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

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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.

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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.

 

The Graduate Student Savings Act Fixes a Major Flaw in Tax-Advantaged Retirement Accounts

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In this episode, Emily interviews Abigail Dove, a PhD student at Johns Hopkins. Abby spent last summer as a science policy fellow at the Federation of American Societies for Experimental Biology (FASEB). Her major policy accomplishment during her internship was to secure FASEB’s endorsement of the Graduate Student Savings Act of 2019 (GSSA), a bill that has been proposed in both chambers of Congress. Graduate students and postdocs are not currently permitted to contribute their non-W-2 income, which typically comes from fellowships and training grants, to Individual Retirement Arrangements (IRAs). The GSSA would allow this type of income to be contributed and have a very beneficial effect on the PhD trainee workforce. Abby explains her role in shepherding the GSSA endorsement through FASEB, what the GSSA would do for graduate students and postdocs, and how the GSSA relates to the SECURE Act, another bill that has passed the House and is before the Senate.

Links Mentioned in the Episode

SECURE Act fellowship income

Teaser

00:00 Abigail: But it was a little tricky for FASEB to first navigate the waters. They’ve never supported a tax legislation before. You think that experimental biology doesn’t have that much to do with legislation on tax. But here was a perfect one for them to start.

Introduction

00:22 Emily: Welcome to the Personal Finance for PhDs podcast, a higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season four, episode nine and today my guest is Abigail Dove, a PhD student at Johns Hopkins and recent science policy fellow at FASEB, the Federation of American Societies for Experimental Biology. Abby’s major policy accomplishment during her summer at FASEB was to secure FASEB’s endorsement of the Graduate Student Savings Act of 2019, or GSSA, a bill that has been proposed in both chambers of Congress. Graduate students and postdocs are not currently permitted to contribute their non-W2 income, which typically comes from fellowships and training grants to individual retirement arrangements or IRAs. The GSSA would fix that problem and have a very beneficial effect on the PhD trainee workforce. Abby explains her role in shepherding the GSSA endorsement through FASEB, what the GSSA would do for graduate students and post docs, and how the GSSA relates to the Secure Act, another bill that as of this recording has passed the House and is before the Senate. Without further ado, here’s my interview with Abigail Dove.

Will You Please Introduce Yourself Further?

01:33 Emily: I have joining me on the podcast today, Abigail Dove, and she is a PhD student who completed an internship at FASEB last summer. And she has a lot to tell us about the Graduate Student Savings Act. So if you have been wondering about your IRA and why you can or cannot contribute to it, that’s what we’re going to be discussing in today’s episode. Abby, thank you so much for joining me today and will you please introduce yourself a little bit further?

01:59 Abigail: Sure. Thanks for having me. My name is Abigail Dove. Currently, I’m a PhD student at Johns Hopkins and I just started my sixth year. I work in fruit flies and study the gonad development. A little bit of my background: I first started as an undergraduate at Bard college, a small liberal arts school in upstate New York. And then I did a postbac for two years at the NIH NIDDK (National Institute of Diabetes and Digestive and Kidney Diseases) before starting at Hopkins. What we’re talking about is kind of the work that I did at my internship at FASEB, which is the Federation of American Societies for Experimental Biology, which I guess to be a little more descriptive it’s a society that represents 29 member societies, which has about 150,000 scientists that they represent.

Tell Us More About Your FASEB Internship

02:57 Emily: Excellent. You and I have common that we both did a postbac at the NIH. In fact, I’ve interviewed several other people on the podcast who have that on their resumes as well. So very popular program. Anyone still in college considering going for a PhD in biomedical sciences or related areas should definitely consider the NIH postbac program. It’s amazing. Okay. So you had this internship at FASEB last summer. What exactly were you doing in that role? Because it’s a little bit unusual for a graduate student to have an internship. And I think especially a graduate student in the biological sciences because, I don’t know about you, but I sort of observe the culture as like, “ah, you need to stay at the bench 120% of your time and never do anything away from the bench.” So please tell us a little bit more about what you were doing in that internship.

03:40 Abigail: Yeah, so I was really fortunate. I have a PI that–we both know that I’m interested in a career that is outside of the academic track. So, I did a lot of science outreach and I knew that I like communicating science to the public. So I wanted to pursue this career of science policy as a way to talk to the public about science and its importance. So what I did at FASEB, I had a lot of responsibilities. I was particularly interested in training and workforce policy. So, policy that relates to students, postdocs, and even faculty as it’s something that everyone can relate to. So that was one of the reasons that I was most interested in it. And I did a wide range of things. I hosted a webinar on work-life balance and the lab culture and we can include a link to that if anyone wants to watch it later. I represented FASEB on Capitol Hill and at the NIH for different events and I generated comments on sexual harassment that will soon be sent to the NIH. I also helped organize an online symposium series for the FASEB Science Policy Committee on challenges facing women throughout their career lifetime. And then I compiled minutes for the meetings, I drafted talking points for committee members, and then the big thing that I did was I spearheaded FASEB’s endorsement of the Graduate Student Savings Act.

How to Land a Science Policy Internship

05:13 Emily: Excellent. And we’ll get a lot more into that in a moment. But that sounds like a really exciting internship. It’s absolutely fabulous that your PI was supportive in you completing that. I actually did a science policy internship as well. The Mirzayan Policy Fellowship out of the national academies. That was actually after I finished graduate school. But it’s available to current graduate students as well. So, if what Abby was describing sounds amazing to you, that’s another potential avenue for you to get that kind of experience in science policy. Okay. So how did you actually land this internship if other people are interested in doing something similar?

05:46 Abigail: Yeah, so I first started–we have an office at Hopkins, it’s called the Biomedical Careers Initiative Office. And it’s really great for people that are looking for careers outside of the academic track. They were offering a course on science policy and advocacy that was actually being taught by the Director of Public Affairs at FASEB, Jennifer Zeitzer, and the Director of Science Policy, Dr. Yvette Seger. So the class gave us a background on legislation and how bills get enacted into law. And we did some case studies on different issues in science policy. They also taught us how to be a science advocate. But finally, we had to write a policy memo on an opportunity or challenge in research activities supported by federal funding, and we had to give an elevator pitch on that to the class as well. And I did mine on saving for retirement as a graduate student and a postdoc.

06:48 Emily: Yeah. Excellent. And so was it through that paper and that pitch that you gave that you found the Graduate Student Savings Act?

06:56 Abigail: Yes, that’s how I found it. Oh, I guess we didn’t cover how I got the position too. So this office that hosted the class actually also hosts internships for students. And so FASEB was also accepting applications for science policy fellows through the Biomedical Careers Initiative Office. So I applied for that directly. But they also have internships for a wide range of different careers outside of the academic track, including industry and consulting and patent law as well as policy.

What is the Graduate Student Savings Act?

07:33 Emily: It sounds like a great deal of support actually, that Hopkins is providing and helping you sort of step a little bit outside of academia into another role that can really presumably help your post-PhD career, should you decide to pursue one in science policy. So let’s kind of back up a second and explain more about what the Graduate Student Savings Act is because it’s probably not one that most people have ever heard of. Right? Like probably a lot of people in my audience, they know about IRAs. Maybe they don’t have one, but they sort of know they’re supposed to or maybe they know they might not be able to have one. So what is the Graduate Student Savings Act?

08:06 Abigail: Yeah, so the Graduate Student Savings Act. There’s a bill in both the House and the Senate and they’re essentially the exact same bill, so they’re called companion bills. And they would allow graduate students and postdocs who receive their income through either a fellowship or stipend to contribute to an IRA or an individual retirement account. The current issue right now is that on the current tax law, trainees who are receiving their income through a fellowship or a stipend are actually prohibited from contributing to an IRA because it’s not considered compensation or earned income.

08:44 Emily: Exactly. And I like to further kind of clarify this for people by saying within academia we might use the word fellowship in different ways. We might use the word stipend in different ways. Nobody’s ever heard the word compensation. But what it really boils down to is, is your graduate student or postdoc income reported on a W2 or not reported on a W2? It could be reported somewhere else, it could be reported not at all. W2 income is the kind of income, taxable compensation, or earned income that can be contributed to an IRA under the current law. And anything else in terms of graduate student, postdoc income non-W2 does not fall into that category, unfortunately. So that’s how things currently stand. The Graduate Student Savings Act includes this type of non-W2 or fellowship income in taxable compensation for the purposes of contributing to an IRA. Is that correct?

09:39 Abigail: Yes. And unfortunately, it doesn’t change its designation universally. It doesn’t make it earned income or compensation, but it just allows it to be saved for retirement purposes in an IRA.

09:51 Emily: Yeah. This is one of those confusing things about the tax code in general is that they use these terms like “taxable compensation” and “earned income” under different contexts. And so sometimes they have different definitions under different contexts. So earned income has other implications in the tax code, like around the earned income tax credit. Whereas, taxable compensation has a different meaning. It’s under the section for IRA contributions and so forth. So it’s sort of defined there as “taxable compensation for the purposes of contributing to an IRA is these things,” and currently, it says explicitly, “does not include fellowship income, not reported on a W2.” So that’s the current status. But then there’s this Graduate Student Savings Act bill as you said, it’s sort of on the floor in both the House and the Senate.

How Abby Got FASEB to Endorse the GSSA

10:37 Emily: I was looking at the history of this and I think the first time it was introduced was 2016 and it’s introduced every year I think in more or less the same form until now, 2019. We should actually say we’re recording this interview on September 25th, 2019. It will be released within a couple of weeks of that date. So things might have changed. But as of September 25th, 2019, the Graduate Student Savings Act has not been passed but it is, I guess, available to be passed. So, what was the process like for getting FASEB to ultimately endorse the Graduate Student Savings Act, and what work did you do to make that happen?

11:15 Abigail: Yeah, so originally before I even did the class, FASEB was not aware of the Graduate Student Savings Act at all. It wasn’t on their radar. It wasn’t until I wrote my policy memo on the issues of graduate students saving for retirement, and I actually did the research and I was just Googling it and I came across it on my own, that we both kind of became aware of it. And so I kind of took this on as a task that I wanted to complete in my fellowship and I thought it was an important task and FASEB was great. If there was an issue that I really wanted to take on and it was something that was good for FASEB to endorse, they would have no problem with me taking the lead. So this was my big accomplishment of the fellowship.

12:04 Abigail: And since FASEB is a nonprofit organization any bill that they support needs to have bipartisan support for endorsement. And that thankfully both the House and Senate bill had bipartisan support on both pieces of legislation. I think some of the previous iterations of the Graduate Student Savings Act didn’t have bipartisan support. So this was really important for FASEB to get on board. But it was a little tricky for FASEB to first navigate the waters. They’ve never supported a tax legislation before. You think that experimental biology doesn’t have that much to do with legislation on tax. But here was a perfect one for them to start.

Personal Impact of Flawed Tax Legislation

12:49 Emily: Yeah. As you were saying earlier, it’s a clear workforce issue. Right? So that’s the definite connection or conduit between what they do generally and this weird little tax quirk that happens to deeply affect their own workforce.

13:03 Abigail: Well, yes. So this actually personally affected me. From when I was in college and doing other side jobs, I was always contributing to an IRA, if possible. My dad is very financially responsible and he just told me when I was young, “you need to have an IRA.” He always recommended a Roth IRA. He always thought it would be better to get tax first and any profit you make later you don’t get taxed on. So there’s two different IRAs, a Roth and the standard IRA. So maybe some clarity on that. But this personally affected me when I was a post-bac for those two years I was receiving stipend income and wasn’t reported on a W2 so I couldn’t contribute to an IRA for those two years.

13:51 Abigail: Then my first year in graduate school I was on a training grant, so also not receiving a W2 so I couldn’t contribute. My second year I was actually a teaching assistant, so I was being employed by the university somewhat and getting my income reported on the W2. So I was for that year able to contribute, which was really great. And then I got awarded the National Science Foundation, Graduate Research Fellowship award.

14:20 Emily: Congratulations, but also, dun, dun, dun.

14:23 Abigail: Yeah. So it was really great. But then I also couldn’t contribute to my IRA because it wasn’t reported on a W2. So that affected me for my third and fourth year of graduate school. My fifth year I got married. So that changed things a little. I was still on my NSF fellowship. But because I was married to someone who had a real job and was receiving income that was deemed compensation, I was able to contribute to my Roth IRA just because I was married to my husband. so that was my last year of my fellowship. Now I’m back at Hopkins and I’m TA’ing for this year. So I will again be able to contribute even if my husband wasn’t receiving earned income himself.

15:14 Emily: Yeah, I have a little bit of a similar story of flip-flopping between RAs and fellowship income. And at some point I got married and so my husband, having a similar situation of flip-flopping between RAs and fellowship income, it helped in certain years one of us would have a taxable compensation, maybe the other one wouldn’t. So one of the things that helps people in this situation–under the current status of fellowship income, non-W2 income is not eligible to be contributed to an IRA–one thing that helps is that the academic year and the calendar year do not line up. So, if you have different sources of funding in two different academic years, maybe you can be covered for one calendar year in terms of being able to contribute. It helps if you’re married of course, to someone with taxable compensation. And the other workaround is actually having a side hustle that is self employment income. So self-employment income is taxable compensation that can be contributed to an IRA. So that’s something I sometimes float with people who are frustrated by their multi-year wonderful fellowship packages that don’t allow them to contribute to an IRA. If it’s possible to side hustle, that’s another way to kind of sneak in that eligibility. So, your stipend wouldn’t be eligible, but that side hustle income would be eligible. All these are workaround solutions, the real main solution is just changing the tax code because this is ridiculous that this is happening, right?

Commercial

16:35 Emily: Emily here for a brief interlude. Through my business, I provide seminars and webinars on personal finance for graduate students, postdocs, and other early-career PhDs for universities, institutes, conferences, associations, etc. I offer seminars that cover a wide range of personal finance topics and others that take a deep dive into the financial topics that matter most to PhDs, like taxes, investing, career transitions, and frugality. If you are interested in having me speak to your group or recommending me to a potential host, you can find more information and ways to contact me at pfforphds.com/speaking. That’s p f f o r p h d s.com/speaking. Now back to the interview.

Anything Else About Your Role in FASEB?

17:25 Emily: Okay. So, anything else to add about your role with getting FASEB to endorse the GSSA?

17:31 Abigail: Yeah. So, because it was a tax bill and FASEB had never endorsed a tax bill before, they want it to go through full process of endorsement. They wanted to get everyone’s feedback on it. So the first step was going through their Training and Career Opportunities Subcommittee. So, they have a monthly meeting, I prepared talking points for the chair of that committee, and we discussed it and they couldn’t see anything wrong with it. So, we got a full endorsement from that subcommittee. Then we had to go up one level to the Science Policy Committee and did the same thing, had to talk to the entire committee, got overwhelming support of it. So, it got pushed up to the next FASEB tier, which was the executive committee. They gave the final approval. Actually, for the Training and Career Opportunities Subcommittee and the Science Policy Committee, I made a one-page summary of the current situation and how the Graduate Student Savings Act would change that. So, a one-page review for them. And then when we went for approval for the Executive Committee, we had the full letter drafted for them to approve, and we can also give you a link to the FASEB’s endorsement letter too, as well.

18:56 Abigail: Normally, it would go to the FASEB board for approval, but the board was jam-packed with what they had to do for that month. So, because we got unanimous support from the two committees before that, they thought that the Executive Committee approval would be sufficient. But I started my internship in June and it wasn’t approved until the first week of September. So, it does take a long time for this approval to go through because you have to wait every month for the next committee to happen. And if there are changes and edits to it, then it can also take a lot of time. You want to do it as quick as possible so the endorsement actually has an effect if the bill is getting voted on soon.

19:47 Emily: Yeah, exactly. This is fascinating to hear kind of how the sausage is made, and not even to make the policy, but just to get something like this: an endorsement from group whose endorsement matters in this kind of thing. What I’m just thinking is how good it is that FASEB has connections to the current trainee workforce like through you and other interns they accept because they had you to tell them, “Hey, this is an issue that’s going on. And by the way, there’s a solution to it and it’s in front of Congress right now.” So it’s just, I guess it’s really good for them to offer these kinds of internships programs to get those fresh ideas and those connections to people who are still in training.

20:30 Abigail: Yeah, I think they really appreciate the fellowship program for that same perspective. The younger generation. People serving on these committees and the boards are faculty members that have been serving for a while and they’re very removed from this training portion. I think there might be–and correct me if I’m wrong–but I think there could be a few postdocs who are serving on boards, but I think that’s very unlikely. Most of it’s always faculty. There’s never a postbac representative in these meetings. So, having a fellow there, they really value so they can get that younger perspective on what’s happening currently.

What is the SECURE Act?

21:10 Emily: Yeah. That’s excellent. Okay. So that was your role with FASEB and then with respect to the GSSA, the Graduate Student Savings Act. There is a different bill before Congress that has sucked up a lot more attention in terms of changing the tax code than the GSSA has, and that is the SECURE Act. Can you tell us what the SECURE Act is? Not in a lot of detail, but basically just how it relates to the Graduate Students Savings Act?

21:35 Abigail: The SECURE Act is Setting Every Community Up for Retirement Enhancement Act of 2019, and it’s just a massive retirement savings bill. For some perspective, the Graduate Student Savings Act is a two-page bill, whereas the Secure Act is 124 pages. So it’s just way too large for FASEB to endorse something so big. But fortunately, it has almost the exact same wording as the Graduate Student Savings Act in one of its sections. So it would get across the same thing as the Graduate Student Savings Act. It would allow graduate students receiving unearned income to contribute to an IRA account. It just was too big of a bill for FASEB to endorse because we can’t vet everything and it’s a little bit out of FASEB’s wheelhouse.

22:22 Emily: Yeah. So, basically what sounds like has happened is that the Secure Act has absorbed the Graduate Student Savings Act pretty much verbatim. And it’s making a lot of other changes as you said to retirement accounts. I’ll link to a couple articles on the Secure Act from the show notes, but some other things that caught my eye that it’s trying to address are like having part time workers have more access to 401k’s. It’s changing a little bit of the distribution rules, like once you’re actually in retirement and about inherited IRAs and there’s just a lot of changes there. Abby and I were glancing over it and we saw something that, “Oh maybe this addresses the kiddie tax.” We’re not even sure about that, which would be amazing if it does. So there’s a lot of different things that it touches.

23:02 Emily: And as you were saying earlier, like for FASEB being able to endorse the GSSA, the GSSA had to have bipartisan support. In fact the Secure Act does have bipartisan support. It passed the House and is currently hung up in the Senate as of, again, September 25th. Because the Secure Act passed the House with such strong bipartisan support, everyone kind of thought that it would pass the Senate really quickly. But it’s been hung up, so its future is uncertain but hopefully it will get through. And the wording that was adopted from the GSSA, hopefully that would actually be maintained. And in the final version we would actually see this benefit be extended to graduate students and postdocs where it wasn’t before. But that’s kind of where things stand as of today as of this recording. Hey, maybe by the time this is published something will have changed on that front. That would be awesome.

23:56 Abigail: I think something also important to note is that the wording of the bill, I don’t think that it would also apply to postbacs. It seems very specifically to graduate students and postdocs. So I think, unfortunately, postbacs would be still excluded from the Graduate Student Savings Act.

How Will the Internship Help Your Future?

24:12 Emily: Hmm. Interesting. Yeah. I’ll have to take a look at that because I didn’t realize there were distinctions being made among different levels of training. We’ll see how that actually shakes out. It’s always sort of uncertain until kind of the next tax cycle rolls around how these things are actually going to be implemented and everything. Thank you for pointing that out. For postbacs out there, this might not be the news you’re looking for. Maybe you still need the side hustle or maybe you still need to get married to have one of these workarounds. Just kidding, people don’t do that. Okay. So Abby, how do you think that this internship experience with FASEB is going to benefit your future career?

24:52 Abigail: Oh, I think it benefited me already tremendously. Besides from just getting a sense of what science policy really is and getting to immerse myself in it and what I would expect in a job. I got great networking. I already met a bunch of people because FASEB represents so many other societies. You know, I really got to get my name around and people know my work now. I also just got a ton of experience. I generated a bunch of writing samples, which is really crucial in the science policy job search, and I think I’ll get great references also for future jobs. So, it’s benefited me tremendously.

25:30 Emily: Do you have specific plans yet for after you finish? Like what positions you might apply for?

25:35 Abigail: Yes, I’m probably looking for science policy analyst positions. When I graduate. I don’t see really any benefit of doing a postdoc afterwards. There are people that continue to do more science policy fellowships. I’m kind of in the boat where I would just like to be out of fellowships and schooling and just want a real job. And I think with this internship I generated enough experience that I would be able to get an entry-level position and be a sought-after candidate.

Final Advice for Early-Career Grad Students

26:08 Emily: Yeah, I have a great deal of sympathy with that position of, “okay, I don’t need any more training. I’m trained. Let me have a job. Finally.” Definitely. So Abby, last question here, which is one I ask all of my guests. What is your best financial advice for another early-career PhD? And that could be related to something we’ve talked about today or it could be something entirely different.

26:29 Abigail: Yeah. So I think of course I would recommend that everyone should open and save in a Roth IRA account and start saving what they can, even if they can’t hit the max. But I think more importantly, we know that graduate school is a really stressful time, and I think it’s really important to invest in your personal wellbeing. And so if that means, paying for workout classes or traveling or if it’s even retail therapy. I think whatever it is, if it’s important to you and if it makes grad school a little bit saner for you it’s important to put some money aside and make time for yourself.

27:08 Emily: Yeah, it’s, it’s actually a little bit weird that sometimes we have to give graduate students permission to spend money on themselves. But if you think about it like more broadly, other people when they receive the financial advice to cut back on those discretionary expenses, cut back on those Wants and so forth, it’s usually because they’re spending at such a level that’s actually endangering their other financial security.

27:35 Emily: Graduate students I would say in general are not spending a sufficient percentage of their income on discretionary things for themselves. Actually, sort of to tie this back to the GSSA, one of the co-sponsors of the GSSA is Senator Elizabeth Warren. She’s sponsored every year in the past, whatever, four years that it’s been up. Many years ago, back when she was a consumer advocate, basically, she wrote this book called All Your Worth*. She co-authored it with her daughter. And that book promotes the balanced money formula, which is to spend, of your after-tax income, no more than 50% of your after-tax income on Needs, 30% on Wants and 20% to Savings. And I was looking at that the other day and I’m thinking that graduate students, I would be surprised if they spent 30% of their income on their Wants.

[* This is an affiliate link. Thank you for supporting PF for PhDs!]

28:28 Emily: Usually, it’s that Needs category that gets up to 60, 70, 80% or more because of rents and high costs of living areas and low stipends and all of those kinds of problems. So yeah, in fact, sometimes we do need to hear the advice that it is okay to spend a little bit of money on yourself to help bolster your mental health and help you get through graduate school in great shape. Of course, it’s ideal if you can do that alongside saving for your future and doing all these other great things, but we want you to get through graduate school in one piece. So yeah, thank you for that advice, Abby, and for giving this interview today.

29:02 Abigail: Well, thank you for having me.

Outtro

29:05 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 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 do so 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 Podington Bear from the free music archive and is shared under CC by NC.

This PhD Student in Texas Side Hustles to Overcome Her Unique Financial Challenges

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In this episode, Emily interviews Allie Judge, a second-year PhD student at Baylor College of Medicine. Allie outlines her top five expenses in Houston, TX as well as her financial goals. Allie receives a good stipend, but her pet sitting side hustle enables her to supercharge her financial progress. She uses her stipend for her living expenses and Roth IRA contributions and her side hustle income to pay down her student loans and medical debt and fund her travel to see her long-distance partner. She concludes with excellent budgeting advice for other graduate students.

Links Mentioned in the Episode

grad student unique financial challenges

Teaser

00:00 Allie: Now during a slow month, I usually net about $300-400 a month. Right now during the literal hot months, also when people are taking a lot of vacation and wanting to get out of the Houston heat, I’ll usually net $700-800. so it’s going well.

Introduction

00:24 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 four, episode two and today my budget breakdown guest is Allie Judge, a PhD student at Baylor College of Medicine in Houston, Texas. Allie details her income from her stipend and lucrative side hustle and her top five monthly expenses. Two of Allie’s unique financial challenges are high medical bills and her long distance relationship and her ongoing financial goals are to max out her Roth IRA and repay her non-deferred student loans. You won’t want to miss the budgeting advice she shares at the end of the interview. Without further ado, here’s my interview with Allie Judge.

Will You Please Introduce Yourself Further?

01:16 Emily: I have joining me on the podcast today Allie Judge, who is going to share with us her budget breakdown — her top expenses and financial goals for her recent months. Allie, it’s a real pleasure to have you here and I’m looking forward to all the interesting subjects we’ll be covering in this episode. Will you please tell the audience a little bit more about yourself?

01:26 Allie: Thanks. I am a second year PhD student at Baylor College of Medicine in the Biochem department living in Houston, Texas right now.

01:46 Emily: Excellent. Is it just you in your household?

01:51 Allie: I have a roommate and a cat, but other than that, just me.

01:56 Emily: Great. How much money do you make?

01:59 Allie: Our stipend actually recently went up. It was $32,000/year coming in and went up to $33,500 starting this month, I think.

Pet-sitting Side Hustle

02:10 Emily: Very nice. Decent raise year over year. I understand you have a side hustle as well.

02:16 Allie: I do. I am a dog sitter on Rover. I started when I was a research tech and was paid even less than I am now, and have continued through grad school.

02:27 Emily: I’m sure a lot of people will be interested in that side hustle, so can you tell us about what it entails a bit, how much money you’re making, maybe hourly, if you know that, and that kind of stuff?

02:39 Allie: Getting started was pretty easy. You just have to do a background check that costs $10, which was nice. Of course, I had to earn reviews on the site and that took a little while. I didn’t make a whole lot of money at first, but now during a slow month, I usually net about $300-400 a month. Right now, during the literal hot months, also when people are taking a lot of vacation and wanting to get out of the Houston heat, I’ll usually net $700-800, so it’s going well.

03:13 Emily: That is very nice. What kind of time commitment is that?

03:18 Allie: I primarily do house-sitting, just because the other services tend to be requests that come in the middle of the day and I don’t like to take time in the middle of the day from lab. When I house-sit, I usually just stay at their house overnight and it’ll be maybe an hour or two a day of taking a walk with a dog or feeding, and cumulative attention time that I can usually multitask a little bit during.

03:47 Emily: That’s really interesting. I didn’t know anything about this service. Although I’ve heard of it before, I did not realize that hous-sitting was a component. That definitely seems like a pretty lucrative way to do this. I’m really glad you found a way to be able to stay at work all day and not be walking dogs in the high heat of the day. And presumably you love animals. Is this a fun thing for you to do?

04:11 Allie: Yeah, definitely. I’ve always grown up with dogs and cats and I had pet-sat for neighbors and such, so it was pretty easy to get testimonials on my little profile, but you can have friends and family do it too to get you started.

04:25 Emily: Thank you so much for telling us about that side hustle because if anyone is interested, loves animals, and wants a side hustle, that seems like a really, really good one to be doing. Why did you choose to go through Rover instead of striking out on your own?

04:45 Allie: As opposed to just independently pet-sitting? They do take 20% of your profit, so that’s a huge chunk, but the exposure that you get is so much better. I’ve lived in major metropolitan areas, and I just would not be able to network. Even with the 20%, I feel like it’s for sure worth the advertising.

05:12 Emily: Do you end up getting any repeat clients?

05:18 Allie: Absolutely. I think right now, this summer, it’s almost been entirely repeat clients just because now they’re going on longer vacations and want someone they’ve had before. A few of them will kind of go off platform, or some of them will try to suggest that at first I say, “No, we should stay on the platform because I don’t know you and you don’t know me.”.

05:44 Emily: Thanks again for that detail. You’re making what sounds like pretty decent stipend income, especially for Houston, I would imagine, plus you have this very significant side hustle.

#1 Expense

Emily: I’m really curious now to dive into your top five budget line items for each month. You said you’re going to be doing your most recent months in this summery, right?

06:07 Allie: Yeah.

06:08 Emily: Let’s dive into it. What is that top expense?

06:10 Allie: My top five would be my rent, some recent medical bills, student loans and groceries, in addition to travel, which I try to contribute to monthly, but doesn’t always happen.

06:25 Emily: Yeah, that sounds great. So top one, rent, of course, unsurprising there. What are you paying and what are you getting for it?

06:32 Allie: Thankfully I have a roommate that shares my two bedroom, two bath in Houston. We each pay $600 right now.

06:40 Emily: Sounds very decent. What’s the proximity to campus?

06:45 Allie: It’s about a 15 minute bus ride

06:48 Emily: And that’s how you typically commute?

06:50 Allie: Yeah. Gigantic medical center with very expensive parking.

06:55 Emily: How do you like using the buses? Is it a decent system?

07:01 Allie: I would say that given Houston traffic, I’d much rather take an extra five minutes on the bus, then have to deal with people on the road in the morning and in the evening.

07:12 Emily: And do you own a car at all?

07:15 Allie: I do. That’s pretty necessary in Houston. I am fortunately not paying my car insurance yet because it’s still in my parents’ name. That is not crucial but helpful.

07:30 Emily: So, fifteen minute bus ride — how do you like the location where you live other than that? Are we talking city, is it walkable to a lot of stuff, how is it?

07:42 Allie: It’s an area called “”condo land” so there’s a lot of condos, and it’s a lot of families, that type of thing. It is not the safest place if you go a block this way or a block that way, but generally where we are is pretty quiet.

08:01 Emily: That sounds good. Is your roommate another graduate student, or someone you found outside of the university?

08:07 Allie: I moved into the two bedroom by myself because I didn’t want to just find a roommate on Craigslist. Then, after about six months, my roommate was looking for a place to live too and moved on in.

08:22 Emily: That’s a nice way to be able to vet the person you live with before you commit to that relationship.

08:29 Allie: She is a grad student. I don’t know if I said that.

#2 Expense

08:32 Emily: Yeah, it sounds great. Okay. Expense number two?

08:36 Allie: Expense number two would be these medical bills I have coming up. It’s about $450 a month and then this month I had to make a quick trip to the emergency room and it was about $350 extra. So if you can go to urgent care, this is my big takeaway from that.

08:56 Emily: How is your health insurance?

09:03 Allie: We do have free health insurance through our graduate program, like a lot of biomedical students do. It’s generally pretty good for the most routine stuff. Hopefully I’ll be meeting the maximum out of pocket expense soon.

09:22 Emily: There are probably some people in my audience who have never really dealt with health insurance that much. What we’re talking about is usually you’re used to paying a copay and maybe co-insurance, a percentage of the bill above a certain amount. Maybe there a deductible to meet. But at some point, hopefully the plan will have a not crazy-high maximum amount of money you will pay out of pocket, after which everything should be 100% covered, usually in network, right?

09:51 Allie: Yes.

09:53 Emily: You’ll may be meeting that at some point. And it’s hard, it’s tough to pay until you get to that point. But you can kind of look forward to say at least after that point for the rest of the calendar year, I’m not going to have any more out of pocket expenses should things go as they usually will. For those of you who are thinking about creating an emergency fund, having the amount of money to meet that whole out of pocket yearly expense in an emergency fund is a pretty good number to take a look at. It may be a few thousand dollars, or may be lower or may be higher depending on the type of plan that you have.

#3 Expense

10:29 Emily: Thanks for telling us about that. Hopefully this will not be a large expense in your budget forever. So your third expense?

10:37 Allie: So my third expense is my student loans. Right now with the medical expenses, I’m paying the minimum payment, which is $204, I think, but prior to those expenses I was throwing more like $500 or $700 a month, whatever my Rover income allowed.

10:57 Emily: Why are you paying student loans right now as a grad student?

11:04 Allie: As an undergrad I went to my small liberal arts college and took out plenty of student loans for it.

11:11 Emily: I guess what I mean is you have the option to defer your student loans, but you’ve sounds like you’ve chosen not to. Talk me through that decision.

11:20 Allie: My student loans are through the government, they’re public student loans and they granted discount of 2.5% interest if you set it to auto pay. I not only wanted to get my loans paid down, but there is actually a benefit to having them not deferred and being able to set them to auto pay.

11:40 Emily: Are any of these loans subsidized or are they all unsubsidized? Is there any calculation you’ve done there?

11:49 Allie: They’re unsubsidized. I believe that if you have subsidized loans, they don’t collect interest during deferment. So that 0.25% would be irrelevant.

11:59 Emily: It’s an unusual decision, I think. Some graduate students I talk to pay on their student loans, but you’re the first person I’ve talked with who has chosen not to defer at all, but it sounds like based on your totally decent stipend income, plus all your side hustle income, that minimum payment of $200 a month is totally manageable. Plus, you usually are able to pay much more than that, so I definitely think this can be a very, very smart decision. It’s just an unusual one, but I think it potentially is a really good one in your situation. It must feel good to be working on paying down that debt at whatever interest rate it’s at since it’s unsubsidized. You know, many, many people in our community will, during graduate school be watching that interest accrue if they’re not able to make payments, and that’s a painful thing to do, right? I’m glad to hear that you are being proactive about paying these down.

12:57 Allie: And it helps to know that I could defer them if expenses really were tight.

#4 Expense

13:03 Emily: All right, fourth expense?

13:07 Allie: So my fourth expense would be groceries. I spend about $200 a month on groceries. I probably could bring it down, but I’m trying to prevent myself from going to restaurants more and more.

13:21 Emily: There’s, of course, an interplay there, between grocery spending and eating out spending, so you’ve chosen to maybe spend a little bit more on groceries but not eat out very much, sounds like.

13:33 Allie: Yeah, I keep my restaurant budget to $50 a month or less.

13:38 Emily: Do you have any guidelines for yourself around when you do choose to eat out?

13:46 Allie: I’m in a long distance relationship, so when my partner, who lives in a small town in New York, comes to Houston where there’s an array of restaurants, that’s when we tend to eat out.

13:58 Emily: $200 a month on groceries sounds pretty low to me, actually, for one person. Are there any particular strategies that you use around grocery shopping, or around cooking, that you’d like to share?

14:11 Allie: It helps that I do live in a major urban area, so I’ll usually check out the mailer on Aldi deals and I’ll go shop at Aldi and then I’ll check out the same for Kroger and I’ll make a trip there and they’re within 10 minutes, which is convenient.

14:28 Emily: Love that your using Aldi. I used to shop at Aldi when I lived in Durham. I don’t have one close to me now, but if anyone in the audience is near an Aldi and has not checked it out, you really owe it to yourself. You won’t necessarily get all your grocery shopping done there, but you can get a lot of your staples and the prices are amazing. It’s a different kind of shopping experience. I prefer it to the standard grocery store. And Allie, how do you manage cooking as a graduate student and also as someone who’s doing all this house-sitting. If you’re not in your home a lot of the time, how do you manage that?

15:03 Allie: I do usually meal prep. Not to an extreme where my freezer is stocked full, but I’ll usually have at least half of the meals I need for the week done on Sunday. So that for the rest of the meals I can take a little more time or enjoy cooking a little more. Or sometimes it’s just a very quick canned soup kind of night.

15:28 Emily: I presume you bring your lunch with you virtually every day and then you would also be packing food when you’re going on job somewhere?

15:39 Allie: A lot of my friends do buy food almost every day in the cafeteria. I can’t imagine how much more that would cost.

15:50 Emily: Do you eat lunch with other people or do you eat by yourself?

15:54 Allie: I’m not in the immunology program, but the first year immunology students have adopted me into their friend-circle, so I usually try to catch up and eat lunch with them now that we don’t have classes together.

16:06 Emily: I think that’s one of the wonderful things about being on a campus is that it’s totally fine to bring your lunch into cafeterias or whatnot, public-ish eating spaces, and it’s not a weird thing to do. It’s not like you’re paying to have access to that space with the food that you buy. It’s great that you can be social and bring your lunch every day. I wanted hear a tiny bit more about meal prep, maybe just the resources that you use to learn about that?

16:35 Allie: I’m subscribed to a lot of subreddits that have recipes, Eat Cheap and Healthy and Meal Prep Sunday and that give some loose inspiration for recipes that all then go search for myself.

Commercial

16:53 Emily: Emily here for a brief interlude. Through my business, I provide seminars and webinars on personal finance for graduate students, postdocs and other early career PhDs, for universities, institutes and conferences, associations, etc. I offer seminars that cover a wide range of personal finance topics and others that take a deep dive into the financial topics that matter most to PhDs, like taxes, investing, career transitions and frugality. If you’re interested in having me speak to your group or recommending me to a potential host, you can find more information and ways to contact me at PFforPhDs.com/speaking. That’s p f f o r p h d s.com/speaking. Now back to the interview.

#5 Expense

17:41 Emily: All right then, your fifth expense in your budget?

17:44 Allie: That last expense that has not gotten much love recently is typically travel. That’s a secondary savings account where I throw whatever extra I have that I have decided not to put toward my student loans that month into a designated savings account for travel. That way when I find a cheap flight, I can go ahead and book it and I don’t have worry about whether I can afford it that month.

18:12 Emily: It sounds like it varies, but what would you say average you’re putting into that savings account?

18:19 Allie: On average it’s about $200.

18:23 Emily: Tell me a little bit more about how you’re managing the long distance relationship with respect to the money and the travel components of it beause I know this is a really common thing in the PhD population. How does it work for you?

18:36 Allie: What we do is we split our flights 50/50 pretty much every time and those tend to be between $300 and $500 because it is a pretty small airport that I’m flying into. Unfortunately, he is in law school and collecting student loans at 9% interest, so while we do split 50/50, kind of as the agreement because we’re not married yet, I try to be mindful and foot some of the bill if I can and have a lot of extra.

19:18 Emily: Do you find that you are traveling about at the same frequency to see one another or does one of you travel more?

19:24 Allie: It’s varied, just on convenience for whichever one of us has the time. At Baylor, we have a week break between terms in the first year that we take classes, so it made more sense for me to go see him for a couple of those breaks. Then of course he had a fall break and spring break, so he came to see me for that. It was more circumstantial than it was just trying to keep it even on who had to travel.

20:00 Emily: I almost forgot that classes were involved with being a PhD student because that will not be the case for much of your degree, but presumably he’ll have classes that he has to attend the entire time. Do you see that changing up at all once you’re free from that aspect of your scheduling?

20:20 Allie: Good point. We finish classes in a year at Baylor so I’m done, which means I will probably be taking more time to go see him. He tends not to have classes on Fridays in law school, so it’s more likely that I make a Thursday night trip to go see him.

20:38 Emily: Are you able to work remotely when you travel or are you still considering one of those days a work day?

20:45 Allie: I have not talked depth with my PI about any kind of specific arrangement, but I do have a pretty heavy computational component to my research, so that would probably make it easier.

20:58 Emily: Yeah, it’s really nice to have that flexibility. I remember much of my PhD having to go in and feed cells on weekends and that it makes travel a little bit difficult. You have to really plan long-term to be able to be away from more than a couple of days. Have you started using any kinds of travel hacking strategies or travel rewards strategies since you are taking the same kinds of flights pretty frequently?

Travel Hacking and Strategies

21:25 Allie: First of all, your best friend is Google Flights. It’ll help you track prices so you can decide when is the best time to buy your tickets and it’ll send you email notifications and it’s been really helpful. We tend to just fly the cheapest airlines that will fly between us, which includes three different airlines, so I have not gotten a co-branded credit card, but I have used points and cash back from credit cards. Right now, I have a Chase card that gives me 2% back on all travel and the points can be redeemed usually at a higher value than just simple cashback. That’s what we’ve been using to book flights, when we can, through their travel portal. The signup bonuses have also been really helpful in getting us a couple free flights back and forth.

22:22 Emily: That’s excellent. The Chase card that you’re using, or maybe in general, do you use cards that have an annual fee or always ones that don’t?

22:31 Allie: That is my only card that has an annual fee actually, and I mostly got that card for the signup bonus. A lot of them you can do the first year with no annual fee, so I’ll have to decide at the end of the year whether that annual fee will be worth it for next year.

22:49 Emily: Thanks for sharing those strategies. I did not really get into travel hacking when I was in graduate school because living in Durham and flying to lots of different parts of the country, I was always taking different airlines, so at that time I was kind of like, “Well, it doesn’t really make sense. I’m never loyal to one airline.” I didn’t get a co-branded card at that time. Now that I live in Seattle, I fly Alaska so much because it’s a hub, so at this point, for my specific situation, it makes a lot more sense to get that card and just take the strategy a whole different way. I’m really glad to hear that you found a solution that’s working for you, even though you aren’t loyal to one airline, and using those general rewards cards that work across any type of travel is an excellent way to do that, so thank you so much for sharing that with us.

23:34 Allie: Still make a frequent flyer account for any airline that you’re going to fly on, because if you fly on it again, you might collect enough points to do something with it.

23:45 Emily: Great point.

What are your top financial goals?

23:46 Emily: Okay, so that was your, your top five expenses. Let’s then switch to talking about your financial goals, if you have any. We’ve already talked about paying above the minimum payment on those student loans, so that’s awesome that you’re doing that. Are you working on any other financial goals?

Maxing out Roth IRA

24:02 Allie: I’m also at the moment maxing out my Roth IRA for retirement, so that’s $500 a month since the maximum contribution is now $6,000 a year. I decided not to dip into that goal for these medical expenses that have come up because my student loan interest is only 4% and generally that’s kind of the breaking point on when you’re likely to beat the market and a non-taxable account versus paying down debt.

24:34 Emily: Thanks for that insight. I really love that now in 2019 we have that $6,000 limit on the IRA because it makes the math so much easier. It’s $500 every month. I don’t know if you think about things this way, but are your Roth IRA contributions coming from your stipend, or are they coming from your side hustle income?

24:55 Allie: So I do track my budget on Mint, but I’ve also been putting it into a spreadsheet so I can plan ahead because Mint won’t let you plan for next month. I put my money in one big pot, but because my IRA is something that I would not stop contributing to if I didn’t have Rover income, I’d probably say it comes from my stipend.

25:22 Emily: That makes sense. In terms of your priorities, maxing out your IRA comes before paying off your student loans and so you’re using a side hustle income really for the student loans and the contribution to the IRA as the more stable, constant goal that you have. Well, I think that’s just fantastic that you’re able to and that you’re choosing to max out that IRA. I’m so excited for you.

Emily: If anyone is thinking about doing an IRA during grad school, I’ll link in the show notes, a post that I’ve done about how much of a difference to your net worth doing that IRA during graduate school will make. Top line numbers, you can read more about it in the post, is that if you contribute $250 per month during grad school for five years, and we make some assumptions about your rate of return, if you look out 50 years from when you finish, you will be solidly into retirement at that point, that contribution just during graduate school turns into $1 million based on these compound interest calculations. You contributing $500 a month, if you do that for five years, we’re looking at $2 million, 50 years out from graduate school. Again making certain assumptions, but that’s the kind of scale that we’re talking about for making room for this within your stipend and your budget and so forth. I’m really excited for you, Allie, and what the future holds for your finances.

Targeted Savings Accounts

26:52 Emily: Any other goals that you want to discuss now?

26:55 Allie: Other than that student loan, which is kind of on the back burner, I’ve hit my emergency fund goal and some other savings goals. I do have separate designated savings accounts for my cat in case of medical expenses and for my car, just for repairing and eventually in like five or six years, probably buying a new car.

27:23 Emily: It sounds like you’re employing what I call the targeted savings accounts model or sinking funds model, which is excellent. I really love that for graduate students to help them through the months where one, two, three large expenses hit and your normal cash flow can’t handle that. I’m really glad to hear about that.

What are your top financial tips for your peers?

27:41 Emily: So let’s wrap up here, Allie, with your best advice for your peers.

27:46 Allie: One big thing is keeping some extra money in that checking account. This will allow you to automate everything. What I did is I contributed to my emergency savings until I had some extra and then I just pulled that back into the checking account. That way I had $500 buffer so that on first of the month I can always pay my rent, so that I set those credit cards to auto pay, so that I set my targeted savings accounts to auto withdraw, and the same for my retirement and my student loans. It just makes me worry so much less. Then my second tip is for those with a side gig, if you can, push the income you get from that side gig into next month’s budget. For a little while, I was taking the $50 I made last week and including it in this month’s budget, which made for really erratic budgeting and also made me more likely to put that $50 toward something I want to do instead of a savings goal.

28:49 Emily: I think those two pieces of advice are really excellent and I’ll just expound on them a little bit more. The basic concept that you’re talking about, with pushing your income forward into next month, is what I call being on time with your budget. I recently read the book You Need a Budget*. So there’s a budgeting software, You Need a Budget, and there’s an associated book called You Need a Budget. What they call it is aging your money. What this means is basically in the course of a month, whatever paychecks you receive, those go towards funding your next month’s budget.

[* This is an affiliate link. Thank you for supporting PF for PhDs!]

Emily: A lot of people play a game, especially people who are paid bi-monthly or bi-weekly, where the paycheck they receive is immediately going to pay for expenses — so it’s like first paycheck of the month pays for these immediate expenses, second paycheck of the month pays for the bills I’ve time to be in the second part of the month. Instead, to give yourself a little bit more margin, a little bit more space and calm, take all the income you make in a given month, and say that’s funding my next month’s budget.

Emily: That’s exactly what you’re doing with your side hustle income, so you’re not turning around and spending the money you make the next week, you’re saving it for the next month. I think that’s really smart, especially for what you just said. When you put off spending the money until the new budgeting period, you can have some more time for reflection and planning and making sure that you’re using the money in the way that you think is best and not something more impulsively. I actually think that it’s somewhat easy for graduate students, if they’re paid monthly, to do this. Are you paid on a monthly schedule?

30:21 Allie: We’re paid biweekly.

30:23 Emily: If you haven’t already done this, my suggestion would be to age that second paycheck or the first one, I guess to be for that next month. It’s a very challenging thing to do, especially for someone who has really, really tight cashflow because essentially you’re saving up half your month’s salary to be delayed until using it the next month. It’s a very, very challenging thing to do, but a really excellent one and again, I really admire the “You Need a Budget” framework for calling that out as ageing your money and they have a specific tool within the software that helps the user do that. So thanks for those two pieces of advice.

31:06 Emily: Allie, thank you so much for breaking down your budget with us today and giving us this wonderful insight and wonderful advice and best of luck to you with your finances and the upcoming year.

31:16 Allie: Yeah, absolutely.

Outtro

31:19 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 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 do so 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 archive and it’s shared under CC by NC.

This NDSEG Fellow Prioritizes Housing and Saving for Mid- and Long-Term Goals

by

In this episode, Emily interviews Lourdes Bobbio, a graduate student in materials science at Penn State and NDSEG fellow. Lourdes breaks down the top five expenses in her budget: housing, food, taxes, utilities, and subscription services. She explains the financials systems she has put in place to reach financial success during her PhD: targeted savings, automated transfers, quarterly estimated tax, high-yield savings accounts, and taxable retirement investments with a roboadvisor. Lourdes has decided to prioritize her housing within her budget, but still balances that expense with plenty of saving for her future wedding and retirement.

Links mentioned in episode

NDSEG fellow budget goals

Teaser

Lourdes (00:00): Being able to pull some money from my fun fund instead of from my budget for the month is kind of nice because I can still have a nice experience but not have to worry about that taking away from like going out to dinner with my friends or going on a date night with my boyfriend or something like that.

Introduction

Emily (00:20): Welcome to the personal finance for PhDs podcast, a Higher Education in Personal Finance. I’m your host, Emily Roberts. This is season three, episode 11, and today my guest is Lourdes Bobbio, a graduate student in material science at Penn State and NDSEG fellow. In this budget breakdown, Lourdes lists her top five expenses, details her financial goals and their underlying systems, and gives her best financial advice for her peers. She shares with us how she has successfully navigated the challenges of quarterly estimated tax, irregular expenses, and her lack of IRA access. You won’t want to miss her concluding insight into the psychological benefits of budgeting. Without further ado, here’s my interview with Lourdes Bobbio.

Please Introduce Yourself

Emily (01:07): Thank you for joining me on the podcast today. My guest is Lourdes Bobbio, who is a grad student at Penn State University, and I’m just delighted to hear her budget breakdown today. So we’re gonna dive into that right now. Uh, Lourdes, would you please introduce yourself a little bit further to the audience?

Lourdes (01:24): Sure. Uh, thanks again for having me, Emily. I’m really excited to talk with you about my finances as a grad student. Um, so like you mentioned, I am currently a fourth year grad student at Penn State University, which is located in State College, Pennsylvania. Um, and I am in the material science and engineering department at Penn State.

Emily (01:45): Yeah. Excellent. Are you single? Your household is just you?

Lourdes (01:48): Yes, I currently live alone by myself, so.

What is your income?

Emily (01:51): Okay, excellent. Just wanna get that structure upfront there. Um, so with the budget breakdown episode, I’m basically gonna ask three super high level questions and we’re just gonna dive into those and see where it takes us. And the first one is, what is your income?

Lourdes (02:08): Um, so I am currently on the National Defense Science and Engineering graduate Fellowship, so I make $38,400 a year, which breaks down to $3,200 a month. Um, so yeah.

Emily (02:23): Yeah, very nice income for our grad student and congratulations on winning that, winning that fellowship. That’s excellent, okay, so that’s your income. Um, I imagine it goes pretty far in state college.

Lourdes (02:35): Yes, it does.

What are your five largest expenses each month?

Emily (02:37): So yeah. So tell us about your five largest expenses, what you’re paying for each one of those so that anyone else can get some, you know, local insight.

#1 Expense: Rent

Lourdes (02:45): Yeah, so yeah, like you mentioned, state College is a college town, so the cost of living is fairly low compared to any of like the major big cities. Um, I grew up in near Washington, DC and then went to my undergrad in Boston, so I’m kind of was very accustomed to the more high cost of living, so coming here was definitely a big change. Um, um, so for my five largest expenses, I would say my top one is definitely rent. Um, I live in the downtown area of state college, so I pay a little bit more in rent and I also live on my own, um, with no roommates. And so that’s something that another sort of factor that factors into the higher cost of rent. And um, it’s something that I determined that I valued a lot. I valued being close to campus, being able to walk, um, to work every day, um, being close to like the restaurants and stuff like that. And then also being able to live on my own. Um, and so one of the reasons why I did choose to live closer to campus is because I don’t have a car, so I actually don’t have any car payment or insurance that I have to spend money on. So sort of the money that I would normally spend on that, I sort of put it into the, my sort of rent budget category. 

Emily (04:05): Yeah, that makes a lot of sense to me. Um, so first living near DC and then Boston. Have you ever owned a car?

Lourdes (04:12): No, I have never owned a car.

Emily (04:14): Okay. So this is a kind of a natural choice for you to say, okay, I’m moving to state college, I don’t currently have a car. You know, did you ask yourself, how can I set up my life so that I don’t need a car? Is this a common thing for grad students not to have a car?

Lourdes (04:27): No. I would say a majority of the grad students do have cars here. Um, I don’t think it makes it a little bit easier. Um, just in terms of, since state college, if more, if you wanna get out of state college, I would say because state college is small, there is sort of a limited amount of stuff to do that’s within walking distance and within the public transportation sort of, um, area. Um, so if you wanna sort of go away for the weekend or something, then having a car is a lot more useful. Um, but I have never had a car, so I didn’t feel the need to get one. And there’s an abundance of housing close by to campus and like I mentioned, there is a fairly good bus system, um, throughout the local area, um, that I can use if need be. So

Emily (05:15): Yeah. Um, a couple more specifics about the place that you live and did I catch, did you say the amount of money that you’re spending on rent?

Lourdes (05:22): No. Um, so I spend about $1,500 on rent a month. So it’s definitely the higher.

Emily (05:28): Sounds a little high to me. <laugh>.

Lourdes (05:29): Yeah, it’s definitely on the higher end. The apartment I currently live in, um, is a one bedroom with like, it’s called an office space, so it’s like a smaller, can be a second bedroom. And there have been times when I’ve contemplated maybe getting a roommate, but I really value having that sort of space of my own. And, um, so the reason that, um, this sort of came about is because when I first got here, so the way, because this is a college town, it runs very much on the school schedule. So as a grad student, sometimes when you get accepted and then finally learn about like, you know, finding housing and such, the big cycle of finding apartments is kind of over like, that really happens in like October, November, December. And so when you’re figuring out your grad school decision, that’s more in the spring.

Lourdes (06:19): And so there was, when I was first looking at a place to live, there was sort of a limited number of like, number of places downtown that I could live. And since I wasn’t gonna be bringing a car, that’s something that was important to me. And so, um, I did find this place. I’ve lived in the same place for my whole time in grad school. Um, and so for the first year when I wasn’t on a fellowship, my parents actually were helping me out a little bit, paying for rent. Um, and they also lived close by, um, in the DC area, so they would come to visit a lot and they liked having that sort of like that second office space bedroom to be able to stay over. Um, and then when I did get my fellowship, I sort of evaluated, um, that also came at a time for my parents when they were no longer gonna be able to help me just because of some of their own personal finance issues. And so, um, I sort of had to evaluate whether or not I wanted to move or not, and I sort of decided I liked where I was and with my fellowship I could afford it. Um, so I decided to stay where I was.

Emily (07:24): Yeah, definitely your decision making process makes sense to me. And the thing is that if you hadn’t won that fellowship, I mean, I think you would’ve had to move, right? Like it’s compared to a, you know, base sort of stipend. Yeah, it is quite high, but hey, you won it and it’s working out and you can afford it. Um, that’s, yeah, that sounds lovely. And so the reason I’m asking a little bit more about the transportation issues, um, is, is because it’s really sometimes the trade off makes sense to not own a car and then to to pay more in rent, um, but to have the proximity and to have the access to public transit and all of that stuff. So, um, I’m sort of lumping together your, like what we would talk about under transportation, under like the housing stuff. So one more question about that is, you know, you mentioned it’s, it’s easy enough to get around town. Um, what do you do about getting out of town? Like, do you not go or do you only travel with other people or do you rent a car or like, how does that work?

Lourdes (08:21): Um, so I have a, uh, long-term boyfriend. We’ve been dating for a couple of years, so usually when I go anywhere, we go together and he has a car. Um, so that’s usually how that works out. Or sometimes with friends, uh, I would say maybe half of my friends have a car, so we’ll plan group trips together and go places I hardly ever go anywhere just on my own. Um, so

#2 Expense: Taxes

Emily (08:43): Yeah. That makes sense. Um, okay, so let’s move on to your second largest expense.

Lourdes (08:50): Yeah, so for that I would say sort of, I’m not sure if I categorize it as an expense necessarily, but um, because I’m on a fellowship, um, that doesn’t take taxes out, I sort of charge myself the taxes that I would have to pay on my fellowship at the end of the tax year. Um, and so that’s sort of one of the next biggest expenses on my list of expenses and something that I take into account at the beginning of the month when I get paid, I make sure to take out that money right away and set it aside in a savings account so that when I do have to make those quarterly estimated payments, um, I have that money set aside, I don’t have to worry about trying to scrounge it out from somewhere. So,

Emily (09:27): So you just mentioned several really important things, right there for, um, fellowship recipients to consider. So first, uh, PSA <laugh>, if you’re receiving a fellowship, it’s fairly likely that your university is not withholding tax on your behalf. Mo- vast, vast majority of universities work that way. So you are withholding tax essentially for yourself instead of relying on your employer who is not your employer, um, to do that for you. So awesome system. Can you tell me a little bit more about how, you know, mechanically you actually do that? Logistically?

Lourdes (10:01): Yeah. So, um, do you mean in terms of calculating or actually set, setting aside the money? Okay. Yeah. So when I first got my fellowship and sort of realized that no taxes were gonna be withheld, I sort of had to go through the whole process of, um, I think it’s the 1040, um, es worksheet to, uh, where you input your income and it sort of takes you through the steps of sort of figuring out how much you’re gonna owe at the end of the year. And so, um, I did that and got the total amount that I would owe. And then since I also read that you would be paying these quarterly, um, divided by four, or I guess I divided the whole thing by 12, um, and then would set aside that amount of money per month. And so the way I do this and the way I do all my budgeting is on a spreadsheet.

Lourdes (10:58): Um, and so I have this budgeting spreadsheet, um, that has the entire year sort of planned out for me. So I do like a 12 month, um, overview of the year where I plan. And since I know how much I’m gonna make every month, it’s very steady. Um, I have that amount sort of as the top line, and then from there I take out taxes and then any my savings and then utilities, those types of, um, bills, um, that I know I’m gonna have to pay. And then, um, sort of from there calculate how much leftover spending money I have. But that’s effectively, so I calculated how much I would have to pay, um, each month if I were getting with like basically how much I had to pay the whole year divided by 12, and then put that into my budget spreadsheet to calculate, and then I set it aside in a high yield savings account so I can, can earn a little money off of that, um, until I have to pay it each quarter, um, to the irs. So

Emily (11:59): Yeah, I just, that’s just a perfect embodiment of, of how to handle this, the, the way that, that I think is the best way too. So I’m glad we both came to the same conclusion there. I mean, from, I’ll just review a couple things. So one, you figured out what your quarterly estimate tax would be by using Form 1040-ES, which is, um, for those of you who don’t know, it’s not something you ever have to submit to the federal government, but it just helps you figure out how much the IRS does expect you to pay throughout the year. Um, if anyone needs extra help with that, I do have a workshop on it that’s available year round, and so I’ll link that in the show notes. Um, so you use that to figure out how much you need to set aside every single month, and it’s just, it’s just another line item in your budget as you were describing.

Emily (12:42): Yep. And you have, I I would expect an automated transfer set up, um, like after you’re paid, it automatically transfers to a separate, as you said, high yield savings account. Yeah. And sort of the, the upside to paying your own quarterly estimated tax is that you do get to build it up for a few months before you send it into the IRS, uh, compared to the timing of, you know, withholding. And so, hey, you get, you know, month two, three extra of that little, you know, 2%, you know, interest rate or whatever you get on your savings account. So, um, I love that idea. Do you mind sharing who you bank with to find that high yield savings account?

Lourdes (13:16): Yeah, so, um, I bank with Discover Online Bank. I also have a credit card with them, so it kind of makes it easy. Um, and then I’m also, so that’s sort of where I put a lot of my long-term savings. And then I have a, uh, checking account with just a local credit union. Um, and that also has a savings account that has a little bit more of my, my short term savings goals, um, which I think I’ll talk about a little bit later.

#3 Expense: Food

Emily (13:39): Yeah, sounds perfect. Um, okay. Ready to move on to the next item?

Lourdes (13:43): Yeah. Um, so next item would definitely be food. Um, both groceries and going out to eat. Um, I definitely spend more on going out to eat than I would like, but I don’t necessarily feel bad about it because I generally budget for it and I know how much I can spend, so I don’t, it usually evens out in that the amount of, if I’m not buying groceries every week and going out, it’s a little bit more than I wouldn’t spend if I were buying groceries. But because it’s sort of budgeted into my overall budget, I don’t necessarily feel guilty about going out to eat.

Emily (14:19): I, I really love that I also experienced that same like, sort of psychological side effect of budgeting, which is before I kept a budget, I would maybe feel some guilt about discretionary spending, going out, making, you know, going shopping, things like that because I didn’t really have a good idea about how we would fit into my overall, you know, cash flow. And I’d be like, okay, well did I just like overdraw myself for like the end of the month? So budgeting really for me ended up being, um, a freeing exercise and something

Lourdes (14:50): I agree.

Emily (14:51): Not experience guilt anymore because as long as I knew it was in balance and I stayed within the budgeted amounts, I didn’t have to feel guilty anymore about the discretionary spending. So I’m really, really glad you mentioned that.

Lourdes (15:01): Yeah, and for me it’s also like a way, um, to get together with my friends. Generally at the end of the week we’ll go out to eat or go out for drinks and it’s just a way to unwind, um, with, and like a way to socialize. So again, it’s something that I definitely, I value, I place importance on that, so

Emily (15:21): Yeah, absolutely. Did you tell us the amount, the amount you spend on food?

Lourdes (15:24): Yeah, so I usually spend about $200 a month on food between groceries and going out to eat. Um, maybe 200 to 300 depending on the month,

#4 and #5 Expense: Utilities and Subscription Services

Emily (15:35): So. Yeah, it seems pretty reasonable even with a healthy, you know, eating out, uh, budget in there. Uh, okay, so what’s the fourth expense?

Lourdes (15:43): Uh, so honestly, aside from those major expenses, I don’t really have, oh, utilities obviously, um, utilities and, um, subscription services. Um, I’ve recently cut down a little bit on my subscription services, um, just because, um, I realized that there were some that I wasn’t using utilizing nearly as much as um, I could. And so I’ve cut them out, but I spend usually about, um, 30 to $40 on electricity, um, per month. And I have it budgeted as $40 because that’s usually the highest it ever goes. It’s usually in the thirties range. And then my subscription services, I think amount to about $25 a month, um, between Netflix, Spotify, the typical ones you’d expect. <laugh>,

Emily (16:34): Um, yeah, I was just gonna say what made the cut. Okay, so Netflix, Spotify, anything else?

Lourdes (16:38): Um, audible actually made the cut. It was one of the higher ones and I realized that I, I love to read and audio books for me are a great way to, um, be able to read while doing lab work very easily. Um, but I realized I was accumulating five, six credits that I just wouldn’t spend. So that’s almost, uh, it’s about $15 a month and I was like, I’m clearly not using this. I realized that sort of every year at the beginning of the year, I sort of evaluate my budget again, and that’s when I decided that I’m clearly not using this. I haven’t used it for the last six months, it’s, it’s gotta go. So, um, that helped cut that, cut that down a little bit. Um, so yeah.

Emily (17:20): Yeah. I just love that you mentioned that you do have a periodic reevaluation of your expenses. Um, and, and even, you know, earlier when you mentioned, you know, your rent, like after your first year of graduate school, you reevaluate and said, okay, is it worth being here? I mean, whether or not you decide, yes, it’s worth it or no, it’s not, it’s the reevaluation that’s so valuable and needs to happen over and over again. Just make sure that you’re still happy with your situation in every, every which way. So I’m glad that you, you know, sort of have it in your, in your calendar, in your mind, um, to happen every single year. So that’s awesome. Um, yeah. So is, is that all the five expenses? I think we got through them, right? 

Lourdes (17:57): Yeah, so, um, I’m lucky that my apartment complex actually has internet and cable included. Um, and so I don’t have to pay for those. I probably wouldn’t have paid for cable anyway, just ’cause I don’t watch that much tv. Um, but it is nice to have the internet included ’cause that can get pricey. Um, especially since here there’s really not, there’s two major internet companies and not much competition, so it gets pretty pricey. Um, so it’s nice to have that included.

Emily (18:27): Yeah, good to know that that is included in that rent. So it, it sounded high at the, at first, but then, you know, breaking it down, it definitely makes, uh, more and more sense.

Commercial

Emily (18:38): This summer I’m putting forth extra support for PhDs undergoing career transitions into grad school, a postdoc or a real job. If you’re moving on to the next stage in your career or thinking about it, please visit pfforphds.com/next to check out my articles, webinars, and coaching program allow me to come alongside you during this transition to ensure that you set yourself up for financial success.

What are you currently doing to further your financial goals?

Emily (19:08): Okay. So we’ve talked about your spending. Um, let’s talk about financial goals.

Lourdes (19:13): Yeah. Um, so I have short-term, midterm and long-term goals and, um, the way I sort of, um, break these down, um, I have sort of two different savings accounts that I use to break these down. Um, so I have a savings account that’s with my credit union, um, that’s connected to my checking account. So I put a lot of the money that I save for my short term goals in there, and then my more midterm and long-term goals go into the high yield savings accounts. And so, for example, some of my short-term goals, um, I have, uh, just a general travel fund since I don’t have a car. If I wanna go home, um, to visit my parents, I take a bus that takes me straight to DC um, but I save up some money, especially near the holidays, it can get kind of pricey. So sort of saving up throughout the year for that. Um, I put maybe like $15, $20 a month towards that fund. Um, and then I have a, um, gift fund as well. So, um, mainly for Christmas, but also for any gifts that come up come up throughout the year. Um, definitely getting to the age where I get invited to weddings quite frequently, so having that sort of there means I don’t have to dip into my just general daily monthly budget and can have a separate fund for that. Um, and then I have what I call a fun fund, which is for more higher price fun experiences. So we have a lot of times Broadway shows come through, um, state college, um, and, um, those are usually a little bit more expensive. They’re like 60 to $70. So being able to pull some money from my fun fund instead of, um, from my budget for the month is kind of nice because I can still, um, go to have a nice experience but not have to worry about that taking away from like going out to dinner with my friends or going on a date night with my boyfriend or something like that. Um, and also most recently, um, I also really like to bake. And so I saw a deal online, it was like a one day deal for a hundred dollars on a KitchenAid mixer, which is a pretty good steal in my opinion. Um, ’cause I’ve been like, I’ve seen the prices for those, they can range like three, $400. So I was able to sort of buy that and take advantage of that deal without sort of having it impact my whole budget. Um, so that’s sort of what my fund fund is for. And those are some of sort of my short term financial goals, I suppose. 

Emily (21:47): Yeah, let’s, I I just wanna say, you know, I, I love this system. Um, I talk about it frequently. I call it, um, a system of targeted savings accounts. Another term is sinking funds. That’s more of an accounting kind of term. Um, but yeah, the idea is just, uh, projecting as best you’re able, what your expenses are going to be irregularly, right? So something that comes up once a year, a couple times a year, um, and starting to save up in advance for those different categories. And it sounds like you’ve both, like you’re, you both have expenses that you can pretty well anticipate, like you mentioned travel, okay, it’s gonna happen around the holidays. I know approximately what amount it’s going to be in. You can save up for that pretty easily, but it also sounds like you have, um, with your fun fund <laugh>, that’s a little bit hard to say with your fun fund. Um, you have like, okay, it’s, it’s just something that you have the money there, there’s a certain amount of it that you’re saving every single month. And it’s more like as opportunities come up and you’re like, yeah, I wanna do that, this is the fund that you can draw on. Um, so again, it’s not impacting your monthly cashflow, it’s not necessarily something you’ve planned out, but it just is something that allows you to capitalize on opportunities when you see them. Like when you saw this sale for something, you’ve been thinking about buying for some time and tracking the prices for. So I really love that you have both like a, a proactive, like predictive element of this as well as a reactive like, okay, I know there’s just gonna be things that I wanna do, so let’s plan. I don’t know what it’s gonna be, but I’ll be able to do it, you know, when you see it, right?

Lourdes (23:14): Yeah, exactly.

Emily (23:15): So let’s talk about those, um, mid and long-term saving goals now.

Lourdes (23:19): Yeah, so some of those, um, so my boyfriend and I, we’ve been together for about three and a half years. And so, um, he already graduated from grad school this past, um, just this past week actually.

Emily (23:33): Oh, Congratulations to him.

Lourdes (23:35): Yeah, and I’ll be graduating in a year. So we’re thinking about, um, getting married soon and so sort of planning for a little bit ahead for a wedding since I know those can get quite expensive. Um, just putting away like a a hundred, a couple hundred dollars a month, um, towards that. And then also more long term a house is something that I definitely would like to purchase in the future. Um, this is definitely, like I said long term, um, but putting a little bit of money away each month for that and just seeing that sort of fund grow. Um, I really like having that. I have a little tracker in Excel, just a little graph that, uh, like you can see it sort of grow and it’s nice to see that and sort of gives me a goal to work for in the future, just like continually working and not having to worry about it, like when it becomes a shorter term goal.

Lourdes (24:23): And so those are some of sort of like my mid and long-term goals also, um, because I am on a fellowship, I have to pay out of pocket for my health insurance. Um, and while my fellowship does reimburse it somewhat, um, it’s not as much as if I were a regular like on a, uh, research assistantship. Um, and so it’s still quite expensive, but obviously very important. This is actually something that just, um, came up in terms of like my financial life last August because I was gonna be, um, taken off my parents’ health insurance and so I needed to sort of figure that out. And, um, thankfully at the time, I have an emergency fund as well, aside from these sort of sinking funds, um, I have an emergency fund of about, uh, $12,000, um, just set aside. And so I was able to pay for my health insurance no problem.

Lourdes (25:19): And there was some issue in getting reimbursed by my health insurance, um, which could have been an issue if I hadn’t, like if it was money that I needed to live on, but thankfully it was just money that I had set aside for this exact purpose where it’s something that I hadn’t exactly planned and hadn’t really thought of, um, but was able to pay for. And so, um, now knowing that and knowing I’m gonna have to pay for my health insurance in this upcoming August is when we have to renew it. Um, I’ve been saving aside money for that every month as well, so I can pay for that. So.

Do you have long term goals?

Emily (25:55): Yeah, what a perfect use of an emergency fund. Um, I, I kind of, I thought about what exactly is the definition of an emergency, you know, before, and to me an emergency is something that is both totally necessary, a necessary expense and also, um, unanticipated. So you knew you were gonna come off your parents’ insurance, but you did not know I would imagine what the premium was gonna be and that there were gonna be these issues with the reimbursements and so forth. So, and of course it’s a necessary expense has to be paid on time, you can’t mess around with that. So it’s just wonderful that you have that, um, fund already available for you. So do you have any other long-term goals?

Lourdes (26:31): Yeah, so I actually am also currently saving for retirement. Um, and so I was able to for one year max out my Roth IRA, um, before I, I was on my uh, fellowship. Um, but since then and since at that point I learned that I was no longer eligible to contribute to my Roth ira, I have been investing in just a general taxable brokerage account. Um, and I haven’t been contributing as, um, much as I would’ve probably to my Roth IRA just because I know that is tax deferred, but I still do try to put in a hundred or $200 a month into that, um, as sort of a very long-term goal and to try to keep that investment going even though I don’t have the tax advantage vehicle of the Roth IRA.

Emily (27:21): Yeah. So just to expand on that for another moment because this is something that, you know, I get plenty of questions about. Um, so first of all, your eligibility for an IRA depends on you having what’s called taxable compensation or earned income, which in terms of grad student pay means W2 pay, which is usually termed as an assistantship, uh, TA, RA. So you having the NDSEG fellowship, um, doesn’t count as taxable compensation or earned income. Now at that point, a lot of people who I talk with, um, throw out their hands and say, oh, well I have this higher income, I don’t have access to an IRA, I guess I won’t say for retirement. And obviously as someone who’s very, very pro investing and especially for retirement and especially at a young, as young and age as possible, um, I’m like, no, no, no. Like you can, you can go ahead, it, it can’t be inside an IRA, but you can still do it. And so I’d really love for you to talk a little bit more about how you, um, came to this understanding and found, you know, the, the way that you’re, you know, you’re using a tax taxable brokerage account, but a lot of people don’t even know what that is. So like how did you find out about this and how did you decide you know, where to open and so forth?

Lourdes (28:33): Yeah, so when I was sort of, when I got my fellowship and when I sort of learned about all the implications of that in terms of like taxes and um, investing for retirement, that’s when I also learned that um, I would have, if I wanted to invest it would have to be in a taxable account. And so I did a lot of research, um, in terms of um, I guess what brokerage I wanted to invest with. And because at the time I didn’t feel very knowledgeable about um, picking funds or ETFs or anything. I had money in a Roth, IRA, um, with Vanguard, they make it easy to have target date accounts, but I wanted to try to see if I could try something else, um, and decided to go with a, a robo-advisor, an online robo-advisor. So I currently invest with uh, Wealthfront and um, have enjoyed the experience so far, um, and just find it a very easy way to get a broad, um, a broad portfolio in terms of the different stocks that I’m invested in.

Lourdes (29:38): They sort of, um, you take a little quiz with a risk assessment and sort of I’m a little bit on the higher end and just because I’m young I know I can have that risk factor, um, and sort of um, went that route. Um, but I did a lot of research in terms of sort of what I felt would be good for me, um, and how much time I was willing to put into it. And I think maybe in the future I might move this money to somewhere with um, lower fees. I currently don’t have to pay any fees because I’m under a certain amount of money, um, which is nice. Um, but if I ever were to continue to um, uh, add money to this account and I went over that uh, threshold, I might decide to move it to somewhere where I would have, I wouldn’t have to pay an advisory fee.

Emily (30:24): Yeah, I’m really glad you you provided that detail because I learned something new. So these roboadvisors, I’ve looked into a few of them. Wealthfront is one of the prominent ones. Um, and people often ask me about using roboadvisors, so I’m really glad that you can speak to this a little bit. Um, and as you said, it’s a really, um, easy solution. You answer a few questions about yourself and they come up with a portfolio recommendation. I do in general think that it’s kind of overkill, especially for someone who is investing inside an IRA, um, and is just going for retirement and sort of a simple thing what you were already doing inside your IRA, but to me it actually makes a lot of sense once you switch to using a taxable investment account that, um, an advisory service with a little bit more of a hands-on approach can do some tax optimization for you.

Emily (31:11): So it actually makes a ton of sense to me. Um, and it’s great news actually that, you know, for now you are not being charged an advisory fee because that is really the main, as I’m sure you learned in your research, the main downside to using a RoboAdvisor or any other sort of slightly more expensive service is the fees. The fees don’t sound like very much, you know, maybe 0.25%, something like that doesn’t sound like a lot, but it adds up quite a lot over time. So it’s really exciting to me that you were, you know, able to do this without a fee. I mean, that’s kind of the best of all the worlds, right? Do you mind sharing what is that ceiling under which they don’t charge the advisory fee?

Lourdes (31:45): Um, I believe it’s $15,000. Um, and then if you refer people it, they will as a bonus, they’ll, um, increase it. I don’t know by how much, um, for each person you refer, but I think that is just the base, um, baseline ceiling for a no fee.

Emily (32:05): Yeah, that is awesome to know. Do you want to share your referral link?

Lourdes (32:11): Um, can I send that to you?

Emily (32:13): Yeah, absolutely. Okay. So we’ll pop that referral link into the show notes and you’ll help Lourdes and you’ll help yourself if you are already interested in wealthfront, Hey, why not? She’s giving you a tip about not having that advisory fee at the lower balances. So win, win, win, I would say all around.

What is your best financial advice that you’d share with your peers?

Emily (32:28): We will just conclude with me asking you what is your best financial advice that you would share with, um, your peers, whether that is another grad student, another fellowship recipient, someone else living in state college, anything along those lines?

Lourdes (32:42): Um, I would definitely say sort of speaking to what you mentioned earlier is not be afraid of having a budget. I know a lot of people think of having a budget or something constricting and something that will make you not like spend, not be able to spend money because you’re, you’re on a budget, but really it’s a very freeing thing, especially as a grad student where you’re on sort of a limited income. Um, being able to see where your money is going and sort of be in control of that, um, definitely makes you feel more free in terms of the things you can do on a day-to-day basis or, um, on even like a longer term. You sort of get this sort of freedom that, um, I think is really valuable and makes finances just seem less scary.

Emily (33:32): I’m in total agreement with you about the benefits, the psychological benefits of budgeting, as well as the actual, uh, financial benefits. So thank you so much for sharing that and uh, for joining us today. I’m really, really glad that you, uh, yeah. That you came on the podcast.

Lourdes (33:46): Yeah, thank you so much for having me. I really enjoyed speaking to you

Outro

Emily (33:50): Listeners. I’m so glad you joined us For today’s 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, a form to volunteer to be interviewed, a survey, and a way to join the mailing list. I’d love for you to check it out and get more involved. See you in the next episode. 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 Jewel Lipps.

What to Do With Your 401(k) or 403(b) When You Start Grad School

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One of the common perks that companies and organizations give to their employees is access to a workplace-based retirement account such as a 401(k) or 403(b). They may even match your contributions to a degree! Unfortunately the great majority of universities do not give their graduate students access to their 403(b)s. (This does happen rarely, so it’s worth inquiring about.) If you had a 401(k) or 403(b) in a prior job, what do you do with that account when you leave your job for grad school?

Further reading: Financial Reasons to Work Before Starting Your PhD

401k grad school

Your Three Options for Your Workplace-Based Retirement Account

In general when you leave a job, you have three options for what to do with your 401(k) or 403(b).

Leave It Where It Is

Most of the time, your former employer will permit you to leave your 401(k) or 403(b) where it is and continue to manage the account for you while you are in grad school. Employers usually have a minimum balance requirement to maintain these accounts, so your account has to meet that bar.

The upside to this approach is that you don’t have to do anything, and if you liked the investment options and account fees, you can keep using it.

The downside to this approach is that you have to stay in some degree of contact with your former employer and go through them if you want to make any changes to the account.

Roll to Your New Workplace-Based Retirement Account

If you have the option to open a 403(b) with your university, you may be able to roll your previous 401(k) or 403(b) into that account. Again, this opportunity is rarely extended to grad students.

Roll to an IRA

You always have the option when you leave a job to roll your 401(k) or 403(b) into an Individual Retirement Arrangement (IRA). An IRA’s tax advantages are similar to those of a workplace-based retirement account, but you manage the account yourself instead of your employer managing it. Be sure that you have instructed your firms to execute a “rollover” directly to your IRA and not to cash out your account and send you a check, which would be a hassle to correct. You can use an existing IRA account or open an IRA account specifically to receive this transfer.

Which Option Should You Choose?

The general personal finance advice is to always roll your 401(k) or 403(b) when you leave an employer to avoid eventually having accounts scattered across many employers and potentially losing track of one. Whether you should roll into your new employer’s 401(k) or 403(b) or your IRA is debated. If you are trying to optimize the investments inside your retirement account, IRAs have an advantage because the entire world of investment options is open to you, whereas the options inside a 401(k) or 403(b) are only what your employer decides to make available. Sometimes, 401(k) or 403(b) plans are more expensive than what you can get inside an IRA, and since cost minimization is a key tenant of successful investing, again IRAs are preferred.

However, this general advice is not necessarily fully applicable to grad students.

First, your options are mostly likely to be either to leave your 401(k) or 403(b) where it is or to roll it into an IRA.

Second, you may not want to manage your own investments. While managing your IRA can be easy and hands-off, it may still be intimidating, and some students might prefer to simply choose among the options offered by the former employer to opening and managing an IRA.

Third, the investments available to an individual investor inside an IRA may not be as attractive as the institutional-level investments available inside a 401(k) or 403(b) in terms of their fees. To paint with an overly broad brush, 401(k) and 403(b) options at smaller companies and organizations may be more expensive than what you can buy inside an IRA, whereas 401(k) and 403(b) options at larger companies and organizations may be less expensive than what you can buy inside an IRA. So if you were employed by a university or a large company before starting grad school, compare the cost (expense ratios) of your current investment options with those at the brokerage firm you’re considering for your IRA. It may turn out that your existing options are more favorable.

Further reading:

My advice to entering grad students is to roll your 401(k) or 403(b) into an IRA unless you have high-quality, inexpensive investment options inside the workplace-based retirement account and do not want to manage your own account.

Other Advice Related to Retirement Saving

You’re on a great path already by starting to invest for retirement through your job. If at all possible, continue to make excellent choices related to retirement investing during grad school.

Contribute Money to Your 401(k) or 403(b) While You Still Can

It’s a great idea to kick your retirement savings rate into an even higher gear in the months you have left at your job. You’re likely to not have access to a 401(k) or 403(b) again for quite a while, so any additional money you can get into that tax-advantaged account will be a huge boon to your post-PhD self. (Plus, you’re forcing yourself to deflate your lifestyle, which you’ll have to do in a few months anyway!)

However, don’t become so zealous about retirement saving that you compromise your cash position. It’s going to take a good amount of cash to transition into grad school between moving costs, start-up expenses, and university fees. You don’t want to put a lot of money inside your 401(k) or 403(b) only to turn to credit cards to make it until your first grad school paycheck.

Keep Investing for Retirement!

Yes, it is sometimes possible to invest for retirement during grad school, but it heavily depends on your stipend, the local cost of living, and the rest of your financial situation. If you have no pressing debt, enough cash savings for emergencies and short-term expenses, and some excess cash flow, please continue to invest for retirement!

Further reading:

If you have W-2 income as a grad student (typically from an assistantship) in a given calendar year, you can contribute to an IRA. If you don’t have IRA eligibility due to receiving only non-W-2 (typically fellowship) income in a given calendar year, don’t let that stop you from investing for retirement! You can still use a taxable brokerage account. Between tax-efficient investments and your low tax bracket, you are likely to still enjoy tax benefits of investing even outside of an IRA.

Further reading:

Consider Traditional to Roth Conversion During Grad School

During your time in grad school, you may be in a lower tax bracket than you were while at your previous job. Grad students, unless married to someone with a much higher income, are usually in the 12% marginal tax bracket at the highest.

If you have any money in a traditional 401(k), 403(b), or IRA (which you certainly would if you ever received a retirement contribution match from your employer), consider converting it from traditional to Roth during your lower-earning grad school years. It’s pretty unlikely that you’ll ever be in the 12% (or lower) tax bracket again after you finish grad school due to both your personal earning potential and today’s rock-bottom income tax rates, so it makes sense to do the conversion at that low tax rate to gain the benefits of a Roth IRA. (People are flocking to do this type of conversion even in much higher tax brackets!)

Further reading: Why the Roth IRA Is the Ideal Long-Term Savings Vehicle for a Grad Student

When you do the conversion, you’ll have to pay income tax on the full balance of your traditional retirement account. Before you start the conversion process, be sure that you 1) have enough cash to pay the tax and 2) are not bumping yourself into a higher tax bracket with that income infusion.

You don’t have to rush to do this in your first full calendar year as a grad student if you’re not ready, but you should do it as early as you can, and keep an eye on that year in which you expect to finish and get a higher-paying job.

This conversion can be slightly complicated if you only want to convert part of your traditional money in any given year, so be sure to discuss your plans with the brokerage firm that houses your IRA.

Conclusion

Great job on contributing to a 401(k) or 403(b) prior to starting grad school! The positive financial habits you’ve already cultivated will serve you well during and after grad school. If you want to take any steps at all with your existing workplace-based retirement account, they are quite straightforward and easily accomplished.

Why You Should Contribute to Last Year’s Roth IRA

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Good news for you investors: The calendar may say 2021, but you can contribute to your 2020 Roth IRA up until Tax Day (May 17, 2021)! Why is this good news? Because you can continue to contribute to your Roth IRA (if you have contribution room) without taking up contribution room in 2021. In this way, you can roll forward some of your contribution room, even over multiple years. This is particularly useful for those of you expecting income increases in 2022 or so.

The IRS’s Retirement Account Contribution Window Extends until Tax Day

Every calendar year from January 1 to December 31, you can contribute to your retirement account for the current year. This applies to IRAs (Roth and traditional), 401(k)s, 403(b)s, etc. You can also contribute to last year’s retirement account in the subsequent calendar year up through Tax Day. You can even open and fund an IRA for the previous year!

Right now, between January 1, 2021 and May 17, 2021 (Tax Day), you have the choice of contributing to your 2020 IRA or your 2021 IRA assuming you are eligible and have contribution room in both years. In fact, you should contribute as much as you can to your prior year IRA before switching over to the current year IRA.

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Eligibility and Contribution Limits

I’m going to clear up the caveats I’ve been making right here.

Eligibility: You need “taxable compensation” in a calendar year to contribute to that year’s IRA. Employee (W-2) and self-employment income are both taxable compensation. Fellowship income, if not reported on a W-2, was not considered taxable compensation in 2019. However, the definition of taxable compensation was changed for 2020 and following to include taxable fellowship and scholarship income for graduate students and postdocs.

Further listening: Fellowship Income Is Now Eligible to Be Contributed to an IRA!

Contribution limit: The contribution limits on IRAs are pretty low, at least in comparison with workplace-based retirement accounts like 403(b)s and 401(k)s. For 2020, you can only contribute a maximum of $6,000 ($7,000 for those over age 50) or the amount of taxable compensation you had in the calendar year, whichever is lower. You do not have to contribute the entire $6,000 in a year; it’s fine to contribute $1,000 or $3,000 or whatever you can. When I say contribution room throughout this post, I mean the difference between your contribution limit, e.g., $6,000, and the amount you’ve already contributed.

Why Is Contributing to an IRA So Important?

You may be asking yourself why I’m writing about Roth IRA contributions in particular. After all, once you’re out of graduate school and actually able to save more money, don’t you have a reasonable expectation of receiving a 401(k) or similar employee benefit?

1) Yes, you probably will work somewhere that provides you with a 403(b) or 401(k) or other type of workplace-based retirement account (or you’ll be self-employed and have self-employment retirement accounts available to you). Exception: Some postdoc positions (and adjunct!) might not offer a 403(b). But you don’t know the future, so I think it’s better to be cautious and roll forward as much contribution room as you can.

2) Even if you have a workplace-based retirement account available to you, the rule of thumb for retirement contribution priority is: workplace up to the match, IRA, then workplace again. This is because you can buy just about any fund you want through any brokerage firm in your IRA, whereas your options in your workplace based account will be severely limited. It is assumed that you can find better quality (read: cheaper) investment options through your IRA, so that should be prioritized. However, you should definitely check out your options through your workplace account before assuming this is true for you; some universities offer good, low-cost institutional investment options that might be even better than what you can buy as an individual.

3) Your workplace might only offer a traditional retirement account, so an IRA will give you the option of using a Roth, which you could take if you think it’s the better choice for you in a given year.

Why Am I Specifying a Roth IRA?

As far as your taxes go, if you’re contributing to a Roth IRA in both calendar years, it doesn’t matter which one you choose during the overlapping period. If you were contributing to a traditional IRA instead, it would matter: Your contributions to last year’s IRA would count for a tax deduction on last year’s tax return (hence being able to contribute up until Tax Day). But with a Roth IRA, you aren’t taking a tax deduction, so you’ll pay your full tax on the contribution no matter in which year you make it.

Always Contribute to Last Year’s IRA First

Now we come to my suggestion to contribute as much as you can to last year’s IRA before switching to this year’s (aka roll forward contribution room), either because you have reached your contribution limit or because Tax Day has passed.

The advantage is most clearly seen in the year that you experience an increased ability to contribute to your IRA (as long as you haven’t been maxing out your contribution room). This could happen because:

  • You decrease your expenses so that you can save more
  • You start earning a side income
  • You finish your PhD and take a higher-paying position (postdoc or Real Job)
  • You finish your postdoc and get a Real Job

In these cases, you may be able and want to contribute more than $6,000 to your IRA in one calendar year, and you are only able to do that if you split the contribution between your prior year IRA and your current year IRA.

But you should practice this every year, not just in a year when you expect an increased ability to contribute because:

  • You don’t know what will happen throughout the whole next calendar year, and your ability to contribute to an IRA could increase unexpectedly (e.g., you receive a windfall, a side income presents itself, you decide to leave grad school/your postdoc early for a better-paying job, you combine finances with a higher-earning person).
  • You can roll forward your contribution room into future years. For instance, if you can contribute $5,000 each calendar year to an IRA, you can carry forward some or all of your $1,000 excess contribution room, so that in the year that you are able to contribute more, for example, you can contribute $6,000 to your current year IRA and perhaps $1,000 to your prior year IRA.

An Illustration (with Numbers!)

The advantage of this strategy is more easily understood with an example.

Let’s say you’re a graduate student in 2020 and 2021, earning $30,000 per year. You are a superstar saver, so you contribute 12% of your gross income to your Roth IRA every month. In 2020, your total contribution to your 2020 Roth IRA was $3,600.

In the first five months of 2021, you continue to contribute to your 2020 Roth IRA, which brings your 2020 Roth IRA contributions up to $5,100. In the seven remaining calendar months of 2021, you contribute $2,100 to your 2021 Roth IRA. Your remaining contribution room for 2021 is $3,900.

January 2022 hits and you start a Real Job! Your new yearly salary is $72,000, and you increase your savings rate to 20%. This means that you can put $1,200 each month into your retirement account(s).

In the first four months of 2022, you max out your 2021 Roth IRA with $3,900 and also put $900 into your 2022 Roth IRA or other retirement account options. You can use the rest of 2022 to max out your 2022 Roth IRA and contribute to your other retirement account options.

In this example, you ended up contributing $17,100 to your Roth IRA over three years ($5,100 in 2020, $6,000 in 2021, and $6,000 in 2022). Had you not rolled forward your contribution room, you would have contributed only $13,200 to your Roth IRA ($3,600 in each of 2020 and 2021 and $6,000 in 2022). (The rest of the money would go into your other retirement account options in 2021, presumably.)

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The Psychology of a Ceiling

The previous illustration assumed that you would save at the same rate no matter what contribution room you had available or what account you used. However, if you are a competitive person, you might benefit even more from rolling forward your contribution room by contributing to your prior year Roth IRA first.

I’ve noticed that many people strive to max our their Roth IRAs each year, irrespective of the actual amount or percentage they might otherwise want to save. They use the contribution limit as their goal. This is not a good thing if you would otherwise contribute more than the limit, but I think many grad students and postdocs might have the opposite issue: without the limit serving as an implicit goal, they might contribute less than the limit.

By rolling forward your contribution room, you can create ever-higher savings rate goals for your Roth IRA, which might modify your behavior and help you save even more overall.

I fell victim (in a good way!) to this psychology in a similar scenario. When I started contributing to my Roth IRA, my goal was 10% ($2,400) per year. But once I found out that my now-husband maxed his Roth IRA out every year, I made keeping up with him and maxing out my goal, too. I found creative ways to gradually increase my savings rate. I didn’t quite make it to $5,500/year (the contribution limit at the time) by the end of graduate school, but I sure got a lot closer than $2,400/year.

I think the contribution limit can create the same kind of competitiveness, and rolling forward your contribution room makes the challenge even greater.

My Personal Experience with Contributing to Prior Year Roth IRAs

A couple years before we finished our PhDs, my husband and I started following this suggestion of contributing to our prior year Roth IRAs as much as possible before switching to our current year Roth IRAs. It seemed not to matter much for a couple years until we experienced an income increase, and then having the extra contribution room was really helpful.

My husband’s Real Job offered a 401(k), but it was through a notoriously expensive full-service brokerage firm, which we did not want to use. Instead, we contributed our target amount of savings to our Roth IRAs (still maxing out the prior year first) and a self-employment retirement account (available through my business). The extra Roth IRA contribution room we created through rolling forward was particularly helpful in the transition year because 1) it took some time to figure out our 401(k) and self-employment retirement account options and 2) my contribution room in my self-employment retirement account wasn’t very high after working on the business for only a few months.

Further reading: Avoiding an Expensive 401(k) Plan through Self-Employment