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Seeking a second degree? First learn to be frugal again

Sandra Daga, a CPA and senior lecturer in accounting at the University of Toronto Scarborough, says that most people returning to school after being in the work force underestimate how much it’s going to cost.

jennifer roberts The Globe and Mail

At 28, Kendra Smith had launched a career in Toronto. As a program assistant at Ryerson University's office of the vice-president, research and innovation, she was making more than $50,000 a year and enjoyed working with her colleagues.

But she lacked passion for the job she started in 2009, so Ms. Smith made the decision to quit and go back to school. After taking some time off to travel in Europe, which she has mostly prepaid, she plans to do an undergraduate program in social work at Carleton University in Ottawa in the fall of 2013, possibly followed by a master's degree.

"If I know now that this is not the job for me, why would I continue in it for another 20 years?" Ms. Smith asks. "I may as well do something that I really want to do. I've been involved with a lot of youth programs and that's where my passion lies."

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Single, with no dependents and little debt – except for a $5,000 student loan and about $1,000 on a credit card – Ms. Smith feels the time is right to make this move. She has $10,000 banked for her first year, plus some RRSP savings to use if necessary, and plans to work part-time throughout her studies. However, she estimates her total costs will be about $25,000 annually – tuition alone is $7,000 a year.

Is she financially ready? What are her concerns?

"It sounds silly, but I think the hardest things I'll have to give up are the small purchases – being able to go out for coffee, dinner or a movie with friends or to buy those concert tickets or a new shirt," Ms. Smith says. "When I look at my monthly statement, it will be an adjustment going from a steady salary back to the mentality of being a frugal student. But I've been there and it wasn't that long ago."

Although her family initially had concerns about her switching careers, they are supportive. Ms. Smith will live with her grandmother in Ottawa at first and later share an apartment once she secures part-time employment. While Ms. Smith hasn't sought professional financial advice, she'd like to know the biggest mistakes students make in budgeting and get some practical tips.

Sandra Daga, a CA and senior lecturer in accounting at the University of Toronto Scarborough, says that most people returning to school after being in the work force underestimate how much it's going to cost and don't plan for the number of years that they're going to be in school.

"For example, the cost of textbooks have gone up exorbitantly in the past few years," Ms. Daga says. "But if students are creative [in budgeting], they could rent them, which is very cost effective. Students also often underestimate living expenses such as utilities for their apartment because they haven't planned ahead."

She approves of Ms. Smith's plan to work part-time and share accommodations, but also suggests that she could save money by not having expensive cable and using the Internet to watch entertainment programing instead.

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"A student has a couple of pairs of jeans, a few tops, and is very creative about where they dine," Ms. Daga says. "I think we forget all those aspects of being a student. If Ms. Smith can think back to how she minimized expenses previously, that should help her."

While it's not necessary to have to all the money needed for school beforehand, she recommends Ms. Smith reassess what she can do with the money she has saved and get a plan in place. Working a little more before starting school in the fall of 2013 would not only help her to save, but still allow her time for volunteering in her field of study.

"That could lead her into a full-time position when her schooling is over," Ms. Daga says. "Volunteer work is highly regarded by employers and would be a good start for her."

Since she has RRSP savings, Ms. Daga suggests the best option for Ms. Smith is to take out the money when her taxable income is low. Ms. Daga doesn't see the Life Long Learning Plan (LLLP), a government program that allows one to withdraw money from RRSPs, tax-free, to finance an education, as a wise choice for Ms. Smith because there are restrictions on how it can be used and how it can be repaid.

"Next year, when she's a full-time student and not working too many hours, she's going to be in a low tax bracket," Ms. Daga says. "That's the perfect time to just cash the RRSP out and use that money to supplement her education."

Ms. Daga also believes that it would be a good idea for Ms. Smith to talk to an accountant about budgeting. She recommends working out a weekly, monthly and annual plan so that every aspect of her tuition and living expenses are planned for deadlines that loom ahead.

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For individuals going back to school but staying in the same career, she suggests having a talk with their employer to see whether they might back some or all of the cost.

"Think of how your degree can help the business," Ms. Daga says. "If you can talk in numbers about what the degree could bring to the company in revenue or in a reduction of expenses, that will take your argument further than if you just focus on 'what's in it for me.' "

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