Archive for January, 2012
The Real Life ROI of Student Loans
I was going through my documents today, and came across a guest post I did on brokeprofessionals.com a year ago — I thought it was interesting enough to share again on here. As of a few months ago, I fully paid off my student loan and am debt free… but here’s a good insight behind that!
Over the past several years, there have a number of studies on the benefits of a post secondary education and how they can increase your lifetime earning potential. While the studies are interesting to read, I thought I’d dive into my own life and look at the difference a degree has made for me in just a couple years, compared to my friends who went straight onto work.
For me, it’s been almost ten years since I graduated high school, and in that time I’ve managed to spend upwards of $30,000 for a Commerce degree. Even today, it’s hard to imagine that in just four-years, while living at home, I could burn through $30k — but, I figured it was an investment that would pay off quickly… and it did. Before even walking across the stage to pick up my degree, I had already landed a solid job that would become the basis of my career. Not only that, most of my graduating class were in the exact same situation! The only downside though, was this piece of paper came with a pretty hefty price tag attached to it that would follow me around for years to come.
In my case, the $30,000 student loan I took out, would (according to my bank) take about eight years to pay back, along with $10,000 in interest, at 3.5% per year, making my payment roughly $4,500 a year. Even with a good paying job, it’s was noticeable chunk of money out of each paycheck – money that could have been spent on something else… like beer! But, just like the countless hours I put into going to school, this money was as an investment.
Doing the math, this investment is already paying off – right now, I’m earning an instant 222% return on it. How do I figure? Well, I compared my income to that of friends who didn’t go to school, and looked at the difference in pay.
For my friends who went straight on to working after high school, they hold the advantage of actual work experience along with no student loan. But, when you look at the type of jobs they have, most of them being retail and restaurants, you realize that their earning potentials are quite different. Averaging out their salary, they make roughly $15,000/year less than what I do. From the other viewpoint, I was making $15,000 morethan them, in spite of the fact I had limited work experience. So even after paying the $4,500/year for my student loan each year, I was still making almost $10,000 more, simply by graduating university – a 222% return.
Now, in all fairness, this calculation discounts the fact that my friends also had a four-year head start in terms of earning income. Even calculating that in, with my degree earning me about 1/3rd more than what they make, it would only take three years to catch up. And at that point, the additional earning potential is realized. But, I consider these four years a sunk-cost in my life, so I took them out of the calculation all together.
By simply showing up every day and applying myself, I had opened the door to a number of career prospects, while also growing a network of industry contacts. Sure, the four-years were challenging, filled with never ending homework, and stressful exams, but they were all part of the investment. Not only that, this return on investment only gets bigger over time – when you factor in my salary growth over the next 40 years, compared to those who didn’t get a university degree, the percentage will typically be much higher, thus widening the gap even further.
But that’s the long term – in the short term, I’ll sit back and pay my student loan each and every month, knowing that I’m enjoying my 222% return on investment.
Plans for 2012 – A New Challenge?
With it being a new year, I’ve come to the realization that this is my first year without school… and I’m bored! I managed to spend the better part of the last few years working a ridiculous amount of hours, to finally have it just end, which doesn’t really mesh well with my personality.
For this year, I’m trying to find a way to fill this time with things that help me build my career… A couple of the idea’s I’ve been floating around (though haven’t really decided on), include:
Start a Web Consulting Business
I’ve got both a solid background in business and online marketing, and I do this for a day job (fairly successfuly… at least I like to think!). I believe I have a lot to offer small businesses, however, I struggle with finding how to even ‘start’ it. A lot of people have done this, and my ultimate goal is to be working fully for myself in the future. I guess the question on here, is where do I even start?
Where I think I’m good, is that I know my stuff pretty well, and have a proven track record. So its not whether or not if I can do it, per se, but rather, how do I start. I keep seeing all these people starting their own small business, and slowly growing them — so why can’t I?
Some of the area’s I struggle with, is how do I even figure out how much I’m worth per hour. I can do the math on my current salary, and make about $35/hour — is this too low, too high to even charge? I’d almost want to nock out a few ‘freebie’ clients, to prove my client base.
Build a Web Business
This may be the more lofty goal, as it is all about selling an actual, tangible product online. This would be a full fledged functioning business — sites like thinkgeek.com and threadless.com come to mind, where they have a full on ‘vibe’ to them, and provides real value. The reality here, is I’ve never started/ran/operated my own business, and am at a loss for things to sell… It’s probably even outside of my scope of skills… but I like a challenge.
Conversely on this, it could even be an online service — though I don’t know if I’d fit well in a startup environment (let alone my own!)
Create an Online Resource
This would mean setting up some sort of online blog around a particular topic (probably online marketing?). Here, I could share some expertise and build a following over time, and continue to post and write new content. It’s almost similar to this site — I could even continue to grow this site into a solid resource for twenty something’s trying to figure out finances.
When I originally started TSM, that was my goal — but it almost seems far apart from expertise and skillset — but maybe that’s a good thing?
Where this could help though, is if I built a site that into a Consulting business, and use it to build my brand online, and expand it to the offline consulting world.
Flip a Website
This one has always been teetering at the back of my mind. What if I bought an out dated or stale website, and try to ‘flip’ it. Here, I’d put some investment in up front, and then through my business/online marketing skills, grow the traffic, go after some partnerships to help bolster it, and then ultimately sell it (or continue to run it).
This one is probably the most risky option, as it requires $ up front — but maybe this is the perfect tie in with my skills and interest. This could turn into that ‘business’ on the side, that generates passive income, rather than working in a traditional consulting role.
I keep toying with the idea around all this — but I know I need to do something if not for my own sanity. I like being busy, and something like above could provide that real focus on something greater than just work, sleep, eat, repeat.
Has anyone ever done any of these — what were your challenges behind it? I’m really keen on exploring these options, and stepping outside of my comfort zone.