No Debt MBA

So I'm halfway through my first year of two for my MBA.  It's funny to realize that I'm a quarter of the way done when I feel like I've just barely gotten my legs.  The last few months have been filled with ups and downs, more ups but it's still been a stressful, all consuming time.  The first bit was overwhelming because of the new routine, people, culture and trying to figure out how everything worked on the fly then once I got settled into a routine recruiting hit.  Recruiting is stressful on its own but the evening events messed up my carefully crafted schedule a couple days each week.  I couldn't bike because of the suit and the late wrap up time.  I had to find odd pockets of time to prep for classes.  I was hardly ever home.

I'm looking forward to coming back after new years.  I feel comfortable with what's expected of me academically and in recruiting now, know where my limits are, and have a lot of the logistics figured out.  I'm hoping to be less stressed and spend more time getting to know people better.

On the money side I'm still going on cash.  This month will be the first where I'll need to transfer money out of savings to pay my credit card bill (in full, of course).  My checking account is too low to pay the bill and I want to keep a buffer in there too.  I'd just been cruising on my last two months of pay from this summer that I'd left in checking so far.  Not even two full months of work, but more than four months of living expenses. It's good.

I need to decide ASAP if I'm going to pay spring tuition and fees in this year or next. Either way the money will come out of savings too.   I think I should be good to ride out the academic year on my savings account to a hopefully lovely cushion of a paying summer internship.  Knock on wood for me. 

I'm pretty happy with where I'm at money-wise right now.  My goal of no student loans is looking more attainable every month (knock on wood again).  My spending is at a level I'm comfortable with and more importantly my standard of living is as well.  I'm feeling healthy and comfortable.  I haven't been worrying about a little money to go out and have fun or have people over for dinner.  At the same time I've been pretty good about eating our own cooking which saves money but also keeps my diet better balanced.  I've also been using my bike or feet for transportation which helps me get a little extra exercise in too.  Finally, I just haven't had time to spend money on things that aren't important to me.

I want to give myself a solid pat on the back for how I've been doing.  It hasn't been perfect but it's a huge amount better than it would be if I said the hell with it or ignored it.  Going forward I want to maintain this balance and try to squeeze a little more fun with my SO in.  How does that sound as a resolution for the new year?

At my business school, and I'm sure the rest of them out there, there are two particularly hot locations: San Francisco and New York. New York is a perennial favorite with MBAs and fortunately it has a plethora of banking jobs, a few consulting jobs and more to support them.  San Fran is close to Silicon Valley which is of renewed interest to MBAs these days.  Facebook and Google are two of the more coveted employers on campus.  San Fran also has a variety of other jobs in health care, consulting, finance and more - a more diversified location than New York.  Students who have a target location (particularly New Yorkers) talk about it frequently.  Asking about who's there or what their chances are or how to network better for the location.

But allow me to let you in on a little secret that MBAs don't talk about much.  Those locations and the others that business school students love, like London, Hong Kong, Boston or LA, are incredibly expensive.  You knew that.  High cost of living is no secret and people like to complain in that masochistic way about the price of rent or a meal out while saying there's no way they could live anywhere else.  However, the pay doesn't really change if you're in New York or in Detroit.  Think about that for a second.  Housing in particular is apt.  You know how far $150,000 doesn't go in New York and you know exactly how far it does go in Detroit.

It's common for pay not to fully adjust based on cost of living.  That's true across industries.  But many companies hiring MBAs specifically pay the same across all locations.  Consulting firms are a good example of this.  I've heard of a couple that have a policy of standard salaries across US locations.  The consultants in New York dream of buying condos while those in Dallas have a few acres and a pool.

The evenness of pay is partly an equality issue for companies with multiple locations but there's also a supply and demand issue at play.  Companies or branches in Detroit or Dallas know that to get top talent beyond the few people who have family in the area they will have to give an offer that is in the absolute sense comparable to a New York offer.  This then gives them a relative advantage over the more coveted cities after cost of living is factored in.

It's easier to get a job in a non-trendy city.  I can't tell you how hard Bain Texas, McKinsey Dallas, or Goldman's private wealth offices in Miami or Houston have been recruiting on campus.  McKinsey Dallas sent messages to anyone on campus who in some way was from Texas, whether they were interested in finance, marketing or anything else.  Target, in Minneapolis, is ambivalent about recruiting at top schools since their yield from interns to full time is so low - they can't convince anyone to live in their city long term.  The number of people who show up to a hedge fund's recruiting session who has offices in New York, San Fran and London versus one that's based out of Houston or another location in the South, is striking.

So if it's easier to get a job in a non-trendy location and you have much better standard of living once you land it, what's the catch?

1. You have to convince the company that you're actually interested in them and their location.  These guys know they're underdogs in recruiting and they really want to separate those who are really interested, who will definitely take an offer if it's given to them, and those who are using them as a safety for when their applications to other places come through.  So make sure you have a good story to tell and do your research - you need to be in that first bucket for the odds to be better than average.
2. You have to actually work for that company at that location.  This sounds stupid but for there to really be any value to taking an offer with a non-trendy company in a non-trendy location you have to be happy about it or at least okay with it.  Otherwise you'll just be miserable and bemoaning your awful life in boring, backwater Atlanta while you're friends are having a great time paying $20 per drink in New York.

For many business school students these two factors are actually prohibitive.  These are kids who have honed for decades their drive to be the "best", to go to the best schools, jobs, and so on.  It creates a powerful, self-reinforcing form of group think.  Because New York is where everyone says the action is, everyone wants a job in New York.

So you end up as one of over a hundred MBAs applying for one of four slots at every company in your target industry in either NYC or SF.  You fill out numerous applications because your shots of success with any one company are so low.  But each application you submit is lower quality because you don't have the time to devote to each, same for the interviews.  You end up exhausted, stressed and pressed to find differences in any of the opportunities you get because you haven't had time to get to know the company or its work.

Let me just say, if you can do it wholeheartedly, this is one area where it really pays to buck the trend.

I'm no CPA.  When I entered business school I know pretty much nothing about accounting.  My understanding was that accounting for companies was something like balancing your checkbook or what Mint spits out.  Oh how wrong I was.  First step was becoming acquainted with accrual accounting.  Cash in, cash out was no longer enough to merit saying your company had earned money.  Then I had to figure out all of the different ways that that data is presented: balance sheets, income statements, statement of cash flows.

It sounds incredibly boring and sometimes it was but the financial statements released by companies are read by thousands of people around the world in minute detail.  Those financial statements, seemingly mind numbing tables of incomprehensible numbers, are scrutinized by analysts in funds controlling trillions of dollars.  So when something is noted there you may not know about it but the right people listen and their money talks.

Before business school, tantalizing headline aside, I would have ignored this Wall Street Journal article about annual reports, a company's yearly overview of their financial statements.  I would have been missing out.  Congress last year slipped a little new requirement in for companies' annual reports: disclosing if they do business in the Democratic Republic of Congo. This doesn't sound like a big deal in a mammoth document that you and your neighbors or friends don't read, but it could potentially drive out of business Congolese mining that supports "kidnapping, child labor, rape, mutilation and murder." 

Companies are leery of reporting any inaccurate information on their annual reports.  Doing so can have major legal reprisals and, more importantly, cause a large drop in their stock when inaccuracies become known.  No one wants to invest in a business that doesn't tell the truth since there's no way to know what you're really getting for your investment.

So when companies are legally obligated to report if they use materials that originated in Congo mines they take it seriously.  This new regulation will hopefully drive a system for better tracking supply chains and will give companies a better system, which is also more transparent to consumers and investors, to see where their materials come from.  Once that happens, few companies will want to make the disclosure on their annual report that they are still using tainted materials and there will be a strong reason for them to switch away from the mining businesses that finance the warring factions committing atrocities in Congo. 

A conflict which the best diplomatic efforts haven't been able to reason with, human suffering that aid efforts can't begin to assuage much less stem, and a mess that is well funded so that outside governments couldn't shut it down.  Until now.  One little slice of an 850 page banking regulation that affects paperwork that few regular Americans actually read might cut off the life blood of the whole thing and degrade the backbone of funding to the point where conflict in Congo comes to a grinding halt.

It's by no means a done deal; the Securities and Exchange Commission hasn't hammered out the details yet and they're already taxed to enforce existing rules.  But even the prospect of disclosure has companies thinking and there a glimmer of hope for efficacy and real change.  And if this works, still a big if, it may provide a template for other change in the world.  Conflict diamonds, child labor, you name it.  Companies won't just be held accountable by consumers who lack the leverage to get real information but by their own supply chains and major customers - the core of their business. You may be able to really know which companies do business you don't agree with.  Socially responsible investing might have more data, more participants and more teeth. 

All through accounting. Write it off as a dull subject for nerds with pocket protectors at your own risk.

With recruiting heating up and plenty of investment banking, private equity and such recruiters taking people out to dinner it becomes obvious that in some ways we are the 1% or are mightily striving to get there as a class.  People talk about how much they want to have kids, a family or how hard it is to find a supportive spouse and in the same breath talk about career advancement in a track that guarantees that they wouldn't spend much time with their spouse and kids if they could make that happen in the first place.

It's tempting, on some days incredibly so, to get sucked into the mindset of prestige and compensation (and compensation as a proxy for prestige, a double whammy) as being the end all be all of a job search.  It becomes a reflex that needs to be defended against to think that companies that pay less are less worthwhile to work for.  We've heard the rumors and press that places like KKR, Goldman Sachs, Deutsche Bank, etc pay boat loads of money but it's hard to verify especially since a lot of compensation is tied up in bonus.

Frankly I think I'm doing a pretty good job of holding fast against the herd mentality and the culture that permeates recruiting.  I'm not looking for an investment banking job and I'm avoiding compensation as a first pass opportunity filter.  Yes, I will think about per-hour compensation in a rough ball park for an industry, but it's a distant second to interests, culture, opportunities, and geographic location.

I'm seriously considering starting my own business and have a few projects simmering on the back burner.

What's really enabled me, as a highly risk-averse person who demands financial security to put aside the MBA chatter about salary-plus-bonus and career tracks is that I am financially secure and will be throughout my time in business school and beyond.  I have six figures in assets right now. I'll graduate (knock on wood) debt free and very much in the black.  I have created my own safety net and I don't need a company to give it to me.

Another student lamented over lunch last week that he found humor in the idea that our business school opens up so many doors for us with the vast alumni network, brand name, entrepreneurship programs and alliances with non-profits, but that he really can't take advantage of the vast majority of it because of the student loan burden he'll graduate with.  He's shooting for a job with one of the big three consulting firms. 

This recruiting season I've felt incredibly fortunate and I'm desperately trying to tune out the noise of the "right" path and hold on to the feeling.  I truly can do anything for my summer, after graduation and beyond.  I have made myself secure, with a reasonably deep safety net, my SO holds similar values, and I can trust myself to maintain that going forward.  What I really need to do is let go and follow my interests to something I'm excited about; I'm not naive enough to think that money will automatically follow but I should trust myself that I can make it work economically.  I'm truly free to make whatever choices I'd like. 

In setting the goal of being debt-free money was never the true point, but instead a stepping stone to avoiding the classic MBA career trap.  Now that I've done the leg work and, barring major upset, the foundation of  my flexibility has been well laid, I need to make sure I take full advantage of my own hard work.  I'll be disappointed with myself if I pick a job just because it's prestigious or has the highest rate of bonuses because I can do better.

Now that it's December it's officially time to begin wrapping up 2011 and prepping for 2012.  I'm a little sad about this - 2011 was really good for me - but I'm also excited to be headed into what will hopefully be an even better next year.  Plus, to be honest at this point I am SO ready from a break from classes and school.  I really want some time and space to think and hash out some ideas I've had recently which is what business school is supposed to be all about but hasn't been happening.

But, for the purely money aspects of 2011, here's my remaining to do list:

1. Run some numbers to see how much I can afford to contribute to my Solo 401k for the year
2. Figure out if I can pay spring tuition in 2011 or 2012 and if I have the choice which one do I want (leaning towards 2011 if possible)
3. After running more numbers and looking at a calendar combine 1 & 2 to decide if and how much to buy of Series I Treasury bonds in December
4. Do some leg work to figure out if I can deduct my MBA.  My preliminary research is that I won't be able to since I'm not continuing in the same line of business but it's a lot of money and I'm not sure what course I'll be pursuing after graduation so I'm still feeling uncertain about what I should do.
5. I've earned a little bit from the blog this year and I'm trying to figure out if it's worth it to reinvest or if I should just take it, pay the taxes and use it to pad my savings or up my splurges in the next year.

I think that's it.  So if you have advice on any of the above let me know!