How investing can help cover the cost of a great education
An MBA was something I wanted to pursue ever since I was 23. I had a great technical foundation via my engineering training but knew I’d need solid business skills to meet my career goals. And so, in 2010, all the prep started: studying for the GMAT, seeking advice from alumni of top business schools, ensuring I had the best resume to put forward in my application and so on – some of you may be familiar with the drill.
Getting into business school was a multi-year project. I worked on all kinds of things to make my dream of going to one of the world’s top business schools a reality, except the financial part. The cost of a business school education in the US is no joke.
College fees as listed on some business school websites – converted to INR – are around ₹60 lakh per year. Factor in the cost of living, health insurance, travel and other expenses, and we’re talking roughly ₹90 lakh per year. Moreover, enrolling as a full-time MBA student, meant I was foregoing my regular salary. In summary, the whole thing costs a LOT of money – especially for someone in their mid-late 20s.
In late March 2016, I was fortunate to get into one of the world’s top business schools. I was admitted to Wharton’s MBA Class of 2018! A few days after I heard the decision, the elation of getting accepted started to wear off a little, and reality began to sink in. How was I going to pay for this whole thing? I didn’t get any scholarships, so I had to figure out how to afford the entire two-year amount.
To finance anything, the options are debt (a loan) or equity (savings/investments).
I decided I didn’t want to take on such a large loan, since paying that loan back would become really stressful post-graduation, and would end up determining where I worked. I would have to get a high-paying job in the US to be able to pay the loan back in a reasonable amount of time, which meant moving back to India and working on a startup (which was my plan) would not be feasible. So, the loan option was out.
Unfortunately, I hadn’t planned any investments to meet my financial goal of getting an MBA. And thus, I had to use up all my personal savings (I had made some money working in the US for 5 years) and my retirement fund, ask my parents to help, and finally take a small loan to cover the balance.
In hindsight, had I been more prudent and aware, I could have made use of compounding and started saving and investing for business school right when I started earning money at age 21.
Here are my tips for all those looking to pursue higher studies. In order to plan ahead, understand:
1. How much is the cost of your higher studies?
This is not just the college fees, but also living expenses. Is it abroad or in India?
Understand how much money you will need for everything for the duration of the course (college fees, living, shopping, entertainment, travel – everything!). And if you are planning to do the course as a full-time student, also remember that you won’t be earning once you become a student.
2. When do you want to go for higher studies?
Will this be three years from now? Five years? Knowing this will help you understand how long you have to make your money grow.
3. What is the inflation rate?
The cost of education typically increases every year. The final amount of your goal should take inflation rates into account. Luckily, at Basis – we factor in inflation for you. Once you have the financial goal clearly defined, you can use Basis’ goal-based investing tool to make your investments.
One last bonus tip:
Closer to the date of achieving your goal (3-6 months prior), transfer the money into a low-risk investment such as a debt fund or a liquid fund so that your returns are more guaranteed.
My learnings from this experience laid the foundation for starting Basis. We all have life dreams and goals – for ourselves and for our loved ones – but without the right financial planning, achieving them is next to impossible. As women, we tend to get left out of financial decisions and tend to depend on the men in our lives to manage money for us. It’s time we change that. So, go ahead, create those financial goals on Basis and start saving and investing for them!
(picture credit: Cindy Liu)