In summary, here is my financial situation and current year's savings budget:
Income: ~70k+/year (salary+bonus), another raise coming mid-year (been working fresh out of college a year ago)
401k: ~$20k in various low expenses index funds (maxed pre-tax 401k last year)
Roth IRA: ~$11k in Vanguard funds
HSA: ~$2k in various low expenses index funds (maxed HSA last year but had to use 1k for contacts and some injuries)
I-Bonds: $10k (at 2.2%, emergency fund)
Paid-off car: ~$30k (admittedly I was trading options during college and was lucky and made it big. No more though)
Monthly expenses: ~$1,500 * 12 = ~$18,000 ($20,000 with some allowances)
Total Annual Expenses: $20,000
Max pre-tax 401k: $17,500
Max Roth IRA: $5,500
Max HSA: $3,250
Max I-Bonds: $10,000 and another $3,000 from next year's refund
Buff-up emergency fund: $5,000 (Mango 6% savings)
Total Annual Savings: ~$45,000
Total Taxes: ~$8,000 with maxed 401k
MBA financing plan:
Assume I start MBA on Fall 2014 and repeat the same savings budget for 6 months next year.
MBA Cost Over 2 years = ($180,000) all in
Projected 401k Balance at Matriculation (assuming very conservative 5% growth) = ($20k + $17.5k + $10k) * 105% = $50,000 (Liquidating over a period of 2 years. With the Lifetime Learning Credit, I could liquidate up to $30k annual income a year tax free) Note that withdrawal used for Higher Education purposes is qualified (e.g. no 10% penalty)
I-Bonds = $10k + $10k + $3k = $24,000 (including a year of interest ~$1,000 tax free for educational purposes)
Sell Car = $25,000 (after adding an extra year of depreciation)
Total Savings for MBA = $99,000
I'm hoping to get some scholarship (hopefully at least 10k a year, which should be very realistic) = $20k
I will also get a month's pay (unused vacation days) = ~$6k (I would liquidate $3k of my paper I-Bonds to compensate for the tax withholding and purchase the bonds back during tax filing time)
Deficit = ($55,000) - I would finance this sum with SoFi student loans (~6% alumni funding for certain schools, 0% origination fee)
Remaining emergency fund:
Roth IRA = $11k+$5.5k+$5.5k = $22,000
I-Bonds = $5k+$1.5k = $6,500
Checking = $2k+$5k+$2.5k = $9,500
Total Remaining Emergency Fund = $38,000
So if I use all my emergency fund, I would only have $17,000 in student loans.
Some caveats about the financing plan:
1. I used a very conservative fellowship/scholarship estimate ($10k/year). There's some chance that I might get more.
2. I also used a very conservative growth for my 401k (5% for the next 18 months, following David Swensen's lazy portfolio: http://www.bogleheads.org/wiki/Lazy_Portfolios#David_Swensen.27s_lazy_portfolio. I did zero out TIPS since I have I-Bonds and pro-rated the TIPS to stocks and bonds). There's some chance the market might perform better.
3. I did not include income from summer internship between MBA Year 1 and Year 2. This should be around $10k after living cost (income tax free since for the 2nd year I'm only converting $20k from 401k).
4. I also did not include signing bonus (common practice in management consulting) after graduating MBA which is around $20-$30k depending on the firm.
Also, there were some questions about my job. I'm pretty much an Analyst / Associate / Junior Consultant, which is an entry-level management consulting title out-of-college. People like me pretty much do all the grunt work (financial analyses, PPT deck, logistics, meetings, etc). It is very common practice after doing 2-3 years stint to get a MBA and return as a Consultant / Senior Associate. Hence the rationale for my MBA.
Starting salary for Consultant / Senior Associate at MBB (the best 3 consulting firms), Big 4 or Booz Co varies from $120-$130k. So I will be pretty much doubling my salary. Furthermore, as I previously mentioned, there is also around $20-$30k signing bonus, 10-20% performance bonus and retirement contribution / profit sharing. Pretty much pushing the first year out-of-MBA compensation to $180-$200k. I personally think it is still very worth it to get MBA from the top 10 schools. It is indeed incredibly tough to get in but I did graduate from one of the best universities in the nation with a pretty good GPA and have a pretty decent GMAT, so I think I might have some chance.