February 21st, 2007
SmartMoney has an article that I think is very helpful for people considering whether or not to go to graduate school – it shows the annual difference in earnings in several common degree programs for those without a graduate degree and those with one. The ones that make the most (law and medicine) are those where you essentially can’t practice the profession without the graduate degree. In most other professions, a master’s degree will add to your salary, but isn’t a requirement.
The problem with graduate degrees in my opinion is that too many people get them. From a financial perspective, it’s not really justified in every case. Teachers, for example, earn about $8,000 more on average with a masters than without. That’s at the low end of the spectrum – but it’s also an average. Some people will get a masters and not earn all that much more, while others will more than that $8,000 a year. If you go to a high-end program that costs you $30,000 a year (for $60,000 total), you’ll have ended up wasting your money if you end up on the low end of that number.
This problem is most pronounced in law and business degrees, where while the average salary is very high, there are a lot of people who end up not making anywhere near the $101,000 that the article lists as the average. What adds to the problem is that it’s about as expensive to get a degree from a less-marketable school as it is to get one from a much better school. Take Ave Maria Law School – which clocks in at $30,000 a year for tuition, but, because it’s a new school, has only provisional approval to grant degrees and isn’t ranked among the top law schools. Pepperdine, another law school that isn’t ranked all that highly, also clocks in at $32,000. Harvard law is only a little more expensive at $35,000.
You see the same thing with business schools. Vanderbilt, ranked 49th in the country, costs $34,000 a year to attend. Boston University has a similar ranking and costs $30,000. Harvard Business School is about $38,000.
There are a lot of people who think the rankings don’t mean all that much – I’ll give you that for schools that are pretty close to each other in quality. But for a graduate education, barring a state school discount, you pretty much pay the same thing for a degree from the best school in the country as you would for a degree from the worst. And that means someone isn’t getting their money’s worth. If you’re coming out of Harvard Business School with $80,000 in debt, you’ve probably gotten a good deal. The vast majority of students there will find jobs that pay well enough to make it worthwhile. If you’re coming from a school whose reputation isn’t as stellar, you’re making a gamble by getting that degree. The top part of your class might do well enough to make it worthwhile. But what about the people at the bottom? Most of the employment statistics the schools give out aren’t trustworthy – and a lot of students end up disgruntled as a result. If you come out of a two or three year degree with a huge debt and not much more in terms of earnings potential, you’ve wasted both time and money – the debt PLUS the money you could have earned if you hadn’t gone back to school. And in many cases, you’d have made more simply by working to get yourself promoted in your current job.
In other fields you’re luckier: you may have a ready-made rubric for determining whether or not the increase in your earnings potential from going back to school will be worth it. If you’re planning on getting a degree in the same field that you currently work in, simply find out how much more you’d get paid by your current employer. Most employers will give you a bump to reflect your education – and most of them will be up front about how much it will be beforehand. If they won’t pay you much more, then it might not be worth the risk and cost to see if you can find someone else who will. If they would pay you enough to justify the cost, then go for it. You’ll have a lock on a job after graduation if nothing else pans out if your employer likes you – and if they don’t, or you don’t want to work for them again, you at least have reliable information about how much the degree would be worth.
Don’t get me wrong – going into law or business or getting another degree can be an incredible opportunity. If you do it right, you can make a LOT more money than you would without it. The problem is that too many people jump into it without realizing that there is a cost, too. Many people go to graduate school just because they don’t like their job or can’t think of anything better to do. In my experience, graduate school doesn’t make things better for them – it’s a temporary diversion, and many people jump into a degree program without an idea of what it would be like to have a job in that area. When it turns out to be something they absolutely hate, they’re forced to either switch careers again or be miserable until retirement. And they paid for the privilege. I’d ask myself two things before taking the plunge:
1) Am I sure I like the career I’d end up in? If not, try to get a taste of what it would be like beforehand.
2) Would my degree pay for itself in the next 10 years? That means both in terms of debt load from what you pay AND from opportunity cost from money you could have made working. If you’re not sure, it’s probably too speculative. Going to school isn’t supposed to be like gambling. You’ve got options, though: you can still do it if you can cut the costs. Look at state schools with residency discounts – or only go someplace where you can get a scholarship that will cut the costs. If, even after all that, you can’t make it work – then from a financial perspective it’s better to let it go and focus on getting the next promotion.
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February 15th, 2007
Since a number of readers have blogs of their own, I thought I’d pass along a chance to get yourself some magazine exposure: Helen, a reporter from a magazine called First for Women, is looking for women with money-saving tips for an article. “The tips could be about how to save money when planning a vacation, how to save money when grocery shopping, etc.” This might be a good chance to get your blog a little publicity if you’re a woman with a finance-related blog. She asks for you to send a photo of yourself, along with the tip, to: email@example.com
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February 8th, 2007
There’s a good article on MSN written by a woman who, at 48, has decided to go back to college. The result is a huge blow to her income: down to $12,000 a year. This is the point where a lot of people start telling you that it’s impossible to live on that little money. I think it depends on where you live, having lived on less myself in college – but it’s definitely a highly uncomfortable lifestyle. How does she make it work?
Food banks, cheap shopping, and spending a lot of time paying attention to the budget. Her tips to find extremely cheap stuff that you’d normally pay more for:
“The obvious answers are sites like Craigslist.org and thrift shops, especially ones like Value Village that offer coupons and half-off sales. My 99-cent clock-radio wakes me up every morning just as efficiently as a high-tech alarm from The Sharper Image. Rummage sales are swell, too; my church has an annual sale called “Superfluity” (I love that name) at which I bought my desk for $4 and a small chest of drawers for $1. I also buy Christmas and birthday gifts at Superfluity and an annual “500-family” rummage sale. No one has to know that that hardback bestseller under the tree cost you only 50 cents.”
I’d add that while you can live on Ramen noodles and those $1.00 microwave pizzas, I got a lot of mileage out of combining cheap ingredients myself – if you’re willing to eat the same kind of sandwich for lunch and dinner six days in a row, you’re not going to have to spend too much at the grocery store. College students also have it easier because you can find a lot of events with free food, but she takes advantage of food banks, which are a more viable option for adults.
I’ve said before that I think improving your income is the only long term solution to living under this kind of budget, but it is possible. One thing just as important to take away from her article as HOW she lives on that budget is WHY: she’s getting a degree, which can help her come back into the workforce with better pay. It’s not a guarantee, but it’s an effort at self-improvement, and that’s the only way you’re going to advance your living standard. I’m not sure it’s the ideal plan – she’s taking off work entirely to live on alimony payments, and I think going to school at night is a viable option, and probably a better one, for an adult looking to get a degree. But a lot of people end up deciding to do nothing at all – and the harsh reality is that no one is going to pull you out of poverty but yourself. There’s a good discussion going about the article in MSN’s comments, with some obvious points about it (such as that it’s a lot harder in California, that health problems could destroy your careful budget, etc.) – but there’s also some good advice by people who are trying to live on similar budgets. One of the posters is attempting to live on a similar budget on a much bigger salary – great for your savings if you can do it, but I don’t know that I’d have the discipline to do so myself. There’s also a very good discussion at another board about the article by a bunch of people describing how they scraped by on small budgets – but it’s not exactly a family-friendly message board (think South Park), so if you’ve got any qualms on that front I’d stay away. If not, you can check it out here.
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January 30th, 2007
I was just reading this article on CareerJournal about using a headhunter – a recruiter who tries to find people with specialized experience to fit a certain job a company is looking to fill. The article advised against ever contacting headhunters for strategy consulting jobs:
Very rarely do search professionals — or headhunters — assist candidates in need of jobs. Instead, their clients are the companies that pay them to find highly qualified people for specific openings. “When companies hire a search firm, it’s to find people they can’t find — typically people who work for other companies” who aren’t necessarily looking for new opportunities, says R. Gaines Baty, an executive recruiter in Dallas.
Why not contact them anyway? Because a lot of the ones willing to help you find a position use tactics that will end up hurting you. Some just accept your resume and never talk to you again, leaving you with no clue what they’ve done on your behalf. Others aren’t careful, and can tip off your current employer that you’re planning to leave – by sending them your resume. Others will just send your resume to anyone and everyone, and then claim a commission if you later get a job with them, even if you end up doing all the legwork.
The one benefit to waiting for them to contact you is that they’re more likely to be actually interested in you for a specific position. The problem? Often the unscrupulous ones are just calling as many people as they can, without a real interest in you or what job fits you best. The two big rules you need to follow are:
1) Make sure you find out something about them from someone you trust before you use them, preferably someone who has used that headhunter themselves.
2) Make it very clear that they do not have your permission to send out a resume to anyone without your explicit permission – and limit the number of employers you grant permission for them to send it to.
You want someone taking the time to do a specialized search for you, not a resume dump. You can do that yourself, and the random employers you’d be contacting are more likely to be hiring if they don’t have to pay a finder’s fee.
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January 22nd, 2007
For anyone out there using a WordPress blog, I thought I’d give a short plug for Akismet, a comment spam modification you can download that automatically moves comments it deems to be spam over automatically into a “spam” moderation queue, so that you can delete them all automatically. I’ve been mostly off the Internet in my spare time recently because of a ceiling cave-in at my apartment, and normally there will be fifty or so spam comments about granny trannies or asking whether I can see their list of Cialis links. I had about 1200 of those in my spam queue when I just checked it – all filtered away from the legitimate ones. It’s a great time-saver if your blog uses WordPress.
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January 5th, 2007
There’s a pretty frightening article over at MSNBC on people who have had their retirement accounts hacked into and their savings stolen. While bank accounts used to be the main targets, criminals have figured out that the automated fraud detection bar is a lot more lenient for brokerage accounts, which will allow them to transfer out more money before a red flag is thrown up:
“Hacker attacks on brokerage accounts make sense from a criminal’s point of view. Brokerage accounts tend to have higher balances, making them worthwhile targets. And while a six-figure transfer out of a checking account would surely trigger fraud pattern detection software, large transfers from brokerage accounts are fairly standard.”
The problem for you is that there is a different level of protection for brokerage accounts by law than for your bank account or credit card:
“Both credit card transactions and electronic account transfers, such as online banking payments, are governed by Federal Reserve regulations that strictly limit consumers’ losses from theft. Consumers who report credit card fraud are only liable for $50; liability for fraudulent checking account transfers is capped at $500 if the consumer reports the theft within 60 days. Refunds for checking account thefts must generally be issued within 10 days.
The regulations are designed to boost confidence in the systems. But the Federal Reserve doesn’t regulate investment firms, and the Securities and Exchange Commission doesn’t mandate any similar protections for brokerage accounts.”
The big question for you is what you can do about it. Here are a few suggestions:
1) Figure out both the policy of your investment firm on refunds and whether they have any insurance. Charles Schwab and E-trade have good guarantees according to the article. I have accounts with Fidelity and Vanguard and went to check out their web sites for information on it. Fidelity doesn’t say anything about insuring the accounts, but they have a “Customer Protection Guarantee” stating that:
“We will reimburse your Fidelity account for any losses due to unauthorized activity.”
The only problem is that the fine print gives them quite a bit more leeway. There are some vague statements about it being “through no fault of your own” and a statement that “it also does not cover unauthorized activities resulting from a breach of security in an employer or plan sponsor’s systems.”
So it’s a blanket guarantee blaring in bold at the top, but some inconsistent statements in the fine print that you could get caught up in. What if your password gets stolen from your computer by spyware? Are you at fault? And how are you supposed to control your employer’s computer security?
On Vanguard’s site I couldn’t find anything – no mention of insurance coverage for this, and while they had some advice about security precautions, there wasn’t any indication at all that they’d reimburse you. I’ve got an e-mail in to them to see what they say.
2) Update your computer’s anti-spyware software and anti-virus software. Spyware, for the non-geeks, is a program installed without your permission that can monitor what you’re doing online – things like typing in a brokerage password. It is often installed without you ever seeing anything by web sites you visit. A virus can also take control of your computer to send out information you’ve typed in to a hacker. For spyware, a good free program is AdAware, which you can download for free here. For viruses, Norton is probably the best (or at least a very good, trusted program). You can get it here – they sell an Anti-Virus program as well as what is called a “Firewall,” which is just a way to stop people from accessing your computer over the Internet without permission. It’s not free, but it’s pretty cheap.
3) Don’t log into your brokerage from a computer you don’t know is secure. This means no computers that other people can use (libraries, Internet cafes, etc.). It might mean the computers at your office, too, depending on where you work and how much you trust the security.
4) Write your passwords down on paper – not in a document on your computer. Those are much easier to steal and could be grabbed by anyone who gets access to it.
5) Don’t EVER log into any account from a web page you accessed by e-mail. ALWAYS go to your browser and then type in the address yourself. I don’t care if the e-mail looks legitimate – this is a very common scam, and you should never follow a link from an e-mail to a site where you’re going to have to type in a password. What people will do is fake a web site and send you a fake e-mail that looks like it is your monthly statement or that says you have a problem with your account. When you click to view it, you are taken to a web site whose sole purpose is to find out your password when you type it in.
6) If you’ve got a lot of money and aren’t satisfied with your brokerage’s reimbursement policy, call them up and ask them to confirm any withdrawals by phone with you. If you don’t think you’ll be taking any money out in the near future (or at least not regularly), ask them to restrict your ability to do so without confirmation. Not every brokerage may be able to do this, but it’s worth a try.
7) Don’t ever give anyone your password. This should be common sense – but don’t do it.
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January 1st, 2007
From Professor Richard Bales of the Workplace Prof Blog comes an interesting study on what kind of 401(k) strategy provides the best returns. The study was performed by Wharton Business School in collaberation with Vanguard, and used data from over a million 401(k) accounts. The results? The highest average returns were achieved by people who put their money in funds that automatically rebalanced themselves for the investor. The lowest average returns came people who actively traded their investments – and the more frequent the trading, the lower the returns. The explanation why was partly about transaction costs, in that as you trade more frequently you have to spend more money on fees. But there’s something else to it as well:
“A final behavioral test focuses on overconfidence. We know from our prior work that active traders are more likely to be affluent males, and other research suggests that such individuals may be overconfident generally and also overconfident with respect to portfolio trading in particular.”
This reminded me of another, more general study on incompetence (defined not in the “you’re an idiot” sense, but in the sense that you aren’t capable of performing a specific task). The basic conclusion of that study? People who are incompetent don’t know that they are – and generally vastly overestimate how well they are doing:
Asked to evaluate their performance on the test of logical reasoning, for example, subjects who scored only in the 12th percentile guessed that they had scored in the 62nd percentile, and deemed their overall skill at logical reasoning to be at the 68th percentile.
Similarly, subjects who scored at the 10th percentile on the grammar test ranked themselves at the 67th percentile in the ability to “identify grammatically correct standard English,” and estimated their test scores to be at the 61st percentile.
That’s somewhat surprising – you’d think that someone who wasn’t competent at something would know it. But instead, the natural human tendency is to assume that you’re doing well, even when you’re failing badly at a particular task. Your incompetence actually tends to magnify this effect – you don’t know enough about what you’re doing to know that you’re doing it badly. And this same rule applies to investing. Active traders, on average, get lower returns because there are a whole lot of them who really shouldn’t be doing it – but have convinced themselves that unlike all the other amateurs, they know what they’re doing. If you’re a person who actively trades your investments, you may well be good at it, but odds are that you aren’t. In fact, most people reading this who think they are good at investing are probably, in actuality, pretty bad at it. Investing is one of those things where it’s easy to delude yourself into thinking you’re a genius. Sometimes it’s because of luck – you bought some property in California in 1996. Sometimes it’s because the yardsticks aren’t that easy to read. You gained 15 percent on your portfolio last year, and beat the S&P! But over a 10 year period, your strategy ends up underperforming it. Sometimes you don’t keep all that close an eye on how you’re doing overall, and just see the investments going up – even though that’s what they tend to do over time for everyone.
The point is that if you’re actively trading your portfolio, you need to take another look at that strategy. It’s very hard to “beat the market” over time. Even professionals don’t do it consistently, with a few exceptions like Warren Buffet. And if you think you’re beating it, odds are that you just don’t know enough to know that you don’t know what you’re doing.
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December 31st, 2006
This is a question (really, a class of questions) that are often asked of people who are applying for jobs that sometimes have extreme pressures put on the employee. People interviewing you for management jobs will often ask some variant of this, and it’s also common for jobs with lots of tight deadlines. Many interviewers ask for specific examples, but another variant that is sometimes recommended to interviewers is something more open-ended along the lines of “How do you handle stressful situations?” What’s the best way to answer it?
1) Make a list of high pressure situations you’ve been in before you start interviewing. This is another one where you’re going to have to think through your job history beforehand, because it’s hard to answer the question well without a little forethought. Trying to do it off the cuff won’t work well. You should be thinking about a few kinds of situations to list: when have you had major problems at work that you’ve had to deal with? When have you had very tough deadlines? When have you had confrontations with other people (employees, customers, bosses)? These are the general sorts of thing that should be going on your list. Unless you haven’t been on the job too long, stick to situations from work. If you’re fresh out of school, then something from your classes might work as an example.
2) Cross out the ones that make you look bad. “I forgot to order paper for the copy machine, and so we couldn’t file those important papers on time, and my boss screamed at me and nearly fired me. But I breathed in a bag for awhile and slept it off – the stress wasn’t that big a deal.” Your answer should not be anything like that – the interviewer doesn’t care about how it affected you personally. They care about how it affected your work. You also don’t want to tell them about a situation where you’re responsible for the goof. Ideally, the problem will either be no one’s fault or someone else’s.
3) Pick an example where you did something productive despite the stress. If you had a really tight deadline that threatened to derail your project, and you worked overtime for a week to get it out in time, that’s a good example. If you were being screamed at by an irrational customer, and managed to keep your cool and keep him satisfied in the end, that’s a good example. There has to be some active step that you took to solve the problem in your story.
4) Don’t focus excessively on the “pressure” part of the question. There should be some pressures on you in your example. But the main priority is to show that you responded well in a previous situation, not that you’ve been subjected to the most mind-blowingly stressful situation imaginable. That means you should focus less on the worst situations you’ve been in from your list and more on the ones that have turned out well despite problems along the way.
If they just ask you some variation like “how do you handle stressful situations,” you should really be answering it the same way. It’s hard to give a good generic answer to that. Saying “I keep my cool and I’m levelheaded” isn’t going to make you stand out. A story about how you handled a previous situation will be unique and will get the point across better anyway. So just say something like “Well, I can give you an example…” and give the same answer you’d give to the question asking you to name a specific situation.
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December 28th, 2006
This is a random travel tip, but I wish I’d had it for the Christmas season. For those of you who travel regularly on business, it can be the difference between making your flight and missing it. There is a little tool created by the Transportation Security Administration that will let you find out the average time it takes, at any time of day, to get through all the security checkpoints in every U.S. airport. This can be a big deal – I tested several airports and found that the times could vary from a minute or two for the least used checkpoints to 18 minutes at the worst. That means if you regularly use a certain airport, you need to find the quicker ones – you’ll save yourself a lot of time waiting around, and if you’re cutting it close the 15 minute difference could determine whether you make your flight or not. Luckily it also gives you a link to a map of the airport you select, so you can go find the different checkpoints fairly easily.
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December 27th, 2006
Here’s a nice little online tool I ran across from the Social Security Administration: a calculator to tell you how much you’re going to get each month in social security. For the younger among us it’s not that useful, mainly because it’s such a crap-shoot as to whether or not it will be around, in the same form, or at the same benefit levels. Making precise predictions about what will happen 40 years from now is basically impossible. But if you’re nearing retirement, it’s very useful – all you have to put in is your age, earnings, and date of retirement if you want to retire early. If you’re over 50, this should be your first stop in figuring out a retirement plan because it’s the minimum you’re going to make on retirement. That will help you figure out how much more you’ll need to supplement your payments.
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