How much should you have saved before b-school? Money anxiety/cold feet
I'm 27 and about to start a joint MBA/Master's program at HWS. I did 2 years at a BB and finishing 2 years at UMM PE. I'll be paying my own way entirely (my PE firm doesn't sponsor), so looking at $200k total cost of attendance (no aid). I decided a year ago this was important to me as I want the life experience and I also want to pivot to tech product management for better WLB. I went to a UCLA/UVA type state school so the HWS-level rebranding helps too. But now that the decision is about to become real, I am getting cold feet about the opportunity cost. I grew up in a poor single-parent household and I have never spent this type of money before in my life.
In terms of my finances, I've been relatively good at saving/investing so I have >$600k net worth, and no debt. I've calculated that I should end school just shy of 30 with about ~$430k net worth (including summer internship money but not including any FT sign-on bonus). I do have the option of pulling the plug and try making up some last-minute medical excuse to defer my admission offer and stay with my PE firm for one more year which will probably add another $150k net to my savings. As much as I'd hate staying in PE for another year, it would be nice to pocket that cash since after school I'll probably be making $200k pre-tax as a PM (basically back to analyst 1 pay). But at the same time, I'm not getting younger and I feel like B-School is a now-or-never type situation at my age and fear it will become even harder to do it next year or the year after.
Is my cold feet justified? Or can I comfortably afford B school? Sorry for the unstructured thoughts, but would appreciate any advice, especially from anyone who had to pay their way through b-school too
following
First, your cold feet is completely justified and natural. It’s a big life decision and involves spending a lot of money.
I think the question you need to answer is if you want to go to business school. If that’s a yes, go now. 100k more isn’t worth spending another year in a job you want to get out of. You never know if they’ll except some random excuse, and admission to that caliber of school is no small feat. You have a very comfortable amount of savings to do it and if you wanted to not touch it you could take out loans that you could probably pay off very quickly after school.
B school is meant to be a fun 2 years. You’re in a very, very solid financial position to do it. Live it up, have fun and go on those trips with classmates, spend the extra grand on a fun weekend trip, because soon it’ll be over and you’ll be back working. It’s an investment in yourself and your personal brand.
You are going to be one of the richest people in your entire b-school class. Most people take on debt just to afford the tuition and fees. From a financial standpoint, I would say your cold feet is not justified and you should definitely NOT attempt to delay b-school just to accumulate an extra $150k before attending.
Thanks a lot!
Before bschool I lived in an EM with low salaries and had a grand total of ~$15k in savings when I started the application process. After paying for GMAT, application fees, travel for interviews, relocation, etc. I had like 2 pennies left when I actually started bschool. Took loans for 100% of the cost of attendance and don’t regret it one bit.
Of course everyone’s financial situation is different and for you bschool won’t have the same ROI it had for me (I’m literally making 8x my pre MBA salary and that’s without counting bonus), however from a purely financial standpoint you are better off than 99% of your future classmates.
came in with only a few grand. took out full loans for COA, did some side jobs here and there to make cash to pay for extra stuff like trips. 0 regrets
The fact that you think its a good idea to spend $200k, or ~1/3 of your net worth + opportunity cost of earning for two years, on school, to me, is insane. Why don't you just get another PE job, or go on vacation for a year if you're burnt out. School (yes even Harvard) is an absolute waste of time and money. You can learn anything they teach you there for much less online, the people you are going to meet are mostly going to be either "career-switchers" or family money guys/girls whose parents are making them do it (most people that would have gone to Harvard 15 years ago, would never go today, knowing what we know). Most companies that are worth working for nowadays, don't give half a crap about where you went to school (especially MBA), they care much more about your experience, which you already seem to have in the bag for someone your age.
If you really want to part with your $200k, you may as well just buy some BTC & ETH or try to start a business. While these ideas have a non-zero chance of going to zero, at least you will learn something tangible and you already are writing off the money by considering paying tuition.
Not that I disagree, but I find it interesting your point on what employers want. I have found that not to be the case. In my experience, HR and/or recruiters are looking for someone to "tick" the boxes as smart / resourceful / dependable / etc. Additional certifications, degrees, or random bullshit often help send that message when you make the initial application. If you tick the boxes, you get an interview. To get the job, things like experience and personality come into play.
If you work for Assface Capital for 8 years and are a star performer, most major employers (+ their HR departments) won't know or care about you, especially if you are a career switcher. If you had some letters to your name, and use that school's resources to get into the pipeline for XYZ job, half the battle is won. It's not pretty but if we're honest, that's how most things work these days.
+ no one needs to go to school for an education. Every library in the world is filled with more books than someone will read in their lifetime. Unfortunately, we are at a point where "signalling" that you are smart is just as valuable as actually being smart
+ most people accept MBA is a party / for networking. But people also admit that having a strong network is important. Seems like an easy way to check that box in my opinion
+ last one: the hedge fund world is still largely meritocratic (maybe entirely). This is increasingly rare
I do think you bring up good points. I think it can vary based on how we describe "employers".
Lets maybe look at it from two extremes.
If you are an analyst a couple years out of college working in IB in Nomura or BNP and are looking to get into say Blackstone or Qatalyst or something, yes you will want all the top schools/brand names, high gpa marks etc etc.
the other extreme, if you are an 8 year VP level candidate from a reasonably well capitalized PE firm with a good track record, you probably can get your next gig purely through networking with people you have worked on deals in the past.
So my answer was more tailored towards the OP candidate, who was somewhere in between these two extremes.
Also, to relate back to my point of "employers", a Blackstone who receives hundreds and probably thousands of resumes, they have to have some sort of an auto-checkmarked qualifier that cuts candidates down, while a smaller no-name fund with 10 employees, probably has a more personalized experience because they receive less resumes and can actually dig into the candidates experience without needing to cut a pool of 3,000 to 300 or so as a first step.
Also matriculating to H/S this month. Bruh you’re overthinking it. I’m in a similar financial situation ~$400k net worth, age 26. I received no aid (sad panda). I’m just gonna take out a bunch of debt, which I don’t mind at all since I could pay in cash if I wanted to (but I don’t). No point delaying—you know you’re switching jobs after, so the quicker you get to that end job, the better. Don’t sweat saving another $100k first. Just plug your $600k into a retirement calculator and realize that you’re going to be loaded guy (even if you never saved another penny)
I’m starting at top 25 program with a 400k net worth and a fellowship for a decent chunk of tuition, but borrowing the rest of COA. I’m going to be selling a little bit of stock for trips and shit, but I wouldn’t defer starting my MBA to avoid that.
Working in PE should have taught you the value of leverage. Finance the cost of school, use that $200k for the down payment on a rental property, and make that your part-time job while you study. If you could find a $600k property (not sure location), and get anywhere near a 10% cap rate, the rent will nearly cover the interest of your school loans (assuming $200k @ 6-8%, 10yrs) and P+I on the rental. Don't blow that cash. Leverage it.
smart but would be very cautious in this market.
I think there is immense risk to fucking up the entire bschool experience if things go south honestly. Unneeded stress.
Also where in the US can you get anything near a 10 cap?? Maybe Alaska. But nowhere a manageable distance from either West or East coast.
Working at Blackstone, you probably never see higher than 5% caps, but that is a function of you guys raising billions every month and having to put that money to work quickly vs. finding deals. Rent growth has been unreal (as I'm sure you're aware). A quick search showed several potential apartments/condos in LA for ~$500k, market rates at $3500mo. $300k 10yr IO at 3.8% is going to cost $950mo. That's a 6.1% cap. If you negotiate any type of deal on the purchase, that cap pushes closer to 7. 10s are common in more rural areas, not just Alaska.
+1 you'll be fine. Don't over think it. You are better off than vast majority of your would-be classmates.
That said, I doubt 200k covers your total cost of attendance these days. Budget 300k and you'll feel less strapped for cash day to day. Lots of trips / activities you'd want to spend money on. I get how it feels like a huge opportunity cost but in the end, you have a long career ahead of you and the business school experience will pay off multiple times over in the long run.
For tech PM, does it really pay off? Corporate success is more about your ability to deliver, lead, and communicate and less about pedigree (and I’d imagine UVA is at or above the median of most coworkers anyways). I don't work in the industry but I'd imagine he could pivot to his desired role with his background as it is.
You have a fair point and I agree on many levels.
That said, I'm assuming OP is an ambitious and smart individual that would not stay in a PM role earning $200k for the rest of their life. At some point, you transition to the C level, jump into another role, ink partnerships with other tech firms, start your own firm, etc. It seems a little short sighted to see business school as useful only for the job you are taking immediately after graduation. Plus, no one loses their job for standing behind a pedigreed candidate for promotion... Not something I believe should happen, but it's the reality too often.
I took a margin loan against my portfolio while my liquid portfolio kept increasing. Might be the best route for you also.
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