S while I live here? Now the second question is a lot thornier than the first, I understand, so we’ll kind of go through a few different, aspects of this question that might affect the first question or the second.

Is it permissible? Yes!

05:33 Hui-chin: All right, so you’ll have to prompt me later for all these different questions. I’m going to answer the easiest one which is whether, as an international student who is not a US citizen or a green card holder, can I invest through a US based account? The answer is yes. And the United States is one of the few countries that’s very friendly to foreign investors investing directly in the stock markets and the US also has one of the largest stock markets. A lot of foreign companies come to list in the U S. dot. Markets. So really, even if you were not in the US, even if you were just like live in your home country and you want to open a US brokerage account, you can actually do it.

06:24 Hui-chin: It’s not only permissible, it’s actually a sometimes recommended way to invest, especially if your home country gives you very little access directly to investing equity on your own. A lot of countries don’t even have what we call retail access, like in the US. In a lot of places you have to invest through insurance contracts or very expensive mutual funds. So investing directly as a retail investor, that means that you’re as an individual, not going through an advisor, just like open your own account and start investing, it’s actually a great opportunity to do so. Now you’re in the US, it’s a lot easier. It’s easier for you to find information like that instead of doing it in your home country and tried to find those kinds of information. So that’s the long answer. But the short answer is it’s definitely permissible to do so. Right now you’re in the US and you can invest no matter what kind of income that you have. We’re talking about just a normal broker brokerage account, so it doesn’t give you any tax advantages. It’s just for somebody who wants to buy some ETFs or even just stocks. For example, if you really like Apple, you want to buy Apple stocks, you’re totally permissible to open a brokerage account online and pressures that Apple stocks with whatever money you have, either from your work in the US, from your grants, from your fellowships, or from your wealthy uncle back home who wired you some money. Those are all possible ways to invest.

Opening a Brokerage Account

08:06 Emily: So I think there may be, you can tell me if this is the case, I think there may be a distinction between something being permissible under the law and being, will I actually find a brokerage firm who will work with me? Because what I hear from international students and scholars is, and I never know if this is the rumor mill or if it’s actually their own experience is, “well it’s difficult to find a brokerage firm to approach who will work with me.” Is that the case? Is it, I can walk up to any brokerage firm and you know, as an international student or scholar or worker and open whatever. Or is it like, Oh well some of them might, by policy, be excluding certain types of people from you know, opening accounts.

08:51 Hui-chin: That’s a good question. Sort of at the practically, how does that work? So the first scenario is that if you have, for example, if you actually pay social security, now you have a social security number and you’re technically getting your income and you’re an employee of your university, then, for example, if you go onto Vanguard, that’s all the information they ask for. So at Vanguard, if you provide those two types of information, you will be able to open the account and plus you have a US address because you’re currently living in the US, so you actually do not need to already be a green card holder or something in order to have it processed through it. It doesn’t mean that if you eventually decide to leave the U S and if Vanguard finds out, they will want to close the account. So that’s one scenario.

09:43 Hui-chin: The other scenario is that I know some people because their totalization agreements, they don’t even have a social security number or they choose not to have one in the US and so in that case, even though you’re physically in the US and you have a US address through your apartment or on campus, it’s basically you’re considered a foreign, like how you file taxes as a nonresident alien, you can be a foreigner. So in that case, if you still have pretty close ties with your home country and you do decide to go back, you can actually open an account like your just a person living overseas, but in that case it is pretty much dependent on the brokerage company being willing to work with you because every brokerage company, like Schwab or Fidelity or TD Ameritrade, it’ll have their own internal list of which countries residents they were willing to do business with. So you’re basically declaring to them, I am a resident of some other country, would you would do business with me? And then they may or may not. So that’s another way to go about it.

10:59 Emily: Got it. So, okay, an international student or scholar who does not have an SSN, when they actually try to go and open a taxable brokerage account, what should they say to customer service? I’m a resident of X country, but I’m living in the US currently, will you work with me? Is that the question that they need to pose?

11:22 Hui-chin: Yeah, the question will really be, I’m a resident of another country, because if that’s the case, you’re providing an address of that country. You may be able to provide a us mailing address, but that’s not the address that’s associate with the account. So if they know that you are foreign customer, they will have different tax reporting, different tax withholding. Instead of filling out a W9, you fill out W8-BEN, all the different things, so it’s whether you want to be considered as a foreigner to the US institution or somebody who’s a US resident.

12:01 Emily: Got it. So in the case where someone does have an SSN, probably because they’ve been employed W2 employee for at least part of the time that they’re here, would you say that it’s totally fine to then present yourself as a US person? Even if you’re still technically a non resident alien for tax purposes, even though you have the SSN, but let’s say you’re a nonresident alien for tax purposes, is it okay to go ahead and use that SSN and be like, I’m a US person?

12:26 Hui-chin: Well, that’s the tricky part because you are still for tax purpose, like your dividend capital gains interest will be taxed differently. So you do need to report, you need to write a W8-BEN instead of W9. So I would just give an example on how easy it is to actually open an account. For example, on TD Ameritrade’s website they actually ask what kind of visa you have. So I’m just saying that usually in those kinds of applications, if you have a SSN, you have a US address, you have a US employer, it’s most likely those online retail brokerage account, they will allow you to open the account. But you also need to make sure that they know that for tax purposes you need to fill out a tax form as a non resident alien.

Investing during Short-term vs. Long-term Stays in the US

13:17 Emily: Got it. Okay. I think that’s very clear now. Than you so much for going through that in detail. Okay. So then let’s go back to the scenario of “I plan to stay in the US long term, or hope to, not sure if it’s gonna work out” versus “I don’t plan to stay in the US long term”. We now know what’s permissible, but then what is advisable? Should a person who hopes to stay in the US long-term, has the ability to invest right now — is there any reason for them to shy away from doing that because they’re not sure about the longterm status? Let’s start with that question.

13:50 Hui-chin: So like I mentioned, I guess, eluded to earlier, because the US is such an attractive market, not in terms of return or performance, but in terms of access, you can invest in a broad index in so many different countries, so many different companies with such little cost, and it’s really hard to beat if you tried to do it in some other country. Usually there’s more brokerage fees more commission, there are more hurdles to jump through as an individual investor. So I would actually recommend the default is think about well if I have the extra money I can invest for the long term, I don’t really need the money — why not? So there has to be a really good reason why you don’t do it upon the US perspective.

14:38 Emily: Got it. And so maybe that person in that situation is thinking, “well, is it a good reason that I might eventually leave?” How would the investments that are in the US for the moment, do they to exit the country with that person? If the person ends up leaving, how does that work and how’s that handled?

14:57 Hui-chin: Yeah. So as I mentioned earlier, even for somebody who’s never been to the US, some custodians will be willing to open account for a foreign customer. So if you’re thinking about, “Oh, I’m just leaving after I finished my grad degree in three years,” if the country you’re likely going to is on whatever list that custodian posts, like it’s European EU country or it’s a relatively developed country or it’s a safe country, it’s not like a terrorist country that may be on the treasury list of “do not do business with”, then you’re probably safe to assume that you can continue to hold the account. But of course do your own research on the specific countries. It’s impossible for me to go into every single country.

15:46 Emily: We’ll link to a reference if you can provide a reference of that treasury list. We’ll put that in the show notes and check to see if your country appears on this list, in that case, okay, we need to tread more carefully. But let’s say, okay the country is not on that list, go ahead.

16:04 Hui-chin: Yeah, so basically what will happen is that for example, if you went the first route when we’re talking about opening an account, you open account with the U S address and everything, and let’s say you actually end up staying over five years or you actually got a job at under H-1B then leave, right? So you actually went from nonresident alien for tax purpose to a US person tax role, and then you’re leaving, so you’re going back to a non resident alien textual. So you do need to report to the custodian that you’re leaving this is my W8-BEN, this my new address. So of course you want to make sure the custodian does business with people at that address. And there is some other complexity in terms of what you can invest in. Some people from the EU countries might know there are some new regulations saying that the custodian is not supposed to sell ETFs that’s not registered in the EU to their residents. So that’s one type of complexity that may come up that whatever you invested in, you may or may not be able to add more to it once you leave. But whatever you have already invested in, there shouldn’t be any issue with keeping it there, as long as the custodian is willing to keep you as a customer.

17:30 Emily: Got it. So let’s say then that the custodian is not willing to keep you as a customer, for whatever reason. What happens in that scenario?

17:39 Hui-chin: It does happen. Over the last 5 to 10 years, even some US citizens are experiencing that, living overseas, it used to be okay that custodians know that they live overseas and now they’re not okay and custodians say please close your account. For normal brokerage account, of course the first step was if you want to keep your investment in the US, you can always find a different custodian to move your investment to. You actually do not need to sell those investments. You can do a transfer. It’s just whoever’s holding those stocks will transfer the certificate electronically to another custodian. It’s not like you’re selling and getting the money back. But if because where you’re going next or because of personal reasons, after investing in the US for five years, you’re willing to take the money and leave, you can go ahead and sell your investments, close the account, taking the money and leave. There’s no problem with that. There’s also some tax considerations there. For people who are considered a nonresident alien, getting capital gains while they stay in the US for over 183 days versus they do not. Because if, for example, if there is a tax year when you have a US based account and you have a lot of capital gains on your Apple stock because it increases in value a lot, but if you already finish your study and you’ve moved back to your country for two years you’re just wondering, well, will I be taxed on the capital gains? The question is, you actually do not get taxed on the capital gains, in the US. There could be also tax treaties that differs between the US and your country, but in general, the rule is the US does not tax and your country may or may not tax that. So that’s actually a good–

19:34 Emily: It sounds like in that situation, where you’re planning on moving the money out of the US, it sounds like that’s the time to consult a tax advisor in the country that you’ve moved to, right? How to execute this, when to execute this and the tax implications. Is that right?

19:51 Hui-chin: Yeah. So you’re definitely thinking about tax strategy, because, as opposed to the situation I talked about, if you sell the day you leave the U S for example, like “I’m just closing everything down, I’m moving back home.” And if you sell the stocks as somebody who has lived in US, even though you’re a nonresident alien but you were in the US as a tax home, when you sell the stocks, the capital gain is actually taxed at 30%, unless their treaty dictates differently as well. Like you said. So definitely talk to your tax advisor in your home country, as well to understand how the tax coordination works.

Taxable vs. Tax-Advantaged Accounts

20:33 Emily: Got it. And now, you mentioned earlier that all of that was for a taxable brokerage account. So let’s also throw in the scenario that the person has been using a tax advantaged retirement account — IRA, 401k, 403B — and they’re not going to leave it in the US, they’re are going to be moving the money out, what are the tax implications of making a withdrawal from whichever account type.

20:56 Hui-chin: Yeah, in that scenario, basically first of all, you should know that there is a penalty that applies if you take money out of and IRA, 401K, 403B. You should have known it before you put money in, but that’s the same rule that applies broadly to everyone, whether you’re a US person or not. Right? Because the reason is that the government gave you a tax benefit and it’s the incentive for you to keep the money there for retirement. They don’t want you to take the money out. So, if you need the money obviously and you think closing the account, paying the penalty and income taxes is still better going back home and doing it in a few years because of the different tax situation, of course that’s something you can consider. But knowing, with a penalty if you are not not going to need the money and it is eventually going to pay for retirement, one thing you also can consider is to leave the account open for a very long time and let it grow. Of course, you cannot keep putting money into it, but whatever is in there can continue to grow and you can consider taking the money when your income is lower and take the penalty, so the income and the penalty together is less of a hit, or you can take it out when you are 59 and a half, which is the current law of when you can take it out and then there won’t be a penalty but there is going to be taxes in the US and withholding as well.

22:42 Emily: It sounds to me, and this may be painting with too broad of a brush, but it sounds to me like you know, if you end up having investments in the US, if you’re eligible to keep them in the US, and you do leave, sounds like it’s a good idea to keep the accounts open. You won’t be contributing anymore, at least to the tax advantage ones, but it doesn’t sound like there’s a big reason to be closing accounts and moving the money out, unless it is that you are not permitted to keep the accounts open based on the custodian and the rules of the country that you’re going to, and how they deal with the US, is that right? It sounds to me like that’s the pattern. Like go ahead and keep the money here and then when you’re of retirement age in the country that you’re residing and then you can work on doing the withdrawals and dealing with taxes at that time. Is that kind of broadly what you recommend?

23:32 Hui-chin: I think that’s generally correct. Like I said, the main reason for that is because the US is such a individual investor friendly country to allow you to invest that way, so like I said, I would ask the question of why not. Of course everybody’s situation is different. If there is a legit reason that you think that you shouldn’t be keeping the investment in US, of course, you just need to understand the tax implications. Otherwise, keeping investing long-term in the US, not just — let me clarify this, not investing in US companies only, but using a US based account and custodian, who charges you basically right now no commission to buy and sell anything and with very low mutual fund costs, very low ETF costs, it’s a really good bargain compared to the other alternatives.

24:34 Emily: Yeah. So it sounds like whether an individual in the US, not on a green card yet, not sure if they’re gonna be able to stay long-term or planning to not stay long-term, if they have the ability to invest at the time that they’re living in the US, as you said, why not? Why not go ahead and open the taxable brokerage account or the IRA or the 401k or whatever it is and use it, because it’s sort of, as we know — we don’t have to go into about the power of compound interest — starting to invest earlier is fantastic. So basically don’t a waste or fritter away the time that you may be in the US, it might be longer than you expect. Go ahead and start investing and then deal with either moving the money out or keeping here or whatever later, once you know where exactly are you going to be living. I like that approach of why not. So whether the intention is to stay in the US long-term or to not, go ahead and use the time while you’re here. Use your access. Go ahead and open the accounts, again if you’re able to be able to invest.

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25:37 Emily: Emily here for a brief interlude. As a listener of this podcast, every week you hear strategies that another PhD has used to improve their financial picture. But listening and learning does not automatically translate into action in your own financial life. If you are ready to change how you think about and handle your money, but need some help getting started, I can be of service. There are two main ways you can work with me to create and implement a financial plan tailored for you. First, I offer one-on-one financial coaching, either as a single session or a series, as you make changes over the long term. You can find out more at PFforPhDs.com/coaching. Second, I offer a group program called The Wealthy PhD that is part coaching, part course, and part community. You can find out more and join the wait list for the next time I open the program at PFforPhDs.com/wealthyPhD. I believe it’s possible to succeed with your finances at every stage of PhD training and throughout your career. Let’s figure out together how to make that happen for you. Now, back to the interview.

Investing Under Different Visas

26:52 Emily: Okay. That was the first scenario to talk about. And then the second one was about visa types. So F-1, J-1 and H-1B. You’ve already said broadly it is permissible, but is it advisable? Are there any differences among people holding each one of those different visas that they should be thinking about? Or is it like, “no, the general consensus of it’s permissible, why not?” still applies no matter what visa type?

27:17 Hui-chin: I think that it’s not really only based on visa type, but the idea of combination of visa type, how long are you staying in the US — as, you know, F1 can turn from NRA to US person, J-1 as well, with different time frames. I would think about it as just, it’s very similar to what we were talking about before, like longterm or short term. Eventually, the main difference is tax treatment of if you’re staying, if you’re becoming a us person long-term, or even becoming a US citizen and we’re just going to pay US taxes forever versus at some point, in the future, it’s possible you will sever tax ties with the US, other than whatever investment you kept in the US. So overall investing in both scenarios are great. You just need to know the tax implication and the tax strategies, because if you’re switching from one to the other, there may be some opportunities for you to reduce taxes. And if you don’t think about it clearly or get the correct advice, you might find out, well I could have been taxed zero but now I’m getting taxed 30%.

28:28 Emily: Got it. So it’s not so much about the particular visa type, but rather at what point it flips to you being a resident alien for tax purposes, which is different on the different visa types. Okay, great! Quick one there.

Investing for Different Income Types

28:41 Emily: Third point that I wanted to talk about was the income type. So having W2 type income, or even self-employment type income, if that’s permissible, versus having this weird fellowship, training grant, non W2 type of income. This is very common for graduate students and also for postdocs. And so the general rule that certainly applies for US citizens and residents is if you have the W2 type of income that is taxable compensation for the purposes of contributing to an IRA. So let’s say in the scenario where the person does not have access to a workplace-based retirement account, they’re looking at can I open an IRA or not? Taxable compensation would be the W2 type of income. They can open an IRA and use that income towards it. If you go an entire calendar year and don’t have the W2 type of income, not taxable compensation, it’s all fellowship or training grant, and of course for international students, scholars, they’re not permitted to side hustle, they can’t have the second jobs and so forth, so there would be no possibility of having taxable compensation type of income. I guess the question is, whether they had access to an IRA or not, does it change the, we know it’s permissible, but does it change the advisable recommendation on whether to be investing at this time or not, knowing that in the one case with fellowship and training grant type income they wouldn’t be able to use an IRA but could be using a taxable brokerage account as we discussed earlier.

30:09 Hui-chin: I think that’s actually something we can just combine with the fourth one, so the tax-advantaged one. Like you said, eventually the main question is whether I have taxable compensation or I do not have taxable compensation.

30:23 Emily: Now, I want to jump in just to note that we’re recording this in November 2019 so the SECURE Act has not passed the Senate, yet. I am certainly hopeful that it will because what it does is it changes the definition of taxable compensation to include fellowship and training grant type of income, non-W2 income for graduate students and postdocs. So maybe when you’re listening to this, that law would have changed, and so certainly keep that in mind that we’re discussing this as what is the definition of taxable compensation. Basically, right now it does not include fellowship and training grant and come perhaps in the future it will, but right now it doesn’t. Okay, go ahead.

31:02 Hui-chin: I think at the very beginning you mentioned the whole connection to your personal service, right? So the idea of you can contribute to areas that you need to have taxable compensation and that’s related to the idea of it’s not just that it’s taxable, but it is a compensation for performing a service. If we’re just really thinking about why we’re using IRA, it is for the tax advantages. So even before you think about that, it’s like what would be the tax consequences or how much you save by using that kind of account and is that really helpful in your situation? I know, one question, you posed before is well, everybody wants a Roth IRA because they’re like, well, I’ll never get taxed in the future. I want to be able to contribute to that.” But a Roth IRA and traditional IRA have the same rule: the compensation needs to be taxable. So if it’s already not taxable, the government wouldn’t allow you to put money into something that’s never been taxed before. The Roth IRA is for the government to tax you up front, so it doesn’t tax you it in the future when you take it out.

32:26 Emily: Okay, let me, I just want to clarify this. This is a little bit new information to me. So when we have the two words, taxable and compensation, you have to have taxable compensation to contribute to an IRA. The compensation part of it is this, is it non-W2, fellowship and training grant type income? Okay, that’s not compensation. But now we’re also talking about the “taxable”, the first word there in taxable compensation. Your income has to be taxable in the US in the first place to be eligible to be contributed to an IRA. So maybe under certain tax treaties, your income for a time is not taxable in the US, that income would not be eligible to be contributed to an IRA. Correct?

33:05 Hui-chin: Yes.

33:06 Emily: Okay, great. Go ahead.

33:07 Hui-chin: Yeah, and the second one, we use compensation, but on the US-person side it’s called earned income. So if you look at IRS publications it’s always referred to earned income for US person related publications on contributing to IRA. Those two are equally important. It has to be earned income, so your compensation from service, and it’s taxable. The idea is that you will know whether you have that kind of income or not and if you have that income, meaning you’re getting tax in current year, so you’re thinking about, “Oh, if I contribute to an IRA or 401K, or 403B, I get taxed less. Or you contribute to it and now we get taxed, but in the future it won’t get taxed, which is the Roth side. In the first one, just the pretax contribution, it makes sense if you’re really high income. I think for the students, because if you’re on a 1040-NR, depending on the level of your compensation, because you may not have standard deduction, you may only have itemized deduction, some people can be at the zero percent, some people can be twelve percent or above, so you have to look at your tax situation of which bracket you’re going to be in to give you an idea of, well, maybe I want to do pretax instead. And the second one is, okay, so if I’m at a really low bracket, how about I just do Roths, but then the idea is you want the tax benefit in the future, right? But if you are going to move away from the US, how much more is that tax benefit versus simply using a taxable brokerage account, if you don’t get current year tax benefits. So those are the analysis that you need to go through, in terms of whether or not to use a tax advantage account, if you have the income type to do so.

35:20 Emily: Okay. Yeah. Let me see if I can summarize that. If you don’t have taxable compensation, can’t use a tax advantage account anyway, so go through the brokerage firm and go for the taxable brokerage account, if you’re able to use it, if you can set up that kind of cap. Okay. On the other side, we have eligibility for the 401K, the 403B, the IRA. If you want the tax deduction today for contributing to a traditional version of each of those accounts, great. Go ahead and take it and get a tax deduction today. Awesome. The money grows tax deferred, you’ll deal with the taxes in retirement or whenever you move the money out or whatever. For the Roth option, because of any of those kinds of accounts, because you don’t have the immediate tax advantage today, you really have to be asking yourself, does it make sense to put my money into a Roth IRA, no immediate tax advantage, but it will grow income tax free and then I can withdraw it income tax free in retirement versus can I just use a taxable brokerage firm, which is more flexible. And I think maybe the answer to that question, of course it will depend on the math in any individual’s scenario, but might come down to, again, what we talked about earlier, the expectation of staying in the US long-term or the hope, because really over the long, long term it is very advantageous to be using an IRA of any kind, Roth or traditional. But maybe if the time that you see yourself being in the US is on the shorter side, not to retirement or only five years or the length of your degree, then maybe it’s like, well why bother with the whole Roth IRA scenario? Let’s just go for the taxable brokerage account because if you are expecting to move the money out, for example, it’s kind of more of a pain to do so with a Roth IRA, because while you can withdraw your contributions, whatever gains have been in the account, if you try to withdraw those, then then the penalty comes into play. Is that correct?

37:12 Hui-chin: Yeah. And one big difference for people who eventually just move away from US and no ties in the US, I think I mentioned that before, you could qualify for 0% capital gains tax rate if you sell it, so it’s almost like the same, but the only difference is the dividend. So dividends are taxed at a flat 30% if your a NRA living outside of the US, but over the long term, if you’re investing in, for example tech companies, they don’t pay dividends anyway, and your main goal is for that capital gain growth for the next 30 years, then investing in Roth and investing in a taxable brokerage as an NRA living somewhere else is the same.

37:53 Emily: Gotcha.

37:53 Hui-chin: Why give yourself more ties to a Roth type account you can’t access and there’s more complexity.

38:01 Emily: I see. So really your investing strategy might change based on the tax treatment, if you’re no longer living in the US, of capital gains versus dividends. I actually do want to also add in for people who, I think this is still the case under post-tax custom jobs act, people who are the 12% marginal tax bracket or less, they have 0% federal tax on long-term capital gains and qualified dividends. So if you have a very tax efficient strategy, if you’re buying and holding, generally, as long as you stay in those lower tax brackets, you’re really going to see much or any income tax anyway. So why bother with the IRA, when you could be using a taxable account and not really having that much in the way of actual tax burden. Is that correct?

38:47 Hui-chin: Yeah. And just going back to definitely understand the tax treaty if you already know where you’re going to. Of course, most of the time you might think, well I’m just moving back to my home country, but then you get a job somewhere else and then you know, your life is not really as predictable, but at least understand the tax treaty between us and your home country, if you think it’s very likely you might end up there at retirement age when there would be IRA, 401k distribution consequences and compare that to, if I simply use a taxable brokerage, how does that change my dual country tax liability.

39:31 Emily: Got it. I think what I’m hearing mostly from this interview and the point that you just made about life being sort of unpredictable is, okay, here’s what you know. You know you’re in the U S right now. You have to be in the US for a few years, several years, maybe longer. Deal with what you know about right now, make the best decision you can for right now, and then if the situation changes later, you have to pivot. It’s possible to pivot. You’re not going to be losing your investments just because you’re leaving the country or whatever. It’s something that you can move with you, so you can adapt and change depending on, you know, the next step that you take. And hey, if you end up, if you do end up living in the US long-term, like until retirement age, it will be awesome if you started investing earlier and had started using an IRA or a 403B or a 401K earlier, as soon as you have access. Is that fair?

40:22 Hui-chin: Yeah. And I think those more specific questions and people questioning whether they should have account here. I think in my experience, I really mostly hear it from people from EU countries, Australia, Canada, because they feel like they have the same access when they move back. They don’t want the complexity of dealing with cross border things. And I totally understand that. And if you have good access to invest when you go back home, of course. But I think, what I know is being from a developing country myself is that most of the people who come to US see it as an opportunity and if you can have an investment in the US and don’t have to deal with turmoil that may be happening in your home country, most people jump on the opportunity. I don’t know that many people would say it’s a bad idea to open an account in the US.

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Where to Find More Information

41:26 Emily: Got it. I think we’ll leave it there. This has been fantastic. Thank you so much for joining me. Tell us again where people, can find you — your website, your business name and so forth.

41:35 Hui-chin: Yeah, sure. If you want to read more about what I just talked about, and this also how Emily found me, is on moneymattersforglobetrotters.com. It’s just a blog for reading. And if you’re interested in working with me, you can go directly to pavlovfp.com. That’s Pavlov Financial Planning.

41:54 Emily: Thank you so much for joining me today Hui-chin.

41:57 Hui-chin: You’re welcome.

41:58 Emily: Listeners, thank you for joining me for this episode. PFforPphDs.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple podcast, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media or with your PhD peers. Three, recommend me as a speaker to your university or association. My seminars covered the personal finance topics PhDs are most interested in, like investing, debt repayment, and taxes. Four, subscribe to my mailing list at PFforPhDs.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode, and remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is Stages of Awakening by Poddington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing and show notes creation by Lourdes Bobbio.

This Postdoc’s Financial Turnaround Story and Attitude Toward Money Are Incredibly Inspiring

October 21, 2019 by Lourdes Bobbio

In this episode, Emily interviews Dr. Indira Turney, a postdoc at Columbia Medical Center. Indira tells the story of how her finances changed over the course of her PhD at Penn State. Indira started graduate school with approximately $60,000 of debt in a variety of forms and no idea where her income had been going. She resolved to turn things around, and by the time she graduated she was debt-free with cash savings and investments in a Roth IRA. Indira details the strategies she used to increase her income and minimize her expenses. Her methods are both creative and highly accessible for other graduate students.

Links Mentioned in This Episode

  • Personal Finance for PhDs: Schedule a Seminar
  • Personal Finance for PhDs: Podcast Hub
  • Personal Finance for PhDs: Help Out
  • Find Dr. Indira Turney on Twitter and Instagram

PhD financial turnaround

Teaser

00:00 Indira: And I think that’s when I realized, wait, my bills are going to be the same for the next five years and we’re having all this money coming in, I could pay off my loans. I don’t have to wait until the end. I think that’s what kind of started opening up my eyes.

00:16 Emily: Welcome to the Personal Finance for PhDs podcast, higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season four, episode ten and today my guest is Dr. Indira Turney, a postdoc at Columbia Medical Center. Indira tells the incredibly impressive story of how her finances changed over the course of her PhD at Penn State. Indira started graduate school with approximately $60,000 of debt in a variety of forms and no idea where her income from the previous year had gone. On top of that, she realized that she was taking an income cut to approximately $20,000 per year for her stipend. She resolved to turn things around and by the time she graduated, she was debt free with cash savings and investments in a Roth IRA. Indira details the multiple strategies she used to increase her income and minimize her expenses. Her methods are both creative and highly accessible for other graduate students and we could all do well to adopt her attitude toward income and finances. Without further ado, here’s my interview with Dr. Indira Turney.

01:25 Emily: I’m delighted to have joining me today on the podcast, Dr. Indira Turney, and she has a really remarkable financial story to tell from her time in graduate school and since. Indira, will you please tell us a little bit more about yourself?

01:38 Indira: Sure. I’m happy to be here and thanks again for inviting me on the podcast. I’m currently a postdoc at Columbia Medical Center in New York City and I graduated from the University of the Virgin Islands with my bachelor’s. I went on to do a pre-doctoral program at the University of Pittsburgh for about a year and then I went on to earn my PhD in cognitive neuroscience at Penn State University in Pennsylvania. Now, I just started a postdoc at Columbia Medical Center, where my research essentially focuses on using molecular and functional neuro-imaging to identify socio-cultural sources and neuro-correlates of Alzheimer’s disease across diverse racially and ethnic population.

02:25 Emily: That is awesome. Thank you for telling us about that.

Indira’s Debt-Free Journey

Emily: So financially, where were you at the start of graduate school?

02:34 Indira: When I started grad school, I had about $60,000 in debt at the time. I never really calculated it specifically, but I had a car loan, I had about $20,000 student loans, and I had some health insurance stuff that I hadn’t paid off fully and some credit card bills. So in total about $60,000.

02:56 Emily: Yeah, that’s a pretty heavy debt load for grad student, and especially because with all student loans, of course you’d be able to defer that and not pay attention to it. But with other types of debt you still have to address it as a graduate student. What was your income during graduate school?

03:12 Indira: My first year I had the regular base pay of about, I think it’s about $1950 on a monthly basis, so about $19,000 a year. That’s what we got to cover stipend and then they paid tuition as well, as a teaching assistant. That’s what I had the first year and then after that with applying to other things, I essentially increased that based on how much funding I got that year.

03:37 Emily: So can you give me like a range for your subsequent years in graduate school of what you were earning?

03:43 Indira: As far as grad school funding, for years two, three and four, I got an NSF grant, so I went from $19,000 to $35,000, so that was a huge increase. My last year I got off of NSF because it was only three years and I went back to the regular base pay of $1950, but because I was an NSF for three years, I also kind of negotiated having a little extra, so I had about $23,000 or $22,000 a year. In addition to that, I also had other grants and funding, which probably, at max, was about $25,000 a year from graduate funds, as far as stipend goes, in my last year. So anywhere between $19,000 to $36,000

04:32 Emily: And it was just five years during your PhD, is that right?

04:35 Indira: Six years, actually, six years. Right. So the last two years.

04:39 Emily: And you said a word that I love to hear, which is negotiate. Can you tell me really briefly about negotiating?

04:46 Indira: Sure. So technically the program is five years and if you’re more than that, they tend to bump you down as a way to push you out. I essentially was like, “No, I’m not going to get paid $18,000 a year. I saved you guys a whole lot of money for three years by getting NSF funding.” And even while I had NSF funding, I technically taught a class, which I wasn’t necessarily supposed to. So I was just like, “I did a lot for the university, especially for this department. You’re not going to bump me down. If anything, you guys should increase my stipend.” Not in those words of course. I think there’s always room for asking for more money because there’s always money there, because technically they gave you, in your letter in the beginning, this is your five-year funding. There is money there. If you told me there was money there for five years, I deferred for three years, then there’s money there, so don’t tell me I used up your money for six years. I think there’s always ways to negotiate and tell them why this is what you’re worth and you are always worth more than what they give you. And if you ask there’s usually a lot of room for extra money.

05:51 Emily: I know you just said you didn’t use those words, but I really love the words that you just said and I’m so pleased to hear them. I think a lot of people need to hear them, about your value, and especially if you win outside funding. Yeah, of course they should extend your tenure and increase your pay. But I was just very interested in hearing that you actually did that negotiating after the NSF concluded. And so there’s still room when the money is yet to come in, even after the money has already passed through the system. In your opinion and in your example, the money was still there, you said the right words, you unlocked the money. In those last two years, were you doing like an RA or did you have to TA or where did the money from?

06:31 Indira: I did a mixture of both, so I TA-ed, where I taught a class because after your master’s you can actually teach versus just correcting papers, I guess. Then I also did an RA fellowship with my lab advisor where essentially I just did the work in the lab and got paid for it, instead of teaching a class where I’m taking away time from my research. I also got another award that bought off some time where I didn’t have to TA that year, even though I was getting funded by the university, I still didn’t have to TA that semester. So I really only taught two years out of the six years and on-and-off half a semester here and there.

07:09 Emily: Gotcha. Okay, so start of graduate school, things are actually not looking too great for you to start of graduate school. Approximately $60,000 worth of debt, not a very generous stipend, although probably okay, given where you were living. But then second year and following, buku bucks, at least for the time you were on the NSF. What’s the snapshot of your financial picture upon your defense, when you finished graduate school?

07:35 Indira: Upon defending, I was completely out of debt. I had $0 in debt. I tried to pay off everything, so my goal was pay it off in five years and I paid it off in four and a half, so my last year I had absolutely no debt at all. My car was paid off. I had paid all my student loans, except for maybe like $1,000, that I think is lurking somewhere from undergrad because the $20,000 I had was for my first year of grad school because I had moved away from the Caribbean to the United States, and so I felt like I needed the extra money, but I had about $2,000 in undergrad, which those are deferred because I’m still taking in school. But your grad school loans, they accrue interest while you’re in grad school, so I was determined to pay off that before I graduated. So on graduation day, defense day, I was completely out of debt, which was amazing.

08:22 Emily: So just so I’m clear about where the student loans came from, that was from the year that you were in school prior to starting your PhD? Is that right?

08:31 Indira: No, so the year prior to starting my PhD, I was fully funded. I think we got like $2,500 a month for a year or eight months pre-doctoral program. Then, right before I started grad school, I applied for financial aid, for a student loan until the start of grad school. I had a $20,000, I don’t know what it’s called, but essentially it was a loan from the federal government and it accrued interest every month. once you started grad school.

08:59 Emily: Okay. So you had taken out a $20,000 student loan, but you also had the loan money. You received it at that time, at the beginning of graduate school?

09:09 Indira: Yes, essentially they give you the loan from the beginning, and then you decide, which was scary because I’m like, I have $20,000, what am I going to do with it? But the point was for moving expenses and living other things that I didn’t account for moving from the Caribbean. So I had that, and from day one, I guess it started accruing interests, so when you get that first bill where it’s accrued about $50 an interest, because I think it was like a 6% or 7% interest rate and I’m just like what. And I didn’t even know that at the time when I applied for it because I assumed I’m in school and I’m not gonna be paying off or getting interest while I was in school, but not for grad student loans, apparently.

09:50 Emily: Yes. Okay. I’m glad to get a little bit more clarity on that. So you took out the loan at the beginning of graduate school, which was un-subsidized, as graduate student loans are, because of the expenses that you had just accrued immediately before that in the moving expenses and so forth. And also, I’m assuming you’re looking at your stipend thinking, “how am I gonna do this?” Okay, so you had that loan right at the beginning, but then by the end of it, you had paid that loan back entirely, as well as the rest of your debt. Anything else going on in your financial picture by the time you finished graduate school?

10:22 Indira: So at that time, about maybe by third year of grad school, I had started saving, just regular savings in a bank, and then I also started investing in a Roth IRA where I ranged from putting in monthly about a $100 when I started and then maybe I upped it to about $300 a month. So I had a Roth IRA and regular savings at the end of grad school and zero debt, which was amazing.

Making the Changes to be Debt Free

10:47 Emily: Yeah, that sounds fantastic. And what a turnaround story. So what were you doing in between point A and point B to have this vast change?

10:57 Indira: Right. So essentially I applied to everything, including large grants up to $40,000, $50,000, or if you account for stipend, some of them were $80-$100,000, to things that were even just $500 for anything, whether it’s for research or…What I did was, so for example, if you go to a conference and they give you per diem, where you have about maybe $90 a day for breakfast, lunch and dinner, I don’t need $90 a day for food. I don’t normally spend that anyways. And so yes, I can’t meal prep while I’m on a conference, but I usually don’t have breakfast anyways. I’m not gonna waste $30 on breakfast. So when I get back from the conference, especially say a week long conference, I now probably save at least $30 for five days from a conference that I didn’t have breakfast. And most conferences probably give you coffee and bagels in the beginning anyways. Mmost times I probably spent most of the money on dinner because that’s when you network with colleagues in the field. So $30 breakfast and maybe I’m off $50 for lunch, so $70 for five days that I would save. I think that was one of the easiest ways in the beginning that I learned to save money from money that I got legally — legally I’m saving this, but I’m not, you know, forging signatures to say I didn’t have lunch or something like that. Not signatures, receipts, sorry. Because with per diem they’re not asking for receipts.

12:15 Indira: Then the other method. I meal prepped, so I didn’t have to buy lunch, because as grad students I think it’s so easy to run to the cafe and get something there, long nights you get food there, but I generally meal prepped, most times, on Sundays. I have these Mason jar salads that towards the end of grad school I learned was amazing, and so I would prep five and that’s lunch for the week. I have no excuse to buy lunch, especially since a salad costs like $10, when I probably spend $15 for five salads a week. I had fun, I hung out with friends, but I always planned it. Not the specific event, but plan for this month, like I’m spending $120 on fun and by the halfway of the month I’ll check in, where are you in that $120. Because I feel like once I’m out I’m like, “Well, I’m out, I’m going to have fun, I’m not going to make finances keep me down.” And so I just spend whatever versus if I know I’m within my budget, it doesn’t matter. But if I didn’t plan for it, then I overspend.

13:15 Indira: I also did a lot of side hustles, in addition to funding and federal money, where I did hair braiding, dog and cat sitting. House-sitting was my first summer when I moved. I moved about two months early before grad school and instead of paying for rent, I essentially house-sat for someone and they had a cat, so house and cat stuff for that two months. I also did Airbnb with my apartment. In PA, it was a lot cheaper than New York, so I was able to have a two bedroom apartment. On football weekends — Penn state is a big football school — so from Friday evening, someone would come and leave early Sunday morning and in just one weekend I can make anywhere between $600 to $800. I would just go bunk on someone’s couch and leave my entire apartment for someone, because even within the town, they knew football weekend was big, so hotels would be about $400 a night. Instead of paying $400 a night for a bedroom, they’d easily pay $400 a night for a whole house. I did football weekends about maybe five or six times a semester in the fall, and that would essentially be my roommate. I had a two bedroom, but I didn’t need a roommate. Then on graduation weekends, which was in May or December, but usually the May graduation weekend hotel rooms would be like $800 and $900 as well, so I would rent out my entire home again. On graduation weekends, I think I did it twice, and one time I got about $1,500 for just the weekend. I don’t remember the second time how much it was, but it was around that. So side hustles, applying for everything, and also meal prepping, saved me a lot, and planning my expenses for even fun.

Balancing Different Incomes During Grad School

14:56 Emily: Yeah, that was an amazing amount of information and amazing overview of what you were up to. I want to follow up on a lot of that stuff, but just before we get there — so when you started graduate school and you had this lower stipend level and then you know, in the next year the NSF stipend is so much higher than what you were making, so you have this vast income increase — did you change anything in between those two years? Were you living in the same place, for example?

15:28 Indira: Between the first year of grad school and second?

15:31 Emily: Yeah. I’m kind of wondering if you sort of set up your life in the first year to live off of that $20,000 per year-ish, but then you had that vast income increase — did you increase your lifestyle or did you keep your lifestyle at that original level?

15:45 Indira: No, so at the very beginning I was making about $1,800 a month and so I lived in a one bedroom, but technically it was actually more expensive than the two bedroom I moved into cause it was like a apartment complex versus someone who had a home and they were like, yeah, you can live here kind of thing from Craigslist. Um, and so I didn’t intentionally necessarily go cheaper. So that was really the only thing that changed. I probably, I think I was being like $975 for a one bedroom and that I paid like $950 for two bedrooms. So it wasn’t necessarily a big change. I still had a car so that all of those things remained the same. Um, side hustling if anything. I started Airbnb my second year. So even after I got NSF, it was when I started doing it, because I was like my biggest paying side hustle.

16:29 Indira: Lifestyle-wise most of the things stayed the same which is, I think one of the beauties of grad school. Your bills, your lifestyle for the most part stays the same for at least five years. I think for things like that, I started realizing, and I did a workshop from the Black Graduate Students Association and they had something about financial literacy. I think that’s when I realized, wait, my bills are going to be the same for the next five years and we’re having all this money coming in. I could pay off my loans, I don’t have to wait until the end. I think that’s what kind of like started opening up my eyes. But as far as lifestyle, no. Those things pretty much stayed the same for five years. Aside from like emergencies and stuff like that and just like maybe a little more traveling towards the end. But the basic lifestyle remain the same.

17:14 Emily: Okay. So really what happened is you had your lifestyle set at that original stipend level that you were receiving, and then your income vastly increased both from the NSF and from your side hustling. Were you just like crazy throwing everything at debt? Like that was a huge goal that you had. What were you doing with that excess?

17:34 Indira: In the beginning it was more so I never used to save. Like I said, the year before I started grad school, I did that pre-doc program and we got about $2,500 a month and we didn’t have to pay for housing because all of that was paid for. I don’t know where that $2,500 went for eight months. So when I started grad school and I realized I’m getting paid less than I was going to get out of the pre-doctoral level, I was like, “Wait, this makes no sense. Where did that money go? I need to learn to start saving.” I started just putting that extra money in savings, but then realizing of course I’m not getting a big return. All right, I know those debts, those bills keep coming back. And I’m like, “Why am I just letting this accrue interest for the loans?” So then I started paying just the interest rates and stuff like that.

Indira: I think I just didn’t want to be in debt and I realized that I have all this money coming in and grad school and the lifestyle that’s going to be the same for five years. I started realizing that I was blessed to not have $100,000 in just undergrad debt alone because a lot of my friends did. They just have that sitting there because it’s not accruing interest and that’s fine, but I realized too, a lot of them were taking that money and living a more luxurious lifestyle now in grad school because we’re getting all this money and we could live a pretty decent lifestyle depending on how much money you get coming in. But I’m like, “why not just pay off the other debt?” because then guess what, when you’re done with grad school, the debt is still there waiting for you versus live a balanced lifestyle and paying off your debt. I think it wasn’t like a big, “I have to pay off $60,000 debt”, I was just more aware of where my money was going and one thing after another just led me to investing and putting it into different things.

19:18 Emily: Yeah, I’m really glad that you had that sort of realization. Yyou had this one year in the pre-doc program where you are making a pretty okay amount of money for a stipend, but where was it going? And you sort of had a re-evaluation point, like “Okay, I don’t know what just happened to all of that. I obviously have to change some things within like my financial management going forward.” Also, it sounds like you also went to some financial literacy events or a course or something and that also helped you think differently about your money during graduate school and realizing that you had the ability to work on it right then and didn’t all have to wait for the end.

19:57 Indira: Right. Because unfortunately I think a lot of us are just not taught about how to use the money we get. And so then when you get it naturally, we’re like, “Oh my God, I have all these extra thousand dollar a month. Maybe I’ll go somewhere and travel, do something.” Which is nice, but I mean I think that workshop from the Black Graduate Student Association definitely opened up my eyes.

20:13 Emily: Yeah. Sounds super valuable. I’ll make a shameless plug for my own services here. Probably not exactly the same as what you experienced, but I do offer seminars and webinars for universities, specifically for grad students and postdocs on, I don’t call it financial literacy, but I call it personal finance. So anyone out there who’s looking for that kind of programming that can be incredibly life changing, please think of me. My website, pfforphds.com/speaking, is where you can go to find out more about that.

20:38 Emily: Back to Indira’s story. Okay, so we’ve seen the beginning of the end point. You’ve talked about a few of the strategies that got you from point A to point B. I want to dive into each of them a little bit more. So as you said, you were applying for everything to increase your income, including, I mean obviously you won the NSF, you’ve already mentioned that. That’s awesome. Probably the biggest difference of any of anything that happened. You were talking about how you were using per diems from conferences, but just being frugal right around your food spending. So instead of spending 100% of what you are given, that really is a little bit of like windfall money. You come home from a conference, you realize, “Okay, I was receiving X amount of money, only spent whatever it was, 50% of that.” Hey, a little bit of extra money. That’s something that I think having a plan for, that’s what I call windfall money, unexpected money that enters into your pocket somehow. Did you just throw that towards whatever your current goal was? Savings or debt? How did you think of it?

21:41 Indira: Yeah, so in the beginning, whatever extra I had, I just had it in savings and then I realized my savings was looking really nice and I was like, “well, what am I doing with this money?” I don’t have kids. I send money home to family and stuff in the Caribbean, but aside from that, I didn’t have a need to have a big cushion. Especially, like I said again, I know I’m not going to get laid off of grad school, so I didn’t have to have this big cushion in case I lost my job. I was like, “what am I gonna do with that?” In the beginning, I put everything into savings and then I started doing the Roth IRA because I’m like, “Oh well maybe I can get a bigger return there.” Now, as a postdoc, I’m doing some regular investments as well. But at that time it was just a Roth IRA and savings. I started calculating, if I have this in my Roth and this in my savings, where there’s still a “life happens” emergency fund in my savings, the extra I put towards starting to pay off my student loans. I think at one point I just put a lump sum on my car payments. That way, in case something happened, I just didn’t have like the feeling of every month I had to pay a certain amount and if I didn’t then all of a sudden it’s a problem, so I just put a lump sum down. Technically, I was always about three months ahead of my actual payments due. So starting with savings, then the Roth, and then started paying off the student loan and the car loans and the other health insurance and credit card debt. It’s like the highest interest rate and from there, just started working my way down. One thing I liked about what you said is that extra money. I had a monthly income, then I said this is what I’m spending and when I calculated my spending, I had fixed, flexible, where fixed is like the things that you need — there’s no ands, ifs or buts about it. And the flexible is like Netflix or eating out and stuff like that. Those were budgeted based on my $1,800 a month, and then when I had NSF, it was budgeted on my $3,500 a month and then all the extra staff, I never budgeted. Those just went into my savings and paying off debt. I never felt like I was using it and then extra stuff, that I used for extra fun.

Side Hustling as a Grad Student

23:55 Emily: I see. Yeah. Thanks for going into the that detail about your budgeting. You also mentioned that you had tried out several side hustles and I wanted to know because a couple of them are pretty accessible. So the first one that you mentioned was, house-sitting or cat-sitting, which basically meant that you didn’t have to pay rent for two months and this is like sort of a holy grail of things to pursue. How did you land that gig?

24:23 Indira: The house-sitting the first semester — I told my advisor that I wanted to move early and do an RAship, or research assistantship, so she paid me what they would pay a regular RA. I also asked her if there was anyone — on the faculty list there’s always people going on sabbatical or going away for the summer, for a month or during the summer. I know a lot of faculty members, from being at Pittsburgh, I know a lot of them were going away for about at least a month and they were looking for places or people to house-sit, or cat-sit if they had pets. So I was like, “Oh I wonder if people at Penn State do the same thing.” And lo and behold, they did. There happened to be a faculty member who was going away for the two months that I needed a place before grad school. I asked my advisor, she gave me a few different people who were looking, I reached out to them, told them I was moving, going to be a very responsible grad student and I would love to take — at the time, I didn’t have a dog so I didn’t have any recommendations about being a pet-sitter. But I mean, it was a cat, so I think it was easier to sit for a cat. I just applied and reached out to people and interviewed through Skype and stuff like that and then moved all my stuff into their basement, until I was ready to move into an apartment for grad school.

25:31 Emily: Thank you so much for sharing that because, as I said, I think it’s very accessible. It’s maybe not something you’d do 100% of the time and obviously later on you rented an apartment, you didn’t end up doing that 100% of the time. But for a bridge kind of period of time, it’s really perfect. And again, for the summer, as you said, faculty do travel quite a bit. Even someone going on sabbatical or whatever, could be longer than that. What you did is so easy to do. You asked your advisor, you got some recommendations, you followed up with those people, you land —

26:04 Indira: Sometimes our advisors may not know, but once I was in grad school, I also knew what people who needed house-sitters. I think even asking just the grad students, “do you know any faculty member who needs someone,” is another way to go about it, especially again, even sabbatical. I never did it, but for sabbatical, if someone’s going away for a year, that’s a year you can save in rent. I know one person who did that, so there’s definitely ways to save for rent.

26:27 Emily: You know someone who has sat for a year, like nine months?

26:31 Indira: Yeah, it was a little tricky. She house-sat for about four months. It was half a year, so it was just a semester, and she just stayed at their house. She still had her apartment, because she had a partner and he had to stay there and whatnot, but assuming she didn’t have a partner, that would’ve been saving rent for an entire three, four months. I know other faculty members who leave for six, eight months or usually two semesters I guess, and if they have a pet, that’s usually the key thing, where they need someone to stay there because they can’t take the pet with them or they rather not. They usually just have students who can just come and check in, but because usually we have our things set, and especially in a small town, it was a little tougher because you can’t get a six month lease or three month lease, it’s always a twelve month lease and you don’t want to break your lease. But given that opportunity, depending on the state that you’re in, the city, you would be able to just stay at that person’s place.

27:32 Emily: Yeah. This is a great idea for anyone who’s again doing something like moving somewhere on a little bit of an off schedule from what the market is accustomed to. That’s amazing. What were the other side hustles that you mentioned?

27:46 Indira: I did some hair braiding, so doing people’s hair. I have locks now, but before that I did all kinds of hair, and all kinds of races too. Especially being in State College, a lot of the faculty members kids wanted braids, for example. I know a lot of friends for example, who braid hair, but it’s a little tricky to braid ethnic hair versus someone who’s white or Hispanic. I braided all kinds of things. I would do the kids’ hair and of course they love it and be excited and be like, “Oh my God, I want you to do it to my hair all the time,” so that was a client automatically, at least once a month. Then I also did Airbnb.

28:22 Emily: Right. Airbnb. Yeah. That was the other thing I wanted to follow up with you about. It’s very evident to me that you have this, I don’t know if I want to say entrepreneurial, but you just go after things. You just take opportunities as you see them, which is amazing. The Airbnb thing I think is so clever and it’s again, something that I haven’t heard of from a PhD before. I wanted to talk to you a little about it a little bit more. You were renting during this time, right? And was that kind of usage of your rental in accordance with the lease?

28:53 Indira: I know in New York there’s a lot more, I didn’t realize there were so many restrictions with Airbnb. I know there were some rental properties in State College that didn’t allow Airbnb. I was pretty up front with my neighbors. They were these old little couples, so they were pretty flexible. I told them, you know, I’ll have people coming into my, I didn’t say Airbnb because I didn’t think they knew what Airbnb was anyways, but I was like, I have people who will be visiting and they would stay here on the weekend, especially a football weekend, Friday to Sunday. I will make sure they don’t damage anything, everything will be my responsibility, although Airbnb I think reimburses up to like $1 million in damage, I never had that issue. I essentially just reaffirmed them that I will have strangers in my apartment for short periods of time and I will make sure that they don’t disturb the neighbors or anything like that, but if you have a problem let me know. But actually, I think they never lived close to me anyways and like I said, they were older couples, so maybe there was some leeway there. Even after I started doing Airbnb, I told all my friends about it cause I was like, there’s so much money to be made here. Some of them illegally did it and others, their apartment people were fine with doing it as well, for the most part. I think it depends on the city. I think New York is definitely a big no, no, but in PA, unless it was one of those big fancy new student-based apartments, most apartments allowed it.

30:13 Emily: Yeah. This is definitely something that if someone’s interested in this idea, they definitely just have to keep on top of the regulations because it can change really quickly. But yeah, your place in time, it sounded like it was perfectly acceptable and the numbers you were throwing out earlier were very impressive for the amount of money you were able to rent for, especially the graduation weekends. I’m just thinking, you saw a huge influx of people coming in for a game day, coming in for graduation, and you saw what hotels were charging and you just said, “well, I have a place to offer too.” That’s just amazing that you did that. It sounds like some of other people are doing as well, so it’s not like you are the only person who thought of it.

30:49 Indira: I think about maybe four or five of us did. I don’t know anyone who was doing before me. Not like I’m the person who told everyone about Airbnb, but I think everyone was a little hesitant about having someone in their apartment. Is someone going to steal my stuff? And so I think after just being like, “no, there’s no harm because Airbnb also reimburses you up to $1 million,” that’s what they say anyways. I think when I got a dog it got a little trickier. Towards the end of grad school, I had a dog and it was easy for me to just go stay on someone’s couch, because you have friends, you’re probably spending the night there anyways, but with a dog you have to bring a crate and then if they don’t allow dogs in their apartment that gets a little tricky. I would do it a little less frequently when I had a dog and then the last year I just didn’t at all because it just became inconvenient for both me and him and my friends. But I think without a dog or if it’s a really small dog where you don’t have to bring a crate and all that stuff, then I think that’s more flexible too. Or like my friends, if they did it a weekend, I would take their cats and stuff and because it’s easy with a cat and stuff. I just think it depends. For the most part it was, I think, my most favorite side hustle because it brought in the most money for the least effort. Then the second one would have been hair braiding because I just loved doing hair.

32:05 Emily: Yeah. That sounds incredible. And I think this is again, potentially very accessible for other people who live in college towns who can see the same patterns emerging of people flooding into the city for big events.

32:17 Indira: I mean anywhere, especially college towns that have football games because people are just going to spend money. They come with families, they want a big place or a place versus just a hotel room. And there’s a really low risk because the whole day Saturday they’re at the game, so they’re not really there and you can decide whether or not you want them to have parties at your house or not and then they usually leave early Sunday morning and they come late Friday night. It’s really one full day that they’re there. Even now in New York, I was looking into it before I found out that you had to do at least 30 days or something like that. New York would be a good place too if it wasn’t the 30 day limit because again, it’s just another place where people are always coming in. I think as long as it’s a place that people like to visit, I think you can do it.

Lifestyle Changes as a Debt-Free Postdoc

33:03 Emily: Yeah. Oh my gosh, I’m so excited about this. Thank you so much for sharing that. We’ve talked a lot about your time in graduate school. Now that you’re a postdoc and you have even more experience in a different city now as well, you have a whole different set of challenges. What does your budgeting method look like today? What are your best practices?

33:23 Indira: I still use the same thing. I have a monthly budget, I have fixed and flexible spending and I still pay off my credit card in full. Recently, I’ve been experimenting with just trying to calculate the percentage of things that I’m spending for each expense. You know, because of the whole don’t spend more than 30% on rent kind of thing.

33:44 Emily: Exception, New York.

33:46 Indira: Exactly. I’m like, I don’t have a choice. So just having a better sense of my income and where it’s going and what I’m doing. Because in grad school, for example I just had my main fixed spending, flexible spending and everything else just went to debt. Now that I don’t have necessarily debt to pay off, but I have a huge rent and living expense, I just want to know where that money’s going. I still have a Roth IRA and now I am also doing regular investments with stocks and bonds and all that stuff. I just have the one you just leave it and you forget about it. I don’t do the following the stock market. That’s a lot for me right now. Maybe eventually one day, but right now I don’t think I have the time for that.

34:27 Emily: Stick with your current strategy, it’s a good one.

34:29 Indira: Exactly, stick with what you know. For the most part I’m doing the same strategies. I have a Mint app and I also still have an Excel sheet just to kind of visualize where all the money’s going because I think it’s a lot of anxiety of just spending way more than 30% of my postdoc salary on rent, but I’m okay. It’s more of an emotional thing to just feel okay about it. I don’t have a lot of money and I’m spending a lot on rent, but I’m still okay. I’m still doing the same thing.

35:02 Emily: Yeah. Okay, great. What frugal strategies are you using? Are you still meal prepping?

35:08 Indira: Definitely. I still meal prep. My Mason jar salads are still part of my lunches. Depending on my workout schedule and whether I am consistent with working out, I do breakfast, but I haven’t figured out a meal prepping for breakfast yet. Sometimes it’s just a shake. And then dinners, I also still meal prep. I have been trying to strategize and trying to figure out whether I need to meal prep all dinners. Because it’s fine for me to eat the same salad for months and years while I’m at work, versus when I get home, if it’s winter, I don’t really want the same food I had yesterday or maybe want something hotter. It just depends. I’m still trying to figure out dinner, but for the most part I still don’t eat out a whole lot. I still budget, like this is what I’m going to budget for lifestyle this month and if it’s the second week and I’ve gone through that, then I guess we’re done eating out for the week or the month or you know, hanging out or whatever. I still budget everything for the most part and just try to not overspend on things that I don’t need.

Indira: I don’t really take Ubers. The train is pretty reliable in New York. Unless I’m really, really late for something and it’s important that I can’t be late, then I’ll take an Uber, but for the most part, I still take the train everywhere. I feel like a lot of people are just like, “let’s Uber and I’m like, no, I’ll meet you guys there. I’ll take the train.” There’s just so many ways to lose money in New York. It’s ridiculous. I’m still trying to figure that out. I’ve been here about nine months and so I’m still trying to figure out going out. I was a big outdoors person in PA, so parks and hikes were great. Not so much in New York, although I do live close to a park, but it’s not like a hike. I’m trying to figure out those new things because I know there’s a lot of free things in New York, I just need to figure those out. But I still for the most part have a lifestyle and it’s just a matter of, again, budgeting that lifestyle.

Final Words of Advice

36:53 Emily: Thank you for sharing that. Final question as we wrap up here. Thinking back to yourself, your starting graduate school, you have a low-ish income coming in, for the stipend. You have this debt load. In fact, you even took out a student loan because you were unsure about how things were going to go with your finances. What advice do you have for another person facing that kind of financial challenge and also on a grad student kind of income?

37:19 Indira: I mean I think it’s kind of the same things you just summarize. I think apply to everything, no matter how small or large the grants are, because I think the more grants you apply to, the better you get at grant writing. In the beginning it may seem like, “Oh my God, I don’t want to write this essay or this statement.” But over time I reuse statements. And as you get deeper in the program, you learn to write better. You change things, but for the most part I never really rewrote a grant from scratch after my second or third year. Apply for everything no matter how big or small. Don’t doubt that you’re not going to get it, because a lot of grants I got, I didn’t think I was even eligible. Especially for diverse, minority students. I think there’s so much money for minority students that people just don’t even apply to. And then they give it to, not anyone, but people who actually needed versus who don’t. Because people who need it don’t apply or they don’t know about it. Ask other students because there’s so much. A lot of the grants I applied to was because another student had applied to it before. Imagine one person may not have five or ten grants, but if you ask ten different people who had ten different grants that’s ten different grants you can get, so apply for everything.

Indira: Definitely pay off debt while you’re in grad school. Don’t let it sit there and whatever money you get, don’t use it for other lifestyles until after you pay for your debt. One thing I did was paying off debt and then whatever was left over I would have for fun, travel, and stuff like that. And it’s okay to take out a loan in the beginning, especially people who have like $100,000 in debt in undergrad. Yes, it’s not accruing interest, but if you want to take out a loan and just pay a lump sum for now and just to get in the habit of like paying something down, take out the loan. And apply for a lot of things. Have a strategy to pay off the loan before you finish grad school because that loan is going to accrue interest. But in the long run you paid off more in grad school and then it’s like it never existed anyway. So apply for everything, pay off debt while you’re in grad school, and do what you need to do to also still balance life and paying off debt because you don’t have to be miserable paying off debt.

39:21 Emily: And I definitely would also add to that, from your story, just go after it. I mean you were going after funding, you said no to your program: “No, you’re not going to cut my funding. I won so much money. No, you’re going to pay me more.”

39:34 Indira: When you’re starting, so I know I asked after, but even in the beginning, once I was through the program and seeing behind the scenes, you can ask for more money in the very beginning before you even start grad school. They’re not going to take back your letter and say, “well, you asking for too much” because if they have it, they’ll give it. The worst they can say is no. So if they have it, they will give it. So ask.

39:52 Emily: Yeah, I totally agree. And I’ve done one podcast episode on negotiating grad student stipend, before in season one. I’m planning on releasing another one, actually a compilation of stories in the  early months of 2020. So if you’re very interested in grad student salary, stipend negotiation, please tune into those episodes.

Emily: Indira, thank you so, so much for sharing this story. Where can people find you?

40:16 Indira: I have been trying to be a lot more active on Instagram, so on Instagram it’s just my name, Indira Turney, so @indiraturney, I N D I R A T U R N E Y. And it’s the same on Twitter, as well. I think those are my two main networking platforms. Email is Indira dot Turney at gmail dot com. It’s fine if you want to ask me questions, please reach out. I’m always open. Like I had mentioned earlier, I’ve been trying to be more open, even about just budgeting on a grad school stipend on Instagram, but also I’ve been also doing a lot of one-on-ones with people just talking about their process because there isn’t a one size fits all for budgeting because people have different scenarios. If you’re interested, send me an email, reach out to me on social media and I’m happy to answer any questions.

41:05 Emily: Yeah, that’s amazing. Thank you for that work that you’re doing, and thanks so much for coming on the podcast today.

41:09 Indira: Thank you for having me. I had a lot of fun.

Outtro

41:12 Emily: Listeners, thank you so much 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’s show notes, a form to volunteer to be interviewed, and a way to join the mailing list. I’d love for you to check it out and get more involved. If you want to support the show and my business, please go to PFforPhDs.com/helpout. There are plenty of ways to sell without laying out any of your own money. See you in the next episode, and remember, you don’t have to have a PhD to succeed with personal finance, but it doesn’t hurt. The music is Stages of Awakening by Poddington Bear from the free music archives and it’s shared under CC by NC.

 

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