I posted this question on my journal but wanted to ask on a more general forum to get more responses. I'm 26, live in NYC, networth is just over $100k, annual income $80k, annual expenses $20k. Please see my journal for a more thorough description of me:
http://forum.mrmoneymustache.com/journals/bb11-wants-to-explore-the-world/And now here's how the discussion came up on my journal, starting with easypeasy's question:
Quote from: easypeasy on September 12, 2015, 02:15:01 PM
bb11 - Just catching up on your journal and I wanted to add my $0.02 that you should think twice about biz school, especially if you like your job now and have a good compensation growth trajectory. The opportunity cost of leaving the work force for two years is a big deal and even if you do secure the $180K per year job at the end it'll take your gross earnings ~7 years to get back to where you would have been if you stay the course on your current path of earning $75K / year. I think you said you don't have a specific FI date, but if it's anywhere in the 10 year range this may not make sense financially.
Of course, there are other reasons to go to grad school if you are truly interested in the subject matter, but I'm generally cynical about the value of an MBA (if that's what you are going for).
Hey easypeasy, thanks for the comment. I am talking about a MBA. I've talked to several MMM's with MBA's or other advanced degrees and the reviews have been mixed. For me, it's hard to see how the calculations don't work, given the right parameters. Let me explain in a bit more detail:
Opportunity Cost: the programs are 21 months long, but you do a three month internship in the summer, and the typical internship pays a higher rate than I currently make. So the real opportunity cost is 18 months. Assuming I make $80k annually over that time frame the opportunity cost is about $85k.
Tuition: Basically I'm not going to go if I have to pay full tuition, since that is between $90-140k depending on the program. I am applying to a bunch of the lower end of the top 20 schools, which are the schools where my career goals (management consulting) are realistic from, but I am also a strong candidate with potential for scholarships. I'm looking to get a full-tuition scholarship at just one of the schools I apply to, with a half scholarship being about the minimum. The cost would be how I decide between the schools.
Pay: After doing an MBA, a typical management consultant would make about $180k their first year. Take a look at Michigan's employment report (one of my target schools):
https://michiganross.umich.edu/sites/default/files/uploads/Programs/FTMBA/pdfs/14_mba_data_full-nc_.pdfAbout 37% of their class goes into consulting, with median salary of $135k, signing bonus of $25k, and performance bonus of $25k. You might think 37% is not a great chance, but of course many people want to do other things like investment banking or general management. I think my chances of landing such a role would be quite high. Pay tends to escalate quickly and often consultants are over $200k in their first couple years. If I stick with it for ten years or more I'm probably at $500k+. Here's a bit more about the salaries and progression (
http://managementconsulted.com/consulting-salaries/2015-management-consulting-salaries-undergraduate-mba-interns/#).
Also see:
http://managementconsulted.com/summer-internship/the-truth-behind-consulting-salaries-from-analyst-thru-partner/For my current job, I do like it a lot and I'm pretty good at it (I also think I'd like consulting). Progression will be slow though, I could break $100k at around age 30-32 and make manager a few years after that which is maybe $150k or so. Hard to know really what will happen. Managers typically have spent 8-10 years in the field. As for FI, I don't see myself retiring before 40 regardless of how well I do, but who knows. I will hit the basic parameters for FI at around 35-36 based on current income/spending.
Projection:I've made several models with different assumptions about how my career will progress until age 40. Please see the one attached to this post. The numbers you see for each year are how much I'll have saved in thousands. I break even about 3.5 years after the MBA and end up $100k ahead in year 7. I think anything beyond five years out should be taken with a grain of salt, but I've tried to be pretty conservative here.
My assumptions:
I get a half scholarship so spend $60k on tuition.
I make $80k while I would have been doing my MBA. From there salary jumps to $90k (Year Work1) and then raises $5k annually after.
Consulting tends to have high burnout so I am only in consulting for 5 years. I make $180k the first year, $160k the second, $175k the third and fourth, and $200k the fifth. After that my income is a flat $150k the remaining years, just to be conservative.
I also assume that I spend more after getting a MBA. :) The first two years in both projections I keep my spending at $20k, then for the non-MBA version I spend $23k annually for the remaining years. But in the MBA scenario I bump my spending up to $25k, and then after five years bump it to $30k.
As you can see, even assuming I pay half tuition, leave consulting fairly unsuccessfully and without any future income growth thereafter, and spend more money, I still come out ahead. I'd think at that point I'd have an advantage by having a graduate degree from a prestigious university, having the network, and getting stronger work experience. But again, even assuming those differences don't matter, I'm looking good. I'd also value the degree intrinsically, so it has some intangible value beyond just the money. I want to hear where I'm missing but I think it's a good risk to take.