The average cost of a competitive MBA program is about $200k for 18 months (ignoring opportunity cost). I had previously written about how to finance the MBA, and have since received questions on the actual cost of the program. What’s the price when you account for all the travel, incidentals, and social outings that’s typical of a full-time MBA experience?
Estimated living costs by a school often are between 10% and 20% lower than what many MBAs actually end up spending. — Poets & Quants
Based on my personal experience, the 10%-20% cushion is pretty accurate. Of course, a lot will depend on personal lifestyle and preferences. For the remainder of the post, I’ll show you where the money actually goes, unanticipated costs, surprise savings, and hopefully provide some perspective.
The breakdown and the numbers
Before I started school, I created a budget. Since, I’ve only completed my first year of study, I’ll keep my commentary mainly to that. As you can see, my planned budget was about 15% above the one suggested by my school. My actual experience came a little under my marked-up budget.
The two main contributors to the markup were additional lifestyle expenses and travel expenses. Everything else was pretty much in line with the school’s suggestion. Therefore, these two areas are where you’ll want to be the most critical and honest with yourself about your spending habits and preferences.
The budget provided by your school is a good start. It’ll indicate all the required expenses and adjust for cost of living for your geography. I recommend running a cash flow analysis (like the on above), just to make sure you’ll have the funds when you need it.
My budget is based on the suggested budget provided by Chicago Booth. It’s for the 9-month academic year. I don’t have a family or many other liabilities, which simplifies a number of inputs. Your personal circumstances will account for a lot of the deviation from the suggested budget.
Pre-MBA
One thing the budget doesn’t include is your pre-MBA expenses. I have a friend who has been traveling around the world for 5 months now, before he starts his MBA this fall. I’m incredibly jealous, but you can imagine that the expenses will add up. I also know someone who was still technically employed by his previous employer during the first week of school. Everyone’s situation will be different.
Another thing to consider is moving expenses. Depending on where you are moving from, the cost of moving and furnishing your new apartment can add up. It can be anywhere from $0 to $10,000. You’ll also need to put down a deposit for your apartment if you are renting.
On the plus side, don’t forget that deposit you put down when you accepted the offer to b-school will be credited against your first tuition bill.
First Year
To plan for the first year, I looked back at how much I was spending when I had a full-time job and extrapolated a similar standard of living for my school budget. It includes miscellaneous things like eating out, drinks, concert tickets, costumes, and clothing. I found that the school’s suggested personal budget only covered basic things like haircuts, toiletries, and the like.
Travel is another big area of deviation. MBAs travel a lot. I had planned for a long trip every 10 weeks or so, with enough budget left over for shorter trips (e.g. flying home or a weekend in NYC). I hear Chicago Booth students travel less compared to other schools, so keep that in mind.
First year also had a number of budgeting surprises.
Unanticipated costs:
- You may want to look into alternative health insurance options. The school provided plans tend to be pretty comprehensive, but also expensive. Shop around.
- Clubs and groups usually have membership fees. It’s anywhere from $50 to $200. Join a couple of professional clubs and a few social ones, and you are looking at another grand that the school didn’t tell you about.
- Though I didn’t experience this, if you are career switching into consulting and banking, you might be in the market for a new wardrobe for recruiting. Looking good doesn’t come cheap.
- You lose or break your phone. That new Macbook Air turns out to be inadequate for advanced Excel modeling. Now your bank balance is even lower.
Surprise savings and income:
- Free food. A lot of companies visit campus for recruiting. You may find yourself living off free lunches, heavy Hors d’oeuvres, and invite-only dinners if you are recruiting for banking, consulting, and tech.
- Books…what books? I spent almost no money on books even though the school budgets $1200 for it. :)
- Don’t forget that if you worked in the U.S. before school, you may be getting a tax refund. I wrote off part of my MBA expenses through Fileit.tax. Yes, it’s possible. The company is founded by a former A.T. Kearney partner.
- I know people who have side gigs during school. I have classmates who tutor, consult part-time, or have a side business. If you are interested in consulting part-time, check out HourlyNerd. It could also be a way to land a full-time job.
Summer Internship
Many schools only estimate costs for the academic year because they’re assuming that you’ll have a paid summer internship in between your first and second year. This can be a big boost if you are pursuing banking or consulting. You’ll actually be able to save some money during the summer.
For those pursuing startups and entrepreneurship, you may want to budget another three months of low to no income. This is on top of traveling and moving expenses if your internship is in a different city from your school.
Second Year
I don’t know much about what second year will be like. Most schools ask you to increase your budget by around 5% for tuition increases, etc.
A number of people will have returning offers from the summer, and more importantly signing bonuses! This can help offset the anticipated increase in social activity and traveling of returning second years. More people will have free time from having their job situation figured out, and people will become more active as the MBA clock is winding down.
I’ve seen a number of second years planning post-graduation trips before they start full-time in the fall. As you plan your two year experience, don’t forget about this last hurrah. Just make sure you have enough money by the end of it all to get you to your full-time job.
Realize that you are incredibly lucky.
All said and done, the fact that you are in a position to budget for your program puts you in a very small and fortunate minority. The median post-MBA pay jump is 90% with six-figure pay packages. For example, at Tuck, the class of 2010 had a pre-MBA salary of $78,000. Their 2014 salary was $190,000 resulting in a payback period of 4 years. In comparison, the median U.S. household income is around $51,000. Which brings me to…
Yes, it’s worth it!
Before I started school, I spoke to quite a number of post-MBAs. Every one of them would do it all over again if given the chance. One advice I took to heart was to enjoy my two years and not worry about money. The cost between a mediocre time and a great time in school is marginal in the grand scheme of things. You’ll have very few times in life when you are healthy, surrounded by great people, and have the time for great fun. Savor it.
I’d love to hear from current and past MBAs. Any suggestions on improving the post and correcting errors is appreciated. Please share your experiences, advice, and wisdom in the comments below.
