So, you’ve decided to go to business school. There are months of preparation ahead of you, including taking the GMAT, lining up recommendation letters, crafting essay responses (three 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 Peet’s) is expected and your enjoyment level per sip has plummeted. 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? And remember the St. Augustine quote, “give me chastity..,but not yet.” Try giving yourself frugality today. 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.