Friday, June 12, 2015

Grad Student Blues: How I live on less than $10,000 per year

Grad Student Blues 
How I live on less than $10,000 per year

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The following blog post is part of The Road to Financial Wellness Blog Tour. Over a period of 30 days, the Phroogal team will go to 30 locations to raise awareness about financial empowerment. Today they will be in Detroit Michigan, Defiance, Ohio, and Bowling Green, Ohio! Our goal is to help people learn about money by starting the conversation. We understand that local conversations can help bring about national awareness.
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When you walk to work every day — event through 8-degree weather and a bitter winter wind — people raise their eyebrows.


When you have no cell phone during your four years of college, people really raise their eyebrows.

And when you're living debt-free, despite bringing home less than $12,500 a year, people are incredulous! 
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You can do it — and you don't have to be an 'extreme couponer' to make it happen! You do have to set your priorities straight, and establish habits that don't undermine your financial goals. I'll show you how: 

My budget

When I was accepted to a Ph.D program, I knew I wasn't going to be making much. In anticipation of this massive pay cut from a year spent working 3 (!) jobs, I knew that I needed to keep my expenses as low as I possibly could. 

Here's how I do it: 
  • Rent: I found one of the cheapest apartments in town. Actually, I had my choice of three apartments. I picked the one I liked the most, which also happened to be the least expensive of the three. It's small, but it holds me and all my stuff, and it's in pretty good shape.

    It's an efficiency apartment (also called a "studio apartment") in which the living room, bedroom, and kitchen are all part of the same 13-by-13-foot space, along with a narrow walk-in closet and an 8-by-6.5-foot bathroom (including storage cabinets). 

    My apartment came furnished with a bed, refrigerator, stove, kitchen table and chairs, as well as a window air conditioner for the warm and humid summers. For all this, I pay only $365 per month!


    Instead of getting a larger one-bedroom apartment that would give me more living space but would also cost more, I decided to keep my rent as low as possible. After all, I need a place to live. I do not need a bigger place to live!

    Granted, this is in a semi-rural college town with a low overall cost of living—big cities like New York, Boston, and Los Angeles obviously don't have apartments available for less than $1000 per month! But if you live in a big city, I sure hope you earn more than I do...

    No matter where you live, the principle still applies: minimize your rent! You don't need a lot of space; you'll be just as happy living in a smaller place as in a larger one. If you're living alone, an efficiency is probably sufficient. For couples, a one-bedroom should be fine; families may want a two-bedroom apartment or a small house. And if you have trouble paying the rent, split it with a roommate if you have to!
     
  • Phone: I had never had a cell phone before moving out-of-state to my graduate program. People were endlessly astonished at how I got along without one! But never having had a phone, I never missed it!

    Since I knew that I'd be moving out of state, I wanted (note my choice of words: "wanted," not "needed") to get a cell phone to stay in contact with my friends and family more easily. I picked a $35 per month no-contract plan. I found this to be a reasonable cost for unlimited text and data, with 300 minutes of talk. Since I don't talk on the phone a lot, this plan fits my needs well!

    I now have a smartphone that keeps me in contact with friends and family, and it also allows me to use the Internet when I need to look something up on the go. For only $35 per month (plus the fact that I'm not locked into a contract and can switch — or end — my plan whenever I want!), I get to do everything I need to do.

    I do the same stuff on my phone that other people do on their much more expensive contracts!


    Why pay more?
     
  • Groceries: There's an Aldi's in town, as well as a Big Lots and a dollar store. Between these three options, I can get almost all of the food I need for a low price, including fruits, vegetables, pasta, granola bars, bread, cereal, milk, and lunchmeat. My grocery bill ends up in the neighborhood of $25-30 per week.

    Again, the cost of living is low in my area, but you can follow the same principle, even if costs are higher in your area. Instead of paying more for name brands, I get the food I need at the lowest prices I can find. And even better, the contents (and the flavors!) are almost always the same as the more expensive name brands!
     
  • Laundry: Being a student in a small apartment, I obviously don't have a washing machine or dryer—but I still need to do my laundry! So, at $1.50 per load of wash and $0.25 for 7.5 minutes in the dryer [yes, they time it to 7.5 minutes...], I go through about $10 per month in laundry money.
     
  • Health Insurance: Due to my low income, I'm eligible for a vastly reduced rate on my health insurance. I have a high-deductible plan (VERY high deductible!), but that's okay, because I maintain enough money to cover my deductible!

    I pay less than $20 per month for my health insurance. Given that I'm a healthy individual in my 20s, with virtually no family history of disease striking before age 50, there's an extremely low risk that the insurance company will have to pay out a dime for me in the next few years. So I use a high-deductible plan to keep my monthly bill as low as it'll go!

    Let's count up the predictable expenses: rent at $365 per month, phone bill at $35 per month, groceries at about $120 per month [it's always wise to estimate high when predicting costs], $20 per month for health insurance, and $10 per month for laundry. I also have to pay several hundred dollars in student fees every semester; these average out to around $100 per month.

    My total expenses: around $750 per month. This works out to $9000 per year.

    Yep. I'm living on a grad student salary of $12,500 a year (before taxes).

    Debt-free.
     

*Disclaimer: I live in a semi-rural area where costs are low. Your costs will obviously vary based on where you live! 

I live in a college town, so I can (and do!) walk everywhere I need to go. I realize that not everyone can walk or bike everywhere; but if you can, it is a financially wise move. 

I also have non-monthly expenses. When my first laptop died, I was tempted to spend big on a premium computer. Instead, I replaced it with two used laptops (in hopes of never being stuck without a computer again!) 

Eventually, the faster one died, which taught me a lesson about getting used technology! I used my old, slow backup laptop for a while, but I eventually got the replacement I wanted (it's one of the ones on my list of the best affordable laptops) for about $400. This is obviously a significant, though infrequent, expense. 

Sometimes, my colleagues meet at a local pub. I buy a beer so that I can join in—but that's only a couple dollars, and this happens only a couple times each semester. It falls well within my budget, so I don't have to sweat it. 

I choose to donate money at church as well. Again, this totals only a few dollars, and the amount varies each month. 
  
The lesson

People tend to confuse wants with needs. Once you have something, it tends to be really tough to give up! After you get used to a smartphone or car, you tend to think of it as a need, because it's likely something you use every day. 

But there are many, many people in the world (including some Americans!) who don't have either. They survive. In fact, most humans who ever lived did not have access to a car or a telephone of any sort, and they got along just fine without them! So, it may be wise to re-evaluate what you think of as a "need."

Do yourself (and your budget!) a favor: try living a little bit more like a student. I promise; it's not as bad as you imagine. And when you put your budget on a more student-like diet, you can shed your debt and free yourself from the shackles of worry! And isn't it worthwhile to give yourself the gift of financial freedom?!

Adjusting your mindset can help you defeat debt and get on the path to financial freedom! 
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