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Editor’s Note: To help you make the transition from the working world to graduate business school, Bloomberg Businessweek is launching a new series about how to prepare for an MBA program. The series—this is the first installment—will provide tips from experts and business school insiders, including administrators, students, and alumni, about how to do everything from making ends meet without a salary to setting career goals for achieving your dream job after graduation.
Graduate business school applicants put their heart and soul into getting into their dream MBA program. By the time they actually enroll in business school, they are trying to wrap things up at work, reconnect with friends and family, and take a deep breath before heading to campus. Usually this means the soon-to-be student does little to prepare for this major life change.
Going back to school after years in the workforce can be jarring. Just consider a return to sitting through hours of lecture, late-night study sessions, student clubs, and stress-inducing exams. Before preparing for the academic rigor and competitive job search that a top MBA program entails, it helps to consider the practical problems many new students will encounter, from developing a budget sans salary for two years, moving to campus, and settling the family into a new life. Here is an outline of the first steps aspiring MBAs must take when preparing for the practical side of their B-school journey.
Learning to live like a student on zero salary can be shocking, especially if one waits until the first day of classes. “Start cutting back your life before you quit your job,” says Ann Johnston Scott, director of graduate programs at Georgia Institute of Technology (Georgia Tech Full-Time MBA Profile). “You have to get out of that steak-and-potatoes lifestyle and get back to peanut butter and jelly.”
Indeed, experts recommend adjusting spending habits up to a year before returning to school. Eat out less, cut back on entertainment, quit buying top-of-the-line items, and refrain from using credit cards, suggests Scott. Start socking away any savings for those two years in B-school without a salary.
Next, students have to determine how much money they have for business school and what their expenses will be. “Too many people say, ‘I’ll live off X amount,’ without considering their actual expenses,” says John Ritter, a certified financial planner at Ritter Daniher Financial Advisory in Cincinnati. Instead, students should come up with a total and do their best to use cash rather than credit to cover it. “You might have a lot of debt when you graduate because you can’t control the price of school,” says R.J. Weiss, a certified financial planner at GenYWealth.com, which is based near Chicago. “But you can control your personal debt.”
Add 50 percent, says Ritter, to whatever you think your cash reserve should be to plan for the unexpected. According to business schools, MBA students often overlook aspects of their in-school budget. In the first year, says Scott, most students will have to pay income tax on the jobs they had before enrolling in school. Those who had high-paying gigs might owe Uncle Sam a large sum come spring semester. In the second year, they’ll have to consider the tax implications of internships, graduate assistantships, and any part-time work they do.
Besides taxes, students often forget about travel expenses (and not just those tickets to see Mom and Dad at Thanksgiving). “What sometimes surprises students is that they tend to travel for global experiences and student club treks,” says Gary Fraser, dean of students at New York University’s Stern School of Business (Stern Full-Time MBA Profile). “It’s one thing they don’t always budget for, so we talk about it more at orientation.”
