Tag Archives: Opportunity cost

So You’re a Senior…

You’ve got a lot going on to say the least. In addition to school, friends, sports, volunteering, your job, church, and any other extra-curricular activities you may having going on, you have to find some time to plan your future.

By this point I’m sure your Aunt Martha, Uncle Bob, and most of your family and friends have said something like this:

“So Timmy have you have decide to college?”

Or maybe your Aunt Martha is more direct:

 “Timmy of course you’re going to college, right… right!? So what are you going to study honey?”

 These are usually some of the first questions most juniors and seniors are forced to answer: should I go to college and if so where? What should I major in? But honestly, I think that this question is asked way too early in the planning process. College is a vehicle not a destination. Long before you decide if you want to go to college or not, you need to have an image in your mind of where you want to be in 5 years, 10 years, and 20 years. Let’s be honest with ourselves here; ask yourself the concrete things as well as the abstract.

What kind of car do I want to drive? (This isn’t shallow, be honest with yourself.)

What kind of house do I want to live in?

What do I want my typical day to look like?

Do I want to work for a large company, a small business, or go into business for myself?

What do I want my family life to be like?

How do I want to impact the world around me?

Who do I want to work with? What type of clients do I want to serve? (Every working adult serves somebody- choose wisely.)

How much do I want to be earning in 5 years?

When you ask yourself these things it helps you to get a better picture of what type of industry you might enjoy, what kind of salary requirements you have, and what path you need to be on to get the outcomes that you want.

You can’t say to yourself “I love working with kids, so I want to be a kindergarten teacher!” and then expect to live in a fabulous house with a BMW in the driveway (at least not without massive debt). It’s just not going to happen.

Likewise, if you say “I really want to be a stay at home mom or dad in five or six years” is it necessary to invest tens of thousands of dollars in a degree in Modern European Literature?

On the flip side of that coin, if you have a passion to serve cancer victims as an oncologist, you had better be figuring out which schools best suit your needs and start getting applications ready for a few different universities.

It seems pretty simple right?

Enter the gray area.

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Let’s say you know without a shadow of a doubt that you were wired and created to make music, this is your passion. Should you go to college? These types of career paths and situations are actually more common than not. Here you need to decide what exactly you want to do in the music field. Don’t go to college to figure that out.  I repeat; do not go to college to figure out what you want to be when you grow up! You need to figure that out now. You need to develop an economic model: what are you selling and who are you selling it to. Once you have that figured out, then you can determine if a college degree is necessary to get you to that point. College can often help in these types of situations but it is not always necessary and of course you have to plan for opportunity costs.

Let’s stick with the music illustration.

Alicia Keys, Bob Dylan, and Jon Bon Jovi have all done pretty well in the music industry despite not having a degree. That’s right no degree at all. Now let’s look at Garth Brooks and Kenny Chesney. They both have degrees in advertising, not music. Advertising was the path and part of the foundation that helped get these two country music sensations get to where they are today. Rapper Ludacris chose a degree in business. All of these individuals took very different paths to become the music superstars they are.

Do the planning now. Look inward. Best-selling author and one of today’s leading vocational thinkers, Dan Miller, states in his book 48Days to the Work You Love, “…that 85 percent of the process of having the confidence of proper direction is to look inward. Fifteen percent is the application…”

Figure out where you want to be, who you want to be, and how you are going to get there.

Then you can answer Aunt Martha about going to college.

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Opportunity Costs for Going to College

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Going to College is expensive. I know, everybody is yelling “well duh!” in unison. But it’s even more expensive than you might think. Opportunity costs are very important to consider when planning whether or not to go to college.

Let me quickly define what I mean by opportunity costs for the purposes of this article. An opportunity cost is simply a choice between two possible options where you judge the benefits of one choice over the other.  You can choose to do this or you can choose to do that. You can buy a 1998 Chevy Cavalier or you can buy a new 2012 Toyota Prius. You can have cereal for breakfast or you can have oatmeal. You can choose to go straight to the work force after high school or you can choose to go to college.

Let’s look at the workforce or college example in more detail.

A lot of people when taking into account the financial implications of going to college only consider the debt they accrue while attending college; room and board, books, fees, tuition, etc.  They often don’t consider one of the biggest financial factors in the whole equation which is the cost of giving up four years of income to attend college. Four years of income will often add up to more than the total cost of tuition and all the related expenses. Four years income is a big chunk of money.

For example; we have two students who are graduating high school. One decides that he will go straight to the work force and the other decides to go to a four year college.  The student who chose to go to college will pay, or more likely owe, $71,440 when starting his or her career. But not only that, they will also be out an additional $120,000 in lost income. The $120,000 sounds like a lot but it is really pretty conservative, just take $30,000 a year multiplied by four years.  So college for that student came at a $191,440 cost of opportunity. At 22 years old after graduating college that student is down $191,440; let that sink in for a minute.

Now we move on to our student who chose to go straight to work after high school. Let’s say he or she chose to become an auto mechanic. The average salary for that job is $36,180. Multiply that by four years and at 22 years old that student is in the positive $144,720. That is a difference of $336,160 between the two. That’s a lot of money!

I want to be clear that I am not discouraging going to college at all. In general, college graduates earn more than high school graduates do. The unemployment rate is lower for college graduates than it is for high school graduates. Going to college is a must for a lot of career paths and it tends to provide more flexibility.  However, as I mentioned earlier, it is important to understand the opportunity costs. Make the decision from a position of knowledge and confidence.

Ask yourself; “Is accepting that cost necessary to get me to the place I want to be?” or more simply put, “is it worth it?”

As a side note, $71,440 is the average cost of a four year in state college based on data from College Board located here http://trends.collegeboard.org/college-pricing/figures-tables/average-published-undergraduate-charges-sector-2012-13. Check it out.

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