11 Personal Finance Tips for MBA Students

It’s understandable why most MBA students don’t want to focus on their finances.  After committing to spend over $100 grand on your education, you’re forced to watch your net worth deplete with every single tuition payment.  As business school students, you’ve made an investment in your career and have forsaken earning significant income for two years.

Personal Finance

Despite these conditions, your time at business school will go by much faster than you expect. Before you know it, you’ll be wrapping up your degree, earning a new six figure salary, and be forced to manage your finances once again.  Therefore, paying some attention to your financial health during business school can definitely go a long way in helping your future.

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Check Your Credit Report Three Times a Year

Before starting business school, you’re likely going to quit your job, change your address, apply for student loans, and open or close bank and credit card accounts.  Having all of these transactions within such a short period of time puts you at higher risk for identity theft.  Therefore, it’s important to take measures to protect yourself.  The easiest way to do so is to check your credit report frequently.

Annualcreditreport.com is a website that allows you to check your credit report for free.  You can perform this check once per year with each of the three major credit reporting agencies, giving you three total reports annually.  Make sure you go to the correct website linked above, as there are several legitimate-looking websites offering free credit score checks that are really just scams.  For those of you on the quarter system, you can just remember to have your credit checked at the end of each academic period.

Rebalance Your Portfolio Once a Year

As you get older, you naturally become less tolerant of risk.  Savvy investors know that your investment portfolio should adjust to match these changes, which is basis for the concept of balancing your portfolio.  If you haven’t been properly balancing your portfolio before you started your MBA, business school is a great time to start.

A simple rule for balancing your portfolio is to invest your age in debt.  If you’re 25 years old, you would have a portfolio of 25% debt and 75% equity.  A more aggressive rule is to invest your age minus 10 in debt.  In this scenario, the same 25 year old would invest only 15% debt and 85% in equities.  My personal opinion is that, if your investment allocation is anywhere between these principles, you should be in good shape.

Portfolio rebalancing is something that should be done periodically and consistently; it shouldn’t be used to time the market.  Setup a specific date to balance your portfolio properly, and when the time comes, make the adjustments regardless of how the market is performing.  The hallmark of good investing is good discipline.

Rollover Your 401K Early

This advice is somewhat obvious, but it’s surprising how many MBAs don’t perform this transaction.  The vast majority of incoming students will have some sort of employee sponsored retirement plan from their previous job.  Circumstances will vary by employer, but if you neglect to rollover your retirement funds into a new account, you can lose control of how the assets are invested and are typically no longer able to make contributions.

The reason why so many MBA students don’t go through with a rollover is simply because it’s a cumbersome process.  You can’t go to a website, check a few boxes, and have your money transferred.  For a typical rollover, you’ll need to fill out paper forms, get a stamp from a physical bank branch, and pay a fee to get your money to a new investment account.  It’s definitely annoying, but you should invest the time to get this out of the way before your MBA begins.  That way you don’t run the risk of losing control of these assets for two years.

Invest in Index Funds Rather than Individual Stocks

Index investing is good advice for any period of your life, but it makes even more sense when getting your MBA degree.  By getting an MBA, you’re already making a significant bet on the market.  If the market is booming when you graduate, you’ll probably have a great salary.  If the market tanks right before you graduate, your starting salary will probably reflect these conditions.

Don’t amplify this wager by taking extraneous risks and betting your retirement funds as well.  Use sound index investing principles, which will guarantee you the market return with the lowest investment fees possible.  And unlike your MBA wager, you aren’t forced to “cash out” after two years.  Therefore, the state of the market when you graduate is irrelevant to your retirement portfolio.  The best place to start with index investing for those without experience is with Vanguard.

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