When I was in grad school, I faced near-constant financial problems. My income was barely adequate, and the variety of streams it came from meant that my access to the money I’d already earned was often delayed in unpredictable ways. My one advantage was a good credit rating. I had gotten my first credit card as an undergrad, and I used it sparingly and paid it in full nearly every month. After a semester abroad, I was carrying a balance, and I took out a small bank loan to pay it off. So I had drawn on a significant amount of credit and used it responsibly. I understand that not everyone starts from this point, so my strategies may be inapplicable.
My strategy for coping with the difficulties of financial management was based on three simple principles:
- Think short-term: Long-term questions like how I was going to pay everything off were moot. The important thing was how I was going to keep meeting my immediate obligations until the next influx of cash came.
- Favor liquidity: Given my access to credit, the only hard constraint was the availability of cash (meaning money in my checking account). If given a choice between going further into debt or making a cash payment that would quickly put me at risk of not being able to meet another cash obligation, I always chose going further into debt.
- Preserve the credit rating: This meant always paying every bill by whatever means necessary. If I missed a single payment, that could lead to a decline in my credit-worthiness, leading to higher minimum payments and a decline in liquidity that could further endanger my ability to meet my ongoing obligations.
To make this strategy work, I maintained at least three credit cards at all times. My intention was to have one credit card as my “rolling account,” which I would pay off every month. The other two gave me room to bounce money back and forth.
I absolutely refused to ever have a debit card for a variety of reasons. First, if the credit card company was willing to give me a free loan every month for my day-to-day purchases, why not take it? Second, if I did wind up carrying a balance, the consequences were likely to be less expensive than if I overdrew my checking account (fees and penalties were at their pre-crisis peak). Finally, if someone stole my debit card, that gave them access to my actual money — and even if I’d get that back, any serious disruption to my liquidity could have very negative consequences.
Oftentimes, I would not be able to pay the full amount of my “rolling account,” and so I would do a balance transfer. This actually helped my short-term liquidity because the balance transfer satisfied the need to pay that account on that particular month. I always timed my balance transfers to take advantage of the ability to “skip” a payment out of my checking account. Balance transfers do normally carry a fee, but the priority under the emergency circumstances of grad school is not to minimize your debt load, but to maintain your ability to keep rolling over your debt on favorable terms. Making sure to keep rolling over balance transfers with new offers does have the long-term benefit of minimizing your interest payments, but in the short term, it also reduces your minimum payment, hence helping the all-important liquidity. If your card has cash-back rewards, it helps to stockpile these so that you can get a free minimum payment out of it every once in a while.
Informal credit can be helpful, too. Periodically paying for group outings on your card and taking cash can reduce the need for ATM withdrawals for cash-only settings, maximizing the amount of money available in your checking account. Having a roommate with a more stable financial situation can also help if he’s willing to let you delay paying your portion of the rent until that next check comes in (thanks, Mike!). I always avoided taking direct loans from friends and family members, however, because I knew I would never actually pay it back, at least not within a reasonable amount of time. Between the stress of being indebted to an evil bank and the stress of letting my financial situation ruin an important personal relationship, I always went with the former. (Plus my family frankly had no money to give me anyway.)
For this system, it helps to be as anal-retentive as possible. I always paid my minimum payments for my credit cards within a day or two of receiving my statement, just to be safe. I set up as many other bills to charge my credit card automatically as possible. I also kept up the seemingly antiquated discipline of maintaining a written check register, which allowed me to keep better track of where funds had already been committed. People sometimes make fun of me for doing this, but one benefit is that I’ve literally never overdrawn my checking account at any point in my entire life. Given how badly the downward spiral of overdrawing your account can become, that’s huge.
Now that I’ve gotten a job, I’m on pace to pay off my credit card debt over a period equal to how long I was in grad school — meaning that it was essentially “income smoothing” on a very long timeframe. My student loans are excessive, but I can still pay them off within the normal 10-year period without living in abject poverty. And this has all been possible even though my salary at both places I’ve worked has been far below average. I could have worked more in order to take on less debt, but that would have significantly prolonged my time as a grad student — which likely would have hurt my long-term prospects even more than I already have. The amount of money you can make in a year, even for a visiting position, is always going to be more than the amount of debt you will allow yourself to go into.
Of course, all of this only worked out because I got a job. But if I had not, I was prepared to work outside of academia because I viewed adjunct teaching as an absolute rip-off that more often than not tends to hurt people’s long-term job prospects. All through grad school, I did a variety of freelance work in the corporate sector that paid much more, for much less work, than adjunct teaching ever could have. I’ve written about this before, though, so I won’t repeat myself here. Long story short: your overriding priority should be to finish, because that’s when you get the chance at a real meal ticket. I know people worry about their PhD going “stale,” and that’s a real issue — but locking yourself into a low-income trap indefinitely is most likely not the solution.
I don’t know how much my strategy is replicatable without my starting conditions, and I’m sure others have different strategies that may work better. Hence I open the floor to you, my dear readers.