The Basics of MBA Budgeting

Handling tuition and unexpected expenses can be draining for business school students. Here are some tips for managing your money

Being shaky with personal finances is the dirty little secret of many business school students. While most would-be MBAs know corporate finance like the back of their hands, personal finance is a whole other matter for many of them. Bonnie Lack, director of financial aid at Carnegie Mellon's Tepper School of Business, says many MBA students do not know how to balance their checkbooks, fail to regularly check their credit score, hold too many credit cards, and mistakenly think they make too much money to qualify for student loans and aid.

Worse, they feel like they should know all this stuff, so they don't ask questions or get help. B-schoolers who could use a hand getting their finances in order can do something about their situation and still have a life. Here are some tips from personal finance experts and fellow students on how to budget your money even when you're without a salary and unexpected expenses come up:

Start Early

The moment you start contemplating going back to school, you should take stock of the money available to you. How much do you have and how much do you need to get through testing, applications, visits to schools, tuition, books, living expenses, the job search, etc.? And how will you make up the difference—loans, help from mom and dad, living off investments?

Those who get an early start—at least a year before joining a B-school—can stash some cash for their starving-student days. Most experts agree that you should save either six months worth of living expenses or $10,000 before returning to graduate school. Lack suggests that people start "living like students" as soon as they decide to apply to B-school. That means packing lunches, forgoing designer clothes and unnecessarily pricey outings with friends, and basically living below your means.

Expect the Unexpected

If you've done your homework, you've calculated the big ticket items such as tuition. But you should also sweat the small stuff, which can add up. Jerel Harvey, a second-year student at the Kenan-Flagler Business School at University of North Carolina-Chapel Hill, was taken aback when he discovered that campus parking fees would cost him about $400 annually. Add that to the student activities fees and costs for traveling to conferences and job interviews, and Harvey says students can easily break the bank.

Extracurricular activities such as studying abroad and networking events are often initially unplanned and expensive. For study abroad, some students take out more loans. Getting student loans with lower interest rates is better than using credit cards that tend to have high interest rates. Dinners and networking trips will come out of the student's own pocket. Attend events, suggests Harvey, that give you the most bang for your buck, where you'll meet lots of people in your sector or be able to make an impression with your first choice of employers. Stay home for all the others.

Finding A Job Costs Money

There are many chances for students to go on trips to meet with potential employers. Be choosy, and prepare to have to leave at a minute's notice—and be able to afford the airfare, hotel, and accommodations—for an interview for your dream job. Some students estimate that the job search can cost between $5,000 and $10,000.

There's the temptation, of course, to build up credit card debt and use summer internship earnings to pay it down. Use credit cards only when you have the cash to pay it off at the end of the month, says Dianna Barra, author of Quick and Easy Budget Book (Idea Designs; December, 2002) and owner of Idea Designs, a publishing group that offers resources and advice on issues such as emergency preparedness and budgeting your household. "When I was younger, I learned that a person who understands interest earns it, and those who don't, pay it," she says.

Track Your Spending

Because those little things—such as the morning cup of coffee—add up, Jerrold Mundis, author of How to Get Out of Debt, Stay Out of Debt, and Live Prosperously (Bantam; January, 2003) suggests keeping tabs on every penny you spend for at least 30 days, ideally for three months. Include everything from laundry to Starbucks (SBUX) to renting videos. That will help you realize how many costly things you could do without. "Just doing this reduces expenses by 10% per month," says Mundis.

Write out a detailed budget for yourself and decide exactly how much money you need to allocate for necessities (food, utilities, shelter, commuting, etc.), says Jason Rich, series editor of Entrepreneur magazine's Personal Finance Pocket Guides. Don't forget to include a column for miscellaneous things such as dental work, auto repairs, or travel expenses for a job interview. "It might be a cliché, but expect the unexpected," says Michael Scrafford, a second-year student at Kenan-Flagler. He suggests thinking of your tuition as only 50% of the B-school tab. The other 50% is for living expenses and all of these other costs that you might not have even thought about before returning to school.

Keep It Simple

Think about ways you can cut back on the unnecessary stuff. "Do you really need cable?" asks Rich. In fact, Carnegie Mellon's Lack says you should consider making a simple home for yourself for the two years in B-school. Forget video game consoles and stereo equipment, she says, because you'll rarely be in your room anyway.

Lack even suggests that graduate students consider getting a roommate to divvy up expenses. This might not be the right choice for married couples, but usually one spouse works while the other attends B-school. In those instances, the spouses should stretch any income that's coming in as much as they can.

Experts remind students that they can save money and still have fun. One route to affordable good times is taking advantage of student discounts and free cultural activities on campus or in the city or town where you're studying, says Mundis. Learning to cook and making meals at home is almost a requirement, say students. And life's luxuries—from name-brand cereals to flat-screen TVs—will have to wait until after grad school.

Families Face Special Problems

One Kenan-Flagler student/mother, Patrycja Krzok, found that caring for her son's financial needs was a challenge. Student loans don't factor in children. She has to pay more for medical insurance to get him covered, too, and he needs supplies for school. That's not to mention the usual food and shelter required for everyone, which is more expensive for families. Even Krzok's books were not covered by her loans, and they often cost up to $400 for each modular. Her son's grandparents pitched in to help her make ends meet for him, and she tried to get student loans to cover as much as possible. Krzok advises anyone entering school with a family to start living on a reduced budget even before B-school, so everyone can adjust to the new lifestyle—and you can determine how much you're really going to need.

Don't be too arrogant or too afraid to ask for help. Talking to an accountant is a great idea, says Rich, because a professional can advise you on how to get rid of debt, set up a budget, and understand the tax benefits to being a student (BusinessWeek, 2/20/07).

Keep the Long View

Most people who go back to school for an MBA are looking for a lifetime of benefit from the degree. "You will come out of it alive," says Krzok. "It's about short-term sacrifices for long-term gain." Tuition may be upward of $80,000, rent could be well over $1,000 per month (even more at urban campuses), and dinners out could cost hundreds. But an enriched mind, after all, is priceless.

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