transcript

How to Set Yourself Up for a Successful Career and Financial Life Post-PhD

December 7, 2020 by Meryem Ok

In this episode, Emily interviews Dr. Jennifer Polk, a career coach specializing in PhDs whose brand is From PhD to Life. Emily and Jen explore the damage that graduate school and academia often does to PhDs’ financial lives, in terms of both dollars and money mindset. They answer the question, “What can a graduate student or PhD do to mitigate academia’s financial damage?” from both a financial and career perspective, starting in grad school and extending several years post-PhD. Jen concludes the interview with an incredible insight that can only be gained with years of distance from the PhD.

Links Mentioned in this Episode

Teaser

00:01 Jen: Woo boy, I think the two-word answer is compound interest. The more that you can put away, even very, very, very small amounts earlier on, make such a huge disproportionate difference over the long term.

Introduction

00:23 Emily: Welcome to the Personal Finance for PhDs podcast, a higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season seven, episode 14, and today my guest is Dr. Jennifer Polk, a career coach specializing in PhDs, whose brand is From PhD to Life. Jen and I explore the damage that graduate school and academia often do to PhDs’ financial lives, in terms of both dollars and money mindset. We answer the question, “what can a graduate student or PhD do to mitigate academia’s financial damage?” from both a financial and career perspective, starting in graduate school and extending several years post-PhD. Jen concludes the interview with an incredible insight that can only be gained with years of distance from the PhD. If this episode, and that final insight in particular, get your wheels spinning about what you should be doing right now in your finances, there are several ways you can work with me in the upcoming months to level up your financial life.

01:29 Emily: The Personal Finance for PhDs Community is always open to new members. That’s where you can find my courses on financial goal setting, budgeting, investing, et cetera, plus monthly challenges to participate in a book club and lots of opportunities to ask me questions and engage in discussion with other like-minded graduate students and PhDs. You can find out more at pfforphds.community.

I’m facilitating my brand new half-day workshop, Chart Your Course to Financial Success, twice in the next couple of months. Spend four hours with me and a small group of peers, and you’ll come away with clarity on what your current financial goal should be and how to achieve it, plus super actionable ideas for increasing your income and decreasing your expenses. On December 12, 2020, I’m facilitating the workshop exclusively for funded graduate students. And on January 10th, 2021, it’s exclusively for PhDs. You can find out more at pfforphds.com/chart.

02:34 Emily: Finally, Mark your calendars for the next round of The Wealthy PhD. My two-month group-coaching program that provides guidance and, most importantly, accountability to help you achieve a significant financial goal and set you up for future financial success. Enrollment will open in early January, 2021. You can find out more at pfforphds.com/wealthyPhD.

I’m so pleased to be able to offer you all these different avenues of support going into the new year. I hope you will identify one that fits you the best and sign up.

If you’re not quite sure about diving into working with me, please join my mailing list at pfforphds.com/subscribe. Every Friday, I’ll send you an email detailing, a personal finance concept, an actionable strategy, or an inspirational story. You will receive an incredible amount of value, absolutely for free, through the list.

Without further ado, here’s my interview with Dr. Jen Polk.

Will You Please Introduce Yourself Further?

03:28 Emily: I’m delighted to have joining me on the podcast today, Dr. Jen Polk. You probably know her brand From PhD to Life. She is a career coach specializing in PhDs. So, she has a lot to say to us around this topic. And we’re actually going to be talking about money mindset today and specifically how it affects, you know, your finances, but also your career journey as you’re moving through and beyond the PhD. So, Jen, thank you so much for joining me on the podcast day. It’s wonderful to have you.

03:56 Jen: Yeah. Thank you, Emily. It’s my pleasure. I’m nervous. I’m excited.

04:01 Emily: It’ll be fun. So, please tell the audience just a little bit more about yourself.

04:05 Jen: Sure. So Jen, as Emily says, I work with PhDs figuring out what to do next in their careers and my business is From PhD to Life. That’s fromphdtolife.com. And I’m self-employed and I live in Toronto.

What Academic Culture Teaches Us About Money

04:22 Emily: What does academic culture–in your experience, and also what you’ve observed from your clients–what does academic culture teach us or tell us about money?

04:32 Jen: Yes. Yes. Big question. So, my own personal background is from the humanities, a history PhD. And I think that academia emphasizes, at least my corner of academia, to use that phrase, thinks of money as a bad thing, as kind of a necessary evil. And extremes to which we might take that view do exist out in the wild. There are people out there who will, they can’t possibly live this way every day of their lives, but they will literally say things to me that anybody who has more money is morally inferior or that it is unethical to have, you know, more money than one needs, et cetera. And I think that, yes, one can find that view in academia.

05:29 Emily: Is that defined as more money than they have? Is that the dividing line?

05:34 Jen: Probably, probably, probably. But yeah, I think that thinking about money, talking about money makes you somehow less of a scholar, less of an intellectual. Of course, as we know, the truth is that you can’t actually do scholarly work over the long-term if you are constantly worried about money. It’s difficult. But yeah, there’s definitely a sense that if you’re the person–and I think this is also tied in with aesthetics–if you show up in your humanities department wearing flashy suits and red lipstick and earrings you will be deemed less serious as a scholar, as an intellectual. I think that is related to money mindset as well. It’s really gross. It’s really gross. And yet, of course, you need money.

06:33 Emily: Yeah. I mean, you just said that, of course over the long term, you, you have to have money or else you’re going to have a constant, you know, really it’s a fog in your brain. When you’re constantly stressed about money, when you experience scarcity, and this has been studied, you know, through research, that you literally don’t cognitively function as well as you could, if you did not have that stress in your life. So it’s really actually perplexing to me that we do this. We–academia–does this to graduate students, especially, but also postdocs and also, you know, adjuncts and other faculty members to a degree. Why are we doing this to our youngest, most vulnerable developing scholars? I mean, I know you can’t answer that question, but it’s really perplexing to me that, you know, the system chooses to put this kind of stress on people, and then moralizes it, as you were just saying, says, “Oh, this has been official to you that you don’t have the distractions of money and flashiness and opulence and so forth in your life.” When really what it is is, “No you’re stressing us out, so we can’t even think properly.” And that’s, it’s horrifying, really.

07:37 Jen: Academia is perplexing. I think that’s a good short way of putting it. There’s a lot of work to be done to kind of recognize the truth of one’s situation and think about what you actually do value that is different from what academia implies that you should value.

Money Mindsets in Academia

07:57 Emily: Yeah, I will say from my, you know, my corner of academia and engineering, I did not get the message that money is evil or money is to be shunned. Certainly, we were still under, you know, some money stress depending on how well-funded you are. But definitely from the advisor or the faculty level, we weren’t getting that kind of message. And yet, there were still money mindsets that academia tells even to students in disciplines like that, like all your best time and energy has to be spent on research. Like, you know, you’re not allowed to do XYZ other things in your personal life or earning money on the side. Even if it is not explicitly disallowed, it is certainly frowned upon, because again, you should be spending all your best energy on your research. Things like that. And I think another really sort of damaging thing that happens that probably speaks a little bit more to your experience as a career coach, is that people become anchored at the graduate student salary that they are earning during those years. And so how do they judge what they’re worth in the marketplace after they exit academia when their skills can and should be valued much differently? But how do they, you know, transform their own understanding of the value that they bring? Maybe we can talk more about that.

09:14 Jen: And I also see from scientists that, of course it varies and everyone’s experience is unique, but a lot of worry about getting a quote unquote industry job is morally inferior. And I think part of that is that those jobs pay better than academia. And I think people not only would you make more money, but potentially, I mean, depending, you would have a better life and a better career. Because there’s just lots more variety out there. And there’s a lot more better places that one could be for a lot of people. But I do think that money is part of it as a signal of virtue. Does that make sense, Emily?

09:56 Emily: Yes, I definitely hear what you’re saying. I actually would add onto that. It’s possible that you can have more of an impact on the world in industry than you could in academia, potentially, depending on your field. So, there’s that too. Is your scholarship actually getting out there?

10:11 Jen: Yeah. More money, more impact.

Financially Damaging Money Mindsets

10:14 Emily: We’ve talked about how these money mindsets are not true, damaging in some ways. How is this financially damaging?

10:25 Jen: Whoo boy, the two-word answer is compound interest. The more that you can put away, even very, very, very small amounts, earlier on makes such a huge disproportionate difference over the long-term. There is such a potentially, I mean, again, it really varies, but there is a real opportunity cost to spending time in academia, as a graduate student who is not earning, you know, a whole lot of money. And then, you know, if you do post-docs and then in a lot of disciplines, even a tenure-track professorship, is not going to pay you really enough to live in a lot of cases. And that, you know, life isn’t about comparing oneself to others, but it does put you behind, to use that framing, other people with similar types of education in terms of your financial resources. And of course, if you have debt.

11:20 Emily: I couldn’t agree more. I mean, you know, sometimes I think about there’s been, I don’t know, I think I’ve seen studies from time to time on, “Oh, a PhD is worthwhile like salary-wise because yes, you take this income hit early on, but then later you could make, you know, much more than you would with just a bachelor’s or whatever.” But I really wonder, and I have not done the math on this. I really wonder, well, you’re disagreeing with even that assertion because I’m sure it is very individual, entirely. But even taking that as a given, if you then factor in the opportunity costs for compound interest of paying off your debt, starting to invest for the long-term for retirement, it becomes very dubious.

11:58 Jen: Well, that’s just it. That’s just it. Exactly what you say. Like, even if the salary itself is higher, you’re starting so much later than other people. Like Emily, you and I are both in North America, U.S./Canada context. PhDs take a while. You know, on average, somebody is 30, more than 30, almost 30, right, when they finish, with limited prior work experience. And yeah, it’s not just about annual salary. I’ve seen those studies where everybody’s like, “Look how much more money PhDs make” than people with other degrees. And yes, that is an average. And, you know, it varies a lot. A lot. Not only between disciplines, it does vary a lot between disciplines, but within disciplines, it varies a lot, over gender and race and immigration status, et cetera, subfield. And whether you’re in an academic career track or not, right?

12:54 Jen: There’s a lot of variety there. But yeah, it’s not just about your salary number. It’s not just about that. Yeah. It’s about all of the other things you said. You know, if you’re 10 years later entering the housing market, you might not enter the housing market, et cetera. Anyways, I don’t mean to bemoan and lament, but I do think that it is a message that if anybody listening is considering a PhD or in a PhD program earlier on and doubting whether they should continue, please take this seriously and know that I respect any and all decisions to not apply, not enroll and potentially, you know, if it’s right for you, to not continue in a PhD, because it really might not be the right thing for you for lots of reasons, including financial ones.

Working on the Post-PhD Money Mindset

13:40 Emily: Yes. I would actually love to expand on that. So, we were just saying, okay, to people who have not yet applied for graduate school or are early on in your graduate school journey, take seriously any doubts you may be having and explore other career possibilities for you. For my part, I’m a little less don’t do the PhD, but I’m more on like, why don’t you get some work experience and see what’s out there for you and be able to judge the PhD more, not from, okay, I just got out of undergrad and this is what I want to do, but judge it in a little bit of a more informed context? So let’s say someone is on that path and they’re firm about finishing the PhD, but they’re still early on or, you know, midway through. What can that person be doing to be, you know, both working on their mindset, setting themselves up for financial and career success, following the PhD, what can they do at that stage?

14:31 Jen: I think that, you know, and this comes from my own work, you know, day-to-day career coaching PhDs. I think it is never too early, never too early to think about your career because there is, and I don’t, I think this surprises people, there is so much work that you can do that you really ought to do, but you know, that you can do before you ever apply for a job. And part of that is about money and how much you really need and how much, you know, you 10 years from now is going to want. But I would really, the quicker that you can get into a job and the quicker that you can get into a job and a career that is one that you like, and you can really excel in and you know, it doesn’t sort of match up that you would excel in a career and you make money, but a little bit, right, the quicker you can make that happen for yourself after you graduate, the better.

15:28 Jen: So, do all of the work that you can when you’re still a student. And I just mean the self-assessment, the reflection, like what you were talking about, Emily. Identifying the right, you mentioned identifying the careers that you are interested in going into, right? Like do all of the work ahead of time to identify those, and then start building your network, and, and draw on your network to learn more about those career paths, to get really specific about the types of work that you could do. To have a kind of a draft resume in place for various different kinds of roles that you might apply for. Again, long before you ever get to the point of application. So that six months, four months before graduation, before you’re kind of ready to work, you can hit the ground running.

16:13 Emily: You mentioned like doing self-assessments and so forth. I did a lot of that stuff and it was provided by the career center at my university. I wouldn’t say I showed up at every event, but I was definitely like a regular frequent flyer at, you know, what they had going on. And I was able to do like, yeah, some of the various self-assessments and that was wonderful.

Career Exploration: Know Thyself

16:30 Emily: So, there’s resources that may be available to graduate students through their career centers. There’s your website of course, From PhD to life. Do you know, would you recommend any other resources outside of the university context, for people to help in this like career exploration phase?

16:46 Jen: Yeah. I think at this point, anything can be useful. And so, you know, I think it can sound really simple, simplistic but even just sitting down and making a list of the things that you actually truly value and that are really important to you, that there’s real power in that. Taking a few minutes and just doing a brain dump, like, okay, what do I actually value in having, and write it down. Make a visual of it and make a graphic that you stick on your computer desktop. I mean, whatever it is so that you can keep reminding yourself when academic culture is swirling around you, which can be, I’m exaggerating, but it can be a bit of a totalizing culture and impose values and priorities on you that, you know, can kind of make things messy, just to remind yourself of what you truly value.

17:42 Jen: When I say anything can be useful at this point, I mean, sure do the Myers-Briggs. Scientifically dubious, doesn’t matter, because point is to give you new language, like literal words, and new perspectives, different perspectives on the types of skills and strengths that you have. So, any kind of like skill assessment, strengths test, value survey, anything like that, you can find online. Any of those that can be really kind of interesting to get you thinking about yourself in a different way. And then make your own lists. Some people like spreadsheets. And take advantage of any and all assessments that, yeah, you get from your career center on campus if that’s available to you. This process, I’m talking about it like it’s a mess, and that’s because it is a mess. So, it’s fine. And the other thing I would say is that this is not a process of identifying your one true right job.

Do Not Get Stuck on the “Dream Job”

18:42 Jen: Your dream job. No, no. Wipe that from your mind. That’s not a thing. A lot of jobs out there are broadly similar. And you, whatever your PhD discipline, whatever your background, you can do a lot of them. So they’re broadly similar and you can do a lot of them. And so what becomes important is not that particular job title, but more where in the world do you want to live? What kind of lifestyle do you want to have? What the vibe of the office that you want to be in? What kinds of like actual work do you want to do every day? Who do you want to hang out with? What kind of impact do you want to make? So all of those kinds of questions that, like job title is not even that relevant. At a certain point, you’re going to try and identify some so that you can find jobs to apply to. And so that your network can help you out by making suggestions. But yeah, it’s a mess. Embrace the mess and know yourself.

19:37 Emily: At that stage. Because you can be really open to a lot of different things, like you were saying. We’re not at all trying to like narrow things down, right? It’s about sort of broadening. So, I’m also thinking about, for an early-stage graduate student, mid-stage graduate student, how to mitigate this financial damage that we were talking about. And so very briefly, I just want to say, as you said earlier, compound interest. So if you are at a stage in your finances, when you’re able to save, get an emergency fund together, but after that start tackling your debt, start investing if that’s where you are. And I of course talk about that many, many other interviews and so forth. So people can find a lot more resources. But as you said earlier, the early you get started, small amounts of money, perfectly fine. It’s still going to make a difference.

The Value of Outside Work Experiences

20:18 Emily: So don’t dismiss just because you’re a graduate student, “Oh, I can only save 50 bucks a month or I can only save a hundred bucks a month.” That’s amazing. That would be a lot of money if you actually got that invested. So don’t dismiss that while you’re, you know, doing all this other career stuff. I also want to bring up outside work experience. You know, you mentioned earlier, like, you know, think about your network and so forth, and you can do that without working. You can expand your network. But you know, for some PhD students, it is possible to do internships or to have some kind of side hustle, that’s going to ultimately help you in your later job. Can you speak to that a little bit?

20:53 Jen: Yeah. And I take your point, Emily, that you said for some they can have, because yes, acknowledgement that, you know, it does depend on visa status and the contract, et cetera, et cetera. But, so in response to a Tweet I sent earlier this morning, somebody, I think she’s a humanities PhD student, said that in her program, when she was doing her PhD, she was reflecting on one of her colleagues had this like prestigious grant. So she didn’t have to have a job on campus to pay the rent. Because she had the prestigious grant. And the person who wrote the tweet was saying, you know, I didn’t have that, but instead I worked outside of academia and that, you know, the implication here being that, that gave me the same amount of money. And the vibe she got, not only the vibe, the actual literal the message she got from her professors in the department was that the fellowship was of greater value.

21:46 Jen: Even though from our perspective now, as people out in the world, you know, working jobs, we know that actually in some ways having actual work experience is more valuable. And that is really, really, really important and can’t be undervalued. This is not, you know, to ask students to do more and more and more work. But just to say that when you are making decisions about what to do in your kind of free time, quote unquote, you know, where you have a choice about whether to do this and this and this, just to pause and say, “Well, the, the thing that I think that I should do is adjunct one more course.” Well, hold up, just think to yourself, what is the value of adjuncting a course versus stepping up your side hustle or getting a job outside campus, even just in retail? I mean, it’s not obvious from where I sit that adjuncting a course is the right move. Whereas that can be like just a totally obvious thing according to academics, but no no no. I mean, it really depends. So, I would, you know, use your critical thinking skills and question the things that seem obvious to you.

Commercial

23:00 Emily: Emily here, for a brief interlude. You are invited to my brand new half-day workshop, Chart Your Course to Financial Success. The central question this workshop will help you answer is what should my singular financial goal be right now and how should I best pursue it? I’ll teach you my eight-step financial framework that explains when you should save versus pay off debt versus invest. And we’ll explore many, many strategies to increase your income and or decrease your expenses. I will facilitate the workshop exclusively for funded graduate students on Saturday, December 12th, 2020, and exclusively for PhDs on Sunday, January 10th, 2021. You can learn more and sign up at pfforphds.com/chart. That’s P F F O R P H D s.com/ C H A R T. The deadline to register for the December 12th workshop is Wednesday, December 9th. So, don’t delay. There are discounts currently available for both workshops and registration is limited. Now, back to the interview.

Pay Attention to Your Base Salary

24:10 Emily: Let’s now talk about someone who’s finishing up about to finish up the PhD, and maybe about to finish up a postdoc, if that’s the choice that you made following the PhD. And you want to get a real job and it’s not going to be in academia. So, what can a person who’s reached that stage do, again, to mitigate the damage that the mindsets and the financial damage that academia has caused?

24:31 Jen: It’s really tricky this because you know, some people ask, how do I know when to take this job now, or to take the risk of turning it down in hopes that I would get a higher offer six months from now? So, you know, I think it’s not obvious what the answer is and it will highly depend on the individual person. But one thing for sure to think about is, when you’re ready to accept and negotiate a job offer, right? Accept and negotiate, right?

25:02 Jen: Both of those together. That your base salary is a really important consideration. It’s not the only thing up for negotiation. It’s not the only thing to discuss. But that a one time payout, like a bonus, like a signing bonus of five grand, for example, that seems great in the moment and sure you could invest that, but over the long-term, it’s probably better for you to have like $500 extra on your base salary, something like that. I mean, I can’t do the math immediately, but I think tending to base salary is really important.

Do Not Underestimate the Value of Your Network

25:37 Emily: To pick up where we left off with the career exploration, exploration of yourself. Now this person is ready to narrow things down and apply for some jobs. So, what do they do at that stage?

25:53 Jen: Yeah. So, I think don’t underestimate the value of your network. And before people are like, “Hold up, Jen, I don’t have a network.” No, you have a network, you have a network and you know people, and the people that know you also know other people. And, it can depend, but your academic network, don’t discount them. Even if you’re applying for non-academic jobs. Again, it can depend. But, I mean, I have a client now who is a research associate, a post-doc, and he was nervous about talking to his PI about the fact that he’s, you know, he’s on the job market. And he had the conversation and the PI was very supportive. And then the PI sent a few emails. My client got some interviews literally the next week and, you know, might have a job offer like within like a month. And so don’t discount the value that your network can come through for you.

26:54 Jen: And I know in my work with PhDs, with my own clients, but also all of the research that I’ve done over the years that you talking with people, and that’s all I mean when I say you should network, is you should interact actively with people in your field, with other professionals, quote, unquote. Just actively interact with people, that pays off enormously. And if you don’t do that, it’s going to be so, so, so, so, so much harder. At this stage, unless you have really particular technical skills, and I would wager that a huge number of PhDs don’t–and that’s not a criticism, that’s not a criticism–but if you don’t have these like really narrow, really specific, really rare technical skills, and you’re not at the right place at the right time, then you really have to use your network.

People Can Connect Us to New Opportunities

27:48 Jen: And that’s all of us. Not only so that potentially you could get referred to a job, you could be an inside hire as it were. Right? That’s great. But it’s not only that. It’s so that you can learn what’s out there. It’s so that you have people on your team to send you job ads. I applied for a job in September, and I wouldn’t have seen it except that somebody that I know and have known over the years. I’m not frequently in contact with her, but she kind of knows about me in general. She sent me the job ad as soon as she saw it posted. And I was like, “Oh my goodness.” And what happened is I had a number of other people send me the job ad subsequently.

28:26 Emily: Your branding is so clear that many people could identify what is a perfect job for you.

28:31 Jen: Exactly, exactly. Right. Exactly.

28:34 Emily: I actually have another story to add to that pile, which is how my husband got his job in industry. And so this is more about the value of networking with people from your own program who have moved on in the years prior to you. Because it’s not just the faculty who have networks. It’s anybody who’s exited academia. Even an undergraduate that you worked with who is now in the workforce can be a contact in your network. So my husband, some person who had graduated from his program a couple years earlier, sent a job listing for his, you know, at the time current company to my husband’s PI and said, I know that your lab lines up very well with what we do here. Could you show this to your students who are graduating? And that happened, and my husband got that position. So that was like just, yep. Clearly networking. Because of course it was on the strength of his PIs reputation. This individual didn’t know my husband in particular. But yeah, that’s exactly how it happened and it was quick and easy.

29:31 Jen: Yeah. And that’s what you want. Right? I mean, life doesn’t always work out that way, but quick and easy means that there was years of work that went into that ahead of time, but it doesn’t have to difficult. It’s all, I mean, it’s just about making friends, having good conversations and doing work that you find interesting and that you find engaging. And if you do that over the years and you are in conversation with people about that, hopefully kind of stars align at a certain point and it seems easy.

Always Try to Negotiate Your Starting Offer

30:03 Emily: Yes, exactly great point. So, okay. Our candidate has, you know, done the job searching, done the self-reflection, applying for jobs. You mentioned a moment ago, negotiating base salary as incredibly important. And so this to me also is one, probably your biggest opportunity, to mitigate financial damage that’s occurred during your PhD, is to get that first starting offer as high as you reasonably can within the scope of the field and your skills and so forth. But to negotiate that offer, because I think some PhDs might be kind of bowled over by, “Oh my goodness. You’re offering me how much money?” And again, they’re anchored to their graduate student salary. And so, might just feel so grateful, yeah, and I get that, that they don’t negotiate. But really it’s expected. It’s absolutely expected in industry and it’s probably going to be pretty well-received.

30:54 Emily: Even if the answer is, no, this is a union job and you can’t negotiate, that might be the answer, but you’re not going to be faulted for trying. Right? So, definitely at least attempt that negotiation, because as you said, having a slightly higher base salary, that’s going to affect for sure, whatever salaries you have, as long as you stay at that company. And may even beyond that, if you know, employers shouldn’t, but are allowed to, at least in the U.S. In many cases ask about prior salaries, it depends on what state you’re in. So it’s possible that it could even affect once you leave that, you know, that particular employer, could still follow you. So getting that starting salary as high as you can is a great idea. Even if it seems really scary and daunting to you in terms of the number.

31:38 Jen: Yeah. And I would recognize, you know, everything in life is a risk. Sure. Of course. But once an employer has made an offer to you, they are imagining you solving their problem and hanging out with them every day. And that gives you some power here. As I say, there’s a risk, but I would, you know, own the power that you have in that situation to make a strong case for yourself. You have to make the case. But you want to be successful in that position long-term to help the team grow, et cetera, et cetera. And so, you’re going to show up for them and they should show up for you in terms of base salary.

Good Employers Make their Employees Feel Valued

32:22 Emily: Yeah. And I think it actually goes back to what we talked about earlier that academia, for whatever reason, decides to put this financial stress on its trainees. Your employer probably does not want you to be under that kind of financial stress. They want to pay you enough to reflect the value, to make you feel like you’re valued. That you’re not going jump ship and go to someone else. That you’re going to be able to live in the city that they’re in, you know, comfortably without having to move an hour away for your commute. All of that stuff affects your performance at work. And so it can all come into play when you think about what is the salary that I want to have to perform well in this position? That’s really your opportunity to express that.

32:57 Jen: To a certain extent, there’s some recalibration that might need to happen for folks coming out of academia, where things can be such a struggle, and you can have this impression that any employer is kind of out to get you, out to screw you over. Depending on the experience that you have in academia and the experience of your colleagues and friends around you. But yeah, as Emily said, I mean, any employer that you would really want to work for, they recognize the crucial importance of their labor, of the people doing the work. I mean, this is so, so, so important, and employers, good employers, employers that you want to work for. And there’s lots of them out there. They’re not going to pay you outrageous sums of money potentially, but they want you to be able to have the lifestyle and do the work and be happy and get what you need to be on their team, solving their problems. So, I would assume, assume that they want to pay you equitably right. Fairly and adequately. And, you know, maybe a little more than that. I would assume that, and go forth.

34:04 Jen: Yeah, I am glad you put in the caveat of a good employer, because certainly there are ones that–maybe not employers broadly, but maybe a manager, someone who views this more as a competitive thing, like I’m going to pay you less because I have that better from my bottom line. But it really should be viewed more so as, “We want you to do a great job, and we’re going to compensate you well to do that great job.” And certainly if you get into a salary negotiation process with an employer and you’re getting a vibe that they don’t really seem like they want to support you, then that’s your red flag. And that’s the time to go back to the exploring you’ve done and go back and look at other, you know, positions that you might have, and so forth.

Avoiding Lifestyle Inflation and Unhealthy Mindsets

34:40 Emily: Okay. So, let’s then talk about, you’ve got the job, maybe you’re a few months, a few years into that point. What should you still be doing to again be mitigating the mindset and the literal financial damage that your time in academia has wrought?

34:55 Jen: Yeah, it’s interesting. I mean, I think there’s lots of things that one could say here, but something that comes to mind for me is a phrase that I’m sure, you know, people that grew up in this part of the world have heard, penny-wise and pound-foolish, right? And to a certain extent, you know, when you’re in academia, there are a lot of things that you don’t pay outright for, of course you do pay for them through tuition, et cetera. But it doesn’t occur to you. So there might be things that you yourself would want to invest in, to use that term. And I use that term kind of in a broader sense that will help you over the long term. Ideally, your employer pays for professional development and pays for coaching and whatever, pays therapy, right? Ideally you have benefits around that. But it could be, you know, if you don’t, or if you’re unemployed at the moment, that it can be really valuable to invest in those kinds of services for a relatively short amount of time, because the investment as a metaphor is the right one, because there will be a longer-term payoff.

36:01 Jen: And if you can get your career started kind of on a good footing, great. Right? It’s just so helpful. It’s so helpful. And I would sit down with a money advisor, financial advisor, or whatever the term is, you know, somebody who can kind of tell you things, even if it’s your mom, right? Because if you can get into the lifestyle kind of early on of making good decisions around money, but also, you know, making decisions about you suddenly have more money, hopefully maybe you can set money aside for vacation. You know, that’s a good thing too, et cetera.

36:43 Emily: I totally agree. And actually, this is a phase that I’ve come to now that I’m, you know, a few years post-PhD and into my career, my business with Personal Finance for PhDs, is this idea of investing in myself was something I was very reluctant to do, right? Because I was being penny wise, pound foolish right when I finished my PhD because I wasn’t making that much money yet. So how can I, you know, decide to invest? But actually, you were one of the first people who I worked with, you know, near the start of my business. And it was a was a small investment, but I joined one of your programs. And it, I mean, I still talk about it and laud it, this was Self-Employed PhD, and how we originally met and what an impact that made on me.

37:23 Emily: And I’ve since then been much more willing to invest in training and professional development for myself. So I would definitely, I mean, obviously my field as an entrepreneur is, is different from what other people were doing, but just be thinking about what are the professionals, if it’s again, not provided, as you said, through your workplace, which sometimes it is, what professionals might I work with that can help further my career further, my financial development? Of course you are one of those professionals. If the question is more on the career front with PhD to Life. I am one of those professionals if the question is more on the, how do I handle my finances? How do I handle my budget? You know, what should I be saving for? What should my life look like? If those are the kinds of questions, then of course, feel free to work with me, but there are also many other types of professionals, depending on the exact needs that you have.

Invest in Your Future

38:06 Emily: And as you said, it is an investment. It takes money to work with a professional in the way that we’re talking about. But ideally, the dividends are going to start coming very, very soon after you begin that relationship. Another sort of financial tip, I’ll definitely say, once you’re into that, you know, your career and you’re making a much better salary than you were as a post-doc or as a graduate student. This is now the time to not super increase your lifestyle. Yes. Hopefully, you will be spending more so that you don’t feel stressed. But to some extent you should keep your lifestyle level on a little bit lower than maybe where you see your new colleagues at because you do need to make up for lost time a little bit, and doing things like starting to invest inside your company’s 401(k), even maxing out that 401(k). So to be going into those tax advantaged, designed for retirement types of accounts to a great degree, I mean, just put money away from your salary. You never see it coming in your paycheck. It’s all payroll deductions. That’s the best way to do things. So it might seem like a large number. Right now, a 401(k) in the U.S. would be $19,500 per year to max that out as an employee.

39:17 Emily: Why not? Why not? If your salary has jumped up by much more than that in this transition, why not go for that? Why not have that be your new anchor in your mind? So think about maxing out that 401(k), or at least contributing a good amount to it. Think about making serious, serious progress on your student loans if you have decided that you’re not going to go for an income-driven repayment plan and forgiveness plan. So all kinds of other questions, but this is the time when you get into that job where you can really, like you were saying earlier, you know, hitting the ground running like you’ve done these years of preparation for your career so that by the time it’s finally time to apply for a job, you’re ready and raring to go. It’s kind of the same thing financially. You’ve been keeping your lifestyle low for such a long time. Now you have the salary, don’t do too much lifestyle inflation and just get saving, get investing, get on that debt.

Think of Your Future Self

40:02 Emily: When we were preparing for this interview, you told me you had a message for people earlier on in their PhD journeys than you are currently. So what is that message?

40:12 Jen: Oh boy, your future self is going to care so much more about money than you do now. You know, if you’re in a PhD program, like I started my PhD at 24, like I was like, “Whoa, $15,000 a year.” This was a while ago now. Great. I can’t believe, you know, we hear this all the time. I can’t believe I’m going to get paid to do a PhD. That’s amazing. Okay. Awesome. Congratulations. But just know that your future self is going to care so much more. I mean, I happily, relatively happily, lived with a roommate for years and years and years, and I now live by myself and I pay a lot more money for that privilege, but I just, I just don’t, I don’t want to go back. Right? And so, of course I need a lot more money than I used to. And that, yeah, your future self is going to thank you i you care about it a little bit more than you might be inclined to when you’re, say, 24.

41:15 Emily: Yeah. And by doing the things that we’ve been talking about, like negotiating, like starting to invest early, even if none of your peers are doing it. Like having a side hustle maybe to bring in a little bit of extra money. I’ll say from my perspective too, like now that I, you know, my husband and I got married during graduate school, so we really, you know, we didn’t need any more money after our marriage than we did before. We were both in graduate school. But after we finished our PhDs, we had a couple babies and you know what, once you get on that train, things get very expensive very quickly. And so that’s not at all to say that you can’t have children earlier. That’s just my personal journey, but I certainly feel like we need to command a much higher salary at this stage in our lives and our family formation than we did years ago when we were, you know, DINKS [dual income, no kids]. So there’s that too, if you want that in your future. Yeah. It’s something to start thinking about now.

42:08 Jen: One of my recent clients, she lives in an expensive part of the U.S. Right? Granted but the lifestyle that she has now, a few years out of her PhD with a couple of kids and, you know, a mortgage and all of the above, she really can’t accept a job that pays her less than $150,000 a year. And right. It’s just the reality. And that might seem outrageous to folks listening now who are living on, $30k or less, maybe much less. Like, just keep that in mind. It’s not, you know, I’m not saying that my client, she’s not greedy. It’s just the reality of the situation. Life can get expensive really quickly.

42:45 Emily: Yeah. And I’ll link actually in the show notes, a wonderful interview I did with Dr. Scott Kennedy a year or two ago where he talks about his own realizations as he formed his family during graduate school, that he was going to have to change his career plans, to go into a different field that was going to pay more because he could not afford, now that he had a family, to stay on the track that he had been on. Even though that was sort of intellectually, maybe his preference from earlier on. So these kinds of things have, you know, your life has real impacts on how much money you need to make. And that’s something to start, you know, being realistic about as early on as possible.

How Can People Work With You, Jen?

43:24 Emily: All right, Jen, how can people work with you, should they, you know, if they’ve been intrigued by this interview?

43:32 Jen: For sure. Yeah. Thanks for asking. So, start on my website fromphdtolife.com. I work with individuals. I do small group things, coaching, open discussions. Those are a lot of fun. Shout out to small group things. I think those are awesome. I do drop-ins for Self-Employed PhDs. So, if that applies to you at all, check those out. And then I also work with institutions. So I’m happy to come to your campus, virtually please, I do a presentation or a workshop. I love workshops. So there’s different options.

Best Financial Advice for Another Early-Career PhD

44:07 Emily: Wonderful. And final question that I ask of all my guests. What is your best financial advice for another early-career PhD?

44:15 Jen: So this is a totally “do as I did, and also, as I say,” usually those two things do not go together. But one thing that I have been doing for 20 years, gosh, wow, something like that, is I track every penny. There are no pennies in Canada anymore. I track everything that I spend. So I know how much my life costs. Like I literally know how much my life costs in different categories. And years ago, I used to do this on a, it wasn’t even Excel. I use the WordPerfect version of excel, just a spreadsheet. But now there are lots of programs out there. But I think, you know, tracking what you spend is really, really important. It’s different from budgeting. You can do both together. But the example I like to give is like, I think this is really common for grad students.

45:11 Jen: Like you might spend like a lot of money, like on clothing kind of once or twice a year, not on a monthly basis. So some of the kind of standard ways of thinking about budgeting is sort of like a monthly thing. You go to your big annual conference one month and suddenly you’ve spent $2,000 more than, right? So anyways, but track, and then you can see the trends over time. And by seeing the amount of money that you’re spending in different categories, literally being able to like, see it on a spreadsheet, you can make decisions, better decisions about, you know, how much, how do you really want to spend $200 on takeout every month? Maybe. Yes. Maybe no. Right. But it makes it very clear.

45:55 Emily: I totally totally agree. Foundational personal finance advice. Step number one, track your spending. Track your expenses. Well Jen, this has been such a wonderful conversation. Thank you so much for coming on the podcast and sharing your expertise.

46:07 Jen: Thank you.

Outtro

46:09 Emily: Listeners, thank you for joining me for this episode. Pfforphds.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, please consider joining my mailing list for my behind-the-scenes commentary about each episode. Register at pfforphds.com/subscribe. See you in the next episode! And remember you don’t have to have a PhD to succeed with personal finance, but it helps. The music is Stages of Awakening by Podington bear from the free music archive and is shared under CC by NC. Podcast editing and show notes creation by Meryem Ok.

How to Handle Your Student Loans During Grad School and Following

November 30, 2020 by Lourdes Bobbio

In this episode, Emily interviews Meagan Landress, a Certified Student Loan Professional who works with Student Loan Planner, about how a grad student or PhD should best handle their federal student loans. Meagan outlines the financial profiles of someone who should use an income-driven repayment plan to pursue forgiveness, including Public Service Loan Forgiveness, vs. someone who should consider refinancing. She answers the questions: Should a graduate student pay down their student loans while they are in deferment? How should a graduate student who needs to take out debt decide between a student loan and consumer debt? Meagan also explains how marriage affects student loan repayment under each of the income-driven repayment programs. Don’t miss this episode jam-packed with actionable information!

Link Mentioned in this Episode

Trailer

00:00 Meagan: We are taking a non-traditional approach to debt and so I kind of backed that up with, make sure you know, that federal student loans are just not a regular debt. That’s one. That’s the biggest thing we need to remember.

Introduction

01:18 Emily: Welcome to the Personal Finance for PhDs podcast, a higher education and personal finance. I’m your host, Dr. Emily Roberts. This is season seven, episode 13 and today my guest is Meagan Landress, a certified student loan professional who works with Student Loan Planner. We’re discussing how a grad student or PhD should best handle their federal student loans. Meagan outlines the financial profiles of someone who should use an income-driven repayment plan to pursue forgiveness, including public service loan forgiveness, versus someone who should consider refinancing. She answers the questions: should a graduate student pay down their student loans while they’re in deferment? How should a graduate student who needs to take out debt decide between a student loan and consumer debt? Megan also explains how marriage affects student loan repayment under each of the income driven repayment programs. If you have federal student loans, and there is any question in your mind as to how you should handle them, you should absolutely listen through this entire episode. When you have a really high stakes student loan decision to make, such as which forgiveness program is right for you and your family, or whether to pursue PSLF versus refinancing, I highly recommend working with a certified student loan professional or a certified financial planner. Student Loan Planner can refer you to one of their partners who is a qualified professional.

01:39 Emily: On the other hand, if you’re looking for assistance with determining what your current financial goal should be, evaluating your budget, or figuring out what your financial life should look like in your next position, please consider working with me. I also serve as a financial coach and I specialize in funded graduate students and PhDs. You can sign up for a free 15 minute introductory call with me at pfforphds.com/coaching to see if one-on-one coaching with me would be a good fit for you. Alternatively, if a group coaching and accountability program is attractive to you, The Wealthy PhD might be your best option. I’m enrolling for the next round of The Wealthy PhD in January, 2021 and you can go to pfforphds.com/wealthyPhD to learn more and join the wait list. Whatever the financial decision you’re facing, it can really help to get an outside perspective. Without further ado, here’s my interview with Meagan Landress.

Will You Please Introduce Yourself Further?

02:36 Emily: I am so pleased that Meagan Landress, a certified student loan professional, has agreed to join me on the podcast today to give an interview all about federal student loans for graduate students and PhDs. Meagan has her own coaching business around student loans, and she also works with Student Loan Planner, which is a really well-known brand in the space that I respect a lot. So I was really pleased to be connected with Meagan and so pleased that she accepted the invitation to be on the podcast. So Meagan, will you please introduce yourself to my audience a little bit further?

03:05 Meagan: Definitely. I’m Meagan Landress, born and raised in Atlanta, Georgia. And yes, I have my own financial coaching practice where I work with folks on the basics of financial planning. And Student Loan Planner, I consult for specifically on student loans, helping people navigate that big elephant on their chest, I would say. I’m excited for this conversation today.

03:29 Emily: Yeah. When I approached Student Loan Planner, I said, I would love to interview someone. I need someone who’s going to be able to speak to PhDs and the specifics of their situation. They said, Meagan’s going to be the perfect fit, so I’m really excited for this conversation.

Federal Student Loan Forgiveness Programs vs. Refinancing

03:42 Emily: Let’s jump right into it. I’m imagining a person who, whether they’re in graduate school, whether they’re maybe out of graduate school, they need to know whether or not they should be pursuing a forgiveness program at the federal level. One, maybe you could just remind us briefly of a few of those acronyms that are involved with the federal level forgiveness programs, and then let us know who is the type of person, what is the financial profile of a person who really should be looking carefully at pursuing one of those forgiveness programs?

04:13 Meagan: Yeah, so I think the most maybe well-known is public service loan forgiveness. That is, if you’re dedicating your career to a public service opportunity, so government, nonprofit, 501(c)(3) work. But also each of the income driven plans, there are four, each of those income driven plans have a forgiveness component and it’s really more so like their maximum repayment period. The folks that should be pursuing or entertaining forgiveness, there is a rule of thumb on balance.

Meagan: For the longer term income driven plans, if your balance is much greater than your annual income, we use 1.5 times your annual income, then you should probably be entertaining that longer term forgiveness route on the income driven plans. It’s not public service work. It’s not career-driven anything like that. You just have to be making payments on that plan for either 20 or 25 years. PSLF, I think is a little more straightforward. If you find yourself in a public service position and you can foresee your career continuing to go that route. I see this a lot in education, you know, public universities, and so that’s where we want to be entertaining, maybe public service loan forgiveness, which is 120 qualifying payments on an income driven plan. And then you reap the benefit of forgiveness. So it’s much shorter. Those would be some maybe identifying factors there.

05:42 Emily: So just to put a real fine point on this, when we’re talking about a debt to income ratio, is that the income that the person has post all education or during the course of their education

05:54 Meagan: Post-education. So I would say the first couple of years of their career.

05:59 Emily: Okay. So someone coming out of their PhD, first post-PhD job within those first couple of years, if they see that their debt is more than one and a half times, their post PhD income, that’s when they should be looking pretty hard at enrolling one of these forgiveness plans and potentially seeing it through to completion. Is there any difference in that rule of thumb, around whether if the program is PSLF, which only would take 10 years, versus one of the ones that would take 20 to 25 years,

06:27 Meagan: There’s a little bit of, because that ratio is not quite right since it’s such a shorter period of time. And so folks who have about the same, or maybe even a little less than their income, could still benefit from public service loan forgiveness. We just have to do the math on it because the payments are going to be based off of your income. And we need to project that out to see, would you just pay it off in 10 years or would you reap the benefit of some kind of forgiveness? The debt to income ratio isn’t so relevant with PSLF, but it could be maybe a rule of thumb to start with, and then you have to go and do some math.

07:07 Emily: Yeah. I’m fully anticipating there being a lot of answers like, well, this is the starting position, but really we have to fine tune it through doing some more math. So I fully anticipate a lot of those answers during this interview and that’s perfectly fine. I just want to get people a starting point, because when you’re sitting, prior to getting out of graduate school and you’re wondering whether or not you should be, your loans are probably in deferment, but you’re wondering whether or not you should pursue a forgiveness plan afterwards. It’s just helpful to see whether or not you have to go further into the details of it or not. There’s another option for repaying your student loans. Well, there’s a few options. You can do the standard repayment program for the federal government. That’s going to take 10 years, and it’s just based on your debt amounts, not based on your income at all, the repayment amounts. Or you have the opportunity to potentially refinance your loans. And there’s been a lot of advertising around student loan refinancing in the last 10 years. Very, very low rates are being offered. What is the financial profile of person who should be considering refinancing rather than potentially pursuing PSLF or another forgiveness program?

08:13 Meagan: Yeah. Refinancing is a big, you’ll see these commercials on TV all the time now. But when it’s right to consider refinancing, I think that’s when your balance is lower than your annual income, and you feel comfortable walking away from the federal system. And what I mean by that is the federal system has a lot of flexibilities that private loans just don’t offer. You won’t have very generous for forebarance availability. You won’t have access to income driven plans. There’s no forgiveness opportunity with private loans. And so if you feel comfortable with your financial situation and you can commit to the term for refinancing and you weren’t a good candidate for forgiveness in any way, then that’s when I think it’s appropriate to pull the trigger on refinancing.

09:00 Emily: Yeah. And I think what concurs with that is that you have to have a fairly low debt to income ratio to even qualify for the really good refinancing options. Like it pretty much has to be below about one-to-one anyway, to do that, which for people in my audience, PhDs, oftentimes refinancing is not going to be an option during graduate school because the income is just so low. However, if your post PhD income is going to jump up quite a lot, then refinancing might make sense once you get to that point. You may wish you could have refinanced earlier, but you probably wouldn’t qualify if your debt is maybe a few multiples of your graduate student income, but less than one year’s worth of your post PhD income. Thanks for that clarification.

09:40 Emily: I know there’s a lot of anxiety going on right now about PSLF. There was a report, I think it was in 2018 or something about how 90-whatever percent of people were being rejected by PSLF. Can you shed some light on this? Should people be concerned about the health and the future of PSLF?

09:54 Meagan: I wish I could take this article down. This one, everyone references, I feel like, when we’re talking about PSLF, but it’s funny when you go back to that article and you break apart the math in that article, you’ll see that about 70% to 80% of that 99% number of denials was due to one of two reasons. One was because people applied before reaching 120 payments. I think there’s a lot of reasonings behind that. Some people truly may have just been off a couple of payments and got denied. It didn’t mean that they’re denied for the whole program, they just have to make a couple more payments to get to 120. But I think the other big reason was there was a buzz about PSLF in 2017 and 2018. That was the first year we could have applied for the forgiveness. People in public service got excited about it and they were like, “Oh, I’ll just apply to see what happens,” and they hadn’t done the due diligence to check all the boxes and they definitely didn’t do the time. And so that’s my unofficial hypothesis on what happened there.

Meagan: Then there are some other things too, like there are some specific things you need to make sure you’re checking the box for, like having the correct type of loans, only direct loans qualify for forgiveness and being on an income driven plan. Those are two that were another percentage of why people got denied. They had either the wrong type of loans or weren’t on the right repayment plan. That article, while although looked horrifying, if that was the route you were going, it was very misleading. And I wish they would have pulled out some of that bad data. But PSLF is a great program to pursue. We just have to make sure we’re doing the due diligence and keeping a pulse on our payments over time to not have any surprises, that’s really the big important part with PSLF.

11:49 Emily: I guess I’ve also heard sort of anecdotally that I believe you have to do a recertification every year to make sure that your employer is still the type of employer where you would qualify for this program and that maybe you need to stay on top of your employer and your lender to make sure that all that paperwork is going through. Sort of you as the borrower need to take on a little bit more responsibility than you might like to, just to make sure that all the I’s are being dotted and the T’s are being crossed and everything.

12:16 Meagan: Yes. There’s what’s called the employment certification form that we recommend submitting at least once a year, even if you haven’t switched employers. What that form does is yes, it does verify that the employer still has that tax-exempt status. It also verifies and certifies that you still work there full-time. That’s one of the other requirements, working full-time for that entity. Once they get that form, then they update your payments since the last time you submitted it. And what’s nice too, they just updated their portal to where it shows your PSLF payment track, which is new because he used to have to wait for that confirmation email after submitting the ECF form to know where you stood payment-wise, but now it reports real time. So I’m excited about that. It’s a great addition, I think, to the portal,

13:04 Emily: I’m sure that gives the additional peace of mind to not have to wait for that communication to come back.

Making Payments on Student Loans During Grad School

13:11 Emily: Now I’m thinking about a person in graduate school, their loans are in deferment. They’re looking ahead to their post PhD career and saying, yeah, “I think I’m going to be able to pay these loans off once I get to that point. I don’t really think I’m going to have to do an income driven repayment program. PSLF is not an attractive…That type of employment is not really my plan.” That’s what they’re saying to themselves in graduate school. In this particular scenario, this graduate student has the flexibility to be able to make some kinds of payments towards their student loans. They’re receiving a stipend. It’s enough for them to live on. They’re able to pursue some financial goals aside from just paying for basic living expenses. Is that a good idea? And how does the person determine whether they should go that route, of repaying a bit of debt during graduate school, or whether they should just kind of defer it all and wait until afterwards?

14:00 Meagan: Yeah, that’s a good question. And I think, yes all of those things you mentioned before have to exist. We need to know that we’re not pursuing PSLF one way or another. And I would suggest before putting money down on the student loans, making sure your emergency savings is healthy. We never want to be in a position where we have thrown all of our money towards our debt, we can’t get it back out, and we need it for an emergency. That is a bad situation to be in. I think having a buffer and savings is important, but I think one thing being in graduate school, we can’t officially enter repayment until we have graduation status. We can, with some of our undergrad loans, if we wanted to, we can enter repayment on those specifically. We can make payments, we just can’t officially enter a repayment plan on our existing school loans, so if you wanted to make payments, you could.

Meagan: Your un-subsidized loans do accrue interest while you’re in school. So that’s anything that says un-subsidized from undergrad and from grad school, and also grad school loans are considered un-subsidized. Those loans specifically accrue interest. Subsidized loans do not. If you wanted to prioritize which loans you’re applying payments to, subsidized loans aren’t going to be growing while you’re in school. So you can maybe prioritize the unsub and I think you can apply it straight to that interest. Again, it’s going to accrue on a monthly basis, so maybe you can find out how much that is and make those payments so it doesn’t grow while you’re in school. Those are some thoughts there. Post-graduation you can immediately enter repayment if you wanted to, by consolidating. You typically have a six month grace period where you can decide what plan you’re going on, get established. But if you wanted to enter repayment officially sooner, you can consolidate and kind of force yourself into repayment.

16:03 Emily: I see. How big of a factor should the interest rate on the unsubsidized student loans play in this decision, about whether to pay them down a bit or pursue other financial goals? We already covered the emergency fund, but if a graduate student is looking at “well, I can start investing for retirement, for example, versus paying down the student loans,” what are your thoughts about how the interest rate should factor into that decision?

16:28 Meagan: Yeah, so the interest rates on student loans do a lot of times fall in a gray area where, I mean, between 5% to 7% — I’m not sure, I’m not confident that you might get a longer term return if you were to invest that extra money instead. It really just depends and it kind of depends on your risk tolerance there. But any interest rates that are below 5%, we can kind of put those lower on the totem pole because if we took that extra money and we put it into our IRA or putting it towards our financial independence, long-term investing tells us on average, we can get close to 7% to 10%. I know that’s a big range, but it just depends. So if our debt is charging us 4%, or 5% even, there is that that net value that we’re missing out on. So I would say lower interest rates, I wouldn’t prioritize necessarily. If you have extra dollars, put that towards savings or put that towards your IRA or have a split approach — put some towards the loans and some towards retirement. When interest rates are higher though, when they’re in the 7% range, which is normal for graduate students, that’s where they’re a little iffy and we might want to prioritize them a little more. Those would be ones that you’d want to prioritize and you can kind of take a avalanche approach where we tackle the highest interest rate loans first, if you wanted to do it that way.

18:01 Emily: Yeah. What if we flip the scenario a little bit and say, okay, well instead this graduate student is someone who is going to pursue an income driven repayment plan and potentially forgiveness, maybe PSLF, but they still have that disposable or discretionary income during graduate school, then I guess the weight would tilt towards starting to invest. If you know that you’re going to be enrolling in one of those plans later, my understanding is, hey, never make an extra payment, never pay more than the minimum, if that is your plan and all that extra money should be going towards your other financial goals.

18:35 Meagan: You said it. Yeah. And we can’t have a qualifying payment while we’re still in school. Sometimes that’s a misconception. People feel like they can enter repayment and start having payments count towards forgiveness. We can’t necessarily with our existing degree loans, we have to wait until post-graduation for those payments to count. So, yes, we don’t want to pay a dollar extra. So throw that towards something that’s going to serve you in the future, and that would be retirement or savings.

Commercial

19:04 Emily: Emily here for a brief interlude. If you are a fan of this podcast, I invite you to check out the Personal Finance for PhDs Community at pfforphds.community. The community is for PhDs and people pursuing PhDs who want to take charge of their personal finances by opening and funding an IRA, starting to budget, aggressively paying off debt, financially navigating a life or career transition, maximizing the income from a side hustle, preparing an accurate tax return, and much more. Inside the community, you’ll have access to a library of financial education products, which I add to every month. There is also a discussion forum, monthly live calls with me, book club and progress journaling for financial goals. Basically, the community exists to help you reach your financial goals, whatever they are go to pfforphds.community to find out more. I can’t wait to help propel you to financial success. Now back to the interview.

Taking Out Student Loans During Grad School

20:08 Emily: Yeah, I think another point that might be helpful for the listeners is to understand, if you want to take out federal, and if you have any conception in your mind that there might be a possibility you want to take out a federal student loan during graduate school, what are the steps you need to do in advance to have that be an option for you versus what you just said: well, maybe at the given time that you need money, maybe you can’t take out a loan right at that moment. What steps should a person do in advance? If they’re thinking, yeah, this might be a possibility for me down the road.

20:34 Meagan: You’d want to complete FASFA each year. As a graduate student, your parents information, does it factor in anymore so it is solely on your financial situation. That’s going to help you with the un-subsidized funding, which you can get up to $20,500 for. You’ll also might want to consider looking at signing the graduate plus promissory note, which your financial aid office will tell you to do if you need that additional funding. But it is a separate promissory note. If we need above and beyond that $20,500, then you can spill over into the graduate plus loans. That’s what I would, I would do each year: FASFA and then for the first time you borrow, graduate plus, or if you don’t have graduate plus now, maybe go ahead and sign that promissory note. Either way you have to accept the aid that you’re being awarded. It’s not like you’re just willy-nilly applying for a loan. You have to intentionally accept it, but that gears you up to be able to accept it without having to do all that paperwork in a rush or being too late.

21:41 Emily: Yeah, I guess I’m just thinking financial planning wise for graduate student, going into or in a graduate program where they just know this program is not paying me well, I can barely make ends meet, that might be a thing to do in advance. It’s actually a little bit like having an emergency fund. If you know you can’t build up your own emergency fund right now, where it’s not going to be very big because they just aren’t paying you enough to make that happen, then maybe this is a good sort of backup plan to have. Do all the paperwork in advance, if anything adverse ever happens this is another step that you could take. I don’t love that idea because of course it’s better to just have your own emergency funds and go and you go forward and of course that’s, most of the strategies that I talk about through the podcast is how to overall be building up your savings during graduate school, but just as like a backup plan, it seems like it could be prudent to take these steps so that money, the loans could be available to you if you came upon a situation where you needed it. You do need to take some steps in advance to make that happen, so thank you for clarifying that.

The Intricacies of Student Loan Repayment

How Marriage May Affect Your Repayment

22:40 Emily: Okay, now we’re getting to a couple, maybe more niche kinds of questions. I get a question sometimes from people who are either married or they’re considering getting married, but they want to know how their status as being legally married or not is going to affect things like their tax returns and therefore their student loan repayment amounts. Can you just explain how that works? I’m thinking especially for someone who is maybe considering getting married, but wondering about the timing of it and wondering if they’re going to have to do married filing separately and these kinds of questions. So with taxes and student loans, what happens when you get married and you have student loans or your spouse has student loans?

23:25 Meagan: Yeah. When you get legally married, your tax filing status, when it comes to being on an income driven repayment plan matters. If we’re filing taxes joint with our spouse, and we’re on an income driven plan, it is going to factor in our spouse’s income. We not want that to happen. We may keep our finances separately. We may be trying to keep our payment as low as possible to pursue forgiveness. One strategy we talk about is considering filing separately and what this does, depending on the plan, if we file our taxes separate and we’re on an income driven plan, either pay as you earn income based repayment or income contingent repayment, then we’re allowed to exclude our spouse’s income and keep our payment off of just our own, which can be hugely beneficial.

24:18 Meagan: There are downsides to filing separate that need to be weighed, so you want to do an analysis of what is the cost difference between filing separate and joint? Because you’re missing out on some tax discounts and maybe some benefits. And how does that compare to how much it saves us over the course of the year in our payment? I never want someone to be scared to get married because of their student loans. We can always pivot. It’s just in the year of marriage. You need to know that being married will impact the income driven plan that you’re on and you might want to take a closer look at how you file before you file.

24:57 Meagan: Then the last thing I’ll mention on that is revised pay as you earn, which is 10% of discretionary income, that plan does not care if you file separate. It’s going to count spousal income or all household income regardless. If you’re on that plan and you don’t want your spouse’s income factored in, you might need to switch to either PAYE or IBR and that can kind of solve that problem to where if you don’t want income factored in.

Choosing a Repayment Program

25:25 Emily: Gotcha. Thank you so much for clarifying that. You said earlier there are four different programs plus PSLF you mentioned a few of them just now — for someone who’s looking at this landscape and wondering how in the world do I choose which one of these programs I should enroll in. How can they do that?

25:43 Meagan: A really simplified way to think about it is if you’re going the forgiveness route, you want to choose the lowest income driven plan available. So that would be revised pay as you earn or pay as you earn. If you don’t want spousal income factored in, that would be pay as you earn or IBR, if you don’t have access to pay as you earn. From an income driven plan perspective, that’s how I would think. If our plan is to pay off the loans, then we might want to be choosing one of those amateurized options like the standard 10 year until we can commit to refinancing, or, and this might dive into one of your other topics I know we had mentioned, but if our income is really low now, and we want to take advantage of an income driven plan, but we are not ready to throw a lot towards it, then starting out on REPAYE could be really advantageous because of its interest subsidies. What that means is it has discounts on how much interest accrues when you’re in repayment, but the payment itself might not be as much as it needs to be to cover interest and principle. So it keeps that balance from ballooning and instead of being in forbearance or pausing loans during that timeframe, interests won’t continue to grow in that way. I know we were going to touch on that. I might’ve skipped ahead, but let me know if you want me to slow down on that one again.

27:11 Emily: No, I think it just gives a flavor for how complex this decision is, and how your individual career path and income path will affect the decision that you make, plus what you’re doing in your personal life, whether you want to get married or not. Who should be working with someone like you? What’s the kind of person who should be working with someone like you to figure out what the best decision is? And who’s the kind of person who, well, it’s simple enough, you can figure it out on your own?

When to Consult a Professional

27:38 Meagan: Yeah, I think if you have any anxiety or stress about making this decision, and it’s overwhelming doing this research for yourself, in a one hour consult, we will have your plan put together. If you want to save the time, save the energy and the stress, that’s somebody who would be a good candidate to work with us. For someone who might not be such a great candidate, I think if you are already very familiar with all of these repayment options if for sure that you’re going to be refinancing or just paying it off really aggressively, then I think that would be more so like a quick, “Hey, yup, I think you’ve got the right idea.” And again, that would be if your balance is lower than your income and you’re ready to walk away from those federal flexibilities. I think we won’t be able to provide as much value there, but for folks who have balance is much greater than income, and they’re a little nervous about that decision or navigating that, we would be helpful in that situation.

28:40 Emily: Yeah. I guess the way I’m thinking about it is like how high are the stakes here. If they’re pretty high, if that loan balance is pretty high compared to your income, that’s the time when you need to be sure you’re making the right decision and it helps to get some professional guidance at that point. And like you said, if you can have a one hour session and get a firm answer, that’s going to do well for you for the next 10 years, or unless and until your situation drastically changes, then that is awesome peace of mind to pay for in just an hour. That sounds wonderful.

29:09 Meagan: Yeah, and just the strategy too. There’s a lot of technicalities that go into when to file, like when to certify income, how to reduce income. There’s a lot of things that go into it, so if you wanted to get really sexy with your planning, that’s where we could come into.

The Emotional Aspect of Repayment

29:24 Emily: Okay. Yeah. Great recommendation on that front. Another question occurred to me, pulling together some of the threads that we’ve mentioned so far in the interview, if you are deciding to go in an income driven repayment plan and your intention is eventually to have a lot of that balance forgiven. We mentioned earlier never make more than the minimum payment you’re required to. Don’t make payments during deferment. Don’t make more than the minimum once you’re in repayment. Emotionally, how does a person deal with potentially seeing their balance, plus the interest increase and increase and increase, which is the situation that some people would be in pursuing that route over those 10 years, or even 20 or 25 years, while they’re in those types of programs? How do they emotionally deal with looking at that until they do get to the forgiveness at the end?

30:13 Meagan: It is something I feel like you need to compartmentalize because we are taking a non-traditional approach to debt. I back that up with make sure you know that federal student loans are just not a regular debt. That’s one, that’s the biggest thing we need to remember that if we were going by traditional debt advice, and if this was a traditional debt, we would have the opposite mindset. It would be, let’s pay this off like our hair’s on fire. But the federal system has some really unique opportunities like income driven plans and forgiveness that we can take advantage of that really help us prioritize other financial obligations. Maybe instead of getting anxiety about the loan balance increasing, maybe focus more on your savings increasing. So you have a lot more cashflow to be able to throw towards your financial independence and as long as we’re working towards that forgiveness timeline the balance will grow, but there is an end in sight. That’s something that I think can bring some peace of mind and just knowing and remembering that federal loans are not a normal debt.

31:18 Emily: Yeah. Thank you for that insight. I think I’ll add to it. The real danger here is going into one of these forgiveness plans, one of these income-driven repayment plans, and taking advantage of the lower payment and then not having any movement in the rest of your financial life — not doing the investing, not doing the saving. That’s the real danger when you get to the end of the 10 years or the 20 or the 25. And yes, hopefully everything goes smoothly and the rest of the balance is forgiven, but you kind of have nothing on the other side of it because the whole time you’re thinking, “well, I still have my student loans, so I’m not going to be investing.” If you’re making the intentional decision to pursue an income driven repayment plan and pursue forgiveness, then your high priority needs to be, “yep I’m taking advantage of this, but at the same time, I’m going to be working on my finances over here. I’m going to be building up my portfolio, building my net worth.” And who knows what might happen in the future. If it turns out that the forgiveness was taken away or didn’t happen or something went wrong or something happened in your life, I don’t know, at least you have some net worth on the other side of the equation to potentially deal with the debt or whatever might be going on. It’s really just shoring up your finances in one spot rather than paying off the debt. Thank you so much for that insight.

What is Your Best Financial Advice for an Early Career PhD?

32:31 Emily: Meagan, I like to end all my interviews by asking for your best financial advice for an early career PhD, a graduate student or a PhD. That could be something that’s related to what we’ve talked about in this interview, or it could be something completely else, but would you please share that with us?

32:46 Meagan: I would say, I think my best coin of advice would just be to have a plan. And I know that sounds like so blah, but I think looking at your student loan situation or your financial situation head on is not as scary as it may seem. I think people avoid a lot of financial things because they’re not sure how to tackle it or they’re overwhelmed by it. I promise you, you will feel so much better if we just have a plan from the beginning. Because if you ignore it for three years, which sometimes I see, then we’re three years behind when we finally do pick up and start focusing on it. Having a plan is important for your peace of mind for your future self. It’s self-care to have a plan now. I think that would be what I’d part on there.

33:33 Emily: Yeah. I absolutely totally, totally concur about having a plan. I know looking back at myself when I was in graduate school, not having a financial plan. When you have so little income, so little wiggle room, you know you can never do everything you want to do with your money. You know that you can’t pay off your student loan debt and invest and do all the saving and all the lifestyle. You just have to prioritize and then triage the situation. So that’s what a plan helps you do and thank you so much for that advice.

Where to Find Meagan Online

Emily: Meagan, if people have enjoyed this interview and they’ve learned a lot from you and they want to potentially work with you, how can they get in touch with you? Or where can they learn more?

34:08 Meagan: Yeah. So studentloanplanner.com is a wealth of information. We write a lot of blog posts about anything student loan related. We have a podcast. And if you wanted one-on-one help, you can schedule a consult through our website, studentloanplanner.com.

34:22 Emily: Yeah. Wonderful. There are so many free resources available and it’s really nice to know that there also professionals like Meagan backing that up and there for you, if you need those consultations. Meagan, thank you so much for giving me this interview and joining me today.

34:35 Meagan: Thank you. It was fun nerding out with you.

Outtro

34:38 Emily: Listeners, thank you for joining me for this episode. PFforPhDs.com/podcast is the hub for the personal finance for PhDs podcast. There you can find links to all the episode show notes, and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, please consider joining my mailing list for my behind the scenes commentary about each episode. Register at PFforPhDs.com/subscribe. See you in the next episode, and remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is stages of awakening by Poddington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing and show notes creation by Lourdes Bobbio.

How to Curb Your Impulse to Keep Up with the Joneses

November 23, 2020 by Meryem Ok

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

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

Links Mentioned in This Episode

Teaser

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

Introduction

00:28 Emily: Welcome to the Personal Finance for PhDs podcast, a higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season seven, episode 12, and today my guest is Dr. Joy Lere, a licensed clinical psychologist and behavioral finance consultant. Our topic is the danger of keeping up with the Joneses. Joy explains how emotionally unsatisfying, and financially damaging, trying to keep up with the Joneses is, and that contentment can only come from within yourself. PhDs anticipating future income jumps would do well to put off lifestyle inflation for at least a few years after their salaries increase, which will give them more career and lifestyle choices in the future. This interview really hit home for me, as I reflected on my post-PhD life and finances and where my family is headed next. As you might have garnered from listening to previous episodes of this podcast, I had a pretty good handle on my finances by the end of grad school.

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

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

Will You Please Introduce Yourself Further?

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

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

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

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

Tell Us a Little More About Your Education

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

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

Can You Define “Keeping Up with the Joneses”?

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

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

Does “Keeping Up” Make Anyone Happier?

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

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

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

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

The Hedonic Treadmill

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

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

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

12:06 Joy: That’s fabulous.

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

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

13:28 Joy: Yes. Yes.

Keeping Up with the Joneses Affects Your Finances

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

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

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

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

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

You’re Going to Be Living Three Steps Behind

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

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

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

Commercial

19:44 Emily: Emily here for a brief interlude. If you are a fan of this podcast, I invite you to check out the Personal Finance for PhDs Community at pfforphds.community. The Community is for PhDs and people pursuing PhDs who want to take charge of their personal finances by opening and funding an IRA, starting to budget, aggressively paying off debt, financially navigating a life or career transition, maximizing the income from a side hustle, preparing an accurate tax return, and much more. Inside the Community, you’ll have access to a library of financial education products which I add to every month. There is also a discussion forum, monthly live calls with me, a book club, and progress journaling for financial goals. Basically, the community exists to help you reach your financial goals, whatever they are. Go to pfforphds.community to find out more. I can’t wait to help propel you to financial success. Now, back to the interview.

Present Lifestyle Choices Impact Your Future Comfort

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

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

Saving During Graduate School

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

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

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

25:19 Joy: Absolutely.

How to Cultivate Contentment in the Now

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

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

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

Take Ownership of Social Spending

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

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

29:17 Joy: Change your status symbols.

Happiness is Not Contingent on What You Are Chasing

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

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

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

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

The Power of “No”

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

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

How To Connect with Joy Lere

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

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

Best Advice for an Early-Career PhD

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

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

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

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

Outtro

34:44 Emily: Listeners, thank you for joining me for this episode. Pfforphds.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, please consider joining my mailing list for my behind-the-scenes commentary about each episode. Register at pfforphds.com/subscribe. See you in the next episode! And remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is Stages of Awakening by Podington Bear from the free music archive and is shared under CC by NC. Podcast editing and show notes creation by Meryem Ok.

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

November 16, 2020 by Lourdes Bobbio

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

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

Link Mentioned in this Episode

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

Teaser

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

Introduction

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

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

Will You Please Introduce Yourself Further?

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

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

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

What Are the Common Money Mindsets of PhDs and Academics?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How Do You Identify Your Money Mindset?

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

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

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

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

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

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

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

Commercial

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

How Do You Change Your Money Mindset?

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

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

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

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

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

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

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

Chris’s Own Money Mindset Journey

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

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

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

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

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

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

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

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

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

Chris’s Business

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

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

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

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

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

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

Outtro

34:24 Emily: Listeners, thank you for joining me for this episode. PFforPhDs.com/podcast is the hub for the personal finance for PhDs podcast. There you can find links to all the episode show notes, and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, please consider joining my mailing list for my behind the scenes commentary about each episode. Register at PFforPhDs.com/subscribe. See you in the next episode, and remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is stages of awakening by Poddington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing and show notes creation by Lourdes Bobbio.

Working Before Starting a PhD: The Financial and Career Advantages

November 9, 2020 by Emily

In this episode, Emily interviews Diandra from That Science Couple, a PhD student in nutrition at the University of Wisconsin at Madison. Diandra went straight from undergrad into a funded master’s program, then worked for six years before starting a PhD program. She lists the career and financial advantages to working before embarking on a PhD—and the disadvantages. Diandra and her husband are currently pursing SlowFI (Slow Financial Independence) while she is in her PhD program, and she gives excellent financial advice at the conclusion of the interview.

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Links Mentioned in the Interview

Teaser

00:00 Diandra: I said that I never want to retire because I love research. And then I kind of shifted to, well, if money’s not the determining factor in the position that I choose, then we can spend more time with family. We can travel more and be open to different opportunities so that maybe money is more of a tool rather than a requirement. And if I want to donate my time to work on some really awesome, amazing lifestyle research that maybe doesn’t have much money in the budget to pay me, then I can choose to do that.

Introduction

00:40 Emily: Welcome to the Personal Finance for PhDs podcast, a higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season seven, episode 10, and today my guest is Diandra from That Science Couple, a PhD student in nutrition at the University of Wisconsin at Madison. Diandra went straight from undergrad into a funded master’s program, then worked for six years before starting a PhD program. She lists the career and financial advantages to working before embarking on a PhD. And the disadvantages. Diandra and her husband are currently pursuing slow financial independence while she is in her PhD program. And she gives excellent financial advice at the conclusion of the interview. This interview came about because I noticed That Science Couple tweeting about financial independence. I checked out Diandra and her husband’s website and noticed that she is a PhD student. So I decided to invite her on the podcast. It turns out that Diandra is a long-time listener of this podcast.

01:41 Emily: I literally did not know that until just before we started our interview. So I have a message for other long-time or short-time listeners, i.e., you. I am actively looking for interviewees right now. If you have personal finance knowledge or a skill that you want to teach through an interview, I would love to have you on. It’s absolutely fine if you gained this knowledge or skill from personal experience. So don’t shy away from volunteering because I use the word teach. Go to pfforphds.com/podcast to volunteer to be interviewed. Do not make me hunt you down on Twitter. Also, if you would like to hear me interview a particular person on the podcast and can help me make that connection, please send us both an email or tag us on Twitter. I’m actually looking for interviewees who can speak to two topics in particular. One, the proper tax treatment of travel and research grants. Two, exactly what kinds of income-generating activities are and are not permissible on F1 and J1 visas. If you know a professional who works in either of those areas in the U.S., please email me that recommendation. I hope to feature many of you on this podcast. Without further ado, here’s my interview with Diandra from That Science Couple.

Will You Please Introduce Yourself Further?

02:57 Emily: I have joining me on the podcast today Diandra from That Science Couple, and I was so pleased to run across her and her brand on Twitter, that’s where I found her, to find another science couple like me and my husband, who are passionate about personal finance. So Diandra, it’s a real pleasure to have you on today. Would you please introduce yourself a bit further to the listeners?

03:18 Diandra: Okay. Thank you, Emily, for having me today. I’m a long-time listener to the podcast. I actually listened before I got into my PhD program. So that was a bonus. And my name is Diandra and I’m a second-year student, PhD student, at the University of Wisconsin-Madison in nutritional sciences. I have a Master’s in Cell and Molecular Biology from Towson University. And before I started my PhD program, I worked in the industry from technician to scientist in the field of late-stage cancer diagnostics for six years. I’ve held five positions at four different companies over the six years and met my future husband, Brad from That Science Couple, at one of them. Each move was growth and financially motivated. And I’d like to say that it all started with a simple 1% cost of living increase.

Career Advantages of Working Before School

04:02 Emily: Wow. Okay. Very fascinating. So I heard in that description that you had a pretty big change in fields between what your master’s was in, what you worked in, in industry, and then what your PhD is in. So maybe we’ll get into a little bit why that happened. Because the topic that we’re going to discuss today is that path that you took between your master’s degree and your PhD and what the advantages are of working for at least a year or two years, few years, before you start a PhD program. The financial advantages, the career advantages. So let’s dive into that. You obviously have experience in this area, but you’ve probably also observed peers as well. So what are the career advantages that you perceive for working for at least some period of time between, you know, the first round of training, whether that’s undergrad, whether that’s a master’s, and then embarking on the PhD program?

04:52 Diandra: All right. So one of the big career advantages that I noted was that you’re able to test the waters. So you can gain experience before committing that five or more years to a program. And you can also determine what you don’t want in a career rather than like, focusing on what you wanted. So as you go through, you might identify different work environments that don’t click with you or ones that you like really do like, and that can help you channel your focus for your PhD program and what career you would want after that. You also are able to learn about the business side of things. You could go through different phases to take a project from beginning to completion. You work in diverse teams. So I specifically had worked in several different companies, and that collaboration either with inside my company, or to other branches, was very valuable, I think as well.

05:47 Diandra: It also trained me how to have proper documentation. So this is very useful for a PhD program. A lot of the beginning part of work for my program right now is all acquiring samples and making sure that we have good QC metrics and that we’re starting from a level basis for all of our samples. And then also I learned a realistic view on the cost of research. So I did a lot of ordering with my jobs, and then I could see what it would take to run the samples, how many times, what you needed for different replicates and then including like the final, like analysis cost as well at the end. So I think that was really important to get a realistic view of what a project I could propose in the future might cost.

06:34 Diandra: Also, another career advantage is that I was able to network early. So when you work in the industry, every time I changed jobs, I would go on LinkedIn and I would request my coworkers so that I could follow them after I had moved on. And they became references for my future applications. I gave several of them references as well. And then I also gained new mentors through working before going into my PhD. And they’re spread across a variety of fields. So now when I come back from my PhD, I’ll be able to see where they are and then potentially choose a path that maybe they’re already on or they switched to during the meantime. And then, also, I believe that I bring something unique to my PhD from working in the industry. It definitely helped me to improve my PhD application because I had a series of projects that I completed. Products that I helped launch. So that was something that I was able to include. And then I acquired additional skill sets, knowledge, and problem solving. And I’m definitely a lot more confident this time around, and I have more life experience. So when they throw a curve ball at you, or there’s an issue with your dissertation, then I’ve already been through so many times when we’ve had to switch projects or stop in the middle and change course and correct from there.

Projected Future Career Advantages, Post-PhD

07:55 Emily: So clearly there are advantages to you as the future PhD applicant, like having a stronger application, once you do decide to go for those kinds of programs. There are advantages to you in terms of knowing what you want out of your own career, whether or not a PhD is going to fit in that, and what you want to do after the PhD. And so you’ve described what you’ve experienced so far as, you know, your path to getting into the PhD program. I wonder if you can project forward, what are going to be the advantages of having worked prior to doing the PhD, once you’re looking for your first post-PhD position. What do you imagine will be the advantages then?

08:33 Diandra: Yeah. So one of the advantages then is that I already have this network built in. So I’ve tried to collaborate potentially with like my former colleagues and so far it hasn’t gone through. But when I’m looking towards the future, there are potentials that if I was a PI, that I could actually collaborate with them more. So it being like across industry is a good connection to have. So they can give you a discount on your study as long as you’re willing to share the information. So I think that’s a big proponent and I already have some of my former colleagues that are keeping in touch with me now and seeing like where I am. So I know that they’re vested in me and that if I were to say, “Hey, I need to start a team.” I have several people who have already told me, you know, “Just let me know when and where.” And they would be willing to make the leap and come join me potentially in the future.

Financial Advantages to Working Before the PhD

09:31 Emily: Wow, that’s fantastic. I also think that it takes a variable out of the equation for your future employers of, can this person be successful in my setting, an industry setting and not just an academic setting. And that question has already been answered, especially for like you had maybe a longer period of work experience, not just like a year or two. That’s already been well demonstrated for you. Okay. So we’ve covered the career advantages. This is not a career podcast. This is a financial podcast. So what are the financial advantages to working prior to starting a PhD program?

10:05 Diandra: Okay. So this was a big one for us because it took a lot of thought into, you know, why go back when I’m already established in my field, right? So it will make a big impact on you financially. And so I think the basis is just knowing what you’re getting into. Knowing that you’re going to have a few years of low income, but you can weigh that versus the potential future gains. So originally the program that I was thinking I wanted to go into would have given me a similar skillset and would not have provided any leverage up in comparison to where I already was. But then this past year, as I was developing and choosing which lab I wanted to go into, I was able to identify like, look, this is a gap in my knowledge, this is a skill that I don’t have.

10:53 Diandra: So if I add this, and it was data analysis, so if I add data analysis, then I can be potentially location-independent. I can also add this as like potentially a part-time job as well. So I could do research and then do data analysis on the side. So it’s a side hustle potential as well. So, it brought a lot of additional motivation to the PhD that I’m not going to just go out and make the same money that I was making before, but I can actually leverage that further in the future.

How Did Finances During Work Help with the PhD Transition?

11:26 Emily: Yeah, absolutely. I’m also thinking about, you know, let’s say traditional PhD student, you know, straight out of undergrad, straight of a master’s degree, early twenties, not a lot of capital, maybe a lot of student loan debt. What were you able to do in your finances in those years when you worked that helped you once you transitioned into the PhD program?

11:49 Diandra: Yeah, that’s a great question. So financially I didn’t have any student loan debt because my parents paid for my bachelor’s degree, which was great. And then when I got my master’s, I said, I’m only going to do it if they pay me to do it because I wasn’t quite sold on the need for it yet. And it was just at a transition point where I had an opportunity to stay on as a master’s student with my current research, my undergrad research. So it just kind of flowed right through. And I was able to get a TA position that covered it and then paid a small stipend. So I wasn’t able to pay off any, you know, credit card debt or things like that during that time. But once I started working, I was able to over the years level that out.

12:34 Diandra: So I had $5,000 of debt that I had to level out. And then Brad had also had some minor student loans that he was able to pay off during that time. So we go from a negative net worth of, you know, five, 10,000 to a positive net worth. And starting to open that 401k was a turning point for me because I had always started saving cash. And I had this number, this like specific amount that I could always get to my bank account. And then something big would happen. Like I would have a car repair or I would have a medical expense or something like that. And then I would have to, you know, bring it down again and start over in the savings. So working helped me to start investing earlier in comparison to some of my counterparts that are in the PhD program with me now.

13:28 Diandra: And I have that capital there that can grow during my program. So I was able to open a 401k, an HSA, which was very crucial. So I don’t have a ton in there since I was using it as I was contributing. But it’s been able to sustain me so far. And I’m hoping that after my program, that it will either still be there or it will have just covered all my medical expenses during the program. So I don’t have to worry, which is really, really useful. And then I’ve also started a Roth. So I’ve been able to do that post-tax money as well, that I will be able to access earlier. So if we choose to be, FI [financially independent], take time off you know, work remotely, or try to do more traveling, then I’ll have that money that I’ll be able to access since I’ve already paid the taxes on it.

14:22 Emily: Yeah. I call being able to start investing, and/or pay down debt, before you start graduate school. I call it having a financial wind at your back, right? Like if you just get that little nest egg started right at the beginning of graduate school before graduate school, and then you take whatever five plus years for your PhD training, even if you don’t add any more money to that, it’s something that it can be growing alongside you as that time passes. So it’s fantastic to be able to have that.

Common Objections to Working Before Grad School

14:50 Emily: Something I hear from people who are debating with themselves about going directly from undergrad into graduate school, debating with themselves about that versus working for a while. I hear two things. One is I’m going to get used to my financial lifestyle on my industry salary, and then it’s going to be too hard to live on a PhD stipend. So I should just go directly and never have that, like lifestyle intermediary. That’s one potential downside or whatever. The other one is that they’re concerned that their academic abilities, basically their ability to do school well, is going to deteriorate if they’re working for more than a year or two. How do you feel about those two objections?

15:36 Diandra: Yeah. Okay. So the first one, the financial aspect. I do agree. It can be really easy to get swept up in there. So I think for us, like the turning point was that we didn’t want to start like putting off our future. So we wanted to start traveling now and we didn’t want to say, “Oh, when we’re 65. That’s when we’ll start traveling.” So what we did initially was, when we started dating, moved into this nice apartment together, started saving for our first international vacation. And then when it came time to renew the release, it was going to go up. And we said, look, we can either do the vacation when we planned, or we can live in this nice apartment. And we looked at each other and I was like, I don’t want to live here. I would rather have the adventure that we planned than live in just a nice, shiny apartment that I can’t afford to have parties because I spent all my money on rent.

16:37 Diandra: So that kind of got us to stop with the lifestyle inflation. To cut back early on. And then we did back to back three years in a row, we did international trips for our birthdays and then just for the summer. So it was really nice. Like each one was only two weeks at a time, but instead of paying that extra to the nice, shiny things, we decided to pay it towards experiences. So I think if you were to work, you can still do that. But then like, what are your values? Like, does your spending align with your values? So if you value having a nice house for your children to grow up in, then that’s fine. But if you value adventure, then you don’t need to spend as much on your rent. So I think that that can be can be difficult to go up against like financially and having that inflation. But also every time I got raises, I pretended like I was still making the money that I was making in my master’s. So of course it was slightly more. But what I did was I took that extra when I got the raise, when I, the bonus and I put that into my savings and my investments, and I said, “I don’t want to see that money at all.” So I had that mindset that like, I’m still living on this fixed income, and no, I don’t have the extra to spend.

18:03 Emily: Yeah. I think that’s it’s a particular application of the advice live like a college student, live like a grad student, live like a resident, which is, if you are anticipating a future income decrease live on that future income. This is the same advice you hear, like people who are, for example, going to buy a house. Well, can you live on the mortgage payment that you’re going to make in the future? You know, is that possible for you in your budget? So like sort of projecting to your future, live on what that is, so that you make the adjustments in advance instead of having a real sudden, real abrupt, real painful lifestyle decrease when you enter, you know, something like graduate school. So I really liked that you took that approach of especially keeping your living expenses, your fixed expenses, on the lower side as if you were still a graduate student or will again be a graduate student. And saving the increase and also spending it on experiences. Because it’s not really lifestyle inflation, unless I guess those experiences become habitual for you.

Commercial

19:01 Emily: Emily here for a brief interlude. On Saturday, November 14th, 2020, I’m facilitating a new workshop: Chart Your Course to Financial Success, and you’re invited to attend. The central question this workshop will help you answer is, What should my singular financial goal be right now, and how should I best pursue it? This particular instance of the workshop is just for funded grad students. Future dates will be for post-docs and PhDs with real jobs. You can learn more and sign up at pfforphds.com/chart. That’s P F F O R P H D S.com slash C H A R T. The deadline to register is Wednesday, November 11th. So don’t delay. Now, back to the interview.

Financial Independence and Early Retirement (FIRE)

19:46 Emily: You discovered FIRE, it sounds like, in your time in industry. Financial Independence and Early Retirement. How is that pursued, or how are the principles still carrying on for you in graduate school?

19:58 Diandra: Yeah, so our basis going into graduate school was very important to see where we are and what we still need to do to get to potentially FIRE, or if not, just financial independence. So individually my husband and I are both 25% of the way towards our FI numbers. So that’s good. It means we have money that can grow. And then while I’m in my program, we’re working on our savings in two different ways. So instead of me trying to do everything and him trying to do it all separately, my focus is more on the post-tax money. So I make sure to pay myself first, every paycheck. And I have 25% of my stipend that will go in towards savings and individual investments. And then I also have another 10% that goes into a 457, and I’m treating this as a Roth account.

20:53 Diandra: So I’m paying the taxes now while I’m in a lower tax bracket in comparison to what I expect to be when I graduate. And then, so what Brad is doing is the kind of opposite. So he’s focusing on the pre-tax savings. So he’s also a university employee, but not a graduate student currently. So he’s been able to ramp up his savings and utilize a 457, 403(b), and HSA. And then while he has a moderate salary, he’s living on a similar income to me. So everything above that, instead of inflating our lifestyle, he’s saving that additional amount.

How Do You Have Access to a 457?

21:33 Emily: I was surprised to hear that you have access to a 457. How do you have access to that?

21:40 Diandra: So I have access to that through the UW system. So I actually didn’t know I had access to it in the first year of my PhD program. So I was doing like those micro investing apps. And then like, I would randomly put money into my individual retirement account, my IRA. So when Brad had gotten a job with the University, he saw all the benefits and explored it fully. And then he’s like, so I’m looking at these details. And it says that, aAt UW, that graduate students are considered employees. So since we had that label, we do have access to a 457. And I was able to go through and say, I could have it pre-tax, or it could have it post-tax. But since I know that I want to work for a few years, at least once I graduate, I’ll be in a higher tax bracket then. And so I’d rather pay the taxes now. So the whole point of it is that maybe we can get together funds that the whole first five years, when you become FI and you leave work is, it’s really hard to access your funds. So if you do like a Roth conversion ladder, that takes five years. So my aim was, what can I do now to build that initial five-year cash cushion?

Tracking Finances and Navigating Lifestyle Expectations

23:03 Emily: It sounds to me from the way you described that, that you and your husband either keep separate finances or like sort of track things kind of separately. Is that right?

23:11 Diandra: Yeah. So we don’t have any joint accounts but we do, you know, send money back and forth to each other all the time. So we keep it separately, and it’s good because then since we both did work around the same amount of time, that we have that money to grow. But we know that jointly, like if we’re going to go and buy a house, we can pull from both accounts. So like the HSA, since we got married this year, he’s going to switch over to a family plan. So I can’t contribute to my HSA during my program, but he’ll be able to contribute double. So it’s separate, but we joined them together. And like, when we look at our numbers, we’ll do both. So what do we individually and what do we combined have?

23:59 Emily: Yeah. And I think it’s also kind of a great, even though you’re keeping separate finances, it sounds like your lifestyle level you’ve agreed on. And you’re both living at this kind of grad student stipend ish level, and just doing a lot of saving above that. Because it sounded like you were saving 35 or maybe more percent of your stipend income, which is very high, very impressive. You must be keeping your lifestyle expenses quite low.

24:22 Diandra: Yeah. Yeah. So when we moved to Wisconsin from Maryland, actually, the last bonus that I got from my job paid for us to move across the country. So that was nice. It was just a net zero after that. Unfortunately I didn’t get to save any of it, but that was fine. So what we did when we moved here is we said, let’s pick an apartment that we can afford on my stipend. Since he was moving with me and for me, and he didn’t have a position to start with here. So we just immediately said, what is the lowest that we can find? And then like, you know, can we go slightly above that? You know, you want to live in a decent neighborhood, something that’s safe. But we were just very lucky. We got an apartment sight unseen.

25:12 Diandra: But it was actually only slightly higher than our rent back in Maryland. So we were able to just like, keep that nice low rent amount there. So that helped. And then one of the big things for us is that we do track all of our spending. We have a calendar. And so every day when we spend money, we have to write it on the calendar and then stare at it for the rest of the month. So it’s more like, was that purchase worth your life hours because that’s what you did and now you have to admit it. So we’re not like as stringent on what we spend, but like we always go into the grocery store with a budget. We say, we’re going to spend a hundred dollars on all our groceries. And we put every item in there individually. So we know when we’re hitting the cap. And if it’s only $5 more, well, that’s fine, but you don’t want to blow your budget. Like if you just don’t track it, then you can easily spend a lot more than you intended.

How Do You Describe SlowFI?

26:13 Emily: Well, thank you. So I actually have never heard that tip before of writing your spending on a calendar and then looking at it for a month. That’s actually a really great one. I understand that you identify as being on a SlowFI track right now. And I actually wrote a post recently on the flavors of five. So there’s all these different versions of FIRE, SlowFI being one of them. How do you describe SlowFI and yourself on that path?

26:38 Diandra: Yeah, so SlowFI is a term that was coined by the Fioneers. And so give like three big components. So they say it’s like embracing your dreams. So working in positions that will motivate you to like add to the world. To give back. Also being more intentional. So instead of just, I’m gonna work, work, work, work, work, you are in whatever you’re doing and that you’re actually like focusing on it and it speaks to you. So your position, your ultimate career should give you energy rather than take energy away from you. So I thought that was really, really key for the SlowFI movement. And then it’s also against that consumeristic kind of viewpoint of our country, where as you gain more money then you just buy more things. And then more things means more upkeep and being like environmentally-conscious.

27:38 Diandra: So for us, we just want to focus on the journey. So I think of it as what are you running towards instead of what are you running away from? So initially, we didn’t like our jobs, we weren’t satisfied. So we wanted to just get to FI so that we could take a break. But actually it’s really interesting with the pandemic right now that we’ve had glimpses of what life would be like if we were FI because we were fully remote for a while and we made our own schedules and it was interesting to see what do we choose to do with those extra hours. So finding that out now, while we still have incomes is better than leaving your job entirely, and then not knowing what you want to do, because if you say, I want to sip mojitos on the beach, that’s great.

28:30 Diandra: But how long is that going to last? So, I mean, for us, it was a really big shift when we met, I said that I never want to retire because I love research. And then I kind of shifted to, well, if money is not the determining factor in the position that I choose, then we can spend more time with family. We can travel more and be open to different opportunities so that maybe money is more of a tool rather than a requirement. And if I want to donate my time to work on some really awesome, amazing lifestyle research that maybe doesn’t have much money in the budget to pay me, then I can choose to do that. So that’s what SlowFI brings to us.

29:15 Emily: Yeah. I think the SlowFI path is probably one that’s quite appealing to PhDs. I know it’s appealing to me. Well, one, because it’s kind of necessary if you’re going to do graduate school at some point, you’re going to slow down your FI pursuit during that period. Almost certainly. It’s going to add some years. Like you said, though, earlier, there is income upside on the backside of the PhD, depending on, you know, what field you’re in. But I think PhDs also by and large have more opportunity to create work that they really love, that they’re really passionate about. That’s more, it goes with the territory, I think, of pursuing a PhD is that you found something that you love. And so yeah, work being part of your lifestyle long-term could still be attractive. Finding a job that you like, doesn’t have to be necessarily the most high-paying. Again, you don’t go into research if you want to be paid super, super, super well. You are talented enough to do other things if that’s your, you know, your primary motivation. So yeah, I think the SlowFI pursuit goes along very, very well with a lot of things that are common personality-wise to academics.

Best Advice for Another Early-Career PhD

30:15 Emily: So Diandra, as we wrap up here, would you please tell us your best financial advice for another early-career PhD?

30:23 Diandra: Sure. My best financial advice would be to fight lifestyle inflation and determine your value of enough early on. So this will be easier than trying to cut back, but instead use your bonuses or raises to supercharge your investments and move you along the path to financial independence.

30:44 Emily: So you’ve used language a couple of times in this interview that I have recognized as being from Your Money or Your Life, which I am currently reading. Would you recommend that book or how has that book shaped your journey?

30:55 Diandra: Yes. Vicki Robin is amazing. I would highly recommend Your Money or Your Life. She’s the one that talks about calculating your life-hours. And so how much money you make, and then how many hours does it take for that? So, when I was working at the startup company, I was driving an hour and a half down to the company and hour and a half back. So it was three hours. So instead of saying I had an eight-hour day, I would have to say that I had an 11-hour day, and then I needed time to wind down. So it turned into a 12-hour day. And then I had car maintenance. So then, the money that I got paid per hour started getting ticked off because of all these additional costs that I didn’t think of initially. Because you think of your hourly rate is one flat rate, but I would highly recommend it if you want to get more context and see that, is your job really paying you what you think it is or are you trading too many of your life-hours for that paycheck?

That Science Couple Blog

32:01 Emily: Yeah, absolutely. Thank you so much for that recommendation. And finally, tell us a little bit more about That Science Couple and what you’re doing with the blog.

32:08 Diandra: All right. So That Science Couple is a blog between Brad and I. And it was originally born out of a newsletter that we had written for our friends and family. So a couple of years ago, we had started our journey to becoming plant-based and we’ve used evidence-based nutrition. So there was the documentary Forks Over Knives, which I would highly recommend, and also the website nutritionfacts.org, which really motivated us to say like, look, there’s some science behind nutritional choices and that it’s not all about the macros. So we had noted that a lot of our friends and family didn’t understand the nitty-gritty details of this. And we wanted to start breaking down those complex ideas and topics into more relatable terms. So when we started our blog, we wanted it to be more holistic. Dr. T. Colin Campbell, his whole idea is treating us as like whole people.

33:07 Diandra: Also Dr. Dean Ornish does the same thing and there’s several other physicians that if we just look at one part, then we’re missing the whole picture. So what I really wanted to get across with our blog was that we can’t just talk about nutrition. But we are here because nutrition is important, but finances and having healthy finances is super important to having a lifestyle that, you know, supports health. And then our other point was the environment. So we didn’t want to tax the environment a lot. Brad was an environmental science major and got his master’s as well. So he wanted to talk about sustainability, and then that grew into, well, what makes a sustainable life? So when I was working as a scientist, it wasn’t sustainable. The commute wasn’t sustainable. The hours, the stress wasn’t sustainable. So how does that branch out further than just your impact on the environment, but your impact on you, personally?

34:09 Diandra: So those are the different categories that we’ve chosen to talk about on our blog. And, overall, we just want to provide a place for people to get information. So if you love those, you know, nerdy little citations and you want to see the references, like we’re going to be the place to go to, but then like personal growth is just like a free reign. So we had talked about The Value of Enough was a recent post that we put out. So if you’re trying to determine, you know, what makes your life sustainable, then maybe that’s a post that you would be interested in, too.

34:45 Emily: Yeah. We’ll link that post from the show notes. I can very easily see how those three topics interlock with one another and support and complement each other. So sounds wonderful. I’ve of course been to your blog and would recommend that everyone else go and check it out. And Diandra, thank you so much for joining me today and giving this wonderful interview.

35:04 Diandra: Yeah, thanks for having me. It was great.

Outtro

35:07 Emily: Listeners, thank you for joining me for this episode. Pfforphds.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, please consider joining my mailing list for my behind-the-scenes-commentary about each episode. Register at pfforphds.com/subscribe. See you in the next episode! And remember, you don’t have to have a PhD to succeed with personal finance. But it helps. The music is Stages of Awakening by Podington Bear from the free music archive and is shared under CC by NC. Podcast editing and show notes creation by Meryem Ok.

Why and How to Increase Your Retirement Account Contribution Room

November 2, 2020 by Emily

In this episode, Emily presents why and how you should increase your retirement account contribution room. She gives a compelling compound interest example calculation that illustrates why you should start investing early in your career and reviews the types of tax-advantaged retirement accounts you might have access to and why you should use them if you can. If you would like to increase your available contribution room in tax-advantaged retirement accounts and you are self-employed, the last part of the episode is for you. You can open a tax-advantaged retirement account through your business, even if your business is new or tiny or unincorporated. Emily compared the three most popular self-employment retirement accounts and evaluated which is most advantageous for a solopreneur side hustler, as so many PhDs are, in a video training she recently added to the Personal Finance for PhDs Community. In this episode, she tells you about the training, what motivated her to create it, and how to avoid making the same mistakes she did with her self-employment retirement account. You can access the training by joining the Personal Finance for PhDs Community at PFforPhDs.community.

Links Mentioned in This Episode

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

This is Season 7, Episode 9, and today I don’t have a guest but rather am going to tell you why and how to increase your retirement account contribution room.

I’ll give you a compelling compound interest example calculation that illustrates why you should start investing early in your career. I’ll review the types of tax-advantaged retirement accounts you might have access to and why you should use them if you can.

If you would like to increase your available contribution room in tax-advantaged retirement accounts and you are self-employed, the last part of the episode is for you. You may not be aware, but you can actually open a tax-advantaged retirement account through your business, even if your business is new or tiny or unincorporated.

I compared the three most popular self-employment retirement accounts and evaluated which is most advantageous for a solopreneur side hustler, as so many PhDs are, in a video training I recently added to the Personal Finance for PhDs Community.

In this episode, I’ll tell you about the training, what motivated me to create it, and how to avoid making the same mistakes I did with my self-employment retirement account. You can access the training by joining the Personal Finance for PhDs Community at PFforPhDs.community.

I highly recommend going through the training if you are looking for more retirement account contribution room. It might even convince you to start a self-employment side hustle for that express purpose. This episode is specific to the US and is not tax, legal, or financial advice for any individual.

Without further ado, here’s my episode, on why and how to increase your retirement account contribution room.

Why You Should Invest for Retirement Early in Life

To build my case, I need to start by showing you why you should invest for retirement early on in your life.

There is an example I use in my seminars that makes a big impression on at least a few people in the audience.

This is a compound interest calculation, and you can follow along with it and play with some numbers of your own using a compound interest calculator such as the one at Money Chimp, which is linked from the show notes.

Compound interest calculations model the exponential growth of money over time with a given rate of return. It’s a way of modeling the returns you can get in the stock market, for example, though this calculation has a steady rate of return and your rate of return on stock investments would fluctuate quite a lot year to year. It’s a good model if you’re calculating returns over long periods of time.

So here’s the example:

Let’s say you’re able to save and invest $250 per month. That’s 10% of a $30,000 per year stipend or salary. You have no starting balance with your investments, and your money gets an average annual rate of return of 8%. You do this over five years, for example while you’re in grad school or a postdoc.

After five years, you have contributed $15,000 and your money has grown to $18,369. That might not sound too impressive yet but just wait!

Now, let’s take that $18,369 and let it keep growing with an 8% average annual rate of return. You’re not going to add any more money to this particular pot. Let it ride for 50 years this time.

The balance in your investment account has now grown to $990,000. You heard me right! The money you contributed over just five years has, given enough time and a good rate of return, grown to just shy of one million dollars! This is the power of compound interest.

If you’d like to read this example for yourself and dissect it a bit, I’ve linked an article from the show notes about all the assumptions and so forth.

Here’s the takeaway point, though: Don’t discount any amount of money you are able to invest during grad school or your postdoc. Whatever money you manage to invest early in life is going to have an outsized impact on your wealth in your older years. So start early and save at as much as you reasonably can.

Of course, you’re not limited to investing for retirement to an early five-year period of life. I hope that you will continue to invest throughout your career in larger sums than $250 per month. That doesn’t take away from the importance of starting early.

Why You Should Use a Tax-Advantaged Retirement Accounts

That’s the case for investing in general. Now I’m going to tell you why you should use a tax-advantaged retirement account for your very long-term investments.

What do I mean by tax-advantaged retirement account? Basically, the federal government gives a tax break to incentivize people to fund for their own retirements in particular. Money that has been contributed to a tax-advantaged retirement account is shielded from income and capital gains taxes.

These tax-advantaged retirement accounts go by many names, such as Individual Retirement Arrangement or IRA, 401(k), 403(b), 457(b), Thrift Savings Plan or TSP, and there are even more.

If you invested in a regular taxable investment account, you would pay your full income tax on the money you invest, plus every year there might be some small bites taken by income or capital gains tax. How large the tax bites would be depends on what you’re invested in, how long you’ve held the investment, and how high your overall income is.

Instead, with a Roth tax-advantaged retirement account, you pay your full income tax on the money you contribute, and then the money grows tax-free while it’s in the tax-advantaged retirement account and you can withdraw it in retirement without paying any income or capital gains tax.

A traditional tax-advantaged retirement account allows you to deduct your contributions to it from your taxable income in the year you contribute. The money grows tax-free while in the tax-advantaged retirement account, and then you pay ordinary income tax on the withdrawals in retirement.

It is a great strategy to use a tax-advantaged retirement account for money that you’re sure you won’t need access to until your retirement. While in any given year the tax you might pay on investments in a regular account might be fairly small, the cumulative effect on your investment balance over decades of this is a bit like a death by a thousand cuts. Plus, once you are in your peak earning years, it’s quite a valuable tax break to be able to deduct your contributions to a traditional tax-advantaged retirement account.

The tax break on the growth in a tax-advantaged retirement account alone typically amounts to tens or hundreds of thousands of dollars over the course of an investing lifetime. This again demonstrates the power of compound interest, because the biggest part of the difference is not in how much you pay in tax, but in how much that money could compound and grow if you were able to leave it invested instead, which is what a tax-advantaged account does.

Add to your investment balance some hundreds of thousands of dollars more if you are able to use Roth and traditional tax-advantaged retirement accounts to selectively pay ordinary income tax in retirement and/or your lower-earning years instead of in your peak earning years.

What Is Contribution Room?

I hope I have convinced you of the power of investing and specifically inside a tax-advantaged retirement account.

Now, I’ll define a term I’m going to use quite a bit in the remainder of this episode: contribution room.

Contribution room is the maximum amount of money you are permitted to contribute to a tax-advantaged retirement account in a given year.

For example, graduate students and postdocs who are not employees of their universities or institutes are not extended retirement benefits, so their only tax-advantaged retirement account option is an IRA. If you are under age 50, the annual contribution limit to an IRA is $6,000 in 2020.

Graduate students who are employees of their universities or institutes are only very rarely extended retirement benefits; it’s worth checking into but don’t get your hopes up.

If you are an employee in the private sector, it’s typical to have access to a 401(k), perhaps even with a matching program. If you are under age 50, the annual employee contribution limit to a 401(k) is $19,500 in 2020. Your total contribution room between a 401(k) and an IRA is $25,500.

If you are an employee in the non-profit sector, such as at a university, it’s typical to have access to a 403(b), perhaps with a match or a fixed contribution by your employer. If you are under age 50, the annual employee contribution limit to a 403(b) is $19,500 in 2020. You might also have access to a 457(b). If you are under age 50, the annual employee contribution limit to a 457(b) is $19,500 in 2020. Your total contribution room between a 403(b), a 457(b), and an IRA is $45,000.

You can see that the contribution room available to you as a full-time permanent employee is much, much greater than if you are a fellow or graduate student. This is why there is such a focus on contributing to 401(k)s and similar and less so IRAs.

Now we come to the question of how to create more contribution room. Of course, you only need more contribution room if you are currently maxing out the contribution room available to you.

When I was in grad school, I never maxed out my IRA. So if you are maxing out your IRA as a grad student, please hear me: You are a rock star. I am not telling you that you have to contribute more. I’m only going to show you how you can if you already want to.

If you are maxing out a 401(k), etc., you are also a rock star. But if you want to contribute even more to make up for lost time or hasten your retirement date, I can show you how.

Self-Employment Retirement Accounts

The specific strategy I’m teaching you today is about self-employment retirement accounts and how they can supplement your IRA, 403(b), etc.

But to have a self-employment retirement account, you have to own a business. That could sound like a really fancy, complicated thing, but it definitely doesn’t have to be. All I mean is that you file a Schedule C with your tax return, assuming your business is unincorporated. You might describe yourself as a freelancer, an independent contractor, a gig worker, a solopreneur, or self-employed.

You know as well as I do that lots of graduate students and postdocs have side hustles to supplement their pay, and many of those, whether the person thinks about it this way or not, are businesses. Again, if you file a Schedule C with your annual tax return, this information is for you.

If you aren’t a business owner and have no plans to become one but you know a grad student or PhD who might be interested in this strategy, please share this episode with them!

I’ve covered the two main requirements you should check off before pursuing a self-employment retirement account: 1) that you own a business and 2) that you want more contribution room in tax-advantaged retirement accounts.

My Story and My Client’s story

I’ll tell you what motivated me to first investigate self-employment retirement accounts a few years ago.

When my husband and I were in grad school, as I mentioned earlier we never maxed out both of our IRAs. So even though I did have some self-employment income by the end of grad school, we had no need to open a self-employment retirement account.

We defended in 2014, and in the year following, my husband was a postdoc employee and I had self-employment income, so we had our two IRAs plus access to a 403(b), and we didn’t get anywhere close to maxing out that contribution room.

Halfway through 2015, my husband took a job at a start-up that offered a 401(k). That was when our household income really jumped up. We knew we would need more contribution room than just our IRAs to meet our retirement investing goal of 20%.

However, the 401(k) offered by my husband’s job was and is really expensive. It’s offered through Edward Jones and composed of American Funds, both of which are notorious for charging high fees. And the company doesn’t offer a match.

So in 2015, I read up about self-employment retirement accounts and opened one for Personal Finance for PhDs. We had a lot of options in where to open the account and which funds to purchase within it, so we could keep the costs really low. And that’s been our tax-advantaged retirement investing strategy for the past five years. We can meet our retirement investing goal using our IRAs and my self-employment retirement account. If we do ever need more contribution room than those accounts provide, we will use the expensive 401(k), but not until.

Your motivation to use a self-employment retirement account to increase your contribution room might be different from mine. Honestly, I didn’t imagine that any graduate students, for example, would want to contribute more than the $6,000 IRA ceiling.

But I was wrong. One of my recent coaching clients through The Wealthy PhD, a grad student, maxed out her 2020 IRA, but had some additional money that she was interested in getting into a tax-advantaged retirement account. She did freelance work on the side of her role as a graduate student, so I suggested that she look into self-employment retirement accounts.

Self-Employment Retirement Account Options

Our conversations throughout that program on this topic inspired me to create a new training inside the Personal Finance for PhDs Community titled “Self-Employment Retirement Account Options.” You can access the training by joining the Personal Finance for PhDs Community at PFforPhDs.community.

As you can tell, I love to encourage PhDs to invest early on in their careers, even during grad school or a postdoc. I also love teaching about taxes. So this training is a perfect crossover point between my two favorite personal finance subjects, and it stretched me quite a bit as well as I learned lots of new things.

The objective for “Self-Employment Retirement Account Options” is to help you choose which self-employment retirement account type is right for you and your business. I haven’t mentioned it yet, but there are at least half a dozen high-level options and many of those have various permutations.

As I was sifting through these options to decide what to include in the training and in what depth, I kept in mind my coaching client who inspired the training. There is a lot of information out there about self-employment retirement accounts, but it’s largely intended for people who work full-time in their business, like I do, or even for small businesses with employees.

What I decided to do with the training in the Personal Finance for PhDs Community was to create it with a side hustler in mind instead—a solopreneur who has only a few thousand dollars in self-employment income—but who wants to maximize their retirement account contribution room even on that smaller income. When you frame the question that way, I believe the best choice becomes much clearer.

I included in the training detailed information about the three most popular self-employment retirement account types. The less popular account types are not ideal for a side hustler or solopreneur. The types I included are SEP-IRAs, SIMPLE IRAs, and one-participant 401(k)s.

Across these three account types, I compared the type of business they are ideal for; their employer, employee, and overall contribution limits and formulae; whether a Roth version is an option; and their deadlines to set up. For each account type, I also calculated the overall contribution limit for someone whose net business profit is $24,000 per year, an amount that highlights well the differences among the plans.

I also show you how contributions you or your employer make to a retirement account offered through your primary job affect your contribution room within each of the types of self-employment retirement accounts. This information is not the type you uncover by reading quick summaries of various account types, but it is crucial for a side hustler.

Ultimately, I recommended one account type over the others. I present whether that account type can be opened at 13 of the most popular brokerage firms today and a few specifics about the account at each of the firms where it is offered, such as what fees are charged. All of that is to save you a bit of research time when you are actually going to open your account.

I admit I did not do any research on the best place to open my self-employment retirement account. I opened it with Vanguard, which is where I had all my other investments. It was quite surprising to me when I looked around at other brokerage firms to find that Vanguard is not necessarily the best option.

The very last module in the training shows you how to use a certain IRS worksheet to calculate your contribution room, and I show four calculation examples. This module is really in the weeds, but should be super helpful for someone who trying to put as much money as legally allowed into their self-employment retirement account.

I actually didn’t know about this worksheet a couple of years ago when I accidently slightly overcontributed to my self-employment retirement account. Once I realized my mistake, I had to reverse that contribution in a slight panic right before the tax deadline. I don’t want anyone else to go through that process or overcontribute and not catch the mistake, so that’s why I included this module.

Summary

Let’s come back around to the compound interest illustration that I relayed at the beginning of this episode. Given the assumptions in that example, investing $250 per month for five years and then letting the portfolio grow for fifty years resulted in a balance of almost one million dollars.

Whatever your saving rate, increasing it by $250 per month is going to have a very impressive outcome, either in more wealth in retirement or achieving financial independence even earlier.

If your budget has no room for additional investing right now but you have a bit of time on your hands, consider pursuing a self-employment side hustle such as consulting; freelance research, writing, or editing; tutoring; baby or pet sitting; or gig work.

To invest $250 per month in the type of self-employment retirement account that I recommend, you only need to net $269 per month through your business. Let’s round it up to $350 per month to account for income and self-employment tax.

If you earn $15 per hour after expenses, you can earn $350 in 23 hours of work, or less than 6 hours per week.

At $25 per hour, that’s 14 hours of work in a month or between 3 and 4 hours per week.

If you charge $50 per hour, which is quite moderate for some of the types of work I mentioned earlier, you can earn $350 in just seven hours of work per month. Increase it to $100 per hour, and you’re down to less than 1 hour of work per week to meet your goal.

If you think that charging $50 or $100 per hour is outlandish, you’re probably anchoring against what you’ve been paid as an employee and/or for work outside of your unique skill set. Capitalize—literally—on the skills you built or are building during your PhD to command higher pay rates.

Do you think you can find between 1 and 6 hours per week to devote to a side hustle over just five years if it can become an extra million dollars fifty-five years from now?

If you’re already there with your self-employment side hustle or will be soon, please consider joining the Personal Finance for PhDs Community to take the Self-Employment Retirement Account Options training. You will learn which self-employment retirement account is best for you and your business and where to open one to protect your investments from taxes and maximize their growth over the decades. You can access the training by joining the Personal Finance for PhDs Community at PFforPhDs.community.