Topic Title: Pay 3L Tuition Upfront or Keep Cash on Hand for Future Investments?
Life Situation:
Graduate student, live with fiance significant other (SO). I have a BigLaw firm job offer for post-graduation that would pay ~$200,000 all-in the first year, but I’m considering alternative careers such as entrepreneurial acquisition (an investment vehicle to purchase a small business) that would likely pay a base salary of ~$100,000.
I’m an atypical law student in that I’m more interested in being an investor/entrepreneur than being a practicing lawyer. During the school year, I work part time at an investment firm helping founders and analyzing investments, as a TA, and as a research assistant on campus. My strategy coming out of college was to save as much as possible before grad school such that no matter what I decide to do over the next 30 to 40 years, I will at least have one or two million dollars to retire on thanks to the magic of compound interest. I accomplished the first part of that goal, now I am faced with the task of deciding how to structure a life in the intervening time that maximizes my autonomy, happiness, and wealth.
Gross Salary/Wages:
2017: ~$40,000
2018 Projection: >$55,000 this is pretty variable and could be $10k or so higher depending on how many hours I work at the Investment Firm;
SO 2017: $100,000
SO 2018: $120,000
Individual amounts of each tax advantaged contribution:
SO maxes 401k and Roth IRA yearly
When I worked full-time, I maxed my 401k, Roth IRA, and HSA. In 2017, I maxed Roth IRA and put $8,000 in 401k (due to payroll incompetence I missed out on the rest). For 2018, I will at least max my Roth IRA, but everything else depends on my situation post-grad.
Equity Income:
SO vests ~$100,000 worth of illiquid company equity per year. We pretend this doesn’t exist. Could be worth $500,000 to $1,000,000 in 2 years, could be worth $0.
Adjusted Gross Income:
As a couple currently ~$150,000,
Me ~$55,000
Taxes:
<$15,000 for me.
Current expenses: Tuition: $25,000; Housing: $1,100/month; Insurance: $0; Food and everything else $500/month (this covers things like eating out and occasional clothing purchases for me). Things like utilities/wifi/cell phone are included in my rent expense.
SO saves around 50% of her after tax salary and also pays $1,100 for rent and has her own miscellaneous expenses. We keep our finances separate and split shared expenses so I am on the hook for my educational expenses even though my SO has said she would help cover my expenses for a year or so if I decide to do something entrepreneurial post-grad.
Yearly total of roughly: $44,200 expenses for me including Tuition.
Assets: I have roughly $155,000 in assets. ~$94,000 in Vanguard 401k, ~$32,000 in Vanguard Roth IRA, $16,000 in a Vanguard money market account (this and my checking account is what I need your guidance on), $4,100 in an American Funds account, $6,000 in checking account, and $2,000 saved for future travel/honeymoon that I treat as untouchable.
SO has $140,000 saved not including vested equity and it is also invested in Vanguard retirement accounts, this includes a taxable investment account of roughly $25,000.
Liabilities:
$50,000 in graduate student loans at an average of 5%, which I am confident I could refinance to somewhere between 2% and 3%. $16,000 of these loans are subsidized by you, the taxpayer, so they have not accrued interest. I prioritize avoiding future debt versus paying down this debt early because of origination fees on new debt. I don’t own a car and I have never kept a credit card balance.
Specific Question(s):
Upon graduation, I want to begin buying investment properties or use the money I have saved to help finance the purchase of a company. Would it be irresponsible to take out roughly $40,000-$50,000 thousand in loans during my final year of grad school so that I can continue banking my roughly $50,000 in income during the 9 month school year so that I have the flexibility to use that cash to begin building a real estate or small business portfolio? Or, should I just pay for tuition with the cash I have now and will earn over the next 9 months? This would prevent me from making a real estate investment for a few years after graduation and would reduce my leverage in the job market and/or company acquisition process (cash on hand could buy time to make decisions instead of being forced to take the first opportunity I’m presented with), but it would reduce my debt load, which is generally a good thing.
As of now, my three most likely options post-grad are to work for the BigLaw firm I received an offer from, work full time for the investment fund I consult for part time during the school year, or raise an acquisition fund to buy and run a small business. I am leaning towards the last option and am trying to decide if keeping cash on hand so I have to raise as little outside capital as possible to fund a potential acquisition is worth the cost of incurring roughly $40,000 more in debt. If I end up going with work option 1 or work option 2, the cash on hand would be used to finance a real estate purchase or to purchase more VTSAX if I can’t find a good deal.
So, would you pay for tuition up front? Or stache the money and leverage it for future opportunities?
Thanks for your thoughtful replies and questions.
