FrugalMBA

Revving Up Savings

2011-06-02T22:10:00.000-07:00

One factor to consider when returning to school for an MBA is whether or not you still require an automobile. Ditching your beater (or beamer) can result in substantial savings. Indeed, AAA estimates that it costs the average American $9,641 a year to operate their vehicles. Now, as a student you may not hit the 15,000 miles a year that this figure is based on, but it is clear that some major moola is at stake. And money from two sources—the operating costs realized each of your two years in school and the extra money from the sale proceeds that you can put towards tuition/reinforce your Charles Shaw fund. Four factors to consider:

Other Transportation Options

If you’re living close to school and the community you live in has solid transportation options like public transit, zipcar, and relayrides, then you may be able to do without a car. However, if you’re commuting to school and/or are going to school part-time and need a vehicle for work, you’ll need to look for cost savings elsewhere

Post-Graduation Destination

Where are you planning to live after school? If you are going to school in commuter friendly Washington, DC, but know that you will be returning to transit wasteland Des Moines after school the decision will be less desirable than if you are planning on living in a city with great transit options afterwards.

Current Vehicle

How much can you reasonably expect to get for your car? If you’ve just purchased your ride in the past few years, then you may want to think through the previous factors without a different lens than someone who whose car won’t fetch much on craigslist.

Fitness Level

Are you physically fit enough to get your duff to school via walking or biking? Will doing so add a heap more time to your day and prevent you from pursuing other goals?

Any other factors that I’m missing? Comment and let me know.

Frugal MBA Book Endorsement #1: 168 Hours

2011-05-29T19:30:00.000-07:00

Laura Vanderkam’s 168 Hours is a must read for folks about to begin an MBA program as well as those already knee-deep in financial accounting. The premise of the book is simple—there are only 168 hours in anyone’s week and many of those hours are not used well. As a result, maxed-out professionals (and perpetually time crunched MBAs) often have more time available to pursue their interests than they realize.

A few of the big takeaways from the book are that people rarely work as much as they think. If you’ve spent any time with a management consultant or banker recently, you no doubt have been regaled with fascinating (what is the emoticon for dripping sarcasm?) tales of 60-80 hour workweeks. But, Laura has worked with dozens of professionals to track their time and the universal takeaway is that people do not work nearly as long as they think.

So, what’s the time culprit? Laura’s perspective is that television watching saps more time out of a week than most people realize. But, that’s not likely your case as someone who is preparing to begin an MBA program or already in the throes of your curriculum. You likely are busy with club commitments, job searching, and even going to class from time to time. As such, one of the best actions you can do (in addition to reading the book) is to keep a time log. Track what you are doing each hour of the day for a week. Be honest. If you spend 60 minutes a day reading celebrity blogs, mark it down. And then at the end of the week see where your time went. You’d be surprised at what small actions are leaching out precious time from your life every week.

I realized that my time bugaboo was Google News. I am a news junkie and my time log revealed that I was spending 30-45 minutes a day on the site, albeit in small time increments. I recognized that when I found myself reading Google news my brain was partly interested in the stories, but usually just aching for a break from whatever Microsoft Office application I would cranking on at that moment. So, I started taking short walks instead. I’m more recharged and therefore more productive which has led to leaving work at more reasonable times. Indeed, it is not a coincidence that I picked up this blog again in May shortly after reading 168 hours.

So, carve out 4-5 hours to read the book and track your time. You’ll no doubt end up being able to put a lot more quality time into your MBA program.

Frugal Vacation Idea #1: Renting Houses

2011-05-29T19:09:00.000-07:00

If there is something that MBAs love to do even more than financial model, its vacation. Preferably with one another. And Fridays off every week coupled with copious holidays (Spring Break is back, baby!) provide many opportunities to get out of town. But, how can MBA students align taking advantage of these special opportunities (Spring Break is hard to find in the corporate world) with a desire to save cash?

One of the best methods I came across while in school was renting houses instead of staying in hotels. This provided the needed distance to feel like we were getting away, but also had several advantages including:

1. Set-Up—hotel rooms, even if next to one another, are not conducive to hanging out. In contrast, houses have living rooms and dens which provide much better space to relax.

2. Cost-Effective—if you are reading MBA blogs, you no doubt already know about Airbnb and VRBO. When split several ways homes/condos listed on these sites can be very reasonable. In addition to the reduced lodging rate, you also get a kitchen to prepare meals and a refrigerator to keep your booze. Another key cost savings.

3. Variety—the are so many great homes listed on Airbnb and VRBO you will be able to find some really great spots to spend time in, and maybe add to your mental list of features you want for your post-IPO vacation home.

So, despite slim budgets, you can still vacation like you’re employed at your dream job. And be sure to post other ideas for vacationing on the cheap!

Six Questions to Answer Before Taking a Research/Teaching Assistant Position

2011-05-25T22:21:00.000-07:00

When working as a research or teaching assistant can keep costs down while in school, but there are six questions you should think about before pursuing a TA gig:

1. What is your real hourly wage?

Graduate student positions usually involve a combination of pay and reduced tuition. But, the tuition break usually involved cliffs for hours worked, not a gradual increase. For example, at Berkeley, you have to work the equivalent of 10 hours per week to get money off tuition, if you had a 5 hour per week opportunity, you only received an hourly wage. The hourly for a GSI was approximately $20, but with the tuition reduction doubled that amount. So, figure out what you are actually going to get paid to impact your wisdom on undergraduates

2. What Are Your Opportunity Costs

The unfortunate fact of business school (and life) is that you’re limited to 168 hours per week. And a teaching job is going to take away 5-10 (or more) of those hours per week. What are you giving up by taking on added responsibility (be honest) and is it worth the pay and, possibly connection(s), you will make?

3. Is the professor a good connection for jobs in your field of interest?

Let’s face it, being a business school professor is a plum job. You get paid a great salary, have a tremendous amount of job flexibility, and are often encouraged to have paid consulting jobs on the side. That means that many of your professors have fantastic connections in the real world and with high level people within organizations that are a much more streamlined way to get a job than trying to get through HR resume filters. This can be a much more important reason to work with a professor than the hourly wage, and the professors can be great points of contact long after you graduate.

4. Do you like the subject matter?

Teaching (and researching) is far, far more enjoyable if you like the topics you’re covering. So, is the assignment you’re considering a topic you’re passionate or heck, even interested in? If you don’t get a thrill out of debits and credits balancing, do a room of thirty undergrads a favor and pass on applying for that Accounting TA job.

5. Do you like to teach?

Who was your favorite teacher in high school? What about college? You’ve got a mental picture in mind and that individual no doubt has many positive attributes. No doubt one of them is that they enjoyed being in front of a group of students. Do you like to help/coach others? If not, pass on the teaching job and consider a research position instead .

6. Is the professor batshit crazy?

The halls of academia are full of brilliant minds, but they are not all balanced. Trust your gut when your interview for the position—is this someone you can work with? And track down former teaching assistants to see how they rate the professor. Working with a bat shit crazy professor can have a very negative impact on your b-school experience.

Full or Part Time? That Is The Question.

2011-05-22T10:13:00.001-07:00

Full-Time or Part-Time?

One of the most important decisions you will have to make before considering which MBA program to apply to is whether to attend full or part time. As you make this decision review a few key reasons for pursuing an MBA:

1. Knowledge—you’ve realized that your anthropology degree has left some key knowledge gaps that need to be filled.
2. Career Switching/Exploring—you want to make a significant change in your career. Perhaps you currently market high tech products and you want to do strategy work for a non-profit, or you’re maxed out on the world of finance and want to jump to consumer packaged goods. Or you’re in the public sector and want to switch to the private sector (like yours truly). Or, as is often the case, you need some time to test the waters to figure out what the right next move is.
3. Checking the Box—in your profession an MBA is needed to advance to the next level.

If you like your job and just looking for a credential or are only trying to fill in some knowledge gaps, a part-time or executive program can be an excellent choice. You are able to learn on the job, make money, and not lose touch with your professional network.

On the other hand, if you are trying to make a career switch, pursuing a full time MBA can be advantageous because it allows you to build a track record of internships and school leadership positions (e.g., President of the Finance Club) that can serve as strong signals to employers that you are serious about making a change. Additionally, some programs do not offer a part-time or executive option (though most do), so if you are gung ho on having the same degree as Vinod Khosla (Stanford GSB), you’ve got to go full time.

A few factors to consider:

1. Risk tolerance—can you stomach being out of work for two years?
2. Debt tolerance—does your employer help pay for advanced degrees? Are you will to accrue debt for two years in the pursuit of a different/better job?
3. MBA Motivation—why are you pursuing an MBA to begin with? Which of the three factors listed above best describes you?

In sum, there’s not a perfect answer between full and part time programs, but there is a right answer for you. Although going part-time may seem like the most frugal option, if that path prevents you from making the connections and building the work history necessary to get the job you’ve always wanted, then it isn’t a good use of time. So, before launching into your search for schools, examine your motivations. It will save you a lot of time later on as you begin applying.

Frugal MBA Icon

2011-05-22T09:49:00.001-07:00

Frugal MBA Product Endorsement #1: SodaStream

2011-05-22T09:46:00.000-07:00

One of my favorite things in the world is sparkling water. Calistoga. Perrier. Safeway Club Soda. It doesn’t matter—they are all lip smacking good in my book. That’s why I was thrilled when SodaStream launched their sparkling water maker a few months ago.

A few years back my girlfriend bought me a seltzer water maker, but it was a piece of junk. It took two CO2 cartridges per batch and the water was only slightly fizzy. Not so with the SodaStream. I make two one liter servings per day (one for work; one in the evening) and the refillable cartridge typically lasts about a month. Plus, with the “pump it yourself’ option you can decide how much fizz is right for you.

There’s a number of different product options to choose from: I went with the plain jane (a.k.a. Genesis), but there is many options to select from. My

The company also offers a number of flavor options if you want to make your own root beer, diet coke, etc., but I like the regular sparkling water. So, how does a frugal MBA justify a $100 soda maker and $17/month CO2 cartridge refills? If you are a soda drinker your fix likely costs you a dollar/day (lets be honest, its more). If you sub in sparkling water, your purchase will pay for itself in about nine months. Plus your SodaStream concoction doesn’t need to have any calories. Cost-effective, healthy, and less wasted plastic—a cost-conscious MBA trifecta!

Frugal Recipe #1

2011-05-06T20:50:00.000-07:00

Frugal Recipe #1

Cooking for yourself is an oft discussed path to cost savings. But, shopping and cooking takes time. Lots of it. And as a frugal MBA you are going to have serious demands on every second of your day. That’s the case if you are applying to programs, in school, or changing the world, degree in hand.

Never fear—there’s a way to have satisfying, healthy, economical meals that won’t take a ton of time. The answer is cooking many servings at once and then storing them. So the first step is to purchase some reliable freezer containers that will stand the test of time. I recommend these: http://tinyurl.com/42pewmn.

The guiding principles of these recipes are: 1) delicious; 2) healthy; and 3) inexpensive on a per serving basis. Here’s the first (more to come):

Ingredients

Six potatoes

Four onions

Eight carrots

Eight celery stalks

One bunch swiss chard (or kale)

Four vegetable bullion cubes

One bunch spinach

Eight cloves of garlic (or 3 tbsp of Trader Joe’s chopped garlic)

Three tbsp olive oil

Two tsp cinammon

Three cups lentils (chana dal preferred, not required)

Steps

Dice the carrots, celery, onions, and potatoes.

Heat olive oil in pan.

Add vegetables and cook for 5-7 minutes on high heat.

Add 16 cups of water and four buillion cubes .

Heat until water is simmering.

Add lentils and turn heat to simmer.

Let vegetable/lentils simmer for 30 minutes.

Rinse and chop greens.

Add greens to stew. Cook for another 5 minutes.

You can continue cooking the lentil stew until it reaches your desired consistency.

Add cinnamon.

Stir and serve.

Variations

There are many variations on this recipte. For more of an Indian flavor you can add a few tablespoons of Curry Powder. You can also garnish with yogurt and cilantro. You can also use a hand blender if you like your foods mushy like yours truly. It is definitely a recipe that can be personalized. Make sure to update the posting with your preferred variations.

Frugal Strategy: Don’t Pay Sticker

2011-05-03T20:19:00.001-07:00

The total amount you have to pay back after graduation can be minimized by paying less for your receipt (duh). There are lots of ways to do this, including taking on a teaching assistant gig while in school (more on that in a later post). But, after you have been accepted to one or more schools, there is a key opportunity to ask to pay less, otherwise known as getting a scholarship. However, unlike some PhD programs where tuition is often covered, discounts are hard to come by when it comes to MBA programs. How can a prospective frugal MBA avoid paying cover?

Try getting one of your target schools’ peer institutions to give you money. Your target schools likely consider peer institutions to be comparably ranked programs, or anyone they lose fights over accepted candidates to year in and year out. MBA programs won’t be swayed by schools they don’t consider similar—try telling Harvard Business School that your Southwest New Mexico State full ride should get you some Cambridge coin…

Easier said than done you say—I’m just trying to get into one program! Of course, but consider these two insights. First, some of the schools your target program considers peers will have much higher acceptance rates (as an example, among top programs UChicago has an acceptance rate of 23%, nearly twice that of Berkeley’s 13%). If you can be a top student at a peer school apply and see if they sweeten the pie. Then go back to your target schools and see if they’ll match. Even if it is a few thousand dollars, on a per hour basis it may be well worth your while.

Second, do any of your peer schools have scholarships that are targeted a smaller group of people that includes you? I’m a Teach For America alumnus and received funding from several schools for that credential. Are there scholarships that you qualify for at non-target schools? If so, apply for them, get them, and then start negotiating. This strategy took 50% off the sticker price of my MBA (and several years of annoying loan payments)—hopefully it can work similar magic for you.

Start Living Like an MBA (Student)

2011-05-02T21:29:00.001-07:00

So, you’ve decided to go to business school. There are months of preparation ahead of you, including taking the GMAT, lining up recommenders, crafting essay responses (four or more per school!), applying for financial aid, etc. And if you’re currently employed you know that the paycheck spigot will be turned off soon (gasp!). The most common reaction: soak up the good life before you start classes and plan to implement Greek-like austerity measures once enrolled.

Think carefully about this approach though—each dollar that you save today is one less that you’ll have to take out at insidious interest rates (6.8% and 7.9% for Stafford and PLUS, respectively at the time of this writing). Indeed, for most folks taking out loans, each dollar spent in business school is actually two dollars they end up repaying later, when interest is considered. So, regardless of where you attend school, start thinking about your purchases today as having a special exchange rate associated with them—everything you buy costs double what the price tag says.

Now that you’re sufficiently gloomy, here’s the good news—reducing your spending now may actually make you more, not less, happy. Social Psychological literature demonstrates that for each dollar additional earned, over time approximately 40% of that which is spent is viewed as base level spending. In other words, the first time you got a raise and had a Starbuck’s coffee instead of office gruel it tasted delicious. But, now, the Starbucks (or Peets) is expected and your enjoyment level per sip has plummeted (see graph).

Clearly there are some costs that can’t be avoided in the near term. If you have a car payment keep on paying it! But, take a hard look at your bank/credit card statements over the past month and think about how your spending has changed since you graduated from college. If you’re considering an MBA program it has likely been 3-7 years since you last threw up your cap—what items would have seemed like luxuries during your first few months on the job? Looking over those items, which of them can go? Today.

Try to cut out/reduce a few and increase each week. Who knows, by the end of Month 1 that (now special latte) may taste even sweeter.

Frugality is for winners

2008-12-21T14:22:00.000-08:00

Frugal folks know what they want. Then they buy it when it's cheap as chips.

A few years ago I was living in NYC. Rent was high, and I looked to save whenever I could. Rite Aid had a Raisin Bran Sale (it was all over the papers). So I bought 10 boxes.

I learned about consumption smoothing in undergraduate economics, and while my logic in this case may be fallacious, my understanding of the principle makes me a savvy consumer. Sometimes a short-term cash outlay will pay dividends down the road, as your average cost will drop. So, when a product you'll use is on sale, buy it! Maybe buy a lot of it. Just be aware not to eat / use more than you normally would because the desired product is readily available. I call this the Costco fallacy.

Where do you look for sales? What do you buy in advance or in bulk?

The Difference Between Cheap and Frugal

2008-12-18T11:16:00.000-08:00

There are hazards associated with being a frugal MBA. Notably, some peers will at times ask (or imply strongly) if you are being cheap. The following three criteria can help you determine whether you are being cheap or frugal.

Frugal folks recognize quality

Being a frugal MBA does not mean that you have to buy low-quality items. Instead, frugality is about thinking carefully about the full cost of a purchase. For instance, a cheap person may think that eating bean burritos every day is a wise way to spend money because they are inexpensive. Yet, the frugal MBA recognizes that food impacts more than just your wallet—it also affects your health. When all aspects of food are taken into account, higher quality, more expensive food are often the right purchasing decision. Obviously this reasoning can be dangerous—it cannot be used as an excuse to purchase fine cuts of seafood for you tuna salad sandwiches!

Frugal folks place value on their time

Frugal MBAs recognize that their time is a valuable commodity. As a result, they will not spend precious hours to save a paltry sum of money.

Frugal folks do not save by putting costs on others

Frugal individuals assign value to other people’s time and resources. They will not save money at the expense of others. As an example, a friend from the East Coast had a wedding in the groom’s hometown in South Dakota, even though the vast majority of the wedding’s guests would be coming from the East Coast. The bride’s justification that doing so was less expensive does not pass muster under the frugality guidelines. The wedding was actually much more expensive to have in the Black Hills, the costs were just displaced to others.
Hopefully these criteria are a helpful way to determine whether your behavior is frugal or cheap. I am always looking for other guidelines. If you have ideas, be sure to include them in the comment section below!

Frugal First Step-Determining Your Core Values

2008-11-25T07:28:00.000-08:00

Frugality can be like going to the gym in January. After ignoring your money (or your body) for a few months, you decide that things are going to change. Your are serious this time! However, frugality often fails for the same reason that gyms clear out in February—it is really hard to stay disciplined. So, how can you make the process of being frugal easy…and I would dare say fun? It all starts with identifying your core values.

I learned how to identify my core values from David Walker. At the time, Walker was the Comptroller General of the United States— the nation’s top accountant. Why was I interacting with an uber accountant? Prior to business school, I was a specialist with the United States Environmental Protection Agency in Washington, DC. Walker came to speak to EPA about the nation’s ballooning deficit and what he thought we should do about it. As fascinating as this speech sounds, the big take-away for me was his message about values. When Walker took over the Government Accountability Office, it was unclear what the agency stood for. As a result, he convened a series of meeting with management and staff to clarify the three values which defined the agency. The result: accountability, integrity and reliability.

At the conclusion of his speech, Walker challenged the audience to state what there three core values were. I thought to myself, “Listen Mr. Accountant, I know exactly what I stand for. I do not need a silly exercise to find that out.” Yet, I struggled tremendously to write down what my core values actally were. Over the ensuing weeks, I thought a great deal about Walker’s question. Over time, I determined that my three values were: fellowship, exploration and stewardship. Fellowship represents the importance of my relationships with family and friends. Exploration is about my desire to explore new places and ideas. Finally, stewardship represents my desire to leave the world a better place than I found it.

What do these values have to do with frugality? Everything! Decisions about how to spend your money are really though. These decisions become even more challenging once you enter an MBA program and are cut off from the wage spigot. Without a compass to guide you, it is really easy to determine that everything is important, and, therefore, deserving of your loan money.
Core values act as a filter to make tough trade-offs throughout school. As I stated in my initial post, frugality does not mean sacrificing your MBA experience, it just means making smart decisions about maximizing your limited resources. A case in point, Haas has a gloriously long winter break—roughly five weeks. Early in the semester I had to decide whether or not to spend money on a trip with friends. Using my core values, I determined that the expense was definitely worthwhile because it would reinforce both exploration and fellowship. In contrast, a few weeks later an opportunity to go to Vegas came up. Now, I like Vegas as much as the next guy, but filtering it through my values helped me realize that there were far more reasonably priced ways to hang with friends.

So, before you do anything else, figure out what your core values are. Like many things, I think three is a sweet spot. Once you have these in your hip pocket, many of your budget decisions will become much easier. Unfortunately, I cannot guarantee that identifying your values will help get you to the gym!

Why be a frugal MBA?

2008-11-20T16:47:00.000-08:00

I passionately believe that it is in every MBAs best interest to live frugally while in school. When I have mentioned my blog to fellow Haas MBAs, the most common response I receive is: why watch our money when we are likley to make lots of it after we graduate? Dave, this the time to take advantage of our freedom and live life to the fullest!

I agree that there are many oppportunities that deserve our loan money while in school (e.g. winter break trips, conferences, case competitions). However, I also believe that the "this is the time to live it up" excuse is often applied too generously.

I would argue that frugality opens doors to MBAs, not closes them. Too often I have heard my entrepreneurially and socially minded friends lament school loans as the limiting factor for them to pursue what they are truly passionate about after graduation. By living within (and below) our means in school, we can more quickly start doing what it is that we came to business school to do--whatever that may be (start a business, work for a non-profit, etc.).

Through this blog I want to share some of the lessons I have learned about how to save money during the MBA application process and while in business school. Here is a radical thought--creatively saving money with classmates will enhance your time as an MBA. Anyone can blow $1500 at a club and have a good time (just ask my roommate), but it takes a saavy individual to figure out a way to have the same amount of fun on $5.

I want this site to be interactive and fun. Please share you ideas!

Sincerely,

Dave Bend
MBA Candidate
Class of 2010
Haas School of Business
University of California, Berkeley