Do you ever wonder how people make it all work financially? Think about your friends – single, newlyweds, married with kids – who are constantly posting pictures of their exotic vacations. Maybe you’re a better friend than I am, and you just think “Wow that’s so great for them!” My first thought is usually “How the heck can they afford that?”
You can approximate income
You can usually make a fairly accurate guess of someone’s income. The interweb is full of salary benchmarking websites such as GlassDoor.com, PayScale.com, or Salary.com. Estimating someone’s net worth, however, can be much more difficult depending on how well you know the person. If we make an educated guess about Sally’s income and net worth and still find ourselves asking the “How can she afford that?” question, we must be missing something.
So what are we missing? She can’t be making that much money. Has she lived her whole life way below her means in order to save up a travel nest egg? Is she just racking up debt? Did her rich grandma pass? Does she have a side business we don’t know about?
You know who I’m talking about
I have friends like this. You do too. You know the ones. I’ll call mine Bob and Janie. The honeymoon pics were expected. But I continued to see pictures posted at least every few months in some new exotic location. It didn’t quite add up, and I thought “Well, I guess that’s possible, but that’ll stop when the kids come.” Then kid number one came…and so did the tropical family selfies. What?! Maybe Bob actually does make 5 times as much as I do. But if we admit that, then we’ll spend the rest of the night feeling dissatisfied, so we just tell ourselves that they must just be making unwise financial decisions.
Sometimes it just doesn’t add up
The point I’m making is that sometimes things just don’t add up. It’s probably none of our business, but that makes it even that much more appealing!
I’d say I’m pretty easy to figure out financially, but I’m probably biased. One thing I know people wonder about, and that I used to wonder about, is the cost of going back to school full time. I’ll share some of the financial details of my MBA experience here. I cover the other aspects the MBA in another post.
How I paid for the MBA
I came out of school with $50,000 of debt and one child more than the two I started with. We paid off the debt in a little less than two years (and kept the baby). Here’s the math:
Some of you think I’m an idiot for spending almost $100K on an MBA. I’ll address that elsewhere. Here, I’m simply showing you how I did it, not why.
Savings – During the 3 years before going back to school, I saved about $35,000 grossing between $46K and $60K per year. With a wife and babies at home, I felt like that was pretty darn good.
UGMA – After I got married at the ripe old age of 23, my dad formally turned over the money he had been setting aside for me in an UGMA (Uniform Gifts to Minor Act) account. I technically could have used this money for whatever I wanted when I turned 18, but I didn’t know (or had forgotten) it existed (sneaky one, Dad). At the time he gave it to us in early 2007, the investment was valued at about $35,000. The next year it dropped to $16,000. I knew I’d be using the money for school, and I watched in pain as it crept slowly back up to $25,000 at which point I cashed it out. I’ve been claiming a capital loss on my taxes each year since.
Tuition reduction & school job – I was able to get a part time job as a graduate assistant for some accounting professors. I received a small paycheck each month in addition a pretty decent tuition reduction. I got paid whether or not I put in the designated number of hours per week. It just depended on what the professors had for me to do. Luckily, it was almost nothing!
Internship – The beloved MBA internship in Los Angeles (bless it’s insanely expensive and crowded little heart). Most of my income was eaten up by our $1,600 one bedroom apartment combined with the fact that we were still paying on our apartment back at school.
Refundable tax credits – Over 2 tax years, I got about $6,500 from the Earned Income Credit and $5,000 through child tax credits (Yay for kids?).
CPA – I continued to work part time for my old boss when I had time. Honestly, it was an ideal arrangement. He always had stuff to do, and he welcomed my help whenever I felt like it.
Credit Cards – The first financial blog I ever read was compliments of Mr. Ping at mymoneyblog.com. I took advantage of several credit card sign-up bonuses that he kept me aware of. I’ve been playing the credit card game ever since.
Student loan – This was the plug figure. How much money am I short? Okay I’ll take a loan for that amount please. I don’t necessarily endorse this strategy.
Car loan – I got a good deal on a sweet mini-van, and we were tired of cramming 3 car seats in the back of our 1992 Camry (rest its soul). A decent paycheck was in near sight, and honestly what’s another $5K when we already had over $45K in student loans?
There you have it. I don’t propose this as a model for how it should be done because it was unique to my situation. Not everyone gets money from their parents. Not everyone can work remotely for a previous employer. Not everyone has kids that qualify them for refundable tax credits. Not everyone is willing to borrow $50,000. Some people get scholarships or employer funding. That’s just how we made it work. If I were to do it over, I’d definitely change some things, but isn’t that always the case?
You could always ask
When your observations of other’s lifestyles don’t make sense to you, just remember that their puzzling behavior can be the result of various enabling factors. Unless you want to ask them (which I generally encourage), just accept the fact that you might never have all of the pieces to the puzzle. As hard as that may be for financially curious people, know that plenty of people online are sharing their financial stories.
I love the transparency that can be found out there, and I encourage you to join the conversation! Fill us in on where you are, what you’re doing, and most importantly how you’re doing it. If you’re not yet doing what you’d like, let us help.