Previously, I outlined four action steps to help MBA students manage the financial impact of starting and paying for an MBA program. I followed up with a discussion of the first step, assessing your financial wellbeing. The second step, evaluating your current financial situation, is the subject of this post.
Why Evaluate Your Current Financial Situation?
Since MBA programs typically want you to pay your MBA program’s tuition and fees in advance it is a good idea to identify as soon as possible the source of the funds you will use to make these payments. Waiting until the last minute or focusing on only one source can result in a negative long-term impact on your financial wellbeing. Evaluating your current financial situation, however simple or complex it may be, helps you minimize the negative impact.
Furthermore, financial wellbeing assessment is perception based. Evaluating your current financial situation, which involves gathering factual financial data, provides a reality check for the financial wellbeing assessment. Furthermore, it is possible for factual data to change perceptions of one’s financial wellbeing. Perception rather than reality of one’s economic life is often the basis for financial decisions, especially when large purchases are involved. Since enrolling in an MBA program is a large purchase for most MBA students, it makes sense to base payment decisions on fact rather than the perception of one’s economic life and financial wellbeing.
How do I Get Started?
Determining what information to gather, and how to organize it is the starting point; however, without a road map to guide them, people often find it difficult to start the process on their own. One way to overcome this hurdle is to use interactive financial planning software. Several financial software applications are available to guide you through the initial data collection, analysis, and decision-making. One I recommend is ESPlannerBASIC, a free online application that is more than adequate to get you started. As your knowledge and needs increase you can migrate to the annual subscription applications ESPlanner and ESPlannerPLUS, currently $149 and $199 per year respectively.
My main reason for recommending ESPlanner is the focus on living standard. The financial and lifestyle choices you make, such as starting and paying for an MBA program, determine your living standard. Determining how these decisions will affect your lifestyle, both in the short term and long term, is important for your financial wellbeing and that of your family.
In addition to guiding you through data collection, ESPlanner helps with data analysis by:
- Calculating a sustainable living standard for you and your family
- Telling you how paying for your MBA, either by using available resources or borrowing, will affect your living standard
- Telling you how much savings you need to attain a stable living standard
- Telling you how different financial and lifestyle choices will alter your living standard
- Helping you make annual discretionary spending recommendations
- Helping you conduct “what if” analysis
One final step in the data collection process not addressed by most financial planning software relates to your credit score. There are three major credit-reporting agencies. Most states require that each of them provide you a free annual report. My own personal approach is to request a credit report from one of the three agencies every four or five months so I can monitor my credit rating and proactively correct errors that appear in my report. I access the reports through AnnualCreditReport.com. Periodic reviews help protect you from fraud and ensure that your report is accurate when you apply for a loan or other forms of credit.
Evaluating your current financial situation provides you the information you need to determine how you will pay your MBA tuition and fees. The objective in this step is to identify the resources you have available to you (cash, investments, home, salary, etc.) and claims to those resources (debt service, living expenses, etc.) so you can formulate an action plan for addressing the financial issues arising from your decision to earn an MBA. My suggestions thus far are basic and center on the use of a single tool that is free. I do not intend for it to substitute for a comprehensive financial plan developed with a professional financial planner. Rather, I prefer that you view it as a place to start.
Perhaps you have other suggestions for managing the information gathering and analysis. Do you use ESPlanner? Do you use another application? Share your thoughts and experiences by adding a comment below.
Future posts will address the final two steps 1) identifying goals, options, and non-negotiable positions, and 2) formulating and executing an action plan.
Rodney G. Alsup, D.B.A., CPA, CITP
Founder of MyeEMBA.com