Alex is on leave from a Materials Engineering PhD program and, while on leave, happened to get a dream job and is now faced with choosing between the PhD program and the job. Alex recently left an abusive marriage and is thinking critically about the sort of future they’d like to create. While the most pressing issue is deciding whether to return to the PhD program or stay in the job, Alex is thinking broadly about their passion for long-distance hiking, travel, and environmental justice.
What’s a Reader Case Study?
Case Studies address financial and life dilemmas that readers of Frugalwoods send to me requesting advice. Then, we (that’d be me and YOU, dear reader) read through their situation and provide advice, encouragement, insight, and feedback in the comments section. For an example, check out last month’s case study. Case Studies are updated by participants (at the end of the post) several months after the Case is featured. Visit this page for links to all updated Case Studies.
I probably don’t need to say the following because you folks are the kindest, most polite commenters on the internet, but, please note that Frugalwoods is a judgement-free zone where we endeavor to help one another, not to condemn.
And a disclaimer that I am not a trained financial professional and I encourage people not to make serious financial decisions based solely on what one person on the internet advises. I encourage everyone to do their own research to determine the best course of action for their finances. I am not a financial advisor and I am not your financial advisor.
With that I’ll let Alex, this month’s Case Study subject, take it from here!
Hey there, Frugalwoods! My name is Alex and I’m a 24-year-old non-binary human living in Minneapolis, MN. My pronouns are they/them. I grew up in rural Oregon before moving to Louisiana to complete my undergrad and then up here to the Twin Cities for a PhD program in Materials Engineering.
I am unmarried with no kids or pets right now and have two wonderful and supportive partners who I love very much: Fran (33, he/him) who grew up on a pig farm in Iowa, lives here in Minneapolis, and Riley (26, she/her) who grew up in New England and now lives in the Bay Area. They are both software engineers, so apparently I have a type, which they both find amusing. I’ve lived in a lot of different environments with some very disparate values. That said, my parents met in the Peace Corps, my dad used to be a park ranger, and my mom’s a teacher, so what holds constant for me are my love of travel and the outdoors, my passion for community work, the environment, and just generally making the world a better place.
I am currently on leave from my PhD program and, while on leave, I got a job at a nonprofit that I initially assumed would be temporary, but now I find that I really love the work! The biggest question weighing on my mind right now is whether to return to my PhD program or continue working this job that I unexpectedly enjoy a great deal.
Alex’s Hobbies and Passions
My main hobbies are also somewhat of a lifestyle: long-distance hiking and travel.
For those of you who aren’t familiar, long-distance hiking refers to really, really, really long-distance hiking. As in hundreds or thousands of miles at a time. The Appalachian Trail and the Pacific Crest Trail are two of the most popular long-distance hiking trails in the US. So far, I’ve completed the Oregon Coast Trail and about 1,500 miles on the Pacific Crest Trail. I hope to one day complete the Triple Crown of North American hiking, which includes the Pacific Crest Trail, the Appalachian Trail, and the Continental Divide Trail, which combines to over 8,000 miles of hiking! Additionally, I have a list of about twenty other long-distance hikes I aim to complete, both domestic and abroad.
Travel is a close second in terms of my passions. To date, I’ve been to 29 countries and I have the goal to eventually visit every country. I have a nomadic spirit and as long as I have my backpack, I feel at home. I’ve gotten pretty good at budget travel and often spend less than $30/day in-country when traveling, sometimes as little as $10/day in lower-cost areas! Obviously some countries require higher spending rates, but I am pretty skilled at getting costs down there too. The biggest expense is international airfare, but by being flexible with dates and destinations, I manage to keep that reasonable as well.
My recent roundtrip flight between San Francisco and Bangkok was only $472! And that was with freebie stopovers in China both ways. When traveling, I love to try new foods, meet new people, and have new experiences. Walking around cities is always free and hiking only sometimes requires a park entrance fee. I also love diving, but since I freedive instead of scuba and bring my own diving gear, I only have to pay for the occasional boat out to a dive spot. In Bonaire, I was able to walk straight into the water every day and have a lovely time, entirely for free! (I did splurge for the water taxi to Klein Bonaire one day. So I spent $20 for four days of diving, which is fine by me.)
Obviously, those hobbies are ones that require being away from home, sometimes for very long periods of time. When I am at home, I have a hodgepodge of activities that keep me occupied outside of work hours. I am a trained dancer and saxophonist so I exercise my artistic chops as time allows and I love to do work around the house. From replacing flooring to plumbing repairs, I love learning new and valuable skills. Since Fran grew up on a farm, he has some skills I don’t have so I get to learn new things from him which is always exciting for me. I also enjoy cooking and organizing all of my belongings into spreadsheets with ridiculous amounts of data. What can I say? I’m an engineer and I like data. And then of course getting out into nature locally is always a big hit. Minnesota is a great place for outdoors people with woods and lakes galore for both summer and winter activities. I mostly participate in year-round hiking and summer kayaking, but I want to try cross-country skiing soon.
A Turning Point
I’ve recently gotten out of an extremely abusive marriage. I am an open book about whatever details people feel the need to know in order to provide feedback and advice, but for the sake of brevity (and not being a trigger for other people), I’ll leave it at that. This relationship caused me to almost fail out of my PhD program in the first year after completing undergrad with honors, to take leave from my program at the end of that first year, and left me in $20,000 of coerced debt. Not to mention the entirely decimated savings and emergency fund, lost wages from not being allowed to work for the better part of a year, or, of course, the emotional scars.
I took a leave of absence from work to get out of the state and figure out a safe way to leave the relationship in early May 2019 under the guise of a long hiking trip. I then managed to officially leave the relationship at the end of August and was able to start rebuilding my life in November 2019.
So far, I’ve gotten the coerced debt down to about $11,000. Not bad for less than three months! I cashed out some bonds from when I was a kid, worked extra hours at work, got a little bit of help from friends, picked up odd jobs and cut way back on everything to make that first $9,000 disappear.
The remaining $11,000 is all on 0% intro APR credit cards (because, thankfully, I had really good credit before this all happened) and while I feel confident that I could pay it all off before the intro APR is up, I just applied for two 0% intro APR balance transfer cards so that I can focus on building up my cash reserves in the meantime. Don’t worry, Frugalwoods, I waited until I got the offers for cards that were both 0% intro APR AND $0 transfer fees.
(Note: When not in an abusive relationship, I am very responsible with credit cards. I always put most of my purchases on my cards for the rewards points and then pay it off at the end of the month. This consumer debt was entirely out of character for me and a result of the extenuating circumstances of… well… coercion and abuse.)
I mentioned I took leave from my PhD program. That leave was approved for two years and is good until the end of August 2020. Given that, my plan has been to return to my program in fall 2020. One of the problems that has now arisen is that my research advisor doesn’t have funding for me anymore and I would need to find a new lab. I can’t be in my PhD program without a lab to work in and this is a difficult time of year to find advisors. The graduate student stipend for my program is $31.5K/yr plus benefits and a tuition waiver (so the equivalent of $15.75/hr assuming a 40 hr work week, but it’s definitely more than 40 hrs of work per week.)
Alex’s Current Job
While on leave from my PhD program, I’ve been working as a community organizer for a nonprofit. This started as a job that was flexible and where I could call in last minute because of the situations with the relationship without getting fired. But between starting and now, I’ve discovered that I am very passionate about this work and actually really good at it. Additionally, the pay is better. I typically work about 35 hrs/wk and my pay varies depending on performance, but it typically works out to the equivalent of $20-25/hr, plus eligibility for benefits, though I am not using them right now.
I also set my own schedule and work as much or as little as I want to with the ability to take pretty much as much (unpaid) vacation time as I want as long as I give my boss some notice. I was recently promoted and, with this promotion, am committed to remaining at this job at least until the end of the summer (which is, coincidentally, when I would return to my PhD program). Thanks to this promotion, my average monthly paychecks will increase by around $300-400. This new position also opens up the opportunity to occasionally go and work in other offices across the country for a month at a time doing cross trainings.
Our regional director recently came to my office for their tri-annual site visit and, in our meeting, the first thing they said was “What do we have to do to keep you?” Ultimately the outcome of the conversation was that I can have the flexibility going forward of taking several months of leave every year if I want to (the thought being that it is better to have me half a year than to have the organization lose me entirely), that they wouldn’t allow everyone to do that, but that I have earned my place/shown my value to the organization, and that if/when I should reach the point where I no longer want to or can’t take several months every year to hike/travel (i.e. I finally completely destroy my knees) then I could potentially move up/laterally in the organization to other positions that don’t have the same flexibility. The exact words were: “There is a career here for you if you want it.” Which is all very, very tempting, but still leaves the issue of:
Should I Return To Graduate School?
If I return to grad school, my boss would be ok if I just worked at my current job on Saturdays. However, I don’t know if my PhD program would find that acceptable or if I would even have the energy to do it. Ultimately, I am left with what feels like choosing between a job I love and the lifestyle I want, or the degree and career that I have had a passion for and been working toward since high school. So, still the same question, just new factors to consider.
Right now, I need to choose between trying to find a new advisor and returning to my program or staying at my job with the lifestyle and scheduling flexibility (which is a very important thing to me as a long-distance hiker and as someone who loves to travel).
The Pros and Cons Of Returning To Grad School
I’ve wanted to pursue a PhD since my freshman year of college. I spent all of undergrad working toward this goal with the intention of eventually having a career in sustainable plastics. The big thing that needs to happen in order for me to return to the program is that I have to find a new advisor with space and funding to take me into their lab. If I can’t find this on a project that I am passionate about, then I am not returning because I don’t want to spend the next four years working on a project that doesn’t excite me when I already have another job that I love.
The pros: it’s a path I’ve put a lot of work into, it’s a topic I am passionate about, I would be making tangible strides toward solving a very real world problem, and I would receive student benefits (access to the gym, other student resources, 403(b) access, insanely good (and cheap, ~ $200/yr premium and no deductible) health insurance, etc).
And, at the end, I would have a PhD. I would be Dr. Alex. It may sound silly to folks who aren’t trans, but the option of having my honorific being something completely un-gendered is a hugely appealing benefit.
The cons: I would lose my scheduling flexibility, I wouldn’t be able to take any long leaves of absence (if I was lucky, I might be able to get a couple stints of two weeks off) for the next four years, and my income potential would be limited. We are not permitted to work another job while in the program so while I could still do odd jobs, my salary would be limited to that $31.5K/yr plus a roughly $500/year COLA.
I also really don’t like leaving things unfinished. This is something that I am working on, but for now, it bothers me. A lot. There is a vague possibility that I may be able to just return for a semester, complete my last few courses, and take a Masters degree, but since my GPA for the rest of my classes was so low (see the notes about the abusive relationship), I would pretty much need to get straight As to have my GPA high enough where I could qualify for the degree. (They can waive the GPA requirement for the PhD, but not for the MS.)
The Pros and Cons Of Not Returning To Grad School
I really do love this job. My coworkers are amazing, I get to be outside and active for most of my shift, meet awesome new people every day, I am working to make active, positive change in the world, and most days, it doesn’t even feel like work! Taking a six month leave of absence this summer as I was figuring out what to do with my abusive ex-husband was as easy as giving my boss a few months notice and filling out a form. In fact, I didn’t even tell him the real reason I was taking it, he just knew I was going hiking. This kind of flexibility is hard to find and so incredibly valuable to me.
When I returned and needed to take some days off to deal with filing for an Order for Protection against my ex, my boss was entirely supportive. I feel incredibly safe in the office as a queer person and as a trans person, which isn’t something I can take for granted. There is theoretically the opportunity for virtually unlimited income growth as our pay is hourly with performance-based bonus, but our top performers probably max out at $80K/yr and they have each been doing the work for over a decade.
The organization also likes to hire from within so there is the possibility of upward mobility within the office, as well as the option to branch out and work in any of our 27 other offices across the country, which is appealing. If I wanted to, I could very likely work for six months out of the year and then take six months to travel and hike, just about every year. The option to do that is extremely attractive.
The cons: giving up another dream that I have held for a long time, leaving my graduate degree unfinished, potentially regretting it, and that the income is extremely variable. Some pay periods it averages out to $30/hr, other pay periods it’s just over $15/hr. It is also worth noting that many people do burn out in this job. I am not feeling it yet and feel like it would be less likely to happen with the extended time off I would be allowed, but it does happen fairly often.
I own my house. I bought it for $120K in 2018 with the MN First Time Homebuyers program and currently owe $121K on it (including the $8K closing cost assistance I received as a part of that program which is 0% until I sell or the mortgage is paid off.) The house is in a rapidly developing neighborhood and is worth between $128-138K right now depending on which estimator you look at. Though from looking at similar houses on Zillow right now, houses with similar specs and just a little bit of aesthetic clean up are priced at $150-190K.
I rent my two spare bedrooms for a total of $1,300/month in rental income which includes utilities and shared supplies such as soap and toilet paper. This is enough to roughly cover my mortgage, utilities, and household supplies. The money I would be putting toward rent if I didn’t own the house goes toward home repairs and improvements instead. The house was built in 1896 so there are plenty of those to go around.
I like living with other people and my roommates/renters are awesome so I am very happy with this situation. I would like to refinance sometime soon because my interest rate is a whopping 5.375%, but I need to get the LTV below 20% first because I don’t want to refinance with new PMI. As of right now, neither of my partners live with me and none of us have kids. Looking to the future, I would love to have a communal living situation with my polycule (the term for the entire net of relationships in polyamorous set-ups, i.e. my partners and my partners’ partners), which may or may not include kids at that point. But since we are in different geographic locations and at different points in our careers, this is something that has only been talked about in theoretical terms. I don’t even know where it would be located. Maybe a nice piece of land in the woods of Idaho.
Alex’s Financial Philosophy/Game Plan
My approach to finances breaks down to a combination of raw numbers and ethics. I make sure that I fulfill minimum payments on all things and then send other funds toward whatever will save me the most money and set me up for the most success in the long run. For example, right now everything is going to paying off credit cards, but once that debt is taken care of (or transferred to a new 0% balance transfer card where the amount is less than 30% debt to credit), the focus may go to replenishing my emergency fund and stashing money away into my retirement and taxable investment accounts.
I make this decision because I would rather pay the 3.5% annual interest on my student loans than lose out on the 7-9% annual gains in the market and the compound interest that comes with it.
The other possibility is to pay down my mortgage to refinance as mentioned above and then focus on investing after that. I am starting to lean toward this one given the current market conditions. Regardless, all of my decisions are nuanced according to the raw numbers and the different options I have available. When investing, I invest mostly in ETFs but have some investments in individual stocks and intend to add some index funds to the mix.
I try to stay invested across a variety of sectors in both domestic and international markets and factor in both the fees and average dividends on the funds, but I always keep my ethics at heart. As much as possible, I try to invest in businesses and funds with a focus on environmental sustainability, reduction of carbon footprint, and improvement of worker conditions and human rights. All of my financial decisions are very deliberate.
I also track every cent of my income and expenses in spreadsheets and have been doing so since I moved out of my parents’ house at 18. I even have separate spreadsheets that feed into my main budget spreadsheet for things like budgeting during trips abroad. Anything I can put on a credit card I do so that I can reap the cash back and then I pay it off at the end of the month (again, the current situation notwithstanding.)
The Best Part of Alex’s Current Lifestyle: Flexibility
I love that I can take time off pretty much whenever I want and that opens a lot of doors, both in a personal and financial sense. I am slated to take part in a three-week inpatient medical trial this spring that pays $5,500. I can easily take three weeks off from my current job and I know that isn’t possible with most jobs. My family and friends live all over the world and being able to take off to see them without worrying about how much PTO I have left is very worth it and something I value greatly about my lifestyle and job right now.
I am also a night owl, so having a job that doesn’t start until 1 or 2 pm is a huge benefit for me as well. I can sleep in, I have several “business hours” where I can run errands as needed or work on projects, and I honestly generally feel pretty relaxed and content with my current routine. I am able to be very productive and feel accomplished with this current schedule and job.
The Worst Part of Alex’s Current Lifestyle: Not Enough Money
The worst part of my current lifestyle/routine is that while I have the flexibility to take off as much time as I want to, I don’t have the funds to do so. This is something that should be largely improved upon when I finish paying off the coerced debt from my ex and with the promotion/pay raise I just received.
Another thing that kinda stinks is that I have limited time with my partners. There is obviously only so much that can be done in terms of seeing Riley since she lives on the other side of the country and neither of us want to move right now, but Fran and I work offset schedules.
His is a 9-5 and he’s able to work from home about once a week which is nice, but we still have limited time when neither of us is working. It’s not the end of the world, but it does kinda suck. (At the same time, we are both introverts and it does mean we both have guaranteed time to ourselves should we want it, which is nice, so it’s a blessing and a curse.)
Where Alex Wants To Be In Ten Years
This is a hard question to answer. Ten years seems both so close and so far away. There are several life situations I could see myself happily inhabiting in ten years. The absolutely ideal situation would be living a nomadic life, hiking and traveling full time, while still working in a research lab or doing the nonprofit work I’m doing right now. Unfortunately, that is physically impossible as both lab work and my current job require being in a specific location. I have also toyed with the idea of switching paths and working in science-based public policy since there’s a real need for that right now. That would give me a little more flexibility for travel, but not much. So I guess I will lay out my ideals for each of these three aspects of life, even though they conflict with each other. Maybe someone has a creative solution I haven’t already entertained!
1) Finances: I would like to have no debt outside of my student loans and mortgage.
- Since my student loans are on an income-based repayment program and at relatively low interest rates, I am fine with paying minimum payments because I would rather pay the 3.5% on that sum and instead aggressively invest the money and get the 7-9% annual return in the market.
- I would like to have a fully funded emergency fund and be maxing out retirement accounts. I may want to get an investment property to rent out sometime in that time period, but that depends on what other lifestyle and career choices I am making.
- I am involved with several FIRE groups, but I fall much more heavily on the FI side of things than the RE side. Maybe FIRO (Financial Independence/Retire Occasionally) would be more accurate for my ideal: take off a few years, work for a while, repeat.
2) Lifestyle: I would like to be more nomadic than I currently am.
- I love having a home base and owning my own home, but ideally, I want to travel at least half the year, if not year-round.
- This is minorly in conflict with my desire to have a flourishing vegetable garden to preserve from in the summer and fall for the winter and spring, but that isn’t the most important thing for me.
- I don’t want to stop working as I like doing productive things, but flexibility is the goal for me.
- At the same time, I would love to have a little plot of land back out West with a lot of privacy and build an off-grid tiny house. Fran and Riley both have an interest in being more nomadic and/or pursuing the tiny house/homesteading plan.
- This is much simpler from a career standpoint for both of them since their jobs are already on a computer. I have discussed it in more depth with Fran just by nature of us spending more time together since we live in the same city, but the possibilities have been discussed with both of them.
- There are a lot of question marks here because there are a lot of moving parts and possibilities for all three of us. The possibility of a big intentional community is also an option and has been discussed with several other people as a very real possibility.
3) Career: This is the big question mark. I love research and I love my current nonprofit job.
- I’m not sure where I want to be in ten years with this. Probably one of these two or a remote job.
- There are other options I’ve toyed with, including online positions or taking up a series of short-term jobs like summer adventure guides and teaching English or other subjects in other countries.
- I am considering getting my WEMT (Wilderness EMT) certification as that could open up some doors in the outdoors industry for me both domestic and abroad, but that certification is a couple thousand dollars so I want to make sure that I really want to do that and would use it before I pull the trigger on the course.
- I would also like to join the Peace Corps at some point, but the timing on that is flexible and I don’t particularly care if it is in the next ten years (though if it’s sooner rather than later, I could get partial forgiveness on my Perkins student loans).
|Alex’s Net Paychecks||$2,400||My net paycheck from work minus taxes and union dues. Nothing is taken out for health insurance as I am under 26 and still on my parents’ insurance plan. The exact amount varies wildly month to month because I am paid hourly with performance-based bonuses. The net can be anywhere from $1,200 to $3,000 a month.|
|Rental Income||$1,300||This is from renting out the spare rooms in my house and is only existent when the rooms are filled (both of which are at the moment.) This does not have any deductions taken out of it for taxes, but the W-4 for my primary job has been filed for appropriate withholding.|
|Assorted Other Income||$500||This can be anything from participating in medical trials to having art commissioned to editing papers for college students. This income also varies wildly from $0 to $6,000 in a month.|
|Mortgage||$888||Includes PITI, no PMI (mortgage insurance premium was paid upon closing in exchange for lower interest rate). Insurance is through USAA.|
|Adventures||$797||Includes all expenses except food for six months of traveling in the US, Latin America, the Caribbean, and Asia. I don’t get six months off every year so this is higher than most years, but is my 2019 average.|
|Food||$300||I lump all of my grocery and restaurant spending together in one. An average would be very off since I was traveling for half of 2019 in places with both VHCOL and VLCOL, so I just put how much I budget for it at home which has been pretty accurate since I have returned to MN.|
|Utilities||$295||Includes gas, electric, water, sewage, garbage, and internet. This is my 2019 monthly average. The true costs are much higher in winter and much lower in summer because of heating costs in MN.|
|Credit Card Payments||$146||Includes minimum payments on my credit cards, but pretty much any extra money is going toward paying down the cards right now.|
|Household Supplies and Maintenance||$135||Includes cleaning supplies, shared hygiene supplies like hand soap, as well as basic, standard maintenance. I include these in rent for my renters so it goes in the same budget line item for me since I get to write a portion of it off on my taxes. I do the labor for almost all of the maintenance on my own. 2019 monthly average not including an emergency replacement and upgrade to my water heater and rehabbing a renter’s room from ferret damage. (That’s a long story.)|
|Student Loan Payments||$125||Includes minimum payments on my federal Perkins and Stafford loans. New payment amount for 2020 since it is income based and changes once a year.|
|Transportation & Travel||$105||Includes bus fare, any taxis, Ubers, or Lyfts, and trips to see family or friends. Does not include big international trips or vacations as those have their own line item. I do not drive so a large portion of this is my monthly bus pass. 2019 average.|
|Gifts||$87||Includes Christmas, birthday, and any other gifts for any reason. 2019 average|
|Incidentals||$84||This covers any other random things like clothes, personal care, home goods, or treats for myself that don’t fit into the other categories. 2019 average.|
|Tattoos & Piercings||$20||I typically get one to three new tattoos or piercings a year.|
|Healthcare||$14||I am still on my parents’ insurance so this includes copays, medications, etc. I allow for $100/month in my budget, but this is the actual 2019 average. I know that this will go up once I turn 26 and can no longer be on my parents’ health insurance.|
|HVAC and Plumbing Subscription||$8||With this I get free water heater and HVAC tune-ups twice a year, 10% off plumbing work through the company, and free estimates for any work. It is a great deal that has paid for itself many time over.|
|American Chemical Society Dues||$8||I pay the graduate student dues at the moment once a year in September.|
|GoPro Plus Subscription||$5||This subscription gives me unlimited cloud storage for my GoPro, discounts on GoPro purchases, and replacements if my GoPro breaks. I spend a lot of time on outdoor adventures (hiking, rafting, diving, etc) so it’s worth it to know I will always be able to capture those moments.|
|Valuable Personal Property Insurance||$2||This is an additional insurance policy I have above and beyond my homeowner’s policy on my saxophone. Also through USAA.|
|Item||Outstanding loan balance||Interest Rate|
|Mortgage on Primary Residence||$113,053||5.375%; 30-year fixed-rate mortgage. Purchased for $120k in 2018.|
|Closing Cost/Downpayment Assistance Loan on Primary Residence||$8,000||0% loan due upon sale of the property, refinancing of the mortgage, or when the property is no longer my primary residence. From the State of Minnesota for First Time Homebuyers program.|
|Item||Amount||Notes||Interest/type of securities held||Name of bank/brokerage|
|Roth IRA||$2,353||This is my only retirement account. I currently pay no management fees on it until I turn 25, but then it will be $2/month so I will probably switch it to a Fidelity account after that.||A variety of ETFs and single company stocks||Stash|
|Investment Account||$2,166||This is one of my investment accounts. It also functions as a true emergency fund should I need it, though I have never liquidated any assets from it.||A variety of ETFs and single company stocks||Stash|
|Checking Account||$1,584||This is my primary checking account used for paying bills. Low interest rates, but remarkable customer service so I just don’t store extra money in here.||Earns 0.01% interest||USAA|
|Checking Account||$876||This is my secondary checking account. This is used for high interest rates and the 0% foreign transaction fees when I am traveling. Also functions as part of my emergency fund. All paychecks and other funds typically are deposited here and then moved around accordingly.||Earns 4% on first $500, then 0.05%||BECU|
|Checking Account||$778||This is the only account with a physical location where I live/the only one where I can deposit cash. I can then transfer the funds to interest bearing accounts.||N/A||US Bank|
|Savings Account||$539||This is my primary savings account and part of my emergency fund.||Earns 6% on first $500, then 0.05%||BECU|
|Savings Account||$452||This is the super-secret part of my emergency fund. I pretend that this doesn’t exist most of the time.||Earns 0.02% interest||FCCU|
|Investment Account||$125||This is one of my investment accounts.||REDWX||Aspiration|
|Checking Account||$71||This checking account has become redundant. I will probably be transferring the funds and closing it soon.||N/A||Stash|
|Investment Account||$6||This was free stock I got through a promotion. There are no fees so I am just letting it sit for now.||ZNGA||Robinhood|
|Item||Outstanding loan balance
(total amount you still owe)
|Interest Rate||Loan Period/Payoff Terms/Your monthly required payment|
|Federal Stafford Loans (Student Loans)||$31,925||3.51% to 4.41% (Different loans from different years in school)||My Stafford loans are currently on the REPAYE plan which is a variable payment and over a term of 20 years. Any leftover balance at the end of that term will be forgiven. The payment is currently $76.|
|Capital One Credit Card||$4,877||0% until June 2020, then 20.49%||I pay the $47 required minimum payment every month and will either entirely pay off the balance or transfer it to a 0% APR balance transfer card before the intro APR is up.|
|Federal Perkins Loan (Student Loan)||$4,166||5%||I pay the $48 required minimum payment every month. The loan is on a 10 year repayment plan.|
|Chase Credit Card||$2,548||0% until July 2020, then 16.49%||I pay the $49 required minimum payment every month and will either entirely pay off the balance or transfer it to a 0% APR balance transfer card before the intro APR is up.|
|HSBC Credit Card||$1,970||0% until Aug 2020, then 18.49%||I pay the $25 required minimum payment every month and will either entirely pay off the balance or transfer it to a 0% APR balance transfer card before the intro APR is up. This is currently my primary card because of the 3% intro cash back.|
|Wells Fargo Credit Card||$1,261||0% until April 2020, then 25.49%||I pay the $25 required minimum payment every month and will either entirely pay off the balance or transfer it to a 0% APR balance transfer card before the intro APR is up.|
Alex’s Questions For You:
Alright, Frugalwoods, I know that’s a lot of information. My lifestyle and life goals are definitely non-traditional, but I am blessed to have family, partners, and friends who support me in all of my endeavors. Ultimately, the questions I want advice from y’all on are:
1) Thoughts on which path to take: Return to school or stay in my current job with its immense flexibility? I know this is ultimately a matter of what’s right for me, but I appreciate having a lot of input with a variety of opinions.
2) Are there creative ways to handle and/or leverage my current debt?
3) Should I prioritize paying down and refinancing my mortgage or building up my portfolio/retirement accounts given that while my interest rate is high, it is still below the 7-9% average annual return rate on the S&P 500?
4) Thoughts on focusing funds on putting a downpayment on an investment property to rent out as opposed to putting funds in the market?
5) Since both of my partners are software engineers, their salaries are significantly greater than the $30K/yr I bring home after taxes. Everyone’s finances are entirely separate right now and I like the idea of keeping finances separate in the future (we all have drastically different spending habits). Does anyone have advice on how to invest in long-term goals with a partner/partners (eg. a little communal living space in Idaho) when finances are separate and disparate from one another?
6) If there are any fellow Frugalwoods followers who are also ENM (ethically non-monogamous), I would really appreciate your input about the further complications of question 5 when more than two peoples’ finances are potentially involved.
Mrs. Frugalwoods’ Recommendations
First of all, congratulations to Alex for coming to us today and for having the courage to move past an abusive marriage and thoughtfully consider the future. Instead of being trapped as a victim, they took proactive steps to obtain an approved leave from their PhD and get a job while figuring things out.
I can’t commend Alex enough for this pragmatic approach. Rather than crashing out of the PhD program or being jobless, Alex took responsible action to put the PhD on hold and earn money.
It’s hard enough to do these things under the best of circumstances, so I congratulate Alex for managing this while recovering from abuse. Alex should feel proud and confident about their next steps. I also want to point out that they are TWENTY-FOUR years old. That is so young. I know it probably doesn’t feel that way to Alex (I know I didn’t think I was young at 24), but it is young. I point this out because I get the sense they want to iron out their life plans for ever and ever, but that’s not really necessary right now. Alex has plenty of time to craft a life they love and isn’t in a financial position that’ll prevent any number of paths forward. Let’s dive into their specific questions:
Alex’s Question #1: Return to PhD or stay in job?
Alex will probably cringe when they read this, but, there really isn’t a right or wrong answer. Rather, there are pros, cons, and options. On the whole, I get the sense they feel they SHOULD finish their PhD because they started it. I understand this desire to follow through and to obtain a graduate degree (I did a tortuous few years of grad school for the same reasons), but I encourage Alex to release themselves from this “should” and instead focus on how they want to spend their time.
If Alex has a burning desire to work in plastics engineering, and if a PhD is the only route to a successful career in this field, then they should finish their PhD. If not, forget it. Full stop. I realize this sounds like an oversimplification, but I don’t think it is. Alex already has a job they love, owns a home, and has fulfilling relationships and hobbies. A PhD is an external achievement that won’t deliver happiness or success or fulfillment. What it would deliver is the pathway to a different career. It really comes down to what Alex wants to do for work–no more, no less.
It sounds to me like Alex might be looking for permission to let go of the PhD. I want to say that if the PhD does not excite and invigorate Alex, there’s no good reason to go back.
It’s also true that Alex has a pretty rare thing: a job they like with decent benefits and flexible time off. Alex is good at this job, happy in their work environment, respected by their bosses, and has the potential for advancement. It is really, really, really hard to find all of these things in a job. Yes, the pay is low, but Alex has low expenses and doesn’t need a whole lot of money to live on right now. I think this quote from Alex is telling, “I honestly generally feel pretty relaxed and content with my current routine. I am able to be very productive and feel accomplished with this current schedule and job.” That’s worth a lot right there and, if it were me, I’d think twice before giving that up!
Alex’s Question #2: Are there creative ways to handle and/or leverage my current debt?
Alex has done a STELLAR job of paying down this debt and I’m so impressed with how much they’ve paid off in a short period of time. Superb work! Alex’s instincts on this debt are spot on: while the credit cards have a 0% interest rate it makes sense to just pay the minimum. They’re also 100% correct that they should pay the cards off before the astronomical interest rates kick in. If it were me, I would follow the first scenario Alex outlined of paying off these cards as their interest rates kick in.
Here’s how an aggressive payoff plan could work:
Monthly Income of $4,200 – Monthly Expenses of $3,019 = $1,181 to put towards credit card pay off
Plus, between all of their checking and savings accounts, Alex has $4,300 in cash
|Credit Card||Outstanding Balance||Interest Rate and Date to Payoff||Proposed Payoff Plan|
|Wells Fargo Credit Card||$1,261||0% until April 2020, then 25.49%||Use the $1,181 in difference between income and expenses and pull $80 from checking/savings to pay this off in full before April 2020.|
|Capital One Credit Card||$4,877||0% until June 2020, then 20.49%||Save the $1,206 in difference between income and expenses (that’s adding the $25 that used to go to the Wells Fargo CC) for the months of April, May and June (total = $3,618) and pull $1,259 from checking/savings to pay this off by June 2020.|
|Chase Credit Card||$2,548||0% until July 2020, then 16.49%||Save the $1,253 in difference between income and expenses (that’s adding the $25 that used to go to the Wells Fargo CC and the $47 that used to go to the Capital One CC) for the month of June and pull $1,295 from checking/savings to pay this off by July 2020.|
|HSBC Credit Card||$1,970||0% until Aug 2020, then 18.49%||Take the $1,302 in difference between income and expenses (with all the former monthly CC payments added in) and pull $668 from checking/savings to pay this off by August 2020|
|Total:||$10,656||Result:||All paid off by the end of August 2020|
This plan hinges upon Alex drawing down on their cash reserves to a heavy extent, detailed below:
|Starting cash position||$4,300|
|Deducted to pay off Wells Fargo Card||$80|
|Deducted to pay off Capital One Card||$1,259|
|Deducted to pay off Chase Card||$1,295|
|Deducted to pay off HSBC Card||$668|
|Cash leftover after all payoffs:||$998|
I don’t love depleting Alex’s emergency fund to this extent; however, I also don’t love the astronomical interest rates that would kick in on the credit cards. Plus, as soon as all these cards are paid off (by the end of August), they can funnel this money into rebuilding their emergency fund. Alex’ll have $1,327 every month (difference between income and expenses once all the credit card payments are eliminated), which would quickly build the emergency fund back up to a safe amount.
The other option they proposed is a balance transfer to another 0% intro APR credit card. That’s a possibility, but I think knocking this debt out will give Alex a sense of peace and a true financial fresh start. If it were me, I’d pay these debts off and be done with them forever, providing a symbolic–and actual–break from the past financial abuse.
Of course another way to accomplish debt repayment is by reducing expenses.
In every Case Study, I like to point out that what you choose to save or not save is a very personal decision. Cutting every last expense is NOT the right answer for everyone and I am NOT an advocate for making yourself miserable in the process of achieving financial stability. I am an advocate for values-based, goal-oriented spending. I think it’s important to assess whether all of your expenses bring you fulfillment and a good return on your investment.
In order to effectively review your expenses, you need to know what you’re spending. Luckily, there are free online programs designed to do this for you. I use and recommend Personal Capital, which offers free expense tracking as well as a lot of other great tools for managing and understanding your money (affiliate link). You can write your expenses down in a notebook, you can create your own spending spreadsheets, you can use an online program–whatever you do, keep track of what you spend every month. If you’d like to know more about how Personal Capital works, check out my full review.
Alex is already very frugal and very focused on spending on their priorities, so I don’t have a ton of advice to offer in this arena. What I do suggest is that they consider putting all discretionary spending on hold while paying off their credit cards. Once the cards are paid off, the spending can resume. The credit card debt isn’t all that much (in the grand scheme of things) and Alex has the financial aptitude, as well as the discipline, to wipe it out by the end of the summer.
If they’re amenable, here are the discretionary expense categories that could be put on hold:
Tattoos & Piercings: $20
That’s actually a lot of money from very few categories! If Alex were willing to put these three things on hold–only until the debt is paid off–they could pay down the cards and build an emergency fund very, very quickly.
Alex’s Emergency Fund
Let’s spend a moment here on what I mean by “emergency fund.” Alex already noted that having an emergency fund is a goal, so I’m here to cheerlead this plan into action. Let’s break down the numbers:
- Alex spends $3,019/month, which means they should target an emergency fund in the range of $9,057 (three months of spending) to $18,114 (six months worth)
- After Alex pays off the credit cards, and if they decide to put the above three expense categories on hold during this debt repayment period, they’ll be able to save as follows:
- $904 x 5 months = $4,520 + $998 (cash leftover after paying off all credit cards) = $5,518 by the end of August
- From there, Alex can target saving another $3,539 to get to that three months of spending goal of $9,057
An emergency fund should be kept in an easily-accessible bank account, such as a high-interest checking or savings account, NOT in investments, retirement funds, or cars/houses/expensive china. An emergency fund is money you can access immediately in an emergency. The general rule of thumb is to have three to six months’ worth of expenses in your emergency fund, meaning three to six months worth of what you spend every month. This is why it’s so important to track your expenses–I use and recommend the free expense tracker from Personal Capital. If you’d like to know more about how Personal Capital works, here’s why I use it and recommend it.
Alex’s Numerous Cash Money Accounts
Aside from retirement savings, Alex has a whopping six different checking and savings accounts. I wonder if they might consider consolidating these six accounts into one, or perhaps two, accounts? Unless there are specific reasons to keep the money spread out across all these different accounts, I would find it more manageable to consolidate.
Additionally, I strongly encourage Alex to move their cash into a high-interest, fee-free savings account.
Alex is unfortunately using mostly low interest rate accounts, which doesn’t do them any favors. You want your money to be earning more money–even if just by a few percentage points!
If they moved their money to, for example, an American Express Personal Savings account that–as of this writing–earns 1.70% in interest, in one year, their $4,300 will increase to $4,373.10. That means they’d earn $73.10 in one year JUST by having their money in a high-interest account. I realize it’s only $73, but it’s an example of how you can earn money for nothing if you’re strategic about the bank accounts you use. See this post for details on which banks I recommend for high interest savings accounts.
If Alex is confident in their ability to not go into credit card debt ever again, it might make sense for them to develop a travel credit card strategy. With the amount of travel Alex does–and wants to do–leveraging a travel card could yield free airfare. They’ll need to do some research to determine which card(s) will make the most sense, but I encourage them to do so! Two of the most popular and most rewarding travel cards are the Capital One Venture Rewards Credit Card and the Chase Sapphire Preferred (affiliate links). For more on my credit card strategy, check out The Frugalwoods Guide to a Simple, Yet Rewarding, Credit Card Experience. I also wrote this guide on how to find the best credit card for you.
Alex’s Question #3: Should I prioritize paying down and refinancing my mortgage or building up my portfolio/retirement accounts?
Right now (at this very moment), mortgage interest rates are LOW. Like, super duper low. I’ve heard percentages like 3.2% and even 3.1% thrown around, which is crazy-town low. Given that, I’ve been encouraging everyone I see to investigate refinancing their mortgage (it will not make sense for everyone, but now’s a great time to look into it). Of course, most of the United States has this same idea right now, so you might be on hold with your bank for a long time, but I personally would be happy to sit on hold for hours if I could lock in a rate as low as 3.1%. Just saying.
Given this, it might make a ton of sense for Alex to get a move on lowering their LTV (loan-to-value ratio), which can be accomplished through either paying the mortgage down and/or increasing the value of the home. Alex mentioned completing a number of repair/renovation projects and I wonder if those might be sufficient to raise the value of the home in a reappraisal? And are there other low cost repairs/renovations they could perform to increase the home’s value?
Here’s a quick rundown of the numbers:
Alex’s home is valued at $120k. A LTV of 20% would be $24k, which means Alex would need to hit $96k left on their mortgage. At that point, they’d be at 80% LTV and would qualify for a conventional refinance.
It’s also true that a 20% LTV isn’t a hard and fast rule and there might be lenders willing to refinance at a different LTV. Plus, since Alex is part of the MN First Time Homebuyer’s program, there may be different or extenuating rules. All that to say, this is something that’s definitely worth Alex’s time to research.
Alex’s Question #4: Thoughts on focusing funds on putting a downpayment on an investment property to rent out as opposed to putting funds in the market?
I love that Alex is thinking about their financial future and I commend their high level of financial literacy. However. I would put a pin in both of these options for the present. Alex needs to go back to basics and: 1) pay off the credit card debt; 2) build an emergency fund; 3) come up with a plan to pay off the student loan debt and/or get the mortgage LTV to 20% so that a better interest rate can be found.
Once those foundational elements are taken care of, Alex can and should explore diversification and investments. I also think this option will be decided in part by the path Alex chooses to take.
If they pursue the more settled route of the PhD program, then investment properties (that they could self-manage) might make sense. Conversely, if they embrace a full-time nomadic existence, it might be easier (and more profitable) to invest in low-fee index funds that don’t require the headaches and hands-on management of a rental property.
I’m a huge fan of planning ahead, but in this instance, I encourage Alex to slow down, appreciate how much they’ve accomplished during this tumultuous year, and focus on the basic next steps.
Alex’s Questions #5 and #6: Advice on how to invest in long-term goals with a partner/partners when finances are separate?
I don’t have personal experience or advice to offer in this area, but I think Alex is wise to consider how finances might be structured in a shared living community. I think keeping finances separate is probably wisest and would allow Alex to maintain financial health and stability despite any changes or disruptions within the community. I imagine there are models to suggest how money should be shared/distributed within an intentional living community and I encourage them to research these options and decide on a format before making the move or purchasing land/homes with others. Basically, know what you want to do from a legal and ethical standpoint and put it in writing for everyone to agree on BEFORE intertwining lives and money. I think it’s always easier to have expectations outlined ahead of time so that there are no surprises when something unexpected–be it good or bad–happens.
Circling back to Alex’s overarching question of whether to return to the PhD program or stay in the job, I want to highlight the fact that this year has been one of immense turmoil. Leaving an abusive marriage, stepping away from a PhD program, paying off a lot of debt, starting a new job–these are all momentous shifts and Alex might need more time to discern their next steps. This is a lot to take on in a short period of time and they’ve handled it all with aplomb. As I was reflecting on Alex’s Case Study, the comments they made about their desire to live a more nomadic lifestyle and to perhaps join the Peace Corps rose to the top.
If joining the Peace Corps is a goal and a priority for Alex, I’d say go for it sooner rather than later.
In my (admittedly limited) experience, the older you get, the harder it becomes to drop everything and jet around the world. Jobs, families, commitments, your health–it all becomes more challenging and more entrenched as you crest your twenties, move through your thirties, and glide into your forties.
Alex is essentially unencumbered right now with no pets, no children, no live-in partner(s), and a flexible job with a contract that ends this summer. Doing a year or two in the Peace Corps might give Alex the time, space, and distance to distill their longterm goals and come to a place of clarity and resolution on the whole PhD versus job conundrum. It also might open up new avenues for work that they haven’t considered or experienced yet.
I could envision the Peace Corps meeting a lot of Alex’s stated goals:
- Travel/nomadic lifestyle
- Time outside in nature in a different culture
- The ability to help people
- An opportunity to step away from life as usual and think hard about longterm trajectories and goals
Plus, service in the Peace Corps might make Alex eligible for student loan forgiveness/deferment options. And, since they’re already renting two rooms out, if they’re comfortable renting the third bedroom out, their house wouldn’t be a financial burden and might even generate a bit of income.
- Enact a plan to pay off all of the credit cards before their interest rates kick in.
- Consider putting discretionary spending on hold while repaying the credit cards.
- Build up a robust emergency fund.
- Look into possibilities for getting the LTV down to enable refinancing.
- Seriously consider joining the Peace Corps sooner rather than later (if it’s a true goal): explore the possibility of taking a leave of absence from the job and the PhD program while serving in the Peace Corps.
- Be confident in all of the good decisions you’ve made up to this point and know that there’s truly no wrong answer in what you choose to do next.
Ok Frugalwoods nation, what advice would you give to Alex? We will both reply to comments, so please feel free to ask any clarifying questions!
Would you like your own case study to appear here on Frugalwoods? Email me (firstname.lastname@example.org) your brief story and we’ll talk
Update from Alex on 1/17/21:
Hey all, Alex here. I kept meaning to send an update in sooner, but every time I thought I had decisions solidly made, something changed. Covid has certainly made this a heck of a year.
A couple of super basic/numbers updates:
- I went ahead and put that credit card debt on 0% intro APR balance transfer cards since I found a couple with $0 balance transfer fees to maintain some liquidity. There is now less than $4K left on it and I’ll knock the rest out when the intro period is up.
- Despite being laid off four times this year, I have raised my net worth almost $60K in the ten months since my case study! This includes an emergency fund of 12 months of basic expenses (6-9 months of regular expenses) and maxing out my 2019 Roth IRA and 2020 Roth IRA, solo 401(K), and HSA.
- For the first time since starting college, my net worth is positive! (As a note, about $11K of this is the value of my house going up, but that still leaves almost $50K in paid-off debts/increased savings/investments!)
Alright, as to less numerical updates:
I kinda had to laugh because in the original comments someone asked about how secure my job was and I pretty much responded that it was secure so long as the position existed since it pays for itself. Well, lo and behold, I did not predict a pandemic, and I was laid off for the first time a couple weeks later. Haha. Thankfully, my boss has had my back this entire time. The organization has been hiring us back as they have had the funds to do so for temporary work outside of our regular position (we had a LOT of phone calling contracts around the election) and in between those, I’ve been eligible for unemployment.
I took advantage of the unstructured time to do a lot of projects on my house/in the yard including planting four fruit trees and ten varieties of berry bushes (which I hope will start to produce next summer!), get my certification to Teach English as a Foreign Language, and start a couple of side gigs/start getting some self-employment income. It’s been an unexpected year with a lot of twists and turns (especially since I am high-risk for Covid so I have barely left the house,) but I’ve tried to make the best of it.
My big question originally was whether to stay in my PhD program or stay with the job I have been working. Obviously, that question got even more complicated with Covid. (Main reason it took me so long to write an update.) Ultimately, I decided that if I found a project that I was super passionate about then I would return and if not then I would stay where I am. Alas, none of the profs whose work I am passionate about had space for me when I would need to join, so I have decided to stay in the job I have been loving for the past few years with all of the perks and flexibility it has. (As a note: I have stayed in very close contact with my boss and my job is guaranteed once the office is open and we are running field operations again. That just isn’t happening until a vaccine is widely available for obvious reasons.)
I have been trying to refinance my mortgage, but have run into some issues with the intermittent layoffs and banks not being willing to count other forms of income than my W-2 income (which has been extra frustrating since my AGI for 2020 is more than double what it was the last two years.) So I’m still working on that and also keeping an eye out for a potential investment property, but am prioritizing maxing out all tax-advantaged accounts first (Roth IRA, solo 401(K), HSA.)
In terms of the long-term plans with partners, there has been some good progress on that front! Riley and I are no longer together, but Fran is officially moving in next month (after unofficially living here for the whole quarantine) and we have set out our short term and 10 year financial plans both individually and as a couple. He is less FI focused than I am, but we have a shared vision for a far more nomadic life with a home base and we have plans on how to get there. I am personally on track for Coast FI in the next 3-4 years and true FI in the next 6-20 years (depending on how many of those 6 month leaves of absence I take in that time and how well my new home businesses do.)
All in all, despite a generally hell-ish year in many ways, I am feeling much more confident about my financial future and I have a much clearer vision of how to reach my goals. I am very grateful for all of the feedback and advice I got on my case study and I hope I can pay it forward to the community in the future!