Managing your finances during your PhD can be one of the biggest challenges whilst studying. Learning how to live below your means and better manage your money is essential to creating positive habits for your future.

Completing a PhD can be one of the biggest tolls on your financial stability and requires a lot of self-resilience. If you’re fortunate enough to have a PhD stipend it can make the journey significantly easier but nonetheless, still difficult. For those who aren’t familiar with a stipend, in lay terms this can be thought of as a ‘scholarship’ for doing your PhD. Your tuition is paid for in full, and then you receive a fixed amount (somewhere between £14,000 and £25,000 per year here in the UK) as a form of income. For those who self-fund their PhDs, they’re required to pay for the tuition alongside their living costs.

This usually means that other sources of income need to be sought. Part time work, side hustles, and other opportunities such as teaching, are usually the frontrunner. However, these of course take time and can in turn contribute to burnout during your PhD. If you’re considering embarking on a PhD, it’s strongly recommended that you give this some thought. With most things in life, taking one opportunity will inevitably close some doors for others. Weighing up the pros and cons of embarking on a PhD is strongly advised, particularly in the context of your financial income.

For those of you who are already into your PhD, sit tight as this post will provide some invaluable guidance on navigating your finances. First and foremost, talking about money can be a difficult for some. It’s usually an emotive subject and so we must first acknowledge that although money isn’t everything, your life and earnings do not occur in a vacuum. Your life, passions, interests, time, where you live, job, social life, well-being, hobbies, and more, all intersect with one another, including your finances. If you need permission to talk about money, take this as a sign. For the purpose of this post, we’re going to focus on managing your finances, which in turn, will hopefully facilitate more opportunities and enjoyment in other domains of your life.

As mentioned, they’re all inter-connected. Rather than being overly negative and criticising the financial landscape PhDs offer, it’s important we see this as an opportunity to learn. Having a limited or challenging income is a test and opportunity to understand and manage your finances. The common denominator for those who do well with their finances, is not the wealth they accrue, but it’s their ability to manage their finances. The solution isn’t about ‘making’ more money, it’s about managing the money you do have as best as possible. If you don’t know how to manage your finances now, during your PhD, you’ll most likely find it difficult to manage your finances after your PhD.

Much of the concepts that we’ll discuss in this post overlaps with a lot of information within the FIRE community. For those of you who don’t know, FIRE stands for ‘Financial Independence, Retire Early’. It’s a movement of people from all walks of life who share tips and ideas on how to achieve financial freedom through a range of different strategies. There’s lots of learnings that can be applied to your PhD experience. Essentially, the common thread and key fundamentals to FIRE is to focus on reducing your living expenses and adopt a savings/investing approach that works for you. For many, this can sound quite daunting, particularly investing. How can I invest if I have no money? How can I save my income if I’m short at the end of every month? Well, you must reduce your living expenses first.

Your living expenses are basically those things that you pay for every month. This could be essentials, like food and rent. It can also be non-essentials, like TV subscriptions, fashion, eating out, and so forth. It’s going to sound really obvious, but the things that you don’t need, shouldn’t be a monthly expense. The hard part is working out what’s a ‘need’ and what’s not. This is really subjective and personal, but typically a good way to think of it is to ask yourself 2 key questions. 

Question 1) If I don’t buy/pay for this, what will happen?

If your answer isn’t negative, or won’t have much of a negative impact, you probably don’t need to buy it. An example might be not buying a designer pair of shoes for example. If you don’t buy it, it’s not the end of the world.

Question 2) Does this purchase add or give value to my life and well-being?

Same as above, if you your answer isn’t positive, i.e., the purchase doesn’t improve your well-being, then you probably don’t need it either. Sure, buying those shoes might give you a short-term buzz, but is it really adding long-term value to your life?

The goal here is to reduce these ‘wants’ so to speak as much as possible. Keep your monthly expenses down. This can extend to a range of things: coffee on the way to the office, lunches that you buy instead of making them at home, a car instead of using public transport, the type and location of where you live, the expensive ‘pick me ups’ to make you feel better, the list continues. It’s subjective and personal, but it’s important to identify and reduce these as much as possible.

If you do this correctly, you’re likely to free up some extra cash on a monthly basis. The key thing here is to not spend this extra cash. As already discussed, a PhD can have a detriment to your financial income. So, once you’ve figured out a system to have a bit extra every month you can begin to either save and/or invest. Saving your money should always be a starting point, this can help cover those rainy-day expenses. Things like your phone breaking, the cost of an electrician when the lights blow out, repairing a car if you own one, or even simply treating yourself to an Uber when you can’t find your way back from a conference. The more you have left aside the more prepared you’ll be for when things don’t go to plan.

Once you’ve managed to save a nice ‘emergency fund’ you can begin to leverage your extra cash where possible. This could include a separate savings account, upping your pension contributions, putting it into the stock market, or even buying more opportunistic investments like cryptocurrency. Investing isn’t for everyone but at least having the option is encouraged. If you don’t want to invest, that’s also okay, but saving cash for your long-term future (such as your own property) is a good place to start.  

There is one mistake a lot of people fall into, especially PhD students. When earning relatively little, the spare cash you can save per month can feel almost negligible. Because it’s so small and feels insignificant, there’s a temptation to think ‘so what, I might as well spend it – saving £20 a month won’t make a difference’. But this is how you breed bad habits. If you can’t be disciplined with £20, you won’t know what to do with £200, or even £2,000. Furthermore, if you save £20 a month for an entire year, that’s £240. If you do that for the duration of a 3–5-year PhD, that’s anywhere between £720 and £1,200. Small numbers add up. And as you fine tune things, saving more than £20 will become second nature. £720 is better than £0. The point is, start small, and little things make a big difference over time. Trust the process.

The second piece of this is the famous saying of ‘pay yourself first’. It crops up in almost every book that offers financial advice. Pay yourself first is a concept where, as soon as your income hits, you place some of it in a savings pot. Do not wait until the end of the month, because you’ll most likely spend it. If you deliberately pay yourself first, in your mind you’ll already be aware that you have less money to live off for the next 4 weeks. In turn, you’ll be more disciplined and mindful off your expenses. As you repeat this over time, you’ll become more efficient and conscious of how to live off even less money. Here you’ll achieve the ability to reduce your expenses and live below your means. When your earnings begin to increase after your PhD, you’ll have a framework that will really set you up for financial success.

There is one last caveat, and it pertains to debt. Any form of debt you have should always be your first priority. The reason being that no matter how much you save or invest, the interest accrued on debt will grow at a rate quicker than money you make from any investment. Because of this, you want to remove this burden as soon as possible before investing. If this applies to you, once you’ve created your emergency fund, prioritise any additional income to paying off debt. Once this is cleared, you’ll be free to save/invest accordingly.

Similarly, financial independence, or even just financial stability is not a race or competition. It’s about managing your life the best way possible give your circumstances. Interestingly enough, those with limited income or reduced earnings usually go on to develop better financial intelligence and management of their finances because of this learning curve. We’ve all heard them stories where wealthy people go broke, this is because they don’t know how to manage their money.

To summarise everything so far, the steps are as follows:

1. Reduce your expenses, live below your means, free up monthly income.

2. Use the freed-up income to pay yourself first and build an emergency fund.

3. Pay off and clear any outstanding debt.

4. Once you’ve built an emergency fund, continue to save or invest.  

It’s a simple framework which people love to complicate. Your PhD is an opportunity to get this system working as best you can, so once you finish and you begin earning your post-PhD salary goals, you’ll have good habits to set you up for the future. Your PhD is a chance to master this and educate yourself to improve your financial intelligence. It may not make you wealthy or solve the financial struggles that come with a PhD, but it will definitely give you one of the most important lessons for the rest of your life.