Models & Bottle Sourcing (Part II)

Continuing on from Part I, this post is dedicated to questions involving financing my MBA.  Part I talked mostly about my  not-so-advanced collection of data points that I put into an excel model, as well as some of the expected costs of MBA programs.  Part II is aimed more at figuring out if the MBA is worth it (spoiler alert: for most, yes it is), and how much should I be saving?

First – is a MBA worth it.  As I mentioned in last post, there are a lot of articles out there citing all sorts of data that a MBA is/isn’t worth it.  These articles cite success stories in both directions:  Jeff Bezos, Bill Gates, and Steve Jobs tend to be the popular “you don’t need a MBA” examples, while Phil Knight, Tim Cook, and Phil Condit are MBA mega-CEOs.  However, when you present the latter examples, the alarmists will tell you too look farther into the data:  As of 2007, 61% of US CEOs were NOT MBAs.  Only 63% of that group (the 39% MBA-CEO group) went to a top 20 school.  Gasp!  What if I don’t want to become a CEO?  What if all I want to do is have a lasting impact on an organization from my role, be it manager, director, VP, or wherever I end up?  The C-suite is great, but by definition, most do not make it there.  However, most can (and do) make tremendous impact on their organization.

Beyond the CEO chatter, there are several other reasons to get a MBA.  For me, one of the biggest reasons a MBA is worth it, is it gives you 2 years to sit out of the workforce, and reflect on your experiences, the current lay of the land, and where you fit in.  Certainly we all didn’t get our first job/career right when we graduated undergrad (like me), probably because we were just snot-nosed 22 year old punks who really didn’t know how the world worked.  This period of reflection should allow for a better view of where I fit in the world.  Reflection offers a great chance to refocus.  I assume I’m not alone in saying the some of us are disgruntled in our careers, and have perhaps lost a bit of drive when it comes to our careers.  MBA is a great time to recharge and hit the ground running 2 years later, hopefully in a better fitting job.  It is definitely a luxury to be able to afford this time of reflection, but as Ferris Buller says, If you have the means, I highly recommend (it).

Another reason that makes the MBA worth the $200k price tag is the recruitment.  Sure not everyone is gunning for the prestige jobs at Kohlberg Pacific, JP Sachs, and McBain Group, but for those that are, this is one of the only ways in.  Certainly if you didn’t attend a target undergrad program where the aforementioned illustrious firms recruited, you would find it hard to end up at one of these firms.  Perhaps you were busy smoking a cigar in the recently conquered palace that belonged to Saddam, saving the world in Africa, or teaching disgruntled Detroit kids how to add and subtract.  In any case attending a top MBA gives you access to those careers, if that is your thing.

Finally, the network.  MBA network is one of the most used examples of a benefit of MBA programs, though it is hard to quantify.  Some will explain the benefits of the network by alumnus’ willingness to give you a job because you have the same MBA name on your degree.  Others will tell you that the people you meet in your classes & cohorts are the future clients you’ll be calling on to invest in your new start up company/PE fund/VC fund/etc.  To me, the network is about competition.  During your MBA program, you’ll come across literally hundreds of type-A personalities that have accomplished a lot – often times it’ll seem like everyone around you is a rockstar.    The professors are some of the most well educated and accomplished in their field that you can find.  During your 2 years, they’ll teach you their jedi mind-tricks, and share their experiences.  After your 2 years, you will be bench marked against your graduating class.  In theory, this competition will help you to muster the energy and effort required to ascend the corporate ladder.  Put it this way, if your network is filled with burn outs, hippies, and teen moms (not that there is anything wrong with that), then settling for a entry level accounting job for 15 years is not only acceptable – its great! If your friends group/network has F500 executives, banking MDs, and people running some cool start ups, then you’ll probably strive to keep up.

Ok enough about value – If you still agree with me that it is worth it, and I haven’t induced boredom yet,  lets get back into cost.  Namely, how much should I be saving?  Back when I was building my other model, mbagirljourney (go read her blog! its fantastic!) put up one of her many excellent posts involving her MBA action plan.  Being the mooch that I am, I naturally “borrowed” the idea, and created my own schedule.  One of the first goals I put on the top of the action plan, was to save money for my MBA.  My goal was to have enough in assets to be able to cover tuition for 2 years, at the minimum.  Why? I’m not sure – it seemed like a reasonable goal given my current earnings rate, and a responsible thing to do.  Certainly saving more would be better, but given my current income – I didn’t really see that as feasible.  The fact is, I don’t know how much to save.  It’d be great if I had enough to pay the ~ $200,000 that I anticipate it to cost, but that won’t happen, unless I have a rich uncle that I don’t know about (I don’t), land a 10 bagger on one of my investments (ha..P<0.01 for this), or get a monster raise (P < 0.01 as well).

There are examples all over the usual forums of people having enough cash to pay out of pocket, and continue to ball out while attending their MBA program of choice.  There are an equal number of people who will be taking loans out for the whole 9 yards.   I probably will fall in the middle, assuming no scholarships (and who can assume that they’ll be getting one?!).  I figure I won’t be using all of my assets.  My retirement accounts 401k, IRA, etc won’t be touched, no matter how big that loan figure gets to be.  My investments will probably stay, for several reasons.  First, I’m way too lazy to unwind them and balance out the rest of my portfolio.  Second, they’re still earning (at this rate, better than the loan rate I’d get), so that will allow me to borrow that portion at no cost, assuming Bernanke doesn’t induce the greatest depression of all, but if that happens..we have bigger issues.  Finally, I’m planning on burning through 100% of my liquid assets.  Cash & similar aren’t earning anywhere near the interest rates I’d be paying on a loan, so reducing that principal amount up front just makes sense.  So in the end, I don’t know.  I don’t know how much to save.  The basic plan I have for now is to save as much as I can, throw any liquid assets at it, and borrow the rest.  So there it is.  How much to save?  a lot.

8 responses to “Models & Bottle Sourcing (Part II)

  1. Great post! I find it helps to be specific when making goals…get a specific number then break it down by month or pay period. You might be surprised at how doable it starts to look (especially with some serious life style changes). I look at all the cuts in my spending as an investment in my long term future. Also, when I get grief from friends and my boyfriend about all of a sudden being cheap when it comes to what seems like little things…I respond that the ROI on a new pair of jeans is negative, where the ROI on that money being put towards my education is much greater (especially if you think of that $80 as being another $80 in loans you aren’t taking out…costing you $160 total with interest). It is a great motivator to stay on track, although, I won’t lie…it is not easy sometimes!

    • Thanks for the comment, Somehow it got caught up in my spam filter..must be all that ROI talk :) I totally agree, though. I’m actually on pretty good pace saving, but as they say, if a little is good, more is better.

      Keep up the amazing posts!

  2. Hi hamm0,

    Great insights -both you and mbagirljourney..

    The MBA value is largely in the network – so it’s what you put in in terms of developing relationships with your classmates.

    Wanted to ask if you find the below resources useful for GMAT studying:

    GMAT Online Question Bank complete with 1,000+ community comments
    Full-Length GMAT Practice Test

    If you do find the above useful, would you mind adding a link to your resources/sidebar?

    Thanks – let me know if you have any questions.

    Zeke Lee
    GMAT Pill Study Method

    • Hey Zeke,

      Thanks for the comment – I haven’t found those things useful, because I didn’t use them. While I’m sure they’re good products, I can’t endorse what I haven’t tried.

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  4. That’s a pretty detailed version I must say!I thoroughly enjoyed the post :).

    Btw, hi! is Aparna (writing under the name of bschool admit) from India. I am a 2014 applicant as well. :) I am doing a blog post on 2014 applicants. I would really like to enlist your blog as well. I would really love to get acquainted :).

    You have my mail id. Please drop me an email.

    I have invited folks like poeticquants and mbagirljourney!

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