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Why You Need An Emergency Fund

03.02.2020 by admin // 1 Comment

How much emergency fund, how much to have in an emergency fund, where to keep your emergency fund, emergency fund definition.

Emergencies aren’t a matter of if, but when. When you’re faced with an emergency, having an emergency fund to cover unexpected medical, car, house or other expenses will help minimize the stress during these times. Having an emergency fund with 3-6 months worth of expenses will help you prepare for when an unexpected expense comes up. Learn why you need an emergency fund, how much you should have in your emergency fund and where to keep your emergency fund.

What Is An Emergency Fund

An emergency fund is an amount of money set aside to cover emergencies if they arise. When you first start saving money, the first thing you should fund is your emergency fund. An emergency fund is money that is easily accessible and liquid (such as money held in a checking account or savings account) that you have for when things go wrong. This includes an unexpected health bill, unexpected car repair, if you lose your job and so forth. The golden rule is 3-6 months of expenses but it really depends on your situation. You can find a calculator here to help identify how big your emergency fund should be.

Once you’ve built up an emergency fund you can also use this money to improve your life. For example, moving is expensive. If you aren’t living in the location you want to end up in start building up an emergency fund to pay for the move and the first few months of living expenses.

Why You Need An Emergency Fund

An emergency fund is supposed to be for unexpected expenses, but are all expenses really unexpected? To reduce unplanned expenses, do a bit more analysis and see how you can plan for expenses that aren’t frequent.

Even if you plan for “unexpected” expenses do you still need an emergency fund? The answer is yes. Say you think you’ll have $1,200 in household repairs needed this year. From a yearly budget perspective that averages out to $100 / month? But, what if that expense hits in January? It’s in your budget, but if you were only relying on your paycheck you wouldn’t have the full amount of cash you need until the end of the year. An emergency fund will give you the cash you need in the short term.

Health Emergencies

An estimated 530,000 American families turn to bankruptcy each year because of medical issues and bills every year. Your health insurance may not cover as much as you think. While health emergencies are truly an unexpected expense, having an emergency fund will help you focus on your health instead of worrying about money during this time.

Car Emergencies

If you have a car you know you’ll need to perform regular maintenance. This includes oil changes and emissions tests plus other fees like city stickers and insurance. As a car ages, you should assume you’ll need to replace car parts. For example, car tires should be replaced every 6 years or more frequently if you drive often. Estimate when you’ll need to spend more money maintaining your car so you have fewer unexpected big bills.

Of course, no matter how much you plan there may be an accident. For the unexpected having cash in your emergency fund to cover a deductible will help.

House Emergencies

If you’re a homeowner you should estimate 1-3% of the purchase price of your home every year for home repairs. Plan for this in your budget and if you don’t end up using it set it aside for the next year. There won’t always be a major home repair but you want to be prepared when it does happen. Roofs will need to be replaced every 20-30 years depending on the material. Furnaces should last 15+ years. Homes usually need to be painted externally every 5-10 years.

Knowing when these were last replaced in your home will better prepare for these expenses.

Job Emergencies

You never know if you’ll be laid off, or injured where you can’t work anymore. Perhaps your job has become detrimental to your health or you’re feeling burnt out and need some time off. An emergency fund provides some cushion in case your job doesn’t go as planned.

How Much Money Should You Have In Your Emergency Fund?

There isn’t a one number fits all for how much you should have in your emergency fund. The golden rule for emergency funds has been 3-6 months of living expenses. That way if you get laid off you have money in cash to fall back on. If your money is all in investments you’d have to sell investments to cover your daily expenses.

Use the emergency fund calculator by Money Under 30 to determine what the right number is for your emergency fund.

Another way to look at how much you need in your emergency fund is to determine how much money do you need to feel secure? If you lose your job tomorrow or have an emergency repair such as needing a new furnace or a major car repair what amount of money would make you feel secure?

What If You Don’t Have Enough Money to Fund an Emergency Fund?

The toughest time will be when you get started. If you’re starting in debt funding an emergency fund is even more daunting. Your first thought should be how you make more money. Can you start a side hustle? Make more money at your job? Secondly, look for ways to cut your spending so that you don’t accumulate more debt and put that money toward your emergency fund.

There are always unexpected expenses that arise. If you don’t have money to fund an emergency fund that doesn’t make you immune to an emergency occurring. While you’re paying down debt, you should also contribute to your emergency fund so you don’t have to take on more debt when an emergency inevitably arises. That way, you can avoid having to take out credit card debt at 18% interest when an emergency arises.

Where To Keep Your Emergency Fund

The best place to put your emergency fund is somewhere where you can easily access the funds but not too accessible where you’ll spend it on something else. It’s best to have a separate account so you don’t accidentally spend it. It needs to be liquid because you need it in case of an emergency. A great place to store your funds is a high yield savings account. A high yield savings account is a great place for your emergency fund because there are usually limits as to how often you can withdraw money from a savings account and your emergency fund will at least generate some money. Nerd Wallet shares here the top 10 best high yield savings accounts.

Smart Money Moves In Your 20s

08.09.2019 by admin // 13 Comments

How to Invest Money In Your 20s, how to save money in your 20s, build wealth in your 20s, smart financial moves in your 20s

Making smart financial moves is important at any age, but if you’re in your 20s, smart money moves early on will set you up for success for decades to come. This is true whether you decide to be single, end up with a partner or end up having a family. Increasing your income, investing your money, creating an emergency fund, getting out of any debt and being smart with your spending are all key to be build wealth in your 20s.

Hustle At Your Job

Your lifetime earnings are decided in the first decade of your career. If you went to college and graduate in 4 years the first 8 years of your career will fall in your 20s. Make these years count. Don’t get distracted by spending too much time thinking about how to save money. Increasing your income early on will help you build wealth in your 20s.

Create a plan to double or triple your salary, no matter how crazy that amount may seem at the time. This plan may include strategic networking to get promoted or switch industries, identifying what you need to do advance your career, get another degree and / or expand your skill set. Dream big and create a plan with steps you can act upon to get to that dream. If you only dream it and don’t take actionable steps towards that goal it will always remain a dream.

What if you don’t have the job you want or don’t know what you want to do yet? That’s ok, you don’t need to have everything figured out. Continue to hustle and start to better understand what you don’t like and build your network. Get a career sponsor and a career mentor. It is easier to switch jobs when you have a network that can help you get that first interview.

Begin Building a Passive Income Stream or Side Hustle To Make More Money

Making money isn’t limited to just your day job. Build wealth in your 20s by starting to build a passive income stream. Generating a passive income stream doesn’t require a lot of effort. And, you will have a compounding effect as your net worth increases. It won’t seem like much money as you are starting out. But, it’ll begin good habits and that amount will increase over time.

If you’re in debt or are only beginning to build your wealth generate more money through a side hustle. The amount of money you make in a side hustle usually is proportional to the amount of hours you spend on it. For example, you’ll make more money on Instacart based on the number of jobs you accept. Other side hustles, like writing an e-book, will require a lot of effort up front. Over time, these side hustles will turn into passive income streams.

Invest In Yourself In Your 20s

Investing in your 20s isn’t limited to investing your money. You also need to invest in yourself. You’ve invested in yourself by attending college, but learning doesn’t end there. There are other professional certifications and additional degrees that can significantly increase your earning potential. Investing in yourself in your 20s is easiest when you have fewer responsibilities. This can mean getting your MBA or another Masters degree, getting your CPA, CFA or PMP.

Investing in yourself also isn’t limited to education. Take time to travel and learn new cultures, exercising regularly and eating healthy. Healthy habits also pay dividends in the decades to come.

Start Saving Money In Your 20s

Saving money in your 20s starts with knowing where your money goes, creating a budget and then starting to save money.

Where should you put the money you’ve saved? Money saved in your 20s should first be used to build an emergency fund. An emergency fund is money that is easily accessible and liquid (such as money held in a checking account or savings account) that you have for when things go wrong. This includes an unexpected health bill, unexpected car repair, if you lose your job and so forth. The golden rule is 3-6 months of expenses but it really depends on your situation. You can find a calculator here to help identify how big your emergency fund should be.

Invest Money In Your 20s

Start investing money in your 20s. How much should you invest? As much as you can. That money will compound over time and help you create a passive income stream. You can automate your savings through direct deposit and then invest that money in a brokerage account. There are many potential big expenses on the horizon like a house, additional education, car, family and it’s much easier to put a down payment on a house or pay out of pocket for grad school if you started building your savings on day 1. No amount is too small to invest.

It’s not enough to just save money though, you also need to get your money to work for you. Invest your money in stocks, ETFs, mutual funds and bonds.

See Also: How to Start Investing

Build Wealth In Your 20s By Saving for Retirement

The easiest way to build wealth in your 20s is to save for retirement. Companies offer 401(k) matches and your contributions are tax free. Without question, take advantage of your company 401(k) match. This is free money. It’s ok to only meet the match when you’re starting your career but if you don’t meet the match you are leaving free money on the table. As your career progresses, look for opportunities to significantly increase your 401(k) contributions and max it out to take full advantage of the tax benefits.

You can also build wealth in your 20s by contributing to a Roth IRA. While your income is low open a Roth IRA. Contributions to a Roth IRA are not tax deductible but when your income is low this has less of an impact. The tax benefits to a Roth IRA are when you take the money out in retirement you aren’t taxed on any gains and there are no required minimum distributions. As your income increases, you may hit a point where your eligibility is phased out and then are not eligible to contribute to a Roth IRA anymore. At that point you’d have to look into a Backdoor Roth IRA so it’s best to take advantage of a Roth IRA as soon as you can. A Roth IRA is pretty straightforward, but there are a few Roth IRA rules to be aware of.

At first your retirement accounts will seem really low. But, by the time you turn 30 you’ll be impressed with how much your wealth has grown in these accounts.

Minimize Your Debt

It’s important to keep your debt to a minimum or get out of debt completely in order grow your wealth in your 20s. In the Class of 2018 69% of college students took out student loans and graduated with an average debt of $29,800 according to Student Loan Hero. How can you start chipping away at this as quickly as possible? There are also companies that are offering loan forgiveness as one of their company perks.

While you may already have student loan debt, you don’t need to find yourself in additional debt, especially from credit cards.

If you need a car for your job and need to take out an auto loan, spend as little as possible here. Buy used, but also buy smartly. Don’t justify buying a more expensive car because you’ll have it for so many years. The truth is, you have no idea where you’ll be in a few years. You may move into (or out of) a city, to a new country, get married. There are also so many options these days to avoid buying a car such as living and working in a city to take advantage of public transportation, working from home, and working as a consultant and traveling every Mon – Thurs.

Live Like You Are Still in College

Building wealth in your 20s is also dependent on controlling your expenses. When you are in your 20s you either recently graduated or have graduated within the last 10 years. College is recent enough where you can probably recall vividly how you lived during those years: frugally.

In college, you most likely are living in a very tiny space with roommates. You’re surrounded by businesses that offer the college specials. For example, show your student ID to get a certain percentage off and bars that cater to college students with $2 beer nights. You had opportunities to walk across the hall and borrow friends clothing. Meal prep included ramen noodles and microwave mac and cheese.

Is frugal living not for you? This doesn’t have to be a permanent lifestyle, but the longer you’re able to live frugally like you lived in college the easier your finances will be. You don’t have to cut back in all areas either, the single most important expense is housing.

Spend As Little As Possible on Housing

Housing is likely the largest expense in your 20s, and the easiest one to blow. Nice, spacious, well located places are the most expensive. Don’t become “house poor.” Experts say housing should be no more than 30% of your gross income and that includes all housing expenses. You will have to make sacrifices so identify what is most important and where you are more willing to cut. And, if you’re going to live on your own follow these financial tips so you don’t spend too much on housing.

If location is most important, look into studio apartments, living with roommates and a place that is outdated. If you want the nice kitchen and something more spacious you’ll probably have to look at a less ideal location. In some cases this may mean looking at alternative cities, not just across town. When you don’t understand how people can afford certain things you probably don’t have to look much further than the percentage of income that is going towards housing. Bringing your own lunch can save $7 / day or $140 / month. Being smart with your housing can save you hundreds a month and thousands a year.

Limit Spending on Food and Drinks

Limiting spending on food and drinks is a great money move in your 20s because it starts developing discipline around spending money. It’s hard to say no to always going out with friends and spending money on food and drink but it adds up. By learning how to budget and then prioritize how you spend money on food and drinks it will help you prioritize your spending in other areas.

The most frugal way to limit spending money here is to never eat out. But, where is the fun in that? Plus, to the first point on hustling at your job it’s important you build your network and build relationships. You can still go to restaurants and bars and not break the bank. For food and drink, take advantage of happy hour specials. Go over a friends house and have a drink before heading to the bar. When you get to the bar, limit yourself to one drink. Take advantage when there is free food at events. Bring your lunch. There are plenty of ways to continue to enjoy eating out while controlling your spending.

When you buy groceries, look for coupons and deals. There are also ways to spend less on food by buying cheaper options. For example, buy oats and make oatmeal instead of single serve yogurts. You can find dinner recipes and meal planning tips to save money.

Limit Spending on Clothing

Your college wardrobe and professional wardrobe will not look the same so spending money on clothes in unavoidable. It’s unrealistic to expect that you can go on a clothing ban unless you have a robust professional wardrobe from college or what you wear to work is more casual. When you do spend money on clothing, take advantage of sales.

Do spend enough where you look presentable at work. You want to position yourself early on as a go getter and dressing presentable will help form favorable opinions. Don’t break the bank while doing this though, you do not need to buy designer. You can buy nice work outfits from TJ Maxx or buy second hand and look professional. If your company gives you a laptop bag with your laptop use that for the first few months until the right sale comes along. Later, take advantage of Black Friday shopping at the outlets for a nice black tote bag. You do not need to start day 1 (or even year 2) with a Tory Burch or Prada tote bag.

Live Like You Have The Least Money of Your Friend Group

Living like you have the least amount of money of your friend group is easiest to do when you first graduate college. Everyone is just getting established and six months out of college is when the first student loan payment is due. Friends will want to have a few drinks at home before going to the bar to save money. Or, stay in instead of going to a bar. You can go on trips that are driving distance and share rooms with 3 other people. Even if you earn more money than your friends, or have less debt than your friends, spend as if you have that same income limitation or same debt limitation. Then, put that extra money towards your emergency fund, retirement and investing.

As you age, friends will move away and you’ll need to spend money on flights to see them or vice versa. Between careers and starting families it will become harder to see friends and you’ll spend more money to hang out as you prioritize convenience over money.

Don’t Increase Your Spending for 2-3 Years

Lifestyle inflation happens when you increase your spending as your income increases. Spending more now could mean blowing through funds you’ll need for a down payment, retirement, etc. The more you can save when you’re young the easier it is as that savings will continue to generate passive income for you. As your career progresses, this will also become harder to avoid not due to increased expectations but less free time. Things you used to be able to do yourself you will to pay someone to do for you or you won’t have as much time to shop around for a deal. This may be as a result of a more demanding career or deciding to raise a family. Your tastes will also increase as you age.

Take advantage of being young and keep your spending steady the first few years after you graduate, even as your income increases. Live like you are still in college for the first few years and then slowly increase your spending after that. Invest the money you’ve saved instead and take advantage of compounding interest to begin building a passive income stream.

Take Advantage of Company Benefits

A 401(k) match isn’t the only company benefit you should take advantage of. Some health insurance plans offer money towards a gym membership every year. Depending on the industry and area, companies may offer free or discounted food, free gyms on-site, discounts on auto insurance, discounts on personal travel and more. Look at your internal company site to learn more about perks offered by your company. And, if your company doesn’t have great benefits it’s a hot job market now. Ask your friends for an employee referral and interview at another company.

How to Be Smart With Money In Your 20s Summary

The financial recommendations above seem like a lot, especially when you are in your 20s and just starting your career. How are you supposed to fund an emergency fund, invest, pay off your loans and actually live on your salary? Don’t get overwhelmed and take baby steps to start small. The less money you spend, the more money you’ll be able to invest or put towards paying down debt. The more you can increase your income, the less focus you need on keeping your expenses small. These smart money moves in your 20s will help set you up for success for decades to come. Yes, these are the years it’s hardest to do that as you’re likely making the least of your career now. But, your lifestyle expectations are also the lowest. By following the advice above, you’ll be in a great position to build wealth in your 20s.

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How To Avoid Student Loans And Get Your MBA

05.28.2019 by admin // 1 Comment

It is possible to get your MBA and avoid student loans. The recent discussions on student loan forgiveness and free college has made me reflect how lucky I am to be debt free. Even if college is free, it’s unlikely advanced degrees will also be free. Below I go into detail how I personally avoided student loans in grad school. It required a multi-pronged approach to accomplish this. It’s possible to get your MBA without loans but it takes extra effort and some creativity.

Disclosure

Before I discuss how I avoided student loans and graduated with my MBA though, it’s important to recognize both my privilege and my hard work when I was in undergrad. Since this post got very long, I wrote a separate post on my undergrad experience. I also graduated with no credit card debt. When I graduated, I had a mortgage but at this point turned it into a rental property. At the time of graduation, the rental property had a positive cash flow and the value had appreciated since original purchase.

Grad School Background

I decided to attend a top 10 business school part time so that I still had a paycheck. This limited my options to University of Chicago and Northwestern. Both were expensive but the ROI of these degrees was higher than lower ranked schools. The cost was $120K+ compared to $40K+ for part time programs in Boston.

When applying, I had no idea how I was going to avoid student loans. But, I knew the timing was right so I didn’t let this deter me. I knew my company would reimburse $40,000, so I consciously made the decision then that I would pay money out of pocket for my degree. Since tuition rises faster than inflation the bill would only get higher if I waited until I made more money. Lesson learned: do not wait until you have everything figured out! Set a goal, and continue to make progress towards that goal.

I got into both schools. Northwestern was my first choice because 5 classes I took in undergrad were going to transfer. This would save me ~$30K. When I applied though, it was clear the best school for me was University of Chicago. My parents didn’t want me to have to make a decision based on finances. They offered to pay the difference between the two schools because of the scholarships I was awarded in undergrad. I acknowledge I am very fortunate to have this support. If I didn’t have this option, I may have attended Northwestern. With that support, it was my responsibility to figure out how to shore up $103,000 to spend over the next 3 years to cover tuition, fees, books and the U-Haul to move to Chicago.

Summary of Avoiding Student Loans

Below I’ll go into detail on every category. Here is the summary at a high level:

How to avoid student loans for MBA: Table of ways to avoid student loans-
Tuition reimbursement $66,000
Parents contribution $27,000
Increased Income $26,500
Reduced expenses $10,000
Smart Tax Planning $6,500

Avoid Student Loans by Making Money

Working Full Time While Going to School Part Time

The #1 reason why I graduated with my MBA with no debt was that I worked through school. To start, this allowed me to avoid taking out loans for living expenses. It also removed the opportunity cost of forgoing a salary while attending school full time. This decision came with tradeoffs as I had less time to network and fully appreciate everything the school had to offer. Financially though, I ended up much better off. After paying my bills, I worked through a plan on how to pay tuition on my salary. Even though I had savings I could have fallen back on, I tried really hard to pay for my MBA with my paycheck.

Working At A Company With A Generous Tuition Reimbursement Benefit

The second main benefit of working while going to school is tuition reimbursement. I thought I would only receive $40,000 in tuition reimbursement. Then, my company threw a curveball after reimbursing me $16,000 saying that they were ending the old program of $10,000 a year and moving to $50,000 lifetime. I couldn’t believe my ears when it happened, and I had a much stronger loyalty to my company and my team when this happened – one of the biggest reasons 3 years after graduating I’m still working there!

Was I lucky? Yes. Had this not happened I had a backup plan of starting a new job at a new company though. I didn’t want to switch companies but I wasn’t going to be able to cut costs to finance this degree. It was clear I had to make more money. I had an offer in hand from a different company with a significant pay raise when our tuition reimbursement policy changed. Because of this change, I stayed with my current company.

Don’t think it’s easy to graduate debt free when your employer is paying a significant amount. Working full time while going to school part time was the most grueling thing I have ever done. Many weeks I worked more than 40 hours while traveling occasionally for work. I would get home at 9:30pm and immediately get on the phone with our team in Asia. There were a lot of sacrifices I made for 3 years with my friends and family. This is a choice I made and I don’t regret it. Anyone can make this choice.

If your employer doesn’t offer tuition reimbursement consider switching companies. This is a huge benefit and makes a big difference. The easiest way to get your foot in the door at a new company is through an employee referral.

Getting Promoted While In School

After my second tuition bill it was apparent that paying my way through grad school was not going to work with my current salary. For the first time in my life I was barely scraping by paycheck to paycheck. A job opened up internally and I got it! This job was both a promotion and a pay raise. It was intended to be for someone more senior than me, but a coworker went to bat for me behind the scenes. I proved myself in that role and with that same manager I got the second promotion less than 2 years later. In the end, I was promoted twice while in grad school.

Taking Advantage of Additional Company Perks

I maxed out my ESPP plan the period leading up to grad school and during grad school. I contributed $37,100 to ESPP over 3 years. This helped me earn an extra $3,700 over 3 years. Yes, I had to pay higher taxes selling these shares the next day; however, it was a guaranteed return. Essentially, I used ESPP as if it were a high yield savings account.

There wasn’t much money left over after bills and tuition. But, it was important for me to continue to increase my net worth. My main savings vehicle during this time period was through continuing 401(k) contributions and the 401(k) company match.

I continued to receive healthcare through my employer which kept these costs manageable. Our plan also had additional perks like contributing towards a gym membership.

Lastly, I was able to continue to accrue airline, hotel and car rental miles through company travel which helped reduce my personal travel costs.

Avoid Student Loans By Being Smart with Taxes

There were four areas I was smart with taxes: contributing to a 529 plan, contributing to a 401(k) plan, tuition bills and housing. I did go to school prior to the recent tax reform. Some of these benefits may no longer be available and there may be new benefits I don’t discuss.

Tax Deductions on 529 Plan Contributions

I leveraged a 529 plan for my MBA primarily for the tax benefits. I contributed $10,000 / year for 3 calendar years. These contributions were then tax deductions on my state taxes. Due to withdrawal limitations I only contributed for 3 years. This plan also served as a savings account for tuition and I withdrew the full amount to put towards my tuition bills. The benefit from the state tax deduction alone was $1,125 across three years.

Taxe Deductions on 401(k) Contributions

401(k) contributions are pre-tax contributions. I continued to contribute enough to my 401(k) to get my company match which also resulted in tax benefits. I go into detail here on tax benefits by income level.

Tax Deductions On Education Expenses

My employer tuition reimbursement was not taxed due to certain criteria I met. This same criteria meant certain education expenses paid out of pocket could be considered an unreimbursed business expense. You can learn more about work related education expenses and how to know if you qualify for this tax deduction on the IRS website.

Tax Deductions on Housing

I bought my condo when I moved to Chicago so I was able to take all of the standard deductions of buying a property, mortgage deductions and SALT tax deductions.

Net Tax Savings are unclear; however, I received $6,500 in tax refunds while in grad school. Usually I owe taxes, so it can be assumed the net benefit exceeded $6,500.

Avoid Student Loans Through Spending Cuts

Prior to grad school, I already lived below my means, saving 40%+ of my salary after taxes. Now, I had to try to cut my spending even further. The total amount I saved over almost 3 years to help finance my degree was about $10,000.

Gave Up My Car and Used Public Transportation

When I moved to Chicago, I made the decision to no longer have a car. I no longer needed a car to commute to work and didn’t have family in the suburbs to visit. I didn’t have a car loan and was spending $3,500 on gas, insurance, tolls and maintenance, not including depreciation a year. If I had brought my car, it would have cost $200 / month for parking plus the cost to ship it to Chicago.

With this decision, I was able to drop my transportation costs to only $1,000 a year. This included all public transportation, cabs and Ubers. Now living in a city instead of commuting 35 miles each way I was able to walk to the office (~2 miles each way or take the bus). This is the biggest savings decision I made.
Net Savings = $2,500 / year / $7,500 while in grad school

Stopped Dying My Hair

I had been getting highlights since I was a teenager. Stopping this was a BIG DEAL for me. I was pretty frugal here before so it didn’t save a ton of money. Now that I properly maintain my hair I would save a lot more money if I stopped getting highlights. While in school, I sucked it up and became a brunette for 3 years with a lot of split ends. I celebrated the end of this by cutting off 10 inches and donating it to Pantene Beautiful Lengths.
Net saved $150 a year / $750 while in grad school

Travel Costs

I reduced my travel for the first year by $1,000 before returning to previous spending levels. This included the increased cost of now having to fly home to see my friends and family instead of being able to drive to see everyone. The good news is when you’re working full time and going to school part time you have no time to travel. The bad news is it really wears on you mentally. My office, school and home were all within 2 miles. It was great for transportation savings but I also felt trapped. This was not sustainable and I increased my travel/ fun budget back to what it had previously been: $2,200 a year.
Net saved $1,000 total while in grad school

Food and Drink Costs

My grocery / eating out / bars spending stayed relatively flat. The mix changed, but overall it stayed flat. Who knew groceries are more expensive in Chicago than they are in the Boston suburbs? I also moved where I knew no one and it was important to go out and meet new people. Even limiting myself to only one drink when I went out it was still an expense.

Could I have reduced this further? Yes, but I literally would have been a hermit and missed networking with my classmates. I was already limited to only one night out (either bars or dinner) per week with my schedule. One of the biggest reasons why you go to grad school is for the network. It was important that I grabbed a quick drink with them after class to network and enjoy one night off a week. I was able to keep this flat by taking advantage of school and work sponsored events.

Clothing Costs

I tried to reduce the amount I spent on clothing – the first year spending only $840! Sneakers are at least $100 / year (I walked a lot in the city) and I lost weight and went down a size. A much colder climate also required heavier coats and sweaters. The second year I spent $1,500 which I feel like is still pretty low – doesn’t even cover a nice designer purse! Overall, this category is one each individual can look at and determine how much they can cut here.
Net Saved $700 total while in grad school

Housing Costs

I’d be remiss to not mention housing. No, I didn’t live at home for free. This was definitely my largest expense and it actually INCREASED! I went from living with 4 other roommates in a HCOL city to living by myself in a condo in Chicago. Financially it made more sense to buy verse rent. But, the first few months were tough after spending money on a down payment and moving. I pretty much had no furniture. But, I was building equity and able to deduct my mortgage so net I think of this as pretty much even.

Continued My 401(k) Contributions But Froze The Increases

I had a company match of 6% / up to $3K a year. Ideally I would have like to increase the % I contributed but it wasn’t feasible while in school. I held my contributions steady. No matter how hard, I knew I had to at least continue to contribute enough to my 401(k) to get the company match.

Avoid Student Loans Through Credit Card Hacking

Since I moved away my travel cost to see friends and family increased. I used credit card points to fly to my friends weddings and fly home.

At the time, I was able to put tuition on my credit card with no penalty from the school. My tuition reimbursement was also that: reimbursement. That meant I had to pay the bill first and get reimbursed. I researched credit cards and switched to a travel credit card. Receiving 103,000 points to spend on travel from tuition alone- not bad!! Additionally, with my credit card switch I received 50,000 sign up points. Turns out it’s very easy to hit a minimum spend in 3 months when you pay tuition. This also helped paying the bills as I would charge tuition the day it was due and then pay off my credit card bill in full the day it was due. An extra 20-30 days interest free helps immensely when you’re barely squeezing by. This was also key as my ESPP payout occurred in this month window every time.

Post MBA Graduation Reflection

I successfully managed to avoid student loans and graduate with my MBA. When my classmates received their first student loan bill I was busy investing in the stock market. Now that I’ve been out of school for a few years I realize I learned a lot outside of the classroom. It is possible to reduce spending to meager amounts, but it’s not sustainable and mentally very tough. You cannot focus on cutting costs alone, you must focus on how you can increase your income. It was few really tough years between the stress of school, work and finances.

I’m very grateful to have gone through this as tough as it was as it makes me appreciate what I have even more. It was the first time in my life I had to worry about cash flow, and how to stretch $300 / month after I paid my mortgage for literally all expenses.

I also learned a lot about time management! I have continued to climb the corporate ladder which has put me at 60-80 hour weeks. With strengthening my time management skills during school I have been able to work these hours, relax way more than I did and work out every day I’m not traveling. I’ve even had the opportunity to start my next few things on the side: this blog, and researching how to start investing in startups.