New savings goal: take a year off and get my MS full-time

I’ve spent a long time thinking about it and I’ve realized that I’m just not going to do an entire Master’s degree while working full-time. I can’t sustain that level of working for that long and focus on that many things at once. So, instead, I’ve decided to plan on taking a year off to get my MS (Master of Science) at a local university.

One of the things I’ve learned about myself is that I’m much more likely to do something when you take away many of the barriers, especially making it financially in reach. I wasn’t that interested in buying property until I had a ton of cash saved up that I didn’t know what to do with. Now that I’ve got the mortgage balance under $200,000, I’m going to work on saving up the entire cost of tuition for the Master’s degree and a year’s worth of bare bone living expenses, in addition to the $20,000 cash savings buffer I already have. If even with the money saved up to do this, I still don’t want to do it, then maybe I really don’t want to.

I calculated that I need to save about another $57,000 from what I have already started to set aside. In order to save this amount, I’m going to stop making extra payments on the mortgage and send all of my non-retirement account savings to this savings account. I am estimating that I will reach the goal by August to October of next year. If I change my mind and don’t end up going to grad school, I can always throw this money at the mortgage instead. Since I’m still considering this and saving money, I’m not going to consider applying for the 2014-2015 school year and will instead evaluate for the 2015-2016 school year.

What does a bare bones budget look like?

  • $1,205 Mortgage payment (still paying at least the payment on the original loan) – adjust down to the required amount of $1,027. I could also recast the mortgage for a cost of $100, which would lower the required payment to about $800. (savings in cash flow: $400)
  • $21.19 Cell phone – the bare minimum on Ting would be $18.21 per month (savings in cash flow: $3)
  • $31 Internet – this is the bare bones as this is the slowest speed of internet that they offer
  • HOA dues and property taxes – no bare bones version of this
  • $52 Electricity – monthly average. I’ve cut this down quite a bit, but I think I can continue to cut it down further.
  • $99/year ($8.25/month) Dropbox – paying for storage and sync’ing files between my computers. I would keep this.
  • $1,626/year ($135/month) Insurance policies (includes auto and condo policies) and renewing my vehicle tabs. This rate was shopped around for. I would do that again if it helped to lower the rate. There is no way to lower the cost of renewing the vehicle tabs other than to get rid of the car.
  • $163/month (average) Sports. I would eliminate all of these costs and spend time running and doing yoga at home.
  • $3/month (saving to spend) to replace driver’s license and passport as they expire
  • $250/month Entertainment: books, movies, food out with friends, etc. I would cut this down to $75/month since I also eliminated sports. (Savings on cash flow: $175)
  • $20/month Dining out by myself. I would cut this out completely and just count it in Entertainment if I do.
  • $170/month Groceries. I would increase this to $200/month to account for not eating out as much. (Savings on cash flow: $-30)
  • $65/month Work lunches out. I would eliminate this.
  • $42/month Presents. I would reduce this to about $17/month. (Savings on cash flow; $25)
  • $30/month (average) Household goods. This covers toilet paper, light bulbs, paper towels, Kleenex, batteries, laundry detergent, dryer sheets, dish soap, dishwasher detergent, bathroom cleaner, hand soap, etc. I’m still figuring out what this number should be, but this is about the average spent in 2013.
  • $20/month Eyebrows. I would cut this.
  • $6/month (average) Hair cuts. I would go to a hair school instead at a cost of $14/year or an average of $1/month. (Savings on cash flow: $5)
  • $20/month (average) Toiletries: hair elastics, toothpaste, feminine products, body wash, shampoo, conditioner, shaving cream, hand cream, etc.
  • $8/month (average) Spa. I would eliminate this since I don’t value it all that much.
  • $48/month (future spending) New electronics (cell phone, laptop, modem, purse, MP3 player). I would put off setting aside further money for these until the situation improved.
  • $48/month (average) Fuel for my car.
  • $5/month (average) Maintenance for my car.
  • $350/month (average) Travel. I would eliminate this.

My existing budget adds up to $3,221/month. The bare bones budget version would add up to $2,130, saving about $1,250 per month in cash flow.

Other options include:

1) Selling the furniture in the second bedroom and taking on a roommate. Approximate expense reduction per month: $800, reducing overall bare bones expenses to $1,330, which isn’t bad. That’s just under $16,000/year. This would really help because over half of my expenses in my bare bones budget is housing and because I own my condo, it is trickier to move. If worst came to worst, I could probably sell the condo and pocket about $160,000 in cash, which would help to cover rent later.

2) Selling my car. I could probably sell it for around $11,000, which would eliminate several costs (car insurance, renewing my vehicle tabs, and car maintenance). Technically it would also eliminate the fuel cost, but I would say that would cost just as much as taxis and car sharing would if I had no car. Savings on cash flow: possibly $115/month, but hard to tell based on how much taxis and car sharing would cost. The real advantage here would be gaining the $11,000 from selling the car. If I was in a real bind, I could sell the car and that would provide me another 5 months or so of expenses at the bare bones level.

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25 thoughts on “New savings goal: take a year off and get my MS full-time

    • I graduated from high school and undergrad slightly young and I think I’m starting to get a better picture of my interests now than I did previously. (I made the decision of what Bachelor’s program and university to go to when I was barely 16.) I want to move into a particular subfield that combines another interest of mine with software. I never did any research in undergrad (industry internships only) and so after college, industry seemed like a good option. I’m not sure that I’m super interested in what I’m doing right now, being a generalist software engineer. I don’t think a full master’s degree is necessary to do what I want to do – a few courses to kickstart some learning might help, but I also feel that the connections the school has may be more helpful than what I can find on my own to find a job in that field. I’ve also always somewhat wanted to get a PhD and honestly always thought I would do that throughout most of undergrad, but I never really figured out which department I wanted to apply to since I’m interested in an interdisciplinary field. I’ve finally found a program that seems appealing to me and it even turns out to be local. The school does have the option to continue on to the PhD program and that would be fully funded, but the master’s degree is not. So I see the Master’s degree as helping me 1) figure out whether I want to do a PhD program or not and 2) networking to find a job in that subfield.

      I’ve been working through textbooks for one of the prereqs since I’m now 4 years out of undergrad and took one of the primary prereqs in another language…

  1. Are you planning to quit work or would your company give you a sabbatical?

    Will your company pay for any part of your education? My company does. Many of my colleagues have had 80-90% of their degrees (both undergrad and graduate level) paid for by the company dime. In return I believe you have to commit to working an additional X number of years for the company, or else you have to reimburse the company for your education expenses that they paid.

    I’m not sure how common this is across companies. Maybe mine is unusual.

    • I would probably quit. I could take a sabbatical for 1-3 months, but I’m not sure about a year. I also couldn’t find a job at my current company in the particular subfield that I am interested in, so it’s not like I would want to work there after the MS.

      My company will pay for zilch of it. I’m not really complaining though because I’m on track to gross just under $200,000 for the 2013 calendar year and I should be able to save the $57,000 in cash within 10 months after while still maxing out my 401(k) and Roth IRA and not really scrimping. Financially, I could probably do this the 2014-2015 academic year, but I want some more time to think about it life-wise. I’m also okay with my company not paying for it because I don’t really want to take a course at a time while working full-time – that would be far too stressful.

  2. How are you handling the employment situation, through a leave of absence or actually leaving the company where you will need to find a new position after your year off.

    And I know that the financial aspect isn’t the predominate factor in your decision, the ability to focus is, so any sort of discussion as to the reimbursement and other funding options don’t seem to apply.

  3. What a bold plan! I like it, especially the option for a roommate. It’s one of the easiest ways to get instant income diversification and to cut expenses (utilities, internet, & tv are now split even though you get the same benefits).

    Good luck and kudos for making a decision to get your degree in short order.

    • Thanks! I’m not sure I’m big on the roommate idea, but we will see how that goes… Besides, I only pay electricity and internet, which total average about $80/month over the course of the year.

  4. Wow, I didn’t realize you were interested enough in an MS to stop working to do it. But why not? Definitely a great plan to save up for it in advance and to push out the start date to be sure what you want. How will this plan impact your mortgage payoff before your ARM resets?

    • Exactly! Why not? It’s a one year program, which isn’t the end of the world to be out of the workforce if I decide I want to go back to industry, especially with how much I have already saved.

      This would definitely impact my plan to pay off my mortgage before the ARM resets! If I was to quit next August, go for the 2014-2015 academic year, and start another full-time job in November 2015, I would pay off the mortgage at the end of 2019, so two years after the rate reset. If I do the MS in the 2015-2016 academic year and start another full-time job in November 2016, I would pay off the mortgage in February 2019, so on the 14th payment after the first rate reset. If I waited until the 2016-2017 academic year, I might actually be able to pay off the mortgage in late 2015 AND go to grad school that academic year, which is honestly only two years out.

      I was mostly going for paying off the mortgage before the ARM resets since I have so much disposable income. For example, if I continue at the rate I’m going, I could pay the mortgage off in entirety at the end of 2015. I may end up taking these factors into account, but for now, setting aside the $57,000 in cash isn’t a huge deal because I can always change my mind and throw it at the mortgage later.

      Thanks Emily – those were good calculations for me to do!

      • OK glad to know you have a plan for that aspect! I guess if interest rates have risen a lot by then you could re-adjust to pay off the mortgage, or decide it’s not worth it for the small remaining balance.

        One line item I don’t see in your bare bones budget is health insurance premiums. When you leave your job you’ll lose that benefit, right? Have you looked into the cost of student health insurance through the university you chose?

        • Yep! Also, when the rate resets, the payment will automatically reamortize, so it will most likely drop if I still have the mortgage.

          I forgot about health insurance! Looks like the university plan is $2,700/year and covers dental check-ups too. I guess that means I need to save another $2,700, plus enough to buy my own health insurance for a couple of months and the deductible on that if I don’t have it in my HSA…

          Thanks for providing an extra critical eye!

  5. Eeek! I hope it wasn’t me that you were talking about regarding that medium term goal :P Seriously, I am impressed with your hardcore budgeting and your conviction to pursue your MS degree. However, I would probably be more careful and milk your current job a little longer to become debt free and have extra funds for your MS degree without going bare bones budget. I am saying this because I am older and more cautious, perhaps overly cautious, in life. That being said, I do feel that your confidence is not arrogance and your work ethics are fierce so your goals are probably the best for you :)

    • Perhaps! It’s not a big deal – if I don’t end up going to grad school, I can just throw the cash at the mortgage and it’ll be fine :)

      I would actually say that this budget is really not bare bones considering that about $1,300 or 2/3 of it is housing-related. Also, if a MS program is anything like my undergrad, I never spent any money other than on food and housing since I was so busy studying. Also, I am proposing doing this in the 2015-2016 academic year, which gives me a full 22 months to save, which is plenty.

  6. Wow. Good luck. What do you peg the odds at that you’ll have to take a pay cut when you return to work post-Masters? Is it a concern?

    • It’s quite possible, as I may not end up at a big company like I’m at now. I do feel reasonably confident that I could end up with a comparable base pay though and then smaller bonuses or at the very least at least $95,000, which is more than sufficient to live off of and save a reasonable amount (just not as much as I have been lately!). My expectation post-MS would be compensation in the low to mid $100,000 range rather than the high $100,000 range. Then again, if I end up going the PhD route, that would definitely not be the case! So, as long as my compensation is in the low $100,000 range, I don’t think there’s any reason to be concerned really.

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