Author Topic: Prospective MBA and new Mustachian adherent seeks guidance  (Read 1746 times)

DCMiniMustache8834

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Prospective MBA and new Mustachian adherent seeks guidance
« on: November 03, 2016, 07:41:43 PM »
Hi All,

I first found Mr. Money Mustache about 6 months ago and Peter's writings have completely revolutionized my life. Prior to finding his blog I was living the typical yuppie lifestyle in Washington, DC replete with paying rent in one of the highest priced areas of the city (although it was a ten minute walk to work and to all necessities such as the grocery store). I was 4k in debt (not including a trust fund, explained below). Now up to 10k in savings. Since I stumbled across the blog I've completely revamped my finances.

My current finances:

Salary: 80k/year plus 5-10% annual bonus
Assets:
BofA checking account: typically between 500-1000 dollars.
BofA savings account: currently at 10k
Vanguard 401k: approximately 13k (contributing 4% with 6% company match (match is maxed out))
Vanguard Trust: $101k (My grandmother was a very generous woman and I still count my blessings every day).
Trust checking account: currently at $13k
Savings rate: Pretax to 401k appx $3.5k, aftertax appx $40k
Debt: $0

Expenses:
Food: appx $150/month (Eat out once a month, bring lunch to work 4 days a week and dine out on Fridays with coworkers)
Rent: $0 (Moved in with my parents who live about 20 minute drive from work
Car: $25/month (My parents still allow me to be on their insurance and have significant cut back on driving and now use my bike for shorter trips)
Travel: $200/month (My girlfriend (probable fiance within next year or two) lives in Massachusetts right now)
Cell Phone: $33/month (switched from a $90 verizon plan to AT&T prepaid plus corporate discount, I'm very satisfied with the plan so not really willing to switch)
Shopping: $20/month (random stuff, typically fly fishing stuff like monofilament or stuff to tie flies)
Health, vision, dental insurance: $70/month all pre-tax via work plan (this is probably as low as I can get it)

Overall, I've cut my spending way down, especially because my parents allowed me to live with them. It's a pretty big house and they're semi-retired now so I function as a house sitter about 70% of the time.

Here's my predicament. Prior to discovering this blog I had always planned to get an MBA. I'm currently in the running (invited for interviews and believe it highly likely I'll get into at least a couple) at 5 of the top 10 business schools in the country (think MIT, HBS, Dartmouth, etc). All told, and even being conservative, an MBA program will cost the following:

$120k tuition, $110k in lost take home pay (post-tax), plus another 10k per year in associated costs. I'm not factoring in living expenses as I would incur those regardless and most of the programs I am looking at were selected in lower cost of living areas.  Total: $250k.

My question to the Mustachian community is this: 1)I am considering financing the entire MBA via grants and student loans and the cash on hand I can save between now and school (ballpark at 50k between the 23k on hand now, plus bonus of appx 5k plus an additional 20-22k saved before I leave my job). The reason for that decision is this: I am loathe to touch my trust investments as those investments can continue working for me over the next two years (dividends so far in 2016 alone are close to 5k). In addition, should the worst happen and I graduate business school in two and half years (spring of 2019) into a recession, those funds would be vital in keeping me afloat until I can find gainful employment, plus would provide me with the beginnings of a nest egg to purchase a home or save towards retirement. Plus, with an MBA from a top school AND >100k in assets, I feel that I would be able to utilize a service such as SOFI to refinance the loans on favorable terms and utilize my mustachian inclinations to knock the debt out quickly (3-4 years max) and still have those assets in hand. 2)My other option is to minimize my debt by utilizing cash on hand and the trust fund, graduating with approximately $80-100k in debt rather than $150-200k in debt. However, this would leave me with very little in the way of assets at the conclusion.

There's probably a ton here I haven't even considered yet but figured this was a good starting point.

NathanDrake

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Re: Prospective MBA and new Mustachian adherent seeks guidance
« Reply #1 on: November 03, 2016, 08:56:44 PM »
Your strategy is sound. Depending on where you work, post-MBA, you'll also have a substantial signing bonus that you could apply immediately towards the loans. Some companies may even offer tuition reimbursement (such as consulting). I don't think you can go wrong either way. I would let the investments compound in your favor.

If I were you, I'd even consider maxing out my 401K until graduation and not worrying so much about saving cash. If you can refinance your loans on SoFi and receive an attractive rate well below 6.8%, I wouldn't even worry too much about paying off the loan quickly. At below 4%, I'm less inclined to pay off debt aggressively.

I considered going the MBA route, even posted a thread on here about it, but ultimately decided against it. I'm an engineer and enjoy reading Bloomberg, but something tells me that I probably wouldn't have enjoyed actually working in the financial services industry or consulting. My heart wasn't quite into those sectors. Currently FI, but not RE.

If your passion and long term goal is accomplished through an MBA and you expect to work for at least 7-10 years post-MBA, go for it! Otherwise, I'd probably continue on your current path since you have a high savings rate and good income.

w@nker

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Re: Prospective MBA and new Mustachian adherent seeks guidance
« Reply #2 on: November 03, 2016, 10:28:35 PM »
Finance it.  Maximize flexibility on the back end.  Depending on your interests and inclinations, there is a fair chance you will have some opportunities to do something entrepreneurial during and/or after school.  That cash could be critical. 

Top 5 MBA here.  Can't tell you how many of my classmates started their own thing coming out of school and are now printing obscene amounts of money.

spicykissa

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Re: Prospective MBA and new Mustachian adherent seeks guidance
« Reply #3 on: November 04, 2016, 03:01:17 AM »
Eh, I probably wouldn't do the MBA and just stick with what you do now (if you like it). But that's me.

I see a lot about money and not a lot about what makes you happy--do you want to be an entrepreneur? Do you care about "printing obscene amounts of money"? Are you doing an MBA because you want an MBA and are excited about it, or because it's what "people like me do"?

You'll likely be fine either way, having stopped being a consumer sukka. :) What's going to make you happier long-term? Will you have time to fish? Others will give you more detailed math pointers, but these are the questions that jump out at me reading your post.

w@nker

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Re: Prospective MBA and new Mustachian adherent seeks guidance
« Reply #4 on: November 04, 2016, 05:40:12 AM »
Legit questions.

Vindicated

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Re: Prospective MBA and new Mustachian adherent seeks guidance
« Reply #5 on: November 04, 2016, 06:21:45 AM »
DC,

I have been recently accepted into the Butler part-time MBA program.  It's amazingly inexpensive (~$30k), rated best in Indiana, and 25th in the nation.  I am doing it not because I expect to get a Wall Street gig, or to immediately join a large consulting firm, but because I want to learn to be a great manager.  If those are also your motivations, perhaps you should look into part-time options that you could complete while you continue working.  My employer is even paying most of mine (70-100% depending on how I do), but then I have to stay with the company for 3 years after.

I'm not saying this route is right for you, but perhaps it is another option you haven't considered.

Good luck in whatever you choose!

-Vin

rhadams1988

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Re: Prospective MBA and new Mustachian adherent seeks guidance
« Reply #6 on: November 04, 2016, 06:34:08 AM »
I agree with other commenters that you should only do it if you're passionate about it and want to stay in the industry for ~10 years. I've been considering an MBA for a while now and I've decided not to do it because the ROI is not high enough in the short run. If you look at a top 5 MBA program, the salaries 5 years after graduation are around ~$120-$140k. That's great, but make sure you do the math and figure out what your payback period will be. For me it was close to 10 years and I don't want to stay in business for another 10 years.

Also, if an MBA is for you, I highly recommend looking at evening programs. Then you don't have to forgo your salary and the math works better. Plenty of my friends have done this and it's especiallly doable for a mustachian.

w@nker

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Re: Prospective MBA and new Mustachian adherent seeks guidance
« Reply #7 on: November 04, 2016, 07:10:48 PM »
If you look at a top 5 MBA program, the salaries 5 years after graduation are around ~$120-$140k.

May want to check your facts there.  Top 5 MBA will easily land you +$150k in total comp first year out, assuming you are competent.  After 5 years, you are looking at +$200k in base salary alone.  I was at about $500k total comp just a few years out, and I feel like a loser relative to some of my classmates. 

In any case, my timeline to FIRE was dramatically accelerated because of my MBA.  Loans were paid off in first year, and I was technically FI 5 years out.  I, of course, am not a consumer sucka, and not every MBA will follow the same path.
« Last Edit: November 04, 2016, 07:13:52 PM by w@nker »